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Goldman Capitulates (Again): Downgrades Q1 GDP To 2.5%, Sees Outlook For H2 As "Messy"

Tyler Durden's picture


No QE3? Really? Oh yes, Zero Hedge 1, Goldman Sachs (who can possibly forget Goldman's shark jumping "New US Golden Age" report from December after all it took was one bad NFP print for Goldman to launch QE2 back in August?) 0 (here and here)

Just out from Jan Hatzius

1. With the first quarter now behind us, we have downgraded our Q1 GDP estimate to 2.5% from 3.5%. By itself, that’s not a big deal. Most indicators other than those that happen to go into the GDP bean count—in particular, virtually all business surveys and labor market indicators—continue to look solid and are probably a more accurate guide to the economy’s true strength. We believe that first-quarter GDP was held down by temporary factors, including poor weather and perhaps a bad draw from noisy data. Because temporary factors must eventually reverse by definition, this could mean a very strong quarterly GDP reading in Q2 (we are at 4%).

2. But the risks to our second-half GDP forecast of 4% also remain on the downside, and that’s more meaningful. We don’t see anything dramatic at this point, just a few weaker signals here and there. Gasoline prices are making new highs again, fiscal policy is starting to tighten a bit more aggressively, and a couple of indicators—specifically ISM new orders and consumer expectations—have softened a bit. So H2 is on downgrade watch.

3. The inflation news is also a thorn in our side. We still think the pass-through from commodity prices into core inflation will be very limited, and there is still a large amount of slack even after the 1-percentage-point drop in the unemployment rate over the past four months. But the core inflation data has clearly been a little firmer than we thought, with rent and owners’ equivalent rent leading the way. At some level, this sounds a bit odd because it’s hard to believe that the battered housing sector is a genuine source of upside inflation risk. Nevertheless, the risks to our forecast that core inflation will stay at 1% are on the upside.

4. Some Fed officials have reacted to the firmer inflation numbers by slightly hedging their earlier calls for continued accommodation, emphasizing that significant second-round effects and higher inflation expectations would not be tolerated, and implying that monetary policy may need to be tightened a bit earlier than they had thought a few months ago. We share this view; given the recent data, the risks are skewed toward a somewhat earlier date for the first rate hike than our current forecast of 2013Q1.

5. But other Fed officials go far beyond this and sound a lot more concerned about the possibility of an inflationary outbreak. There is now a serious split on the FOMC. We believe that the split partly boils down to a disagreement about the significance of the monetary base (currency plus bank reserves held with the Fed). The base has tripled from $800 billion before the crisis to $2.4 trillion now, mostly because of a huge increase in excess bank reserves in the wake of the Fed’s large-scale asset purchase program. Some Fed officials, as well as many investors, believe that the increase in the base represents a large inflationary potential, over and above the factors emphasized by the FOMC majority such as GDP, employment, wages, capacity utilization, and input costs. Thus, they take any acceleration in inflation or inflation expectations as a potential signal that the dreaded day has arrived, at a time when the Fed is still “feeding the fire” by continuing to buy Treasuries.

6. Some of this particular concern may be rooted in the traditional money multiplier theory, which holds that the availability of bank reserves is the key constraint on bank lending. It implies that banks will eventually “use” the excess reserves to make significantly more loans. This, the story goes, will lead to a sharp increase in credit creation and ultimately inflation.

7. We disagree with this story and so, we think, does the FOMC majority. [TD: which means this is guaranteed to occur] It stands and falls with the assumption that (bank) loans are financed by deposits subject to minimum reserve requirements, and are therefore “constrained” by the amount of reserves in the system. In reality, however, most bank loans have long been primarily funded from sources other than deposits subject to minimum reserve requirements, including nontransaction deposits, bonds, and commercial paper. This means that bank lending was not constrained by the availability of reserves even prior to the increase in excess reserves. Relieving a non-existent constraint cannot be important for credit creation or inflation. If so, the monetary base is essentially meaningless. (This does not mean that QE2 had no effect, but it does mean that the effect is much more limited and works through the impact of the Fed’s larger asset holdings on bond yields and financial conditions, not through the liability side of the Fed’s balance sheet and the monetary base.)

