And so the latest Goldman recommendation to muppets is now officially a dud.
Closing our Long Russell recommendation with a modest potential loss
We are closing our long Russell 2000 recommendation with a modest potential loss, initiated on March 15 following the better-than-expected data in the first of the regional surveys. The recommendation was predicated on (i) still friendly, if not accelerating, US macro data, (ii) supportive monetary policy, and (iii) better insulation that Russell offers against global concerns, including Europe and China, relative to some other implementations (S&P 500 index and Wavefront GDP Growth Basket).
Since then, the macro data (both US and global) have come in more mixed than we would like, with Friday’s non-farm employment growth report clearly disappointing. Furthermore, last week’s “guts” of the ISM were weaker than the headline reading, and the momentum of our Global Leading Indicator (GLI) stalled. Combined with the fact that the Fed may be further away from a fresh round of easing than we had expected, two out of three pillars supporting the recommendation were compromised. And as the risk/reward of backing the US growth upgrade worsened, Euro area sovereign risks resurfaced yet again. With an upcoming “lull” in the US macro calendar and a significant batch of Chinese data forthcoming, we think it is prudent to step back and re-evaluate our overall tactical trading view.
Unclear if Goldman, which top ticked the market to the penny, with its "once in a lifetime" opportunity to rotate out of bonds and into stocks, has yet given the all clear to buy stocks, i.e., tell muppets to short equities. As a reminder here is what we said then:
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.
For those who never had a chance to decide, the end result is the 10 Year is now back to just over 2%, down from nearly 2.40% when Goldman skewered its clients on this the latest occasion.