GOLDMAN SACHS: S&P IS HEADED TO 1060
The Economic Branch of the U.S. government is out with an upgrade of the overall market. Goldman Sachs now expects the S&P 500 to rise 15% from current levels to 1060. This is no doubt giving the market a boost today. Goldman writes:
Improvement in ex-financial earnings per share, stabilization in profit margins and higher forward EPS guidance all point to a rising market through 2009. Many of the large-cap banks exceeded analyst expectations due to strong capital markets and mortgage refinancing activity. We expect these sources of earnings strength to continue.
We have experienced the brief euphoric one-month “pop” phase of the typical equity market recovery from a bear market low (27% rally from 667 to 850), endured the characteristic several-month long range-bound “stall” period (10% range from 850 to 940), and now we anticipate a more extended “sustained rally” in the U.S. equity market during the second-half of 2009.
Although earnings, valuation, and money flow offer support to our view that the S&P 500 will experience a more sustained rally during the second-half of 2009, the fourth pillar of our analysis — the U.S. economy — is the shakiest part of the foundation.
They are no doubt talking their book. This just happens to be a highly influential book….
Goldman Sachs…Goldman Sachs. Where have I heard that name before? Ohhh, weren’t they the guys that said oil was going to $200? Or was it $25? No, wait, $85?
I was just about to say the same thing. What happened to the super-spike in oil prices that Sacks of Gold predicted last year?
It seems like GS has multiple personalities: a trading program wing that makes hand over fist by bring the market up and down at will, and an analyst wing that is just as bad as every other analyst on Wall Street.
In February Goldman Sachs predicted the S&P 500 would hit 650 this year, just in time to get everyone selling, so that they could start buying near but before the predicted bottom. Interestingly the banks all downgraded each other just before the market bottomed as well. The bank upgrades didn’t happen until many banks hit highs in June. Now Goldman Sachs is raising its estimate for year-end stock prices, just in time to get people into the market (now that the S&P is over their old forecast of 940). Maybe they plan on doing some selling soon? Or maybe they are behind the curve like the bank analysts.
Let me pitch this alternative theory. Since Goldman has been getting hammered from a public relations standpoint the last few weeks resulting in the now widely held view they manipulate the markets and are essentially “the economic branch of the government” as TPC put it, what if they are putting out a prediction they KNOW will fail miserably as a way to counteract this notion they are manipulating the markets? So they make this prediction right as the S&P is getting ready to break out to new highs, help push it over the top and then begin shorting the market aggressivly knowing the market is much more likely to be down 15% between now and year end as up 15%. And to save some face when their prediction of S&P 1060 goes awry they can fall back on their hedge about the economy being the shakiest pillar of their analysis. In the meantime they’ve made a ton of money shorting the market from higher levels and perhaps as importantly they slow down those market manipulation drumbeats that seem to be getting louder every day.
I believe we will get to 1060, perhaps later in mid September. It would be very damaging for market participation if we went straight up from here. Assuming the objective is broad-based participation, then a pullback to low 800s might be a good entry point. Volume is low at present and this does not bode well for a strong and sustainable advance.
Dean, I am turning cautious. Today’s rally just stunk of greed. I’ll be posting something on this tomorrow. 8% in 6 trading days is just not normal. I would be a seller into any upside from here. Get neutral again. Short a blow off top into 1,000 if we get it.
http://www.time.com/time/business/article/0,8599,1911846,00.html
Dean and TPC, To your point of ‘participation’, is this sound logic?: Since, as all the talking heads cite relentlessly, there are record cash levels, and ‘the public is sitting in money markets’, did this rally help or hurt? If all the money was on the sidleines while the prices went higher, even if the magnitude of the move in prices has been impressive, did it make enough people better off? If no one is in, then no one got richer, and thus the consumer and ‘little guy’s’ balance sheet won’t have been helped. Like you mentioned, there really haven’t been any second chances to get in, and for the most part it has bottle rocketed higher. Let alone the 600′s, this thing didn’t really even let you get another look at the 700′s.
Frederick:
This is precisely why I think a nice pull back would be very healthy for the market and the ensuing upside might be even more explosive(within a month’s time you can have a move about 2/3 of the rally move to-date), BUT, we need to give a value proposition to the participants. Asking someone to participate at these levels sounds dangerous and ill-timed. Now, give a 15% entry discount and the market will reward you with a 45% upward move from the new/discounted level. It’s like the classic “if you want to make money you have to spend money”. In this case spending money = a nice pullback so that many new participants can join in pulling it up/higher.
As it stands, this rally looks more like an “elitist” endeavour at best and @ worst a manipulative move of some entrenched computerized oligarchy.
If, as many opine, GS et al have the powers to move the markets, my suggestion to them is exactly that. Engineer some blood letting (which can handsomely reward you via shorts) and then pivot over to long positions that can make you smell like a rose for the 3rd quarter.
i bet you any amount of donuts tomorrow is red, and the week ends down….and the SnP hits 780 sometime in August….since 2003, August has been quite a terrible month…add to that that the bulls are too bullish and everyone is thinking up up and away (till sept)…the pain will come before that….
and….
no matter what
the fundamentals WILL rule the day….dont be mislead
1060 for S&P 500 would be a 60% gain from March lows. Which seems to me a bit wildly optimistic.
The problem with listening to Goldman Sachs and other investment banks is that they have huge conflicts of interest when it comes to advising the public. These investment banks often load up on stocks and then loudly make optimistic predictions. And then they sell their stocks at higher prices to the naive investors.
That kind of thing should be illegal, as far as I’m concerned. Because this is market manipulation.
I have a hard time with frequently used phase “money on the sidelines”. Stock prices are determined by the relative willingness of the buyer to part with cash for the opportunity to own the stock and willingness the seller to part with the stock in exchange for cash. In the aggregate, money on the sidelines per se is irrelevant. Leverage on the other hand is highly relevant. If leverage is used, then new cash is created but that cash was not on the sidelines since it is brand new.
When one buys a stock (unless it is newly issued) the seller receives the cash and gives up the stock, the buyer parts with his cash and takes the stock. The cash remains the same, unless the buyer is using leverage to purchase (or the seller was using leverage).
As an example, I was quite willing to part with some of the stocks that I purchased during the first week of March once they had quadrupled in value. (The buyer was willing to pay a higher price than I paid because he believed that the stock would continue to appreciate in value and in some cases they did. Whoever sold the stock to me obviously was either forced to sell or worried that the stock would fall further in price.) The total cash on the sidelines didn’t change due to the sale unless the buyer bought using margin, in which case cash on the sidelines has actually increased, because now the cash I received is on the sidelines and the buyer’s cash came from a newly created loan. If I had been using margin to own the stock and the buyer paid using cash (e.g. money market) then the cash did come in from the sidelines and the total cash decreased.
Total cash in the system increases with the use of leverage and the more cash being borrowed (on margin) the more cash is available to purchase stock. As a result prices can more easily go higher. The reverse happens with deleveraging (and stop loss orders) as we saw quite clearly last October.
Has the aggregate deleveraging that began last year already run its course? Is leverage now increasing again? Anyone have good stats on the use of leverage by hedge funds, investment banks and individual investors?