bueller... bueller... are you there bueller? http://youtube.com/watch?v=EMvcp3PGMmQ wow, he was actually even teaching economics in that class. When I was a kid, I paid no attention to the content. Now, it's more interesting to listen to the lecture.. ha.
November 29, 2007 Europe: Portfolio Strategy Goldman Sachs Strategy Research 1 Europe: Portfolio Strategy Differentiate in 2008 A cyclical bear phase While the âstructuralâ bull market driven by the long-lasting impact of globalisation and technological change remains in place, the ongoing financial crisis is likely to further reduce investor confidence in economic activity. A further adjustment to growth expectations is likely to push equity prices lower. We believe that 2008 consensus profit expectations (at 9%) remain unrealistic: we forecast zero growth in net income pre-exceptionals. The market is implying roughly 3% profit growth for 2008 by our estimates. Further downgrades remain likely. Expect further downside of about 10%-15% Using 3.5% risk premium as our base assumption, with no earnings growth next year, our model suggests the market needs to fall c.5% to reach fair value. In practice, however, markets tend to overshoot as the ERP rises. Using an ERP of c.4% (the level reached in 2002) would imply a further 10%-15% fall. We believe that financials hold the key to a recovery in 2008. History suggests this occurs at a P/B discount of c.40% (25% currently) and when the sector recapitalises. The equity market also tends to trough well in advance of the economy and profits. We expect a sharp rebound in 2008 from lower levels, with a total return of 5%-7% for the year, but with high volatility. We expect greater differentiation of returns, with a focus on growth, balance sheet strength and large caps. What if? Assessing the impact of a hard landing Our core outlook remains a modest slowdown in economic growth and a modest deceleration in the rate of profits growth across the European corporate sector. However there are risks to our core view â our Economists estimate a c.30% chance of recession in the US and c.15% in Europe. As a result, we thought it would be useful to stress-test our current assumptions and examine the potential downside risks for the corporate sector assuming a hardlanding scenario. We emphasise that this is an exercise in sensitivity and risk, not a forecast. (See âWhat Ifâ Scenario Analysis: Seeking value if a hard landing occurs, also published today, for analysis of the risks from a bottom-up perspective.) Central scenario is for continued global growth Our Economists in the US have long stressed the risks to the housing market and continue to expect further weakness over coming months. Despite this outlook, they do not forecast an outright recession. Furthermore, global synchronised recessions are, fortunately, rare â the last one was in the early 1980s following the second oil shock and a sharp rise in interest rates (US, UK and German bond yields rose to roughly 18% while short rates we running at roughly 15% at their peak). We continue to believe the structural upward shift in the BRICs economies will ensure that global growth is more resilient to a US downturn than has been the case in the past. Our Economists currently attribute a roughly 30% probability of recession in the US for 2008 and 15% in Europe (for details see European Weekly Analyst: Increasing headwind on Euroland growth â but low risk of recession, November 8, 2007). Nevertheless, recessions do happen and much remains uncertain about the potential leakage from the current financial crisis into the broader economy and therefore there are risks to our central outlook. In this report we look at the current consensus assumptions and examine the potential for them to fall. We introduce a set of assumptions to stress-test a âhard-landing scenarioâ with Euroland GDP growth averaging 0.5% in 2008 and the UK at zero. We aim to gain a better understanding of the sensitivities involved for sectors and stocks as growth weakens, and of the risks involved in picking companies based on current consensus views. Focusing on the headwinds Despite the headwinds emerging from the summerâs financial crisis, the rise in the euro and record commodity prices, consensus analystsâ expectations for the next 12 months have hardly moved. Indeed, they are forecasting an aggregate growth rate for 2008 earnings of 9%, actually higher than the 8.2% for this year. Even the banks sector â the epicenter of current market stress and weakness â is forecast to see profits grow 7.3% in 2008, despite a 5.3% rise in 2007. Furthermore, consensus expectations assume that margins will continue to rise in every sector next year.
excerpt from NYT: http://www.nytimes.com/2007/12/02/b...&ei=5087&em&en=4549799c0aaca324&ex=1196917200 To my old eyes, the recent unhappiness about mortgages and Goldmanâs connection with them are not examples of sterling conduct. It is bad enough to have been selling this stuff. It is far worse when the sellers were, in effect, simultaneously shorting the stuff they were selling, or making similar bets. Doesnât this bear some slight resemblance to Merrill selling tech stocks during the bubble while its analyst Henry Blodget was reportedly telling his friends what garbage they were? How different would it be from selling short the junky stock that your firm is underwriting? And if a top economist at Goldman Sachs was saying housing was in trouble, why did Goldman continue to underwrite junk mortgage issues into the market? HERE is a query, as we used to say in law school: Should Henry M. Paulson Jr., who formerly ran a firm that engaged in this kind of conduct, be serving as Treasury secretary? Should there not be some inquiry into what the invisible government of Goldman (and the rest of Wall Street) did to create this disaster, which has caught up with some Wall Street firms but not the nimble Goldman? When the Depression got under way, the government created the Temporary National Economic Committee to study just what had happened on the Street to get the tragedy going. Maybe itâs time for an investigation of just what Wall Street and Goldman did to make money as they pumped this mortgage mess into the economic system, and sometimes were seemingly on both sides of the deal.
While I agree with his premise, incl Paulson, I will never forget him shilling for ETRADE in late 99. He told the public "it was easy". Why did he do it? Same answer Gasparino gave the guest as to why GS would risk it's reputation........ Money!! I'm not mad. Just call a spade a spade. He has no crediblitiy in my book.
95% of the public wouldn't know the truth if it bit them on the ass I jack the % to 98 for ET posters.