Posted on 07/05/2010 4:34:40 AM PDT by blam
GOLDMAN’S GLOBAL LEADING INDICATOR ROLLS OVER
5 July 2010
by TPC
The sharp change in trend in the ECRI’s leading index has been widely reported, however, Goldman Sachs has their own leading indicator and it is exhibiting the same negative trend seen in the ECRI’s leading index. Though the change in trend is alarming it is not a cause for panic as it is coming off of very high levels and is not occurring during a recession (according to Goldman):
“Our improved GLI comes at a particularly important time for assessing the cycle. Although our original GLI had not shown a clear peak, we have pointed out for some time that it has been distorted by trending issues in the past few months and that signs ‘under the hood’ have pointed to some slowing in momentum. The improved GLI shows that message more clearly, with a peak now visible there. This suggests that the pace of industrial growth is set to decelerate, although from extremely high levels, an outcome that would be consistent with our GDP forecasts.
Markets are increasingly focused on what this kind of slowing in momentum will mean. As usual at this point in the cycle, the key issue is the extent of deceleration. The acceleration phase in recovery inevitably ends and that point was always likely to come in 2010H1. But, as we show once again, while that shift means a more moderate picture for risk assets, the deceleration is generally only a clear negative event if the slowdown is severe. Although our US forecast is still firmly below consensus, our global forecast does not envisage a sharp slowdown. That said, we will continue to pay close attention to the incoming data on this front, starting with the new release of the GLI tomorrow.”
What does it all mean for the various asset classes? Not surprisingly, when the GLI is in decline equities tend to undperform, bonds outperform, volatility spikes and credit spreads widen:
“Within equities, the performance differentials between periods when the GLI is rising and falling are on average very large, although of course heavily influenced by the impact of serious downturns and recessions. The differences are strongest in emerging markets (EM) and in cyclical equities (our Wavefront growth basket shows that cyclicals tend to outperform strongly in ‘up’ phases and underperform strongly in ‘down’ phases).
Commodities show a similar pattern. But the relationship is strongest for industrial metals including copper (this is true even if they are excluded from the GLI), and least strong for gold and other precious metals. Interestingly, at least over the sample period here, oil has behaved with a strong cyclical bias too.
Bonds display the opposite behaviour, with a strong tendency for yields to fall when the GLI is falling and significant rises when the GLI is rising. That tendency is largest in the US market (front and back) but visible in other majors. There is also some tendency for the yield curve to steepen more when the GLI is falling.
Unsurprisingly, given the other results, credit spreads and equity volatility (as measured by the VIX) also tend to move significantly higher on average during phases when the GLI is falling and narrow when it is rising. These differences have been extremely pronounced in the recent downturn and—as we have described elsewhere—tend to be most dramatic at the ends and beginnings of cycles.
Experience in FX is more mixed. In general EM FX tend to perform better when the GLI is rising than falling and, within the G10, the commodity currencies are by far the most reliably related on the positive side to phases of the GLI. That said, the GBP, SEK and NOK are all confirmed to be more ‘cyclical’ in this simple analysis than the EUR. On the other side, the CHF is the least cyclical of the G10. Within the G3, the message is more mixed—and more varied over time—but there is a modest tendency over the long term for the USD to do better when the GLI is deteriorating.”
Source: GS
The content on this site is provided as general information only and should not be taken as investment advice. All site content shall not be construed as a recommendation to buy or sell any security or financial product, or to participate in any particular trading or investment strategy. The ideas expressed on this site are solely the opinions of the author(s) and do not necessarily represent the opinions of firms affiliated with the author(s). The author(s) may or may not have a position in any security referenced herein. Any action that you take as a result of information or analysis on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.
Then it is a depression
To many anacronyms.
Poor article
“To many anacronyms.
Poor article “
You were supposed to be impressed by all of the financial JARGON. I guess it didn’t work with you ;-)
Speaking of language, the phrase “Goldman Sachs has their own leading indicator” in the first sentence immediately put me on guard with it's singular “Goldman Sachs” paired with a singular verb “has” and a plural pronoun “their”. The message received at the outset is that the writer flunked English grammar; how could he possibly had an orderly mind in his quant classes?
Sorry, but if something can't be put into simple English, it's not a coherent idea. The writer needs to get "under the hood" with a copy of Fowler and/or Strunk & White.
