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Message
Mueller-Glissmann of GS predicts 10% drop in S&P 500 over next 3 months
Posted on 8/6/16 at 2:22 pm
Posted on 8/6/16 at 2:22 pm
That was August 1: LINK.
Naturally the index went up another 10 points last week on stronger jobs numbers. Then again, Goldman Sachs (this time Chief U.S. Equity Strategist David Kostin, rather than Christian Mueller-Glissman) also said that at the beginning of July, and that was 100 points ago: LINK.
What crazy financial times we live in. I was just organizing some post-mortem thoughts on why I mistimed my short last month, and this is what I have:
#1. You can't fight the world's central banks. My original thesis was longer-term, but the Brexit event seemed to offer a good opportunity after a quick run-up in U.S. equities and the value of the dollar. The problem was that those trends have just continued drifting further in the same direction: the BOE is giving signals that are keeping the GBP dropping, and the Fed is not about to raise rates with such low consumer price growth.
#2. You can't put too small of a time window on unhedged short positions. I still think the short play will work eventually, but it could take a while. For reasons why the late-stage bull market won't seem to die, see a summary of Leon Cooperman's 48-page report for Omega Advisors from Wednesday, July 27: LINK.
I don't quite buy Cooperman's arguments on S&P 500 earnings and speculative equity purchases. The frenzy of corporate share repurchases would seem to qualify as speculative to me, and there are signs that the trend is running out of steam. As for the corporate earnings, I still adhere to the Grantham analysis from November 2014, describing them as "the most mean-reverting series in finance."
#3. I exaggerated the chances of a continuing fall in corporate earnings, and the odds of a earnings-induced recession. The consumer spending and jobs reports the last couple of months have been much better than I anticipated. Nonetheless, prices and growth are still flat, and one would think it would have to catch up to the S&P 500 earnings projections eventually. The 18.70 earnings for 2015-Q4 were certainly quite low, but if Cooperman is right, then we're already in full rebound off those quarterly lows. We'll see.
Corporate Earnings & Macroeconomic Growth
(Quarter, Annualized Real GDP Growth Rate, S&P 500 Earnings, Adjusted S&P 500 EOQ Close, Shiller CAPE)
2014-Q1, -1.2%, 24.87, 1872.34, 24.96
2014-Q2, 4.0%, 27.14, 1960.23, 25.56
2014-Q3, 5.0%, 27.47, 1972.29, 25.92
2014-Q4, 2.3%, 22.83, 2058.90, 26.79
2015-Q1, 2.0%, 21.81, 2067.89, 26.73
2015-Q2, 2.6%, 22.80, 2063.11, 26.50
2015-Q3, 2.0%, 23.22, 1920.03, 24.50
2015-Q4, 0.9%, 18.70, 2043.94, 25.97
2016-Q1, 0.8%, 21.72, 2059.74, 25.41
Keep in mind that the Shiller CAPE historical average is 16.7, and that it peaked at 44.20 in Dec 1999 and 27.55 in May 2007 (although it was actually higher at 27.66 in Jan 2004, and had a local peak at 27.00 in Feb 2015). I think it is currently over 27 again.
Forward earnings estimates...
2016-Q2, 1.2%, 25.69, 2098.86, 25.97
2016-Q3, 28.25
2016-Q4, 28.83
2017-Q1, 28.31
2017-Q2, 30.24
2017-Q3, 32.31
2017-Q4, 33.11
Also, it's worth noting is the level of m-o-m monthly inflation ( LINK) for the 3 months from each quarter, as this affects FOMC decisions...
2014-Q1, 0.4%, 0.4%, 0.6%
2014-Q2, 0.3%, 0.4%, 0.2%
2014-Q3, -0.0%, -0.2%, 0.1%
2014-Q4, -0.3%, -0.5%, -0.6%
2015-Q1, -0.5%, 0.4%, 0.6%
2015-Q2, 0.2%, 0.5%, 0.4%
2015-Q3, 0.0%, -0.1%, -0.2%
2015-Q4, -0.0%, -0.2%, -0.3%
2016-Q1, 0.2%, 0.1%, 0.4%
2016-Q2, 0.5%, 0.4%, 0.3%
Naturally the index went up another 10 points last week on stronger jobs numbers. Then again, Goldman Sachs (this time Chief U.S. Equity Strategist David Kostin, rather than Christian Mueller-Glissman) also said that at the beginning of July, and that was 100 points ago: LINK.
