Goldman's European Clients Are Oblivious About Developments In Europe

Tyler Durden's picture

In David Kostin's latest weekly chart book, in addition to the plethora of useful charts (if materially incorrect when it comes to fund flow data - never before have we seen such as disconnect between Lipper/AMG and ICI flow data, allowing one to pick and chose which data set to use depending on their point), and market statistics, the Goldman head strategist observes a rather curious psychological schism, notably as pertains to investor sentiment regarding the financial powderkeg known as Europe. Namely that while US investors just need to read a Euro-negative headline to sell everything, in Europe Goldman's clients are largely oblivious of any and all adverse developments. To wit: "Our meetings with clients in Europe and the US during the past two weeks showed investors in continental Europe to be more composed about the direction and pace of policy decisions. US and UK investors are far more anxious about potential policy solutions and the cumulative impact of a drawn out resolution." We wish we could recreate the European nonchalance, in no small part predicated by the general mindset of a socialist backstop to another global collapse, which in case of failure, will simply mean the activation of US-based FX swap lines, and thus America would have to bail out Europe once again like it did back in 2008. In retrospect we can see why nobody in Europe is too worried. Also, perhaps Goldman should do a better job at distributing the report by its own Alan Brazil saying Europe is doomed...

We wonder how many of these very unconcerned investors will step up and fill Buffett's shoes who as we disclosed yesterday has been approached to bail out one or more unnamed European banks. Kostin's conclusion: "Investors continue to vote with their feet in US equities..." Feet...Or wallets. Then again not everyone has the benefit of trading with other people's money, and in a worst case scenario, that of the Fed.


Investor sentiment and intraday market action remain focused on news flow and speculation regarding policy developments in Europe. Our meetings with clients in the US, UK, and continental Europe during the past two weeks revealed a clear delineation between the views of those located in Europe and those looking towards Europe. Investors continue to vote with their feet as evidenced by mutual fund outflows and smaller net equity futures positions since the end of July. 


Investors “on the continent” are more composed about the direction and pace of policy decisions. Perhaps reflecting a home field advantage in understanding the region’s culture and politics, local investors are less anxious that periphery countries ultimately will receive support and less concerned about the day-to-day public conjecture. One worrying takeaway is that European politicians seem less sensitive to swings in asset prices and thus may be more tolerant of declines than in other regions of the world. 


Investors outside Europe are far more worried about potential policy solutions and the cumulative impact of a drawn-out resolution. Clients in the UK and US were more negative than those in Europe particularly around the methodical nature of the debate. There is genuine concern among this group that growth, financial conditions and the total cost of resolution are negatively impacted each passing day. Outsiders are also acutely concerned about the impact of fiscal tightening in Italy, Spain and Greece will have on economic growth and place a higher probability on a break-up of the euro than “locals.” 


Investors in both camps continue to wrestle with the types of stocks to own given high uncertainty and risks to growth. Goldman Sachs Investment Profile (IP) scores show investors shifting stock selection to high return stocks (ROE, ROCE, CROCI) from high growth stocks (EPS, Sales, EBITDA) during QE2 (Exhibit 1). Other pockets of outperformance include strong balance sheet companies (Bloomberg ticker <GSTHSBAL>) and those without reliance on government spending. Stock selection has been further complicated by elevated correlation as we highlighted last week. 


Stock correlation is higher in the US than Europe. Over the past three months the average correlation of S&P 500 stocks is at an all-time high of 0.73 versus 0.59 for DJStoxx 600 stocks, which is below the level from July 2010 (Exhibit 4). A similar gap existed in late 2008 during the US financial crisis and recession but it is somewhat surprising that European stocks have lower correlation given that they represent the current source of uncertainty. Potential reasons include short sale bans in Greece, Spain, France and Italy along with higher US liquidity and country-specific factors.

Full report:


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reload's picture


Perhaps GS have spoofed and fontrun all their savy clients just once too often.


GeneMarchbanks's picture

Good fuck'em. Serves them right for doing business with the Squid.

