The call made by David Kostin is for the S&P to gain 12% from here, anding 2013 at 1575. If you add in dividends, the gain is 14%.
So if you just buy the S&P 500, you should do pretty fantastic next year.
Why is Kostin so bullish?
The firm sees 2013 growth GDP growth of about 2%, S&P revenue growth of 4.4%, margins staying flat where they are, and S&P earnings of $107 (up from $100). After we get past the fiscal cliff, S&P multiples will expand modestly by about 5%.
So how can you do even better than the 12%?
Kostin suggests a few different avenues.
- Bet on cyclicals (like materials and tech) over defensives (like healthcare and consumer staples).
- Stocks that have experienced both high-risk adjusted EPS growth and risk-adjusted actual growth.
- Bet on BRICs exposure over domestic exposure.
This last point is particularly interesting. One of the big themes of 2012 has been the outperformance of US exposure vs. foreign exposure.
Now Goldman sees this reversing. Growth is expected to bounce back, and Goldman is above consensus in its BRICs growth estimates.
And Goldman isn’t alone.
In BofA/ML’s equity outlook, it also sees a return to over-performance among companies with foreign exposure.
Bottom line from Goldman: Buy stocks, buy BRICs, and cyclicals.
This is a very bullish outlook.
- Goldman Sachs Unveils Its Bullish 2013 Market Call (amp2012.com)
- Our market letter will return in the New Year
|What Is The Purpose of QE?
Posted: 25 Dec 2012 02:00 PM PST
As detailed earlier in the month, the Federal Reserve announced more stimulus, otherwise known as QE4, at its recent meeting.
Lots of the discussion thus far has focused on whether or not QE will happen and not on the purpose of QE.
What we discuss below is a good example of economists discussing the probability of QE rather than why QE is necessary or what it will accomplish.
So, what is QE supposed to do? Bernanke told us in his speech over the summer in Jackson Hole:
“After nearly four years of experience with large-scale asset purchases, a substantial body of empirical work on their effects has emerged. Generally, this research finds that the Federal Reserve’s large-scale purchases have significantly lowered long-term Treasury yields. For example, studies have found that the $1.7 trillion in purchases of Treasury and agency securities under the first LSAP program reduced the yield on 10-year Treasury securities by between 40 and 110 basis points. The $600 billion in Treasury purchases under the second LSAP program has been credited with lowering 10-year yields by an additional 15 to 45 basis points.12 Three studies considering the cumulative influence of all the Federal Reserve’s asset purchases, including those made under the MEP, found total effects between 80 and 120 basis points on the 10-year Treasury yield.13 These effects are economically meaningful.
LSAPs also appear to have boosted stock prices, presumably both by lowering discount rates and by improving the economic outlook; it is probably not a coincidence that the sustained recovery in U.S. equity prices began in March 2009, shortly after the FOMC’s decision to greatly expand securities purchases. This effect is potentially important because stock values affect both consumption and investment decisions.
While there is substantial evidence that the Federal Reserve’s asset purchases have lowered longer-term yields and eased broader financial conditions, obtaining precise estimates of the effects of these operations on the broader economy is inherently difficult, as the counterfactual–how the economy would have performed in the absence of the Federal Reserve’s actions–cannot be directly observed. If we are willing to take as a working assumption that the effects of easier financial conditions on the economy are similar to those observed historically, then econometric models can be used to estimate the effects of LSAPs on the economy. Model simulations conducted at the Federal Reserve generally find that the securities purchase programs have provided significant help for the economy. For example, a study using the Board’s FRB/US model of the economy found that, as of 2012, the first two rounds of LSAPs may have raised the level of output by almost 3 percent and increased private payroll employment by more than 2 million jobs, relative to what otherwise would have occurred.15
This is not the first time the Federal Reserve has laid out this argument. In a November 4, 2010 Washington Post op-ed, the day after QE2 was approved, Ben Bernanke defended their actions with the following passage:
Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.
And in January 2011 Bernanke said:
Federal Reserve Board Chairman Ben Bernanke said Thursday that a controversial $600 billion bond buying plan has contributed to a stronger stock market. “Our policies have contributed to a stronger stock market just as they did in March 2009 when we did the first iteration of this program,” Bernanke said at a Federal Deposit Insurance Corp. forum on small businesses. “A stronger economy helps small businesses more than larger businesses. Interest rates are higher but that’s mostly because the news is better. It has responded to a stronger economy and better expectations.”
To sum it all up:
We agree with half of what is written above.
QE is great for Wall Street as it produces more volatility (brokers like this), higher stocks prices (fund managers like this) and draws lots of attention (analysts like this). It is not good for Main Street because it does not create wealth. QE’s effects are not perceived to be permanent, so it does not lead to higher GDP or job growth.
What Will The Federal Reserve Do?
In Septmber we noted that the median expectation in a survey of primary dealers calls for $500 billion of additional purchases heavily tilted toward mortgage-backed securities. If the purpose of QE is to push stock prices higher, then the Federal Reserve has to deliver at least $500 billion in purchases. Otherwise it will disappoint risk markets.
Right now, if we have to guess, we believe the Federal Reserve will announce purchases of less than $500 billion. In January the Federal Reserve adopted an inflation target of 2.0%. As we detailed in a conference call last month (transcript, handout, audio), inflation expectations are running well above this target. One measure of inflation expectations, the 10-year TIPS inflation breakeven rate, is shown below. Further, in April, when Bernanke was asked if he would adopt a suggestion from Paul Krugman to expand the target to 3%, he flatly rejected the idea (explained here).