What crazy financial times we live in. I was just organizing some post-mortem thoughts on why I mistimed my short last month, and this is what I have:
#1. You can't fight the world's central banks. My original thesis was longer-term, but the Brexit event seemed to offer a good opportunity after a quick run-up in U.S. equities and the value of the dollar. The problem was that those trends have just continued drifting further in the same direction: the BOE is giving signals that are keeping the GBP dropping, and the Fed is not about to raise rates with such low consumer price growth.
#2. You can't put too small of a time window on unhedged short positions. I still think the short play will work eventually, but it could take a while. For reasons why the late-stage bull market won't seem to die, see a summary of Leon Cooperman's 48-page report for Omega Advisors from Wednesday, July 27: LINK.
quote:
No bear market in sight
"Critical to our view that US shares can grind higher for quite some time is our assessment of our US bear market checklist. We introduced this bear market checklist quite some time ago. The arrival of a bear market in US shares typically requires:
* Accelerating and problematic inflation.
* Very tight/hostile monetary policy.
* The prospect of recession.
* Investor exuberance.
* Speculative equity market pricing relative to interest rates and inflation.
"None of the items of this bear market checklist are with us currently nor do we expect their arrival anytime soon."
quote:
"We have the following observations with respect to earnings and profit margins. First, we believe that the growth in year-over-year S&P 500 earnings per share bottomed in the first quarter and year-over-year growth should accelerate over the next year aided by a developing recovery in the manufacturing sector, higher commodity prices, and less dollar headwind. We expect S&P 500 earnings per share growth this year of between 3% - 5%; second, the widespread commentary of an earnings recession in the US is an exaggeration."
I don't quite buy Cooperman's arguments on S&P 500 earnings and speculative equity purchases. The frenzy of corporate share repurchases would seem to qualify as speculative to me, and there are signs that the trend is running out of steam. As for the corporate earnings, I still adhere to the Grantham analysis from November 2014, describing them as "the most mean-reverting series in finance."
#3. I exaggerated the chances of a continuing fall in corporate earnings, and the odds of a earnings-induced recession. The consumer spending and jobs reports the last couple of months have been much better than I anticipated. Nonetheless, prices and growth are still flat, and one would think it would have to catch up to the S&P 500 earnings projections eventually. The 18.70 earnings for 2015-Q4 were certainly quite low, but if Cooperman is right, then we're already in full rebound off those quarterly lows. We'll see.
Corporate Earnings & Macroeconomic Growth
(Quarter, Annualized Real GDP Growth Rate, S&P 500 Earnings, Adjusted S&P 500 EOQ Close, Shiller CAPE)
2014-Q1, -1.2%, 24.87, 1872.34, 24.96
2014-Q2, 4.0%, 27.14, 1960.23, 25.56
2014-Q3, 5.0%, 27.47, 1972.29, 25.92
2014-Q4, 2.3%, 22.83, 2058.90, 26.79
2015-Q1, 2.0%, 21.81, 2067.89, 26.73
2015-Q2, 2.6%, 22.80, 2063.11, 26.50
2015-Q3, 2.0%, 23.22, 1920.03, 24.50
2015-Q4, 0.9%, 18.70, 2043.94, 25.97
2016-Q1, 0.8%, 21.72, 2059.74, 25.41
Keep in mind that the Shiller CAPE historical average is 16.7, and that it peaked at 44.20 in Dec 1999 and 27.55 in May 2007 (although it was actually higher at 27.66 in Jan 2004, and had a local peak at 27.00 in Feb 2015). I think it is currently over 27 again.
Forward earnings estimates...
