Posts filed under “Research”
Two reports from different wirehouses caught my eye yesterday due to their amazing Yin and Yang nature.
First up, the always excellent Equity & Quant Strategist at BAML, Savita Subramanian (the Yin), issued a report titled Wall St. Proclaims the Death of Equities. The report discusses the firm’s proprietary sell-side indicator, which has reached near record levels of bearishness, which is of course bullish for stocks. So much so that its current level implies a 12-month S&P500 target of 1665. (It should be noted that the indicator’s focus is equity allocation: It “is based on the average recommended equity allocation of Wall Street strategists as of the last business day of each month. We have found that Wall Street’s consensus equity allocation has historically been a reliable contrary indicator.”) Although it’s about equity allocation, bear with me here.
Here’s a look at the chart. (Note that 1665 is not BAML’s official S&P target – it is the implied target based on this one indicator, not the firm’s official position.)
No sooner had I read that report when, lo and behold, I come across a piece of research from UBS’ estimable Chief Strategist Jonathan Golub (the Yang) who, as if on cue, sliced his S&P500 forecast by 100 down to 1375 and shaved $1.50 off his S&P earnings, down to $103.50. (I am, perhaps a bit unfairly, construing Mr. Golub’s call as effectively the equivalent of a reduction in equity allocation. As he’s cut his target by 6.7% and called for the remainder of the year to be flat, I don’t think that’s too much of a stretch.)
Said Mr. Golub:
We are lowering our S&P 500 year-end target to 1,375 from 1,475 on three main catalysts: (1) deterioration in incoming U.S. economic data; (2) the Supreme Court’s healthcare ruling, which we believe will contribute to greater partisanship ahead of year-end fiscal discussions; and (3) a more contentious tone among European policymakers, despite some success at the most recent Euro summit.
We are lowering our S&P 500 earnings estimates for 2012 to $103.50 from $105, and for 2013 to $110 from $113. Our lowered estimates reflect moderate U.S. GDP, weaker non-U.S. growth, additional dollar strength, and a more difficult operating environment for Financials.
And an interesting chart from Mr. Golub:
As the exhibit below highlights, the vast majority of market’s rebound was achieved in the early days of the recovery as a result of earnings strength and a re-rating of multiples from depressed levels. By contrast, the market’s 12% rise over the past two years has been characterized by flatter returns with greater volatility.
If there’s been a better example of research Yin and Yang, I can’t remember what it was. Fascinating stuff from two great strategists.
Finally, I’ll note that I’m starting to see a real divergence of opinion opening up on where markets are headed, this being the most recent – and obviously glaring – example. It will be interesting to watch it all play out.
Rosenberg, exactly 5 years ago today in May 2007: > click for full report > Invictus here. In my Barron’s Big Money post, I mentioned attending a small dinner in October 2007 at which David Rosenberg was the speaker. In comments, Hamann asked if I could provide any additional insight into what he had shared…Read More
Though the data are always a bit dated, the Fed’s Flow of Funds report is always of interest to me, as it paints fairly comprehensive pictures. My favorite part of the release is Table B.100: Balance Sheet of Households and Nonprofit Organizations, in which much can be gleaned about the health of households in the…Read More
> The folks at the St. Louis Fed – about whom I can’t say enough good things — produce a proprietary Financial Stress Index, a full explanation of which can be found here [PDF]. A full deconstruction of the Index is, frankly, a bit above my pay grade. What’s not, though, is exploring the correlation…Read More
A chart made the rounds last week that purported to prove Nouriel Roubini and David Rosenberg are excellent contrary indicators as relates to the stock market. The chart was simply the S&P500 annotated with alleged market commentary by the pair — bearish at the lows, bullish at the highs. It eventually made its way over to the estimable Doug Kass, who posted it. (Mr. Kass had no part in the chart’s creation, and this is not a quibble with his decision to post it. Further, I’m a big fan of his contrarian style.)
The truth — at least as it relates to Rosie — tells a bit of a different story. In March of 2009 — on the 4th, to be precise — Dave was “looking for reasons to turn bullish” and “believe[d] the stage [was] being set for sentiment to become completely washed out, which is what it takes for contrarians to become constructive.”
Below is a page from his report that day (highlights were made by me three years ago and not for this post):
> The graphic above, via Jon Bruner of Forbes, reflects the enormous American contribution to Arts & Sciences over the past century. What is intriguing is not just that the US has won so many prizes, but that the a third of American Nobels have gone to immigrants to the US: “The United States has…Read More
Herewith a potpourri of unrelated items I’ve found on my never-ending voyage through the internet. Grab a cup of coffee and pull up a chair. Seen This Movie Before First up, an excerpt from a speech given by Teddy Roosevelt in December 1906. I was taken by the opening line and the third paragraph. Indeed,…Read More
The Census Bureau released its annual report on Income, Poverty, and Health Insurance Coverage: 2010 (full PDF) this morning. Barry has posted the slide presentation that staff went through during the conference call over in the Think Tank (please have a look). The (very ugly) bullet points from the release can be found here, and the…Read More
Via Paul Krugman, I’m led to this WaPo piece about the imminent demise of the Statistical Abstract of the United States, which is an invaluable resource for all manner of at-a-glance data. Regardless of one’s ideology or political leanings, I think we can all agree that more information is better, less information not as good,…Read More
Forecasting is a rough gig that often confounds even those who do it for a living and generally do it well. Situational awareness (see e.g., this and this), on the other hand, is all about knowing “what you need to know not to be surprised,” and having “the ability to maintain a constant, clear mental…Read More