The hawks will argue expected inflation is too high to add more stimulus, an argument which will carry some weight. The compromise will be a program of less than $500 billion in purchases which will disappoint the markets.
Click to enlarge:
Source: Arbor Research
- QE4 Is Here: Bernanke Delivers $85B-A-Month Until Unemployment Falls Below 6.5%. The US Must Go Down So The World Can Go Up!!! (tarpon.wordpress.com)
- Rumors of QE4 (amp2012.com)
This is not based on fundamentals of the PRODUCTION/ operation – rather :
1) new executive
2) big money behind the potential acquisitions
3) recent move up in price likely orchestrated by the new management to build a value for a paper based acquisition
AND THAT MEANS GETTING THE STOCK PRICE OUT OF PENNIES
4) little stock available except at higher prices
Level 2 Quote
|Market Maker||Shares||Bid Price||Ask Price||Shares||Market Maker|
Reuters) – Google Inc is working with recently acquired Motorola on a handset codenamed “X-phone”, aimed at grabbing market share from Apple Inc and Samsung Electronics Co Ltd, the Wall Street Journal said, citing people familiar with the matter.
Google acquired Motorola in May for $12.5 billion to bolster its patent portfolio as its Android mobile operating system competes with rivals such as Apple and Samsung.
The Journal quoted the people saying that Motorola is working on two fronts: devices that will be sold by carrier partner Verizon Wireless, and on the X phone.
Motorola plans to enhance the X Phone with its recent acquisition of Viewdle, an imaging and gesture-recognition software developer. The new handset is due out sometime next year, the business daily said, citing a person familiar with the plans.
Motorola is also expected to work on an “X” tablet after the phone. Google Chief Executive Larry Page is said to have promised a significant marketing budget for the unit, the newspaper said quoting the persons.
Google was not immediately reachable for comments outside regular U.S. business hours.
Amazon And Google Are On A Collision Course In 2013
* Amazon, Google rivalry will escalate in 2013
* Companies compete in increasing number of areas
* Areas include: Ads, retail, mobile, cloud computing
SAN FRANCISCO, Dec 23 (Reuters) – When Amazon.com Inc CEO Jeff Bezos got word of a project at Google Inc to scan and digitize product catalogs a decade ago, the seeds of a burgeoning rivalry were planted.
The news was a “wake-up” call to Bezos, an early investor in Google. He saw it as a warning that the Web search engine could encroach upon his online retail empire, according to a former Amazon executive.
“He realized that scanning catalogs was interesting for Google, but the real win for Google would be to get all the books scanned and digitized” and then sell electronic editions, the former executive said.
Thus began a rivalry that will escalate in 2013 as the two companies’ areas of rivalry grow, spanning online advertising and retail to mobile gadgets and cloud computing.
It could upend the last remaining areas of cooperation between the two companies. For instance, Amazon’s decision to use a stripped down version of Google’s Android system in its new Kindle Fire tablet, coupled with Google’s ambitious plans for its Motorola mobile devices unit, will only add to tensions.
The confrontation marks the latest front in a tech industry war in which many combatants are crowding onto each others’ turf. Lurking in the shadows for both Google and Amazon is Facebook with its own search and advertising ambitions.
“Amazon wants to be the one place where you buy everything. Google wants to be the one place where you find everything, of which buying things is a subset,” said Chi-Hua Chien, a partner at venture capital firm Kleiner Perkins Caufield & Byers. “So when you marry those facts I think you’re going to see a natural collision.”
Both companies have a lot at stake. Google’s market capitalization of $235 billion is about double Amazon’s, largely because Google makes massive net earnings, expected by analysts to be $13.2 billion this year, based on a huge 32 percent net profit margin, according to Thomson Reuters I/B/E/S. By contrast, Amazon is seen reporting a small loss this year.
Amazon shareholders have been patient as the company has invested for growth but it will have to start producing strong earnings at some stage – more likely if it grows in higher margin areas such as advertising. Google’s share price, on the other hand, is vulnerable to signs of slowing margin growth.
Not long after Bezos learned of Google’s catalog plans, Amazon began scanning books and providing searchable digital excerpts. Its Kindle e-reader, launched a few years later, owes much of its inspiration to the catalog news, the executive said.
Now, Amazon is pushing its online ad efforts, threatening to siphon revenue and users from Google’s main search website.
Amazon’s fledgling ad business is still a fraction of Google’s, with Robert W. Baird & Co. estimating Amazon is on track to generate about $500 million in annual advertising revenue – tiny, given it recorded $48 billion of overall revenue in 2011. By contrast, 96 percent of Google’s $38 billion in 2011 sales came from advertising.
But Amazon’s newly developed “DSP” technology, which taps into the company’s vast store of consumer purchase history to help marketers target ads at specific groups of people on Amazon.com and on other websites, could change all that.
“From a client’s perspective, the data that Amazon owns is actually better than what Google has,” said Mark Grether, the chief operating officer of Xaxis, an audience buying company that works with major advertisers. “They know what you just bought, and they also know what you are right now trying to buy.”
Amazon is discussing a partnership with Xaxis in which the company would help Amazon sell ads for the service, Grether noted.
- Google working on “X Phone”, “X” tablet to take on rivals (todayonline.com)
- Forbes: Motorola Deal Costs Google $1.5 Billion Only (goandroid.co.in)
- It’s Becoming Abundantly Clear That Google Doesn’t Want To Share Android Anymore (GOOG) (businessinsider.com)
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