Roughly at the same time Francesco Garzarelli fired the first warning shot against Treasurys on January 23, 2012, telling 'clients' that "We are now of the view that a break to the upside, to 2.25-2.50%, is likely and recommend going tactically short. Using Mar-12 futures contracts, which closed on Friday at 130-08, we would aim for a target of 126-00 and stops on a close above 132-00" a trade which has largely worked which means that the Goldman counter-axe is hurting big (although following the trade snap yesterday this may be over for now), the firm's Peter Oppenheimer started drafting a magnum opus, making a 40 page case, chock full of graphs, charts, bullet points, and footnotes, iPad optimized and likely coming to a Kindle near you, desperate to convince clients to sell their bonds to Goldman, and to buy all of Goldman's inventory of stocks from the firm because "After more than a decade of de-rating, equities are implying unrealistically large declines in growth and returns into the future." As a reminder, this is a deja vu repeat of precisely the same trade that Goldman enacted back in 2011... and then back in 2010... and each of those times was accompanied by lots of pretty charts and fancy bullets. Will this time be different, and is the proper call, as usual, to trade alongside Goldman (sell equities, buy bonds), or to do what Goldman tells the muppets to do? You decide.
Highlights from the report:
- While future growth may be lower than experienced over the past decade in many parts of the world, we believe this is more than reflected
in current valuations.
- Future returns in equities are heavily influenced by valuation. The prospects for moderating risk premium raise the probability that equities
will embark on a steady upward trajectory over the next few years.
- The ex-post equity risk premium has been strikingly poor in recent years.
- Annualized 10 and 20 year relative returns have been at their most negative for over a century.
- The prospects for future returns in equities relative to bonds are as good as they have been in a generation.