One has to give it to Goldman Sachs: the bank which until a few years ago just couldn’t lose a penny, is about to report earnings which will, even if they beat Wall Street’s estimate, be an embarrassment to the bank that openly used to run the world until very recently. The reason, aside from the moribund economy, is that trading volumes have plummeted at an unprecedented pace as i) nobody trusts the centrally-planned capital markets any more and ii) valuations are, despite what permbulls can say on TV stations with record low viewership, so ridiculous few if any would actually go long here.
But the one area what Goldman has retained its swagger is its muppet-crushing talents. Because while Tom Stolper may have left the bank, much to the sorrow of FX traders everywhere, the bank is still second to none when it comes up to fabricating ridiculous narratives that are simply meant to baffle with bullshit what few clients Goldman has remaining, and hopefully, Corzine their money in the process.
Case in point: while Jan Hatzius once again declared the arrival of the above-trend growth for the US economy just as everyone else slashed their GDP forecasts for the year (it won’t be the first time – he did the same just after Tim Geithner’s idiotic “Welcome to the Recovery” oped, which lasted all of 3 months before Goldman recanted), Goldman lowered its year-end yield forecast by 25 bps to 3.0%. So…. a stronger economy that is getting weaker on a terminal basis? Brilliant.
But that’s nothing. One has to read today’s piece from Goldman’s David Kostin to realize just how ridiculous Goldman’s attempts to spin what has become a total farcial fraud of a market (just one word here: CYNK), and a completely broken economy (remember the business cycle and recessions in the day before ZIRP and QE? good times…) to realize just how far beyond the pale everything is.
Recall that it was David Kostin who in January admitted that “The S&P500 Is Now Overvalued By Almost Any Measure.” It was then when the Goldman chief strategist admitted there was only 3% upside to the bank’s year end target of 1900. Well, that hasn’t changed. In his latest note Kostin says that “S&P 500 now trades at 16.1x forward 12-month consensus EPS and 16.5x our top-down forecast… the only time S&P 500 traded at a higher multiple than today was during the 1997-2000 Tech bubble when margins were 25% (250 bp) lower than today. S&P 500 also trades at high EV/sales and EV/EBITDA multiples relative to history. The cyclically-adjusted P/E ratio suggests S&P 500 is now 30%-45% overvalued compared with the average since 1928.“
In other words, rarely has the market been more overvalued. So at least that much of the Goldman plotline is still valid.
Furthermore, as Kostin says, “Goldman Sachs fixed-income strategists recently lowered their year-end 2014 bond yield forecast by 25 bp to 3.0%.” One doesn’t have to be a rocket scientist to know that yield forecasts don’t go down when the economic forecast is improving. Quite the contrary. And here is where the first break in logic appears: “The improving macro data prompted our US economists to pull forward their projection for the first hike in the federal funds rate to 3Q 2015 from 1Q 2016.” Yes, apparently it also prompted them to cut their 10 Year yield forecasts.