2016-Q2, 1.2%, 25.69, 2098.86, 25.97
2016-Q3, 28.25
2016-Q4, 28.83
2017-Q1, 28.31
2017-Q2, 30.24
2017-Q3, 32.31
2017-Q4, 33.11
Also, it's worth noting is the level of m-o-m monthly inflation ( LINK) for the 3 months from each quarter, as this affects FOMC decisions...
2014-Q1, 0.4%, 0.4%, 0.6%
2014-Q2, 0.3%, 0.4%, 0.2%
2014-Q3, -0.0%, -0.2%, 0.1%
2014-Q4, -0.3%, -0.5%, -0.6%
2015-Q1, -0.5%, 0.4%, 0.6%
2015-Q2, 0.2%, 0.5%, 0.4%
2015-Q3, 0.0%, -0.1%, -0.2%
2015-Q4, -0.0%, -0.2%, -0.3%
2016-Q1, 0.2%, 0.1%, 0.4%
2016-Q2, 0.5%, 0.4%, 0.3%
4
Posted on 8/6/16 at 3:12 pm to Doc Fenton
The S&P 500 is at like 18x forward earnings. If you think about that you're talking a 5.5% earnings yield and a 2%+ dividend effectively a nearly 8% return. What is there to get bearish about? Sure economic numbers arent ideal, but in reality we're talking a 2%+ dividend vs bank accounts paying nothing, literally I dont keep much cash maybe like $200k just in case some emergency arises and I get a whopping 20 cents a month if that, its borderline comical. All I know is rates arent going anywhere anytime soon and I think 20x earnings is the new normal with where rates are so I think they SPY has a little more room to run. People want stocks at 8-10x earnings well we're gonna need a nice 5% yield on savings accounts and CDs again and that isnt anytime soon and finally
LOL at a 10% drop in the SPY, where's that put us at 200? Where we were in late june? How scary.
LOL at a 10% drop in the SPY, where's that put us at 200? Where we were in late june? How scary.
This post was edited on 8/6/16 at 3:13 pm
Posted on 8/6/16 at 3:30 pm to Doc Fenton
GS makes lots of predictions. Most of them are wrong.
A forward PE of 18 is nothing with a 10 year treasury at 1.6.
A forward PE of 18 is nothing with a 10 year treasury at 1.6.
Posted on 8/6/16 at 4:25 pm to dabigfella
quote:
I dont keep much cash maybe like $200k just in case some emergency arises
I like how you snuck this in there. Well done.
Posted on 8/6/16 at 4:38 pm to Sigma
Ok sigma do you just try to be a jerk off in every thread I post? I dont know what you want me to say I maintain 1% of my net worth in liquid cash, does that make you happy? Im just saying nobody is pulling out of stocks anytime soon with where rates are, nobody its ridiculous what banks are paying you to sit on cash, ridiculous is a kind way of saying you get pennies on $100k in cash. I don't have any friends sitting on piles of cash and people are scrambling to unload whatever cash they do have into some income generating asset thats why prime commercial real estate is trading a 3.5% cap rates here in houston. My most recent store buy late last year at a 5.85% cap rate and thought I was getting a steal vs sitting on cash.
This post was edited on 8/6/16 at 4:44 pm
Posted on 8/6/16 at 4:44 pm to Doc Fenton
All I know is before this election cycle, if someone on Wall St tells me the sky is blue, I'm betting the house on green, red, black and taupe.
No one knows shite about this environment we are in right now. It's crazy
No one knows shite about this environment we are in right now. It's crazy
Posted on 8/6/16 at 7:40 pm to dabigfella
quote:
Ok sigma do you just try to be a jerk off in every thread I post? I dont know what you want me to say I maintain 1% of my net worth in liquid cash, does that make you happy?
Just messing with you.
This post was edited on 8/6/16 at 7:54 pm
Posted on 8/6/16 at 10:58 pm to Doc Fenton
quote:
You can't fight the world's central banks
I ask myself every time a large financial institution comes out with a "report" 'what could _________ gain by such a report? My conclusion is that they have a bunch of buy orders that aren't moving fast enough. As soon as price hits their magic number, it will stall then reverse and skyrocket.