AldousHuxley's picture

After 2009, many smart rich elites took their money out into the smaller family offices. So those remaining with Goldman Sachs until now are the retards like Patricia Kluge whose only achievement in life was marry rich men. Still lost the $1B from divorcee settlements.


Capitalist meritocracy alright.


Why work, when a whore makes 1,000,000 times more than you sucking some wrinkled dck?

Hondo's picture

GS are a bunch of stupid fools. Is that why European markets are down 2X what US markets that their composure??

WestVillageIdiot's picture

Even with the rally of the Dax in the past two weeks, on the back of the Euro-TARP hopes it is still down nearly 30%.  That has to be felt.  I remember in 2008 thinking, "the rest of the world must hate us when they see their stock markets going down so much more than ours".  Then, in the end of 2008 and early 2009 our markets joined their markets in the utter destruction.  We caught up like Jessie Owens trying to chase down FDR. 

Something tells me we will catch European markets again. 

Ilook forward to heading to Europe in the next two weeks. I will get a chance to see how things are going.  Of course we went last spring to Spain when the talk was about how awful the Spanish economy was and never once saw it.  I am guessing we won't notice a thing.  I think it is hard for an outsider to realize what is really going on.  Except in early 2009 I think even an outsider would have been able to see the stresses on NYC. 

Interesting times, my friends.  Enjoy them.  It is all we have.  There is no reason to let it ruin your life.  Enjoy your weekend, everybody.  This shit will still be there on Monday morning, waiting for you. 

mjk0259's picture

Not many Europeans buy stocks and their retirement is generally government funded and not so dependent on the value of the savings as in the US. So they don't get too excited about the stock market going down.

dcb's picture

didn't hurt me at all, I bought my first eurostocks last week, and american financials it only hurts if you haven't been short and are just now starting to put in money, but I will saqy the charts (I advise using weekely) looks like a descending triangle going dow for a while.

RSloane's picture

Actually, the problem is no they are not. They are extremely clever, long-term planning, conniving, intelligent, and can produce ten successive men behind the curtain at their whim. These are some of the most manipulative persons that have joined in deliberated mayhem that you will ever encounter, not only now but throughout history. They are extremely powerful and have managed to extend their tentacles into almost every government in the world. We, collectively, are going to have to fight them. Its not going to be easy. I wish it were.

WestVillageIdiot's picture

True evil can look lazy even as it works feverishly in the dark.  Good call. 

LawsofPhysics's picture

Important question for everyone regarding the rest of the year.  If hedge funds are also parking some money in bonds (along with many of us who knew the twist was coming), when will these guys move out.  Will they reposition before the end of the year?  With no more safe havens, I know several other business owners who are going to cash, the literal paper form.  They are doing this now and or making some equipment purchases that will make their operations run more efficiently as margins are, well, what they are - ugly.  Seem to me like the next two months will really define if we are really following Japan.  Thoughts?

reload's picture

What you describe is going on here in the UK to an extent with small business owners - keep plenty of cash to hand (& not too much in the bank, or any one bank) and stock up on durable raw materials. Not too nuch cap ex visible, but since successive governments have reduced allowances thats understandable. Sales of new commercial vehicles are sclerotic, the desire to lease the latest model has been replaced by a desire to own ones fleet and be able to downsize it quickly as needed and without penalty.

The other small/medium business policy that is widespread now is -no pay basic increases for anybody. Periodic bonus payments for the deserving. This means that redundancy payments will be `cheaper` if they are neccessary as thay are calculated on basic pay. Anecdotal evidence is that a few businesses are tying to disperse good will to staff in ways that do not show up in their tax returns too easily as well.

The DAX - I read a preposterous theory today that it was only down so much because they had not YET banned shorting - that they soon would, and all would be well !!

Good luck to all next week - my gut says it could be a bears feast, but my head says be careful - goodness knows what lunatic ramp job could be unleashed.

Quinvarius's picture

There are two economies.  The real economy.  It s small and predictable.  Then there is the banker community economy which dwarfs the real economy by a factor of 100.  The banker economy is a giant, unpredictable, manipulated by everyone including politicians, hellhole.  Everything it does effects the real economy.