8. The upshot is that the growth news is a little worse, the inflation news is a little worse, and the risk that the Fed might tighten before early 2013 has gone up a little. None of this is dramatic, and we think the basic story of good growth, low inflation, and friendly monetary policy that we have been telling since late last year still stands. But it’s all a little messier than we would like.


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Sun, 04/03/2011 - 20:46 | 1130868 vas deferens
vas deferens's picture

Another very bullish sign for the market.

Sun, 04/03/2011 - 20:55 | 1130888 Ahmeexnal
Ahmeexnal's picture

GLOBEX opens and silver shoots past $38.


Sun, 04/03/2011 - 21:23 | 1130952 CPL
CPL's picture

Until May.


Sell in May then go away.

Mon, 04/04/2011 - 12:26 | 1132849 tamboo
tamboo's picture

maybe theyll beat you to the punch
and pull the plug on black friday part 2 april 29.

"The world is within a 20 trading day window of the greatest asset valuation collapse in history. Intuitive is the premise that without the multitrillion exnihilo ('out of nothing' - G) dollar bailout by the world's central banks, world equity/commodity valuations would be less than their current bubble value. This money printing is beyond any historical provided easy credit. The results will likewise be historical."

(page down to lammert's latest outlook)

Sun, 04/03/2011 - 20:47 | 1130870 WaterWings
WaterWings's picture

Just watched Fight Club again. Us space monkeys are proud. Tyler, we thank you.

Sun, 04/03/2011 - 20:48 | 1130877 bankrupt JPM bu...
bankrupt JPM buy silver's picture

I am in a fight club...and some guy in it asked me if I read ZH....fuck, if he only knew. (and yes I already violated rule 1 of FC)

Sun, 04/03/2011 - 21:01 | 1130908 Selah
Selah's picture

Dude, could you get some control over the morons that post on your blog?


Sun, 04/03/2011 - 22:30 | 1131107 slow_roast
slow_roast's picture

He is the moron that posts on his blog. 

Sun, 04/03/2011 - 20:53 | 1130881 random shots
random shots's picture

and the futures yawn...there most be some hidden message in the report that reads "sell on x date" <tin foil hat\off>

Sun, 04/03/2011 - 20:53 | 1130882 Long-John-Silver
Long-John-Silver's picture

Silver is above $38 an ounce. Silver is an antiviral substance for Banksters after all.

Sun, 04/03/2011 - 21:13 | 1130929 Selah
Selah's picture


Yes, Silver has anti-bankterial properties...


Sun, 04/03/2011 - 20:53 | 1130884 Astute Investor
Astute Investor's picture

I guess "messy" = 1500 target for SPX...

Sun, 04/03/2011 - 20:52 | 1130885 RobotTrader
RobotTrader's picture

Funny how Goldman flip flops on its economic outlook, currency targets, etc.

They keep vibrating the traders like a huge sheet of sheet metal, constantly bucking them off, causing them to lose their grip on their positions.

Typcial PigMen shakedowns.

Sun, 04/03/2011 - 21:06 | 1130919 disabledvet
disabledvet's picture

they got a vibrator alright.  "it's all the buzz" from what i hear.

Sun, 04/03/2011 - 23:53 | 1131326 rocker
rocker's picture

My wife said the Hitachi Magic Wand I got here was the best gift ever. I get all the good stuff I need now. Trust me guys, buy your lady one. 

Hitachi knows how to Melt my little lady and they know how to Melt a City. Unlike GE, they really do it all.


Sun, 04/03/2011 - 21:45 | 1130993 nmewn
nmewn's picture

What traders?

Sun, 04/03/2011 - 22:00 | 1131032 lieutenantjohnchard
lieutenantjohnchard's picture

reading you calling goldman flip flop artists is comical. you are the king of flip flops: fight the fed. don't fight the fed. jpm has a silver short position. the jpm short position is a myth. i'm itching to get short. i'll stay long until the summation index cracks. i'm an uber bull. i'm only long 30% of my investable money. gold is for dullards. i have gold stocks and gold coins. pigmen always win. leh and bear collapse. i could go on. but most zh veterans already know your low ways.

btw: who are the pigmen shaking down given market low volumes, and 1% of the population owning half the market?

Sun, 04/03/2011 - 22:01 | 1131043 JR
JR's picture

Hatzius (Goldman Sachs) can say whatever he wants, of course; and it’s good for Zero Hedge to put it on.  It shows what’s going on - the king’s ministers are telling us what the king’s going to do. 