I’ll wait for the ZeroHedge translation into a tidy single sentence. The “acronyms” are just for the GS-bots with their blackberry screens.
You would have to be stupid or insane to believe that GS would put out any information that was intended to help non-GS investors.
They print either lies or the truth concealed by so many lies, both have the same deceptive purpose and effect.
That's amazing...Denninger is on top of this crap."
"I don't trust anyone for anything anymore.
18 posted on Monday, July 05, 2010 8:54:24 AM by blam
We've lost this war about 15 years ago ("if your child... they better"). First the leftist insisted on he/she, then the public responded with a simplification: let's say everything in plural -- wouldn't that be gender-neutral?
How about a more recent phenomenon: "off of" in place of "off" or "from?"
ANother "conservative" that defames without a moment hesitation. Very moral, very conservative...
Perhaps, but it would have been easy enough to write “Goldman Sachs has its own ....”
I still say this is sloppy thinking betrayed by sloppy grammar ..... unless one takes the ultra cynical, almost tinfoil hat view that GS’s attorneys have required a few such glitches in syntax be placed in the presentation to provide a legal defense of “imperfect proofreading” when the tort lawyers sue over consequent financial losses.
I could just as easily have copied your statement and retorted, “Another “conservative” who thinks that anything in the banking or financial industry equates to capitalism and/or the free market, unaware that most of the “megas” are socialists and have global socialism as an end-game.”
OK, Mr. Conservative.
Why don’t you list for me the good financial advice that GS has given over the past 10 years?
And why don’t you also explain to me how a mega, international-bank, that takes funds from the taxpayer to bail out their risky investment schemes that end in failure, and that takes additional taxpayer funds via TARP and other Stimulus to invest in the equities market to recoup those losses (HFT, anyone), equates with conservatism or the free market?
Everything GS does is for the profit of GS...including giving an obscene amount of cash to Obammie the Commie’s presidential campaign.
Of course, THAT was one of their best investments to-date.
That would be at odds with logic. I responded to a specific statement you made, which is grossly over-reaching and factually incorrect: ""You would have to be stupid or insane to believe that GS would put out any information that was intended to help non-GS investors." Counter-examples are immediate but one would suffice: the research department of GS, just like any other research department, issues its opinions on equities and credit instruments. As all such departments, their reputation hinges on the accuracy of the issued recommendations. It is widely used and even blindly followed by some because of the reputation acquired in the past.
Actually, you reveal gross misunderstanding of the issue when you speak of GS in this context. It's just like saying, "The Smith family, all 200 members, likes ham. You hardly stand a chance of being correct.
Goldman, just like other banks, just like GE consists of multiple business units (SBUs), some which are even prohibited from interacting with each other. These units are regulated by different laws and perform different functions. One the main tasks in the analysis and design of organizations is to allocate functions and duties at an appropriate level: corporate, SBU, division, department, brand. Conversely, when a failure occurs, one has to determine first at which level that failure occurred. Without understanding of this structure and issues, you lump everything together.
Next, you put words in my mouth (and thoughts in my brain): "who thinks that anything in the banking or financial industry equates to capitalism and/or the free market."
Again illogical. I've never said anything to that effect in my post --- or any post, any conversation in my life.
Yet another logical mistake you commit is taking part for the whole (pars pro toto). I claim that one issue in some category was address by you incorrectly. Regardless of whether the case, you in return claim that this is my opinion about all issues in that category ("anything in the banking or financial industry").
which bring us back to the original post. Jews and Christians believe in Commandments, one of which is to refrain from serving as false witness. If you say something negative about someone, you better have proof. The onus is you to prove what you said. You, like many on this forum, showed no evidence that you are even concerned with this aspect. Hence my reply.
The scientific method, too, dictates that we refrain from judgment when sufficient data are not available. You indicate no evidence, neither in the original nor in the subsequent post, on which your conclusions are based. Again, logic and scientific method places the onus on you in this case.
What you did reveal is that you take sides rather than stand on principle: you hate GS, hence GS is wrong not matter what issue is being discussed. This is opposite of what Americans pride themselves in. Even in courts we prosecute people for their acts and not for who they are. We attack a murderer because of the murder, not because he is a bad son or failed chemistry.
