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Goldman Throws In The Towel, Says Fed Cuts Coming In July, September
Over the past several weeks, as bank after bank threw in the towel and adopted rate cuts as their baseline outlook for the Fed following the Mexico tariff escalation, Goldman didn't budge.
Although the bank did admit on several occasions that rate cuts were becoming more likely, Jan Hatzius and co. never took the plunge ahead of the June meeting, where that meant adopting cuts as the base case. Goldman was - pardon the Fed joke - "patient".
That changed on Wednesday evening, at 8:57 PM.
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Goldman seems to hire a lot of young people with excessively elementary quantitative and intellectual financial models. A year ago they were forecasting what were supposed to be basically parallel yield curve shifts going forward. But then, the “old pros” at UBS are getting things even more wrong fairly consistently.
And we thought the dot-com bubble was huge. This one will be tremendous. The best ever. Set your clock for the top in about 12 months when there’s no more ammo to use. Or maybe the new fed chief can push it past the election?
We are not yet in a bubble. If you take EPS for what they are now, current levels of corporate spreads, US10Yr yields, premium risk 2%, VIX 14% I obtain a fair value of 2965 for the S&P500.
But if EPS start declining then yes, the stock market will be overvalued. Fact is that we don’t know yet if this new QE wave can or not stimulate again the cycle and increase corporate profits.
The problem could be that the market anticipates too much the supposedly positive effects of these rate cuts, and after breaking 3000 it rallies fast to 3500 say in 9 months. Then yes, we will be in a bubble.