Who You Gonna Trust? Goldman Sachs or Me?
In November 2014, Goldman Sachs predicted that 2015 would see a 3.1% rise in GDP by the end of the year. They maintained that we would see “accelerated growth” because “We have arrived at a pretty strong recovery.” They prognosticated that home building still had “quite a bit of upside.” (Goldman Sachs) For U.S. stocks, they predicted they would continue their upward trajectory in the first part of the year and then flatten out.
I said, to the contrary, the year would look more like a recession for the U.S. right from the beginning and that stocks were already topping out. No more upward movement.
And what do you see? U.S. GDP is hovering at recessionary levels, and the stock market has bounced along sideways, bumping its head against an invisible ceiling that it just can’t seem to get beyond. There has been slight upward movement but very little.
Now the same strategist at Goldman says he thinks the market is going nowhere, noting that U.S. GDP stalled at a miserable 0.2% for the first quarter. (Naturally, the federal government has just decided it needs to tweak the way it calculates GDP in a manner that will make the number higher next time around. Than God, they’ve found a way to make the number look better, or we might actually go into recession.)
Goldman is actually forecasting a market sell-off and a recovery — a more bearish scenario than unchanged. Investors should consider the possibility that Goldman might be right. Many investors have forgotten what a 10 percent decline feels like and are likely to become concerned as prices fall. A sell-off could be deeper than expected and a 15 percent decline seems likely once selling pressure creates a small panic. (Newsmax)
While Goldman never predicted a stellar year for stocks in 2015, it seems they are downshifting toward my predictions. I further predict, however, they will be wrong about the uptick at the end of the year after the sell-off. They claim a sell-off shortly and then a recovery that will bring stocks to a higher position than they are today.
The stock market’s dangerous overhang
The S&P 500’s price-earnings ratio of 18.2:1 puts it in the 99th percentile of history. Stock pricing doesn’t get much more top-heavy than that. These high valuations, says Goldman, will constrain any upward movement in the U.S. stock market.
I have been saying this for half a year, and upward movement does, indeed, seem quite constrained. Given Goldman’s usually optimistic outlooks, this can be counted as a “sell.”
Other investment chiefs now agree with me about current stock market perils
Vanguard’s chief, Jack Bogle, says,
“There is an awful lot to worry about right now. There is no question about that” and advises cautious investing. (CNBC)
Mitch Goldberg, president of an investment firm named “ClientFirst Strategy,” sees
“dangers that are making a move to cash with some stocks look really attractive…. Regardless of exactly when the Fed moves [on interest rates]—be it later this year or sometime next year—investors need to reset their stock expectations starting now.” (CNBC)
U.S. stocks may have touched and barely passed their last poke through the ceiling in the past week, but that upward bump was too insubstantial and short-lived to mean a thing. It’s like statistical margin of error. Bets in the future’s market are becoming more short-term; people are staying away from long position; and very few investors are trading at all. To me, this all feels like the calm before the storm when a few large firms are starting to finally realize “Oh, oh, the top is here. The fall is next.” Trading volumes have been uncommonly low, and that is typical of a market that has topped out.
All along, I have maintained that the market was floating upward on all the money created by the Fed. Naturally, then, I have argued that once there is very little new money coming in from the Fed, the market would crash because it is totally dependent on the Fed’s money printing. And that is exactly what we now see.
I feel comfortable about my predictions last summer that the stock market would crash last fall when the Fed ended quantitative easing. After a brief but scary drop in October, it did recover because the Fed didn’t completely end quantitative easing and still hasn’t, but the market topped out quickly after recovering in November, and it has remained poised for a fall ever since.
Now, the big boys are starting to catch up with me and are predicting a likely market fall, too. They are not predicting a crash — just a 10% correction — but a crash is what will happen if the Fed doesn’t immediately leap to the rescue with giant amounts of additional free money, which won’t go far if they do, but may hold of the inevitable a tiny bit longer.
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