So good luck trying to figure anything out.  At any moment the banker fiasco could could expand or contract with severe results.  It is meaninless to even bother trying to make a prediction on the small real economy.  It is like trying to have a normal day while a murding rapist is hiding in your house somewhere.

achmachat's picture

a little warning up-front:

on Monday, Germania is closed.

RSloane's picture

I don't know what that means specifically.

achmachat's picture

major drop in volume for starters.

stant's picture

fire up the printing press. the german one ,fuer frei mutter freken

WestVillageIdiot's picture

The ghost of Guetenberg roams the halls. 

Printing macht frei.

slewie the pi-rat's picture

Investors in both camps continue to wrestle with the types of stocks to own given high uncertainty and risks to growth.

oh my!  how exciting!

TK7936's picture

"America would have to bail out Europe once again like it did back in 2008"

Historical revisionism.....

Peter K's picture

Henry Elmer Barnes defined historical revisionism as : "Bringing history in accord with the facts". Just saying ;)

Troy Ounce's picture



Hey du, ja du mit den Frecken. Stelle dein Pferd um die Ecke und trink ein Whiskey mit mir.

Und let's get poor together overnight.

Unprepared's picture

Late 19th century Vienna? "This order, firm on its feet, would last for ever"

RSloane's picture

Wow, the German Finance Minister said Germany won't be giving any more money to the EU bail-out fund. This was said during an interview that was published today.

Absalon's picture

"One worrying takeaway is that European politicians seem less sensitive to swings in asset prices"


That might be a good thing for Europe.   The Greenspan/Bernanke put has created far more problems than it has solved.  The moral hazards that have been created are enormous. 


Ignoring the DOW and the S&P 500 and letting them find their own values would be much better than government attempts to manipulate the markets.

anonnn's picture

...Goldman should do a better job at distributing the report by its own Alan Brazil saying Europe is doomed...[but not the uber rich]

Peter K's picture

Actually, I'm not surprised that GS gives their Euroland clients "sterilized" data.  The EU has something called the Communications Ministry. The CM monitors all news flow inside the EU. For example, if for some reason a newspaper starts runnig an editorial line that the CM sees as negative to the EU, the newspaper will notice a decline in advertising revenue. It might even be contacted by Ministry personnel. You run across these stories in the British press every now and then. It can also explain whey ComedyNBC moved that nob Simon Hobbs over to NY. If you listen to him carefully, he always presents the "uber Europhile" version of what is happening in Euroland. Can't let those Yanks go off the reservation now can we? So back to the story, I am not surprised that a consumate insider firm like GS doesn't want to get on the wrong side of the EU. And what's a few clients when your business with a whole continant is at stake.

b_thunder's picture

Is the headline supposed to be a surprise?  Obviously the Goldman's "clients in UK and on the continent" have heard the now fasmous trader Alessio Rastani's "Goldman Sachs rules the world" interview.  Why would they be concerned?  They're on the team that tules the world!


Fíréan's picture

The headline by Zerohedge is Euro investor are oblivious yet the GS quote states that they are more composed.

Our meetings with clients in Europe and the US during the past two weeks showed investors in continental Europe to be more composed about the direction and pace of policy decisions. US and UK investors are far more anxious about potential policy solutions and the cumulative impact of a drawn out resolution."


there's a huge difference between oblivious and more composed.

this Zero Hedge is going down the toilet the way of MSM type headlines.

Peter K's picture

As a regular watcher of everything Eurolandian, I can attest that "more composed" is for all intents and purposes the official euphomism for obliviousness of the typical Eurolander as to the crisis in which they find themselves in.

bkrolik's picture

I think "more composed" in this context means "clearly understood coming collapse". Just look where DAX is relatively to the highs and comparing to SPX. Hysterical US investors are going to become more composed soon enough and we will have the same SPX performance.


Shizzmoney's picture

Of course Goldman Sachs knows how crappy things are; they created it!