Same thing with the 100k O&G job "prediction" that came out a couple of weeks ago. They had a bunch of sell orders that weren't moving fast enough. As soon as price hit that number, it stalled, reversed and plummeted.
Posted on 8/7/16 at 3:27 am to dabigfella
quote:
The S&P 500 is at like 18x forward earnings. If you think about that you're talking a 5.5% earnings yield and a 2%+ dividend effectively a nearly 8% return. What is there to get bearish about?
The whole point of the bear argument was that the forward earnings were actually wrong, so that the 5.5% earnings weren't actually happening going forward. But yeah, that argument was overblown, which is why I created this thread to admit that it was overblown, and moreover, to give the lots-of-room-to-run counterargument as made by Cooperman.
I don't know what exactly was driving those last two Goldman Sachs reports, and I know that public releases are not to be trusted (and should not be assumed to be the same thing that is being told to HNWI clients), but I still think that U.S. equities are expanding based on assets being squeezed in from everywhere else, and that's not a stable phenomenon. Eventually wages and inflation and interest rates will start to go up, and then corporate earnings will fall again.
Posted on 8/7/16 at 11:28 am to dabigfella
Dabigfella must have a 2 inch penis. Such and insecure arse.
Posted on 8/7/16 at 11:29 am to dabigfella
...
This post was edited on 8/7/16 at 11:30 am
Posted on 8/7/16 at 11:31 am to birdieman
lol give me your email ill send you a pic. Do you ever contribute any real knowledge on here or do you just sit and gawk at all the knowledge I spew out in thread after thread. From looking at your post history it seems like you have nominal knowledge on any financial subjects, please sort through most of my posts on here for my informative contributions before you get butthurt over certain posts.Its ok you dont need to thank me for all I do on here, your fan support is enough to keep me going. Please do post your email ill send you pics ASAP to disprove your theories.Have a nice sunday.
This post was edited on 8/7/16 at 11:33 am
Posted on 8/7/16 at 11:38 am to dabigfella
Go count your money you mention/subtle brag about every post. I will just avoid this board cause i dont care for fiction in the first place.
Posted on 8/7/16 at 11:39 am to birdieman
and dont forget the main reason.....because you have nothing to contribute
Posted on 8/7/16 at 11:42 am to dabigfella
You right dabigfella, i have no reason to spend hours a day pontificating. Esp given the fact that I am not insecure and feel no need to go on ANY forum for validation. Now go pump some gas fatass.
Posted on 8/7/16 at 11:45 am to birdieman
lol I'm sorry my posts have gotten to you, does your life lack so much substance that what people post online whether you believe them to be true or not really disrupt your day to day life in such a manner? May I suggest finding a hobby or a wife or something else to occupy your free time with? I dont think I've posted anything not factual, and it seems like you've taken my attempts to squash people questioning me by posting pics or whatever as bragging. The problem with internet forums is if you say X, then you get called a liar. So I said X, got questioned, then posted pic of Y. That isn't bragging its just enforcing my truths in a manner which you perceive as bragging. I hope you dont lose sleep over all of this and we can move along amicably as forum friends
This post was edited on 8/7/16 at 11:47 am
Posted on 8/7/16 at 1:06 pm to Dr Rosenrosen
quote:
GS makes lots of predictions. Most of them are wrong.
Abby Joseph Cohen & Gary Cohn made some market projections around February that were spot on, saying that the oil collapse was spooking markets unnecessarily, and projecting the rise to 2,100 by the end of the year. The report from July stayed with the 2,100 EOY target, although the more recent report from Mueller-Glissmann seems to (slightly) contradict the rest.
quote:
A forward PE of 18 is nothing with a 10 year treasury at 1.6.
See, this is the whole line of thinking I disagree with, because there seems to be no limiting principle here. Couldn't this argument be extended to a forward PE of 20, or 25, or 30? Where do you stop? How quickly do you need to get out if monetary policy finally starts to move?
The earnings I see for 2015 were $86.53. Granted that things are starting to pick up for 2016, but even if the last 3 quarters hold to projections, it will still only amount to $104.49.
