Friday, January 30, 2009

Why Would Goldman Say That?

Goldman Says Stocks Need Stimulus Plan, S&P 500 May Drop to 752

By Lu Wang

Jan. 30 (Bloomberg) -- U.S. stocks won’t rally until Congress approves President Barack Obama’s economic stimulus plan and the Treasury resolves how to use its remaining financial- rescue funds, according to Goldman Sachs Group Inc.

The Standard & Poor’s 500 Index will probably “retest,” or fall toward or below, the 11-year low of 752.44 it sank to in November, strategist David Kostin wrote in a report today. Still, the benchmark index for U.S. stocks will end this year at 1,100, a 30 percent surge from yesterday’s close, he said.

The yearlong recession and dwindling credit forced consumers to scale back spending and companies to cut profit forecasts. To revive growth, the government set up the Troubled Asset Relief Program to help banks, and the House this week passed a more than $800 billion stimulus package. The Senate hasn’t voted yet.

“Passage of a stimulus plan and resolution regarding the remaining TARP capital are critical milestones that must be passed for the S&P 500 to trade higher,” wrote Kostin, Goldman Sachs’s U.S. investment strategist.

The S&P 500 last year tumbled 38 percent, the most since the Great Depression, after the collapse of Lehman Brothers Holdings Inc. froze credit markets and more than $1 trillion in losses at financial firms eroded profits. Since sinking to 752.44 on Nov. 20, the benchmark has gained 11 percent to 835.55.

Kostin advised that investors buy health-care stocks and companies that make and sell consumer staples, or items that don’t tend to suffer a reduction in demand during a recession. Wal-Mart Stores Inc. and Centene Corp. are among companies that may benefit from tax cuts and a proposed increase in federal spending on Medicaid, the strategist said.
This is the classic “if you don’t _______ (pass the bill that gives us billions), THEN_______(the world comes to an end tomorrow)” game. The previous administration mastered this game, and it was fun and interesting for awhile, but now it’s just getting old.

In my judgment, no company who is taking any TARP money, or any nickel from the taxpayer whatsoever, should be allowed to make any statements on the future direction of the markets – PERIOD.

I’ve got news for Goldman. From a technical perspective, if we make it down to 752, we’re likely going all the way down to that pennant target of sub 300. Now we’re talking real scary – and you know what wouldn’t scare me in the least? GS being forced to mark all their assets to market TODAY. Gee, can’t say that I argue with this guy and his sign at all!

Van Halen – Jump: