In January, Goldman Sachs' Global Markets Institute President Abby Joseph Cohen exuberantly told Bloomberg Quint that despite global equity indices hitting one record high after another, markets are not stretched to the point of danger.
They are certainly not as cheap as they were though, cautioned Cohen while adding that cheap valuations provide a cushion which may not exist anymore.
Lurking behind headlines of indices surging are concerns about low volatility, which many say cannot last forever. Cohen is one of them. Volatility has been too low not just in the equity markets but also in the fixed income markets, said Cohen.
I am more concerned about the complacency in bond markets than in the equity markets.
In the bond markets, we’ve had interest rates around the world that we think are just too low relative to inflation and growth. We do believe interest rates will likely be moving higher...We believe investors are not prepared for that.
They have enjoyed not just low volatility but also rises in bond prices as interest rates have gone down and stayed down. If rates go up, there will be some pain in the fixed income markets.
Now, a month later, and 10% lower in stocks, and with volatility coming back as she warned amid a bond bloodbath, the infamous permabull from The DotCom era has changed her tune dramatically on stocks - for a new reason...
Cohen now says stocks have been "priced for perfection" and "there are issues" in the intermediate- and long-term.
Cohen, who predicted the bull market of the 1990s, warned, in an interview on Bloomberg Radio, that fiscal policy from the Trump Administration will work against equity prices.
"Government policy coming out of Washington, to my eye, is not supportive of intermediate and long term economic growth."
Cohen added that tax policy, the new budget, infrastructure proposal and trade policy reflect "a lack of responsibility."
So, to clarify - three weeks ago, stocks were not "stretched" or "in danger," but now, after a 10% tumble in a few days, stocks have "issues" and Trump's policies are to blame (will be to blame) when this house of cards collapses?
Cohen's anxiety somewhat echoes Goldman CEO Blankfein's comments this morning that the volatility they expected to come last year, has arrive (via Bloomberg)..
Blankfein said there are “some things that look different” in 2018 as several markets break out of long-held ranges.
Activity may also pick up as central banks pull back on monetary easing, which he called a “blanket” on volatility.
Blankfein said he’d “love to extrapolate” from the start of 2018 to the rest of the year, but it’s too early to make predictions about revenue.
But, as we noted previously, it seems Goldman is in full "baffle 'em with bullshit" mode, as we noted on Saturday, in his latest Weekly Kickstart published on Friday, Goldman's chief equity strategist David Kostin essentially told clients to BTFD, suggesting that the correction was likely almost over, based on historical patterns.
Meanwhile, on the very same Friday, Brian Levine - co-head of global equity trading at Goldman Sachs - sent out an email to the investment bank’s bigger clients, in which he made a stunning prediction: the Buy the Dip Regime is now over.
So to clarify Goldman Sachs investing advice in the last two weeks...
AJC (January): "stocks not stretched to the point of danger"
Equity research (Feb - after volocaust): "we are optimistic, buy the dip"
Co-head of equity trading (Feb - after volocaust): "this is a genuine regime change, one where you sell-the-rallies"
AJC (Feb - after volocaust): Stocks are "priced for perfection" and "there are issues" that will work against equity prices.
CEO (Feb - after volocaust): "Some things that look different" in 2018
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As a reminder, Abby Joseph Cohen, the Goldman Sachs' strategist whose incessantly upbeat stock-market forecasts made her the face of the 1990s bull market (and the dotcom collapse), was reportedly retiring as president of the firm’s Global Market Institute a year ago...
Perhaps it's time.