Weekly Chartology: Goldman On Earnings – “Good, But Not Good Enough” A/K/A The Calm Before The November Storm

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homeDARPAcontributorsnewsforumszh-tshirtstoredonaterssmanifesto I Dare Paul Krugman To Debate Austrian Theory Posted by: Econophile Post date: 10/23/2010 – 15:34 Paul Krugman doesn’t know anything about Austrian economic theory but he feels competent to criticize it. He has refused to debate the topic in the past. Now a top notch Austrian theory economist is challenging him to a debate. The lure: $100,000. Will he do it? New Mortgage Crisis in Iceland: Could U.S. Be Far Behind? Posted by: asiablues Post date: 10/23/2010 – 20:48 Some scary developments in Iceland including a 41% inflation in the past three years, 63% of mortgage is underwater, and 40% of homeowners are insolvent make me wonder how far behind is the United States? Gulf Oil Spill: Mission Accomplished or Ongoing Crisis? Posted by: George Washington Post date: 10/23/2010 – 20:07 Mission accomplished … wait, WHAT??? Navigation PollsDonate To Zero HedgeRecent posts Shopping cart View your shopping cart. User login Username: * Password: * Create new accountRequest new password Zero Hedge Reads Angry BearBearish NewsBoom Bust BlogChina Financial MarketsChris Martenson’s BlogContrary InvestorCoyote BlogCredit WritedownsDaily CapitalistDaneric’s Elliott WavesDealBookDealbreakerDr. Housing BubbleFalkenblogFibozachiFund My Mutal FundGains Pains & CapitalGlobal Economic AnalysisGonzalo LiraImplode-ExplodeInfectious GreedInvesting ContrarianJesse’s Café Américain Market FollyMax KeiserMinyanvilleMises InstituteNaked CapitalismOf Two MindsOilPrice.comPension PulseShanky’s TechBlogThe Daily CruxThe Mad Hedge Fund TraderThe Market TickerThe Technical TakeThe Underground InvestorWall St. Cheat SheetWashington’s BlogWealth.netWhen Genius Prevailed Home Weekly Chartology: Goldman On Earnings – “Good, But Not Good Enough” A/K/A The Calm Before The November Storm Tyler Durden's picture Submitted by Tyler Durden on 10/23/2010 12:14 -0500

Best BuyChartologyCorporate AmericaEquity MarketsFund FlowsGoogleGross Domestic ProductQuantitative EasingRecessionUnemployment

While everyone knows that the broader economy is now largely slipping back into re-recession, so far corporate America had been relatively insulated courtesy of the low-cost of credit wealth transfer from taxpayers (whose saving potential is getting destroyed) to blue chip CEOs. Yet in Q3 even this trend is starting to gradually come to an end. As Goldman’s David Kostin says: “3Q earnings are off to a good start, particularly relative to the modest expectations that we detailed in our earnings  preview. 159 S&P 500 firms accounting for 45% of the total equity cap have reported 3Q 2010 earnings so far and 52% of reporting companies have beat consensus EPS estimates by at least one standard deviation, above the historical average of 41%. However, two points of caution have emerged: (1) 20% of firms have missed revenue estimates; and (2) large positive EPS surprises have been required for a stock to outperform the market.” Also, it appears investors now only reward 3 std dev EPS beats: “Stocks beating consensus EPS by three standard deviations have a median outperformance of 211 bp while firms beating by between one and three standard deviations have underperformed by a median of 17 bp. Notable positive surprises include Google, Parker-Hannifin, Oracle, Carmax, and Best Buy. Each of these stocks beat consensus estimates by at least three standard deviations and outperformed the market by at least 500 bp.” Is this sustainable? Of course not.

And some observations on what is coming up, and why even the “EPS beat” wave will not be sustainable:

Next week, 179 firms representing 29% of the equity cap of the S&P 500 are scheduled to report 3Q results. The bulk of Utilities, Energy and Materials companies will release earnings next week. See pages 5-9 for a complete earnings calendar.

