Where To Invest Now? Goldman Cautiously 'Un'-Optimistic

Tyler Durden's picture

We have discussed at length the slowing forward expectations for the next 12 months EPS of the S&P 500 and while every long-only equity strategist enjoys the same talking points of record profits, margins, global growth, and cash-on-the-sidelines, it seems Goldman is increasingly skewing back to a sense of reality. At cycle turns, analysts are always the 'most' wrong with their Birinyi-like extrapolations but a cautious outlook with expectations of a de minimus equity market over the next 12 months leaves Goldman rightly concerned that margins are peaking as consensus sees them growing and multiples will drop as policies remain volatile.

An S&P 500 target of 1200 for Dec11 and 1300 for Dec12 and a focus on quality, dividends, and defensives doesn't sound like the high beta momo double-bogey performance-chasing we have seen in the last few weeks is sustainable. Furthermore, their perspective on the October rally is it reflects a drop in the cost of equity as opposed to better fundamentals.

In one of the most complete (and truthy) discussions we have seen recently (and expanding on the note we discussed in late September), GS notes forward EPS reductions, high correlations, fund under-performance, and basic fundamentals around the business cycle - as well as indicating growing areas of concern.

A topic often discussed here recently is the accelerating drop in consensus EPS for next year that seems to be ignored by all and every top-down strategist's projections for equity exposure.

P/E multiples are another side of the valuation coin and given uncertainties, GS is hardly positive:

And finally, some perspective on the huge October rally, that GS believes is more reflective of the low cost of equity than any improvement in fundamentals - and given the performance post-early October, WACCs have retraced.

The entire slide-pack is presented below:

GS_Where to Invest Now

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DoChenRollingBearing's picture

I don't know...  Maybe 50% gold and 50% cash FRN$ for any new money coming in...

Gief Gold Plox's picture

This was also my investment plan beginning Q2 2011, but being payed in zEURos I have thereafter adjusted my plan to lean more towards PMs. I now only keep enough cash to comfortably go from pay-day to pay-day, plus a little emergency fund, for just in case.

css1971's picture

I split investments approx:

  • Stocks (Growth, Defensive)
  • Commodities (Softs, PMs)
  • Property (Residential, Commercial)
  • Bonds (Corporate, Sovereign)
  • Cash (Foreign, Domestic)

If you consider where been and what you think is coming. You can take your picks from the list, they've all got different characteristics, some characteristics will protect your wealth in the future and some won't.


Growth stocks: P/E (DOW) is cratering from a 2000 high of about 40. Is that going to bounce back? Um, "Growth" is growth in credit... We're mostly all tapped out there until the Central Banks go an order of magnitude bigger on QE and wipe out debt holders through inflation. So no (western) Growth stocks for me. Buh bye Apple.

Defensive stocks: Dividend yields are about as low as they've ever been... seems likely to increase again. Kind of interesting, but only for already low p/e stocks which will definitely be able to push dividends up cos p/e is heading down not up.

Commodities:  .....  etc etc.

I'm not going to do it for you. Take a look at generational charts, they can give you a map of where we've been and you can equate that to why. Then look at today and translate that into where we're probably going. Need to get off the today, tomorrow and next quarter mindset, the trends to catch run for decades. You can try fighting them head on, and most will cos they don't know any better but I reckon it's best not to be standing in front of the freight train as it comes. Strategic (interrelated) themes being: Energy peak, Debt crisis, West -> East (China), Boomer retirement.

The best analysis I've seen has been here on ZH but overall it's a bit balkanised and tends to be micro as opposed to macro; lots of noise.

On the other hand: Argentum Bitchezzz!!!!!!!!!!

Saxxon's picture

Sounds good DoChen.  The street underestimates cash.

slewie the pi-rat's picture

where to invest?

the glass is half-broken!

Sequitur's picture

Hey Kostin, what's the matter, no Maiden Lane "assets" for Goldman to pump up to its idiot "clients" while Goldman takes the opposite side of the trade, shorting shit all the way down a la "shitty deal" Abacus while Goldman's "clients" take it in the ass? Richard Perry's going to be extremely disappointed. How ever will GS afford $1MM bonuses while pushing utilities returning 4%?

But who cares. Time to get those end-year self-evaluations in, in yet another stupid ritual where utterly worthless investment bankers and traders proclaim how wonderful their GS "team" performed, delivering extraordinary results to the "franchise." If I was Blankfein, I'd tell each and every one of you to shut the fuck up: Goldman Sachs invents nothing, creates nothing, and does nothing that is productive.

GS bankers: epitome of a stunningly worthless skillset, which is moving money in circles and betting opposite your clients and public reccomendations, making journal entries at each turn and collecting a fee. Oh, you have some new balance-sheet "technology" to sell me a la Enron, Worldcom, Qwest, Abacus, Timberwolf, or Magnetar? Yeah, let's ask the EU how well your advice worked out, masking debt while you shorted Greek paper. Go fuck yourselves.

Lost My Shorts's picture

This sort of comment from GS is very bullish.  It means they are short CMG, LULU, etc. and maybe even commodities.  They don't give away free advice as god's work.  They are talking their book undoubtedly.

devo's picture

Never trust Goldman.

Comay Mierda's picture

where to invest? GOLD, MAN!

ivars's picture

Deflation-inlation-deflation will actually change places in the USA periodically starting from q4 2011:


First from inflation to deflation q42011-q32012, than into inflation q4 2012- q2 2013, than deflation again q32013-q4 2013 inflation q1 2014 etc ..before the final firm move into inflation in q1 2015.

RiverRoad's picture

+1     So sayeth Soros and Flowers.

beaker's picture

Did Abby approve this report? Or is she still away in Fantasy Land?

mbtshoe's picture

FDIC loan loss sharing details are a total taxpayer ripoff to big money types and billionaires like Soros, Dell, GS execs.   Look up OneWest Bank started by those guys.   FDIC sold them a portfolio at up to 50% discount and the FDIC backs up to 90% of losses, not based on what OneWest paid, but the ORIGINAL amount of loans.  OneWest makes more money not working out any loans and letting them foreclose and cashing in from the FDIC.









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