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Top Tips for 2010, courtesy of Goldman Sachs

Discussion in 'General Investing Discussion' started by Tropo, 3rd Dec, 2009.

  1. Tropo

    Tropo Well-Known Member

    17th Aug, 2005
    Hot off the press, I have just received the “Top Ten Trades” for 2010 from Jim O’Neill – Manchester United fanatic, eternal optimist, China lover, and head of the markets team at the Goldman Sachs.
    Bizarrely, there are only eight of them but let’s not be fussy, and some of these are incomprehensible to all but quant anoraks.
    So here are a few.

    Long Russian Equities – on the grounds that GDP will recover from its collapse of 9.5pc of GDP this year to growth of 4.5pc next year, along with 60pc earnings growth.
    Russian stocks have lagged other emerging markets. (For a good reason, one might quibble, since President Medvedev himself says the country has succumbed to “legal nihilism”.
    Of course, Goldman Sachs was expecting Russia to boom this year – not to go into depression – but lets not quibble about that either).

    Long Sterling (against the Kiwi dollar of all things): Actually, that is a great idea – the pound and the kiwi are massively misaligned by historical measures.
    GS says New Zealand’s central bank will raise rates more slowly than markets think. The Bank of England will tighten more, by 300 basis points by late 2011.

    Short Turkish credit because rates will rocket to tackle rising inflation.

    Short Spain/Long Ireland: This is interesting.
    Goldman Sachs says both countries are “boom-bust” property disasters but Ireland “looks better placed to outgrow its debt” and has shown “greater resolve” in taking the axe to spending. Spain’s “behind-the-scenes” bank cleansing is not credible.
    I agree totally. Goldman Sachs plays this through 5-year credit default stops (CDS). Don’t ask me how to do it. This is hedge fund stuff.

    Long Polish zloty (against the Japanese yen).
    The zloty is “clearly undervalued”. Meanwhile, Jim O’Neill thinks the yen is dogfood. Perhaps, but I am not sure that Goldman Sachs is right in betting on intervention by the Bank of Japan to drive it down – at least not yet. Are the Kabuki artists at the BoJ and the Hatoyama government capable of any action at all, other than hurling abuse at each other?
    Touchingly, Goldman Sachs is keeping its faith in Great Britain. The UK economy will be the second-fastest growing economy in the G5 in 2010, at 1.9pc behind the US at 2.1pc. It will be the fastest in 2011 by a long shot at a galloping 3.4pc. Wow. Thank you, Jim.
    He may amazingly be right. We devalued 30pc on leaving the Gold Standard 1931 and went on to be the star performer (with Sweden) of the 1930s. That outcome looked pie in the sky to most people in 1931, or 1932, or even early 1933, but it was very clear by 1934.
    By then the tables had turned entirely. Those with lots of gold who felt so pleased with themselves at the start (ie France), suffered the most – but it took six years.
    This is not to say that devaluations are good, but there are certain very rare moments when they can be. This is one of them. The effects of currency shifts may be slow, but they are very powerful.
    By the way, did anybody see that Mercedes is relocating a fifth of its C Class plant to Alabama for cost reasons?
    Well, well.
    Top Tips for 2010, courtesy of Goldman Sachs – Telegraph Blogs