Micro for now but first week of November looms. Despite the high volume of micro news, macro themes continue to impact markets. This week, China’s interest rate hike and continued public discussion surrounding Quantitative Easing (QE2) captured attention during the trading day between pre/post market earnings reports. 3Q earnings will be the focal point next week. However the balance will tilt heavily towards macro news during the first week of November when important data releases will provide new evidence on the trajectory of the US economy.

And courtesy of Goldman here is a calendar of the first week of November. It sure is about to get exciting, so enjoy the next week of relative quiet, which however will feature the Q3 GDP number on the 29th of October which will cements the decision on QE2 once and for all. Also, not the following prediction: “the market has already priced in $500 billion to $1 trillion of easing.” And when the Fed announces $1.5 trillion as a final QE2 amount in several months, DXY flash crashes like the one seen yesterday will be a daily occurrence.

Monday, November 1: US ISM will reveal the next step in the path of the business cycle. Consensus expects 54.5. Our US Economics team expects the ISM will fall below 50 by early 2011. Last month’s slight decline in headline ISM to 54.4 was about in-line with expectations but a negative New Orders less Inventories spread implies larger declines in the headline index over the next few months. We believe a move below 50 this year would disappoint investor expectations and pose risks to the recent rally.

Tuesday, November 2: US Election Day should provide clues on the nearterm path for policy. Polling data aggregated by Realclearpolitics.com show the GOP winning a majority in the House of Representatives and gaining seats, though remaining short of majority, in the Senate. Polls as of October 22, 2010 show 48 Senate seats safe or leaning Democratic, 44 safe or leaning Republican, with 8 seats classified as toss-ups. In the 435-seat House where 218 seats are needed for a majority, 215 seats are safe or leaning Republican, 178 seats are safe or leaning Democrat, and 42 seats are considered tossups. Conversations with investors suggest a split Congressional outcome is largely expected and would be interpreted constructively because it would slow what fund managers perceive as a negative policy environment for business. A Republican Senate majority would be viewed as a positive while no change in either chamber would be viewed negatively and provide incremental risks around that central case. Investors want the first order of business in the lame-duck session to be clarification of the tax law. Stocks will likely respond positively if the existing rates are extended for all, or at least for those with income below a certain threshold. We continue to recommend our Dividend Growth basket (Bloomberg ticker ).

Wednesday, November 3: FOMC will likely announce a second round of quantitative easing (the so-called “QE2”), but how much and at what pace? Our US Economics team expects $1 trillion of QE2 that could add about ½ percentage point to US real GDP growth. Investors generally share that view and have coalesced around an announcement of at least $500 billion of security purchases following the FOMC meeting. In addition, the consensus view is for statements that more easing will be taken as needed. We expect QE to be positive for equity markets and other risk assets but estimate the market has already priced in $500 billion to $1 trillion of easing. Our analysis also suggests that $100 billion per month of QE2 and $7.5 billion of AMG mutual fund flows have similar impact on equities. That relationship is vital as portfolio reallocation towards US equities would be very bullish for the S&P 500.

Friday, November 5: Employment report. Consensus expects employment growth of 63,000 (private payroll gain of 89,000) and an unemployment rate of 9.6%, flat versus last month. Our US Economics team forecasts the unemployment rate will rise to 10% by 2Q 2010. Our US Economics team does not expect a double-dip recession, although it assigns a 25%-30% probability of such an outcome. Non-farm payrolls and the ISM are the two most relevant data points in our economists’ US-MAP score. S&P 500 monthly performance has tracked macro surprises relative to consensus expectations more closely since 2008 so the payroll report will be a key to both the economic outlook and the near-term trading pattern.

Full report:


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by Oh regional Indian
on Sat, 10/23/2010 – 12:24

Licking my chops…. next week is definitely the calm before the storm. The “numbers” are going to be rendered completely meaningless soon enough.

We are into “revelation” time and much as we want it all revealed, it’s not going to be pretty or comfortable.

November 2nd/Nov. 3rd and then the 9th….

I can feel the blow-back as far back as now!