Looking forward to 2017, yeah, earnings might hit their target a little above $120, which will give you an 18x multiple at just over 2,160 on the S&P 500, but how high can you go? What if earnings projections for 2017 drop before the end of this year? Below is a chart from back in 2013:
Even in a terrible bond environment, how high do you really want to be on that chart for equities?
Posted on 8/7/16 at 4:39 pm to Doc Fenton
Good thing GS is normally very wrong.
Oh, and Iowa golfer >>>>> dabigfella
Oh, and Iowa golfer >>>>> dabigfella
Posted on 8/7/16 at 4:56 pm to Janky
In what way? More down votes? Money board is much like the rest of the population insofar as many don't like to be confronted with facts, or opinions counter to the way they've been trained to think and react.
I have no issue with dabigfella. Seems to be a guy like me. No one ever gave me a shot, and I manage to do o.k. His short SPY trade was something to watch however.
Also, my only issue with banks is that they have been largely shielded from their consequences. I don't understand how anyone came to the conclusion a bank bailout was more healthy than the natural short, sharp depression that many predicted. People ripping on me for supporting Trump, not giving a rip about taxation policy, and making posts on here about Congress questioning Janet Yellen, and supporting a bank bailout. All the while making statements later they are not Keynesian and fiscally conservative.
It is stunning.
I have no issue with dabigfella. Seems to be a guy like me. No one ever gave me a shot, and I manage to do o.k. His short SPY trade was something to watch however.
Also, my only issue with banks is that they have been largely shielded from their consequences. I don't understand how anyone came to the conclusion a bank bailout was more healthy than the natural short, sharp depression that many predicted. People ripping on me for supporting Trump, not giving a rip about taxation policy, and making posts on here about Congress questioning Janet Yellen, and supporting a bank bailout. All the while making statements later they are not Keynesian and fiscally conservative.
It is stunning.
Posted on 8/7/16 at 5:28 pm to Iowa Golfer
quote:
More down votes?
"Do you know what it's like to be booed like that? It feels wonderful! They couldn't live without me! They came to the ballpark to see me!" -- Tommy Lee Jones as Cobb (1994)
"Money Talk board posting is a red blooded sport for red blooded men. It's no pink tea, and molly-coddles had better stay out... It's a struggle for supremacy, a survival of the fittest." ( LINK) -- Tommy Lee Jones as Cobb (1994)
(I may have altered that 2nd quote.)
quote:
I don't understand how anyone came to the conclusion a bank bailout was more healthy than the natural short, sharp depression that many predicted.
You should have been here when TARP was passed!
I came out against the first version of TARP, and in favor of the second version that was passed, and opposed to the way it was diverted to equity recapitalizations rather than toxic asset purchases, and also opposed to its expansion to AIG and GM.
There was quite the Andrew Mellon fan club around here for awhile, as in people who actually praised Andrew Mellon specifically as a great Treasury secretary who advocated "liquidationist" policies to Hoover from 1929-1933. It was an awesome thing to behold.
I of course am an anti-Hooverite/anti-Mellonite, and did not want a repeat of those 4 horrible years. I adhere to a more classical Walter Bagehot type of view on bank panics, and I think the most crucial part of any policy response is to act quickly and decisively in drawing a line of what to save and what not to save. Where exactly you decide to draw that line is not as important as drawing it somewhere, thus allowing the opportunity for asset writeoffs to occur as quickly as possible.
Ultimately, as Holman W. Jenkins Jr. and others have pointed out, all that was really needed to save the banks back then was regulatory forbearance on certain mark-to-market accounting and capital adequacy rules. The rules were themselves pro-cyclical and destabilizing, as financial regulation tends to be in general.
Anyhoo... TARP was done poorly and it still didn't hurt the national debt in the long run.
I am also, of course, rabidly anti-Trump on both policy and character grounds, but the Trump vs. Johnson arguments are more appropriate for a different board.
What I am really interested in is this: Are corporate earnings for 2016-Q2, 2016-Q3, & 2016-Q4 going to beat the projections of $25.69, $28.25, & $28.83?
I'm still skeptical, and would still like to know if anyone on this board has a good pulse on whether these projections will be met.
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