When you speak of a specific action of GS, therefore, attack that action. You have failed to do so and indicated instead why GS is bad. This is opposite to Judeo-Christian morality on which this country stands. Hence the ending of my first post: there is nothing conservative in the position you have exhibited.
It is easy to explain: no such thing happened. TARP was forced on the banks, and GS did not need it all. A week before it raised $6B from Warren Buffet. If it wanted more, it could raise more in the capital markets. Wall Street never asked for the bailout and even resisted it. It was Detroit that was begging congress.
You have swallowed Commie propaganda lock, stock and barrel. Do you notice how nobody, literally nobody is mad at Detroit? This is because it is now owned by "workers" -- -the trade unions. Commies don't want you to be mad at the "proletariat." They, as did FDR and Hitler before, directed your anger at Wall Street --- also as before, at the expense of trith.
They are very successful, judging by the posts on FR and yours in particular.
"to bail out their risky investment schemes that end in failure,"
Another myth. There are several distinct crises that are occurring at the present time. The financial crises was precipitated by the abrupt reversal of policy and, in contrast to the 30-year-long policy, letting Lehman fail without any signal to the markets. In response, credit markets froze. If loans become more risky, banks raise interest rates. But when they cannot even estimate risk, they stop lending. The rules of the game has abruptly changed, the government did not indicate what the new rules were, and all lending froze (except for morgage-backed securities that supposedly precipitated the crisis --- these continues to trade, showing again the falsehoods of the myths you hear). The effects of this crisis are amplified by the behavior of American consumers, not banks: our national savings have dropped from 10% to 1% and stayed their for almost two decades. Just as in the case of an individual, there is nothing worse than to be in a crises without savings. And that's where we are.
The second crisis is in housing. It was entirely created by the Community Reinvestment Act of 1998 which prescribed the proportion of bad loans to be given to the "underprivileged." This proportion was gradually increased --- to 52%, in 2007. As a result about 12 million Americans received the loans that they cannot pay back. Yes, the markets (financial markets, i.e., Wall Street) accommodated this process: that's what the markets do, accommodate demand. And the demand came from the government. "to invest in the equities market to recoup those losses (HFT, anyone), "
This is such as complete nonsense that I don't even know how to address. None of it is true. The banks don't take funds to invest in equities: they borrow from the Fed at low rates and lend at higher rates; equities have nothing to do with this. You should also understand that this is the way for the Fed to recapitalize the banks (I cannot explain here what that means). HFT is simply one of computerized trading strategies, which existed long before the crisis.
See, you don't understand a word of what you are saying. But, following the commie propaganda, you have accumulated a long list of the supposed evils perpetrated by GS.
Which once again brings us to my original reply: you don't care whether you defame honest, hard-working people. And that is, by the way what GS is: 30,000 employees, honest hardworking people just like those at Alcoa or your nearest grocery store.
Have a good day.
Actually, I revealed a lot of study and understanding on an organization that supported communism from its early days and still does.
Actually, I revealed a lot of study and understanding on an organization that supported communism from its early days and still does.
You, on the other hand, attacked me for attacking that organization.
Sorry, I didn’t know that you are somehow tied to GS.
But, hey, I’ll say it again with different words
You’d have to be a fool to trust GS.
No, as I explained at length I criticized your attacking GS for a wrong reason. I would think that a conservative knows the distinction in the first place. You appear unable to understand it even if it is explicated in detail. I would think a conservative would be appalled if a robber were convicted for murder anywhere in America. Not only you are not appalled --- you are cheerfully doing the same.
"Sorry, I didn’t know that you are somehow tied to GS."
Now you confirm that you have not made a mistake: you have a habitually wanton disregard for truth and habitually defame people.
I feel sorry for my country: someone who fancies himself a conservative has not a shred of morality in him --- does not know, in fact, what is. You don't even know the country you supposedly stand to preserve.
Sorry I wasted my breath in talking to you.
Have a good day.
I didn’t bother reading your ridiculously long posts.
Anyone who thinks GS is an A-OK capitalist enterprise can’t be writing anything worth reading.
It is pretty clear that you have not read the Bible for the same reason. Come to think of it, most textbooks are of a considerable length also. It's clear you've forgone them too.
It's amazing how proudly some people announce their stupidity.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.