Login or register to post comments by fiftybagger
on Sat, 10/23/2010 – 12:24

Login or register to post comments by Orly
on Sat, 10/23/2010 – 12:37

As usual, I can’t thank ZeroHedge enough for these posts.  Information that used to cost millions is now available at the click of a button for all to see.

Just wonderful.


Login or register to post comments by French Frog
on Sat, 10/23/2010 – 14:11

…or is it misinformation/disinformation ?

Login or register to post comments by Orly
on Sat, 10/23/2010 – 14:24

It doesn’t matter.

The (dis)information is there to do with what you please.  Not many years ago, the number of people having access to Goldman (mis)analysis was miniscule- and they had to pay through the nose to get it!

You get it for free.  Be thankful.

Or, better yet, contribute to ZeroHedge, or click on Cramer’s ugly mug at least twenty times a day.

Buy a hat.  How come no one likes my hat?


Login or register to post comments by trader
on Sat, 10/23/2010 – 14:35


+1.. come here just for the news.  gotta put my filters on to get just what i need.

we can still make money with Goldman’s “dis”information.  learn their pattern!


Login or register to post comments by French Frog
on Sat, 10/23/2010 – 14:37

glad to see that you have learnt GS pattern; so, are we at the moment in information or disinformation or misinformation phase?


Login or register to post comments by trader
on Sun, 10/24/2010 – 00:05

well mr. frog, not claiming to be the smartest person here or to know the “secret” GS codes in their reports…just saying i’ve been fortunate enough to benefit from ZH.  Hat’s off to TD and the crew.


to answer your question, yes..i do think all GS public reports contain some disinformation.  How else can GS keep its paying customers (probably not us) -paying? 


Just like the “devil” squid, it mixes truths and lies and contradictories to accomplish its goals.


best of luck to you,

Login or register to post comments by French Frog
on Sat, 10/23/2010 – 14:40

nice hair: i hadn’t realised there was a hat on top of it.

and just to set the record straight, i am grateful for all the posts/threads in here: education has never been better and cheaper than at ZH

Login or register to post comments by kaiserhoff
on Sat, 10/23/2010 – 14:46

+2  Surly crowd lately, Orly.  Don’t know if it’s the full moon, or just another Tequilla sunrise.

What to you think of the yen?  The Japanese look like they’re first off the cliff with their budget, but the silly thing keeps rising.  Do the traders know something, or is it all momo?

Login or register to post comments by Orly
on Sat, 10/23/2010 – 22:00

A lot of it is tied to the Australian economy and their interest rates.  A lot of carry-trading going on between the yen and Pacific rim dollars.  Once the Australians have their real estate bubble burst and economic stagnation settles in, the government will be forced to lower interest rates, which will see a massive outflow of the AUD by the Japanese.

Or, if the US does indeed slide into recession in the Q12011, money will fly out of overbought commodities (especially the precious metals…) and tank the Ozzie market, bringing weakness to the Austrlian dollar.

Best way to play it, to me, is to short the AUDUSD.  It is in a lofty position, to say the least; priced for perfection.  Seems that things are going to get a little less than perfect from here.

The AUDJPY pair could see the 73.73 level in about a month.  After that, it should get interesting.


Login or register to post comments by Orly
on Sat, 10/23/2010 – 22:11

Ooops!  I think I misunderstood your question.  Sorry about that.  Well, take the above for what it’s worth.  😀

About the yen, in general…

Crazy.  They are in the ultimate pickle regarding their budget, especially as the population ages and with no kids to pay taxes. They can’t raise interest rates because that would crush their domestic economy and attract more money into the yen via government bonds offered at competitive global rates.  (Maybe the traders believe that the government would have no choice in the matter…)

The yen would soar, making their exports prohibitively expensive, especially to the nascent Chinese market.

Frankly, I don’t know how their ever going to get out of this.  Put some popcorn in the microwave and pull up a chair.


Login or register to post comments by WAYBACK …..WA…
on Sat, 10/23/2010 – 19:15


Login or register to post comments by rocker
on Sun, 10/24/2010 – 00:15

Did someone mention Cramer ? Try this if you think the FED, GS and bankers are NOT doing it all again.

