Tuesday , 21 May 2024

Goldman Sachs' Thoughts, Outlooks, Strategies & Picks for 2013

So says Cullen Roche (http://pragcap.com) in edited excerpts from one of 4 articles (see links below) posted below reporting on Goldman Sachs’ prognosos for 2013.

 Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!), may have further edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) the article below for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

The first article* from Roche’s site is entitled Goldman Sachs: Top Trades For 2013 and says:

“Goldman’s favorite position for 2013? They say buy US large cap banks (via Business Insider):

This recommendation is based on several features of our 2013 outlook:

  1. a fairly supportive view of the economic and equity market landscape for 2013, particularly in the U.S.;
  2. US monetary policy that remains extremely accommodative, focused on MBS purchases and the transmission of its policy through the housing channel;
  3. continued improvement in the housing sector in terms of activity and prices, building on advances already seen in 2012;
  4. transmission of the housing sector strength into large cap US banks; and
  5. the fact that financials have, thus far, lagged improvements seen in other housing-related equities over the last several months.

Some other picks Goldman recently released (via Zero Hedge):

Longer-term structural views are expressed in our Top Trade recommendations. These are typically managed with a wide stop, and assessed on the basis of whether the fundamentals continue to support the medium-term investment theme.

  1. Stay short AUD/NOK, opened at 5.90 on 03 Dec 2012, with a target of 5.00 and a stop on a close above 6.35, currently at 5.88.
  2. Stay long risk (sell protection) on the CDX High Yield on-the-run index, opened at 506bp on 04 Dec 2012, with a spread target of 450 and a stop on a close above 550, currently at 516.
  3. Go long the Commodity Carry Basket (Crude, Corn and Base), opened at 100 on 05 Dec 2012, with a target of 112 and a stop on a close below 94, currently at 100.

Some detail on the Commodity Carry Basket: Crude, Corn and Base (CCB)

To take advantage of this increasing carry in key commodity markets, we recommend opening an equally weighted position in GSCI-style rolling front month indices in petroleum, corn and, for base, copper less aluminum.

  • Crude: long the S&P GSCI Petroleum Index
  • Corn: long the S&P GSCI Corn Index
  • Base: long the S&P GSCI Copper Index against short the S&P GSCI Aluminium Index”

Roche also has a post** on his site entitled  Goldman: 5 Strategies for a 2013 Stock Market Rally which reads as follows:

“David Kostin, Chief Equity Strategist at Goldman Sachs is very bullish about 2013.  He’s calling for a 10%+ rally in stocks.  Kostin had been bearish for much of the latter portion of 2012 with a 1250 price target on the S&P 500.  His current call is largely based on valuations which could change rapidly if corporate profits take a turn for the worse (via Business Insider):

“Valuation: 12-month target of 1575 reflects 12% potential return Our 3-month, 6-month, and 12-month forecasts are 1450, 1500, and 1575. We use six valuation approaches including DDM, uncertainty-based P/E multiple, cyclically-adjusted P/E multiple, price/book and ROE relationship.

Kostin recommends positioning for the multiple expansion using the following strategies:

…Strategies to capture growth: market, sectors, stocks:

  1. Stocks will outperform Treasuries;
  2. Equities will beat credit returns, although not on a risk-adjusted basis;
  3. Cyclical sectors will beat defensive sectors (Materials, Industrials, Information Technology will outperform Consumer Staples, Telecom, and Health Care);
  4. Double Sharpe Ratio stocks offer both high risk-adjusted earnings growth and prospective returns; and
  5. Stocks with high BRICs sales exposure will beat domestic-facing firms.”

Here is yet another post*** by Roche entitled Goldman Sachs: Top 10 Market Themes for 2013 which is quoted below:

“It’s time to start thinking ahead to 2013 already and Goldman Sachs has  a nice set of themes that they think will dominate the 2013 landscape.  Here’s more via Zero Hedge:

1. Global growth: A ‘hump’ to get over, then a clear road ahead – The biggest challenge from a markets perspective is that we see risks to growth concentrated early in the year, with Q1 likely to show a step-down in growth globally. Fiscal restraint plays a major role in that story: we expect a big increase early in 2013, but a significant fading on both sides of the Atlantic thereafter.

2. More unconventional easing in the G4 – The danger of positioning for a weaker JPY is that a convincing shift may require the BoJ to ‘out-ease’ a committed Fed, which we do not expect.

3. Termites eat away at the foundations of the ‘search for yield’ – Even though we expect the search for yield to continue, the risk-reward is falling.

4. Housing stabilisation and private-sector healing in the US – While we see continued healing in the household sector and ongoing gains in both housing starts (20% growth in 2013) and home prices (2%-3% growth in 2013), this may now already be priced in by markets.

5. Euro area a smaller driver of global risk, but still a source of tails – The best opportunities to take directional exposure to Europe have come either when the market believes that the system is close to collapse (as it did again in May) or when there is confidence that the key risks have been resolved. Neither is true right now.

6. Continued divergence between core and periphery in the Euro area – The divergence in growth between the Euro area core (Germany in particular) and the periphery (Spain in particular) is set to continue. Periphery weakness is already well-known, but the potential for German overheating is a more distinctive theme.

7. EM growth pick-up revisits capacity constraints – if EM equities outperform DM in an absolute sense, the outperformance is unlikely to be enough given the higher risk or variance in outcomes.

8. EM differentiation continues – The ‘orthodoxy’ of the central bank reaction function to inflation is also likely to vary, and so the risk in some places is that even with building inflationary pressure, policy does not necessarily tighten.

9. Commodity constraint to loosen in the medium term – we expect oil markets to return to a more structurally stable position, where the ability to bring on new supply in the $80-90/bbl range is rapidly increasing.

10. Stable China growth, but not like the old days – iron ore demand is likely to remain soft as core building demand falls, and that copper will receive a boost from the completion of new buildings in the next 6-9 months, but is likely to peak thereafter.”

Here is the final post**** from Roche’s site commenting on Goldman Sachs’ view regarding gold, entitled Goldman Sachs: There’s “Growing Downside Risk” to Gold Prices, from which I quote Roche as follows:

Interesting commentary here based largely on a forecast of a reversal in real interest rates via Goldman Sachs.  I have to say though, it’s interesting that their “lowered forecast” still implies much higher prices from here:

“Improving US growth outlook offsets further Fed easing: Our economists forecast that the US economic recovery will slow early in 2013 before reaccelerating in the second half. They also expect additional expansion of the Fed’s balance sheet. Near term, the combination of more easing and weaker growth should prove supportive to gold prices. Medium term however, the gold outlook is caught between the opposing forces of more Fed easing and a gradual increase in US real rates on better US economic growth. Our expanded modeling suggests that the improving US growth outlook will outweigh further Fed balance sheet expansion and that the cycle in gold prices will likely turn in 2013. Risks to our growth outlook remain elevated however, especially given the uncertainty around the fiscal cliff, making calling the peak in gold prices a difficult exercise.

Gold cycle likely to turn in 2013; lowering gold price forecasts: We lower our 3-, 6- and 12-mo gold price forecasts to $1,825/toz, $1,805/toz and $1,800/toz and introduce a $1,750/toz 2014 forecast. While we see potential for higher gold prices in early 2013, we see growing downside risks.”

Source: Business Insider

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*http://pragcap.com/goldman-sachs-top-trades-for-2013; **http://pragcap.com/goldman-5-strategies-for-a-2013-stock-market-rally; ***http://pragcap.com/goldman-sachs-top-10-market-themes-for-2013

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