A favorite quote often used by Tyler: Rinse and Repeat.    I am still shaking my head because I only heard

this interview tonight for the first time. Parts 1 and 3 are great too. So here it is:


Login or register to post comments by Careless Whisper
on Sat, 10/23/2010 – 12:56



Login or register to post comments by Careless Whisper
on Sat, 10/23/2010 – 12:40

how much does goldman pay to have their weekly report published here?


Login or register to post comments by Commander Cody
on Sat, 10/23/2010 – 12:47

Don’t you like getting it free?

Login or register to post comments by ratava
on Sat, 10/23/2010 – 12:49

We have QE2 coming this year, didn’t you get the flash mail yet ^_^

That should send us to the 1250s at least to see if we can hover above the autumn 2008 abyss.

Login or register to post comments by Winterland
on Sat, 10/23/2010 – 13:00

I think QE 2 announcement will be the biggest sale ever. Gold, stocks, commods, FI.

Login or register to post comments by treemagnet
on Sat, 10/23/2010 – 13:21

Well, my guess is ‘ole William “the pimp(co) rat” Gross has already called it. Like a hooker guiding her clients, um, uh…needs…the fed has gross chosing toxic MBS’s on margin.  Marinate for 10 seconds, re-read.  Okay, that is where the fed is going with QE2.  The populace, while not in equities, etc., is hurting more and more.  Take insurance, gas, rent, food, energy, lottery tickets – whatever, and jack ’em weekly and monthly.   What’ya get…..pitchforks, bitchez.  Nope, China will never allow it and to hell with the banana republics, PIIGS, all of it.  POMO is loosing its effect, like any drug.  With gains taxes going up for sure, and like TD has stated – Washington log jams, despite the popular notion that those produce the best returns, are false.  The elites and banksters have been selling equities and ready to buy puts/short this thing one last time.  Its a zero sum game.  And unlike war game’s W.O.P.R., you’ve got to play.

Login or register to post comments by Sugar Bear
on Sat, 10/23/2010 – 13:31

Republicans Win, QE is too LITE,Markets tank 7-8 %(commodities fall more).Dollar begins major rally towards destination of DXY 100+.Then lame duck congress passes a couple of bills…markets roar .Buy US natural gas ,US Dollar, and US High Quality stocks .

Login or register to post comments by Common Man
on Sat, 10/23/2010 – 13:39

Remember Remember the Fifth of November


Login or register to post comments by vote_libertaria…
on Sat, 10/23/2010 – 14:34

So how does 12,573 MBS put back lawsuits factor in to the equation???

Login or register to post comments by DUNTHAT
on Sat, 10/23/2010 – 14:52

How do they arrive at  the market has already priced in 500/1000 billion??

Didn’t the first QE launch the market from 660 to 1220 ?

Could somebody do the math??

Login or register to post comments by Vampyroteuthis …
on Sat, 10/23/2010 – 15:03

QE 2.0 will come next year after the market massacre is over. Benny is holding back and waiting for the appropriate and opportunistic moment.

Login or register to post comments by Sugar Bear
on Sat, 10/23/2010 – 15:17

Then it will be a 3-5 trillion $ task!!

Login or register to post comments by RobotTrader
on Sat, 10/23/2010 – 15:20

IBD Top 100 this week:


Top weighted S & P 500 stocks:


Top weighted Nasdaq stocks:


Login or register to post comments by no life
on Sat, 10/23/2010 – 15:22

All these guys are just doing a dance..   

Login or register to post comments by ThisIsBob
on Sat, 10/23/2010 – 17:31

I coulodn’t find the punch amid all that prose.

What is the call for the SPX close next Friday, higher or lower?

Login or register to post comments by BigDuke6
on Sat, 10/23/2010 – 18:48

If Goldman Sachs say its safe to surf this beach, lootenant , then its safe to surf this beach……


they aint a bunch of dirty dawgs, shoorely…

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