Is it the truth?  Probably not, since they keep changing it. And since when does the “nimble” Goldman hem and haw over what “Fed officials” say or worry over a split on the FOMC when Goldman is the NYFed, i.e., the Fed, i.e., the don of dons…

The interesting thing is, these are revisions of the projections that have yet to be realized, and the next message we get will be more projections that haven’t been realized yet.  It’s like telling you a year in advance who’s going to win the World Series,  the next month telling you, “We’ve changed our mind,” and as the series is being completed: “We kinda thought it might not work out the way it looked earlier.”

It’s best to remember Goldman is in position to make money; not to provide information for its competitors.

Sun, 04/03/2011 - 22:06 | 1131055 homersimpson
homersimpson's picture

Robo - the king of all flipfloppers. Makes me miss HarryWanger.. ok. maybe not..

Sun, 04/03/2011 - 23:02 | 1131196 reading
reading's picture

Did Harry finally hit the junk quota?

Sun, 04/03/2011 - 22:37 | 1131126 Hulk
Hulk's picture

They keep vibrating the traders like a huge sheet of sheet metal, constantly bucking them off, causing them to lose their grip on their positions

Excellent description....

Sun, 04/03/2011 - 20:55 | 1130886 SparkyvonBellagio
SparkyvonBellagio's picture


Sun, 04/03/2011 - 20:57 | 1130896 knukles
knukles's picture

"With the first quarter now behind us, we have downgraded our Q1 GDP estimate to 2.5% from 3.5"

If one of my analysts or portfolio managers had ever made a statement like that, they'd have been ridiculed by their peers before they got reamed out by me or my boss, etc.

It says;
Now that the news and events have passed, we can pass on our new and revised forecast of those past events.

Moreover, having sat through thousands of meetings, phone conversations, luncheons and whatnots listening to Zero Value Added tripe such as this, what really takes the cake is that somewhere down the line, absolutely no matter what transpires, they will look at you with a straight face and say that they did indeed correctly forecast the outcome.
Because they've forecasted, redacted, retracted, modified, review and reissued so many prognostications that every base has indeed been covered.

Hence, no value added.

But, needs realize that one must indeed make it look as if one has worked hard for the rewards.

Sun, 04/03/2011 - 21:04 | 1130912 random shots
random shots's picture

Sell side people are just glorified sales reps. Like used car salespeople or those pushy tards who sell cell phones in mall kiosks.

Sun, 04/03/2011 - 21:28 | 1130955 nmewn
nmewn's picture

"If one of my analysts or portfolio managers had ever made a statement like that, they'd have been ridiculed..."

LOL...we live in an age where important data points are revised downward 25-50% habitually, by those schooled in the statist art of Keynes slight of hand theory, in an "economy" where government transfer payments make up 30% of GDP, with a MSM that had their tattered pom poms replaced with funds from O-Care & "shovel ready" sumpin or other.

It's a brave new world where nothing is real except the debt.

Another list of those slurping at the trough;


Sun, 04/03/2011 - 21:01 | 1130897 max2205
max2205's picture

Now back to your regular programming schedule: BTFD!! Although I do thing this next new high could be the perfect bull trap suck in so be on your toes

Sun, 04/03/2011 - 21:09 | 1130923 disabledvet
disabledvet's picture

they say "never catch a falling knife."  i say "ride that greasy balloon, bitchez!"

Sun, 04/03/2011 - 21:16 | 1130934 Long-John-Silver
Long-John-Silver's picture

Lets see....

QE3 is going to happen-Check.

Gasoline to $5-Check.

Food inflation-Check.

Democrats and Republicans continue the Spending Spree unabated-Check.


No pull back in Silver and Gold at all!

Todays Spike is Tomorrows Dip. Just buy and don't worry about how many FRN's you trade for it.

Sun, 04/03/2011 - 21:02 | 1130909 The Axe
The Axe's picture

But no revisions to major SP companies, like a much lower GNP doesn't effect MMM or GE or UTX   wtf

Sun, 04/03/2011 - 21:06 | 1130913 Hedge Jobs
Hedge Jobs's picture

here they go again, just softening the market up for QE3. It really is just getting too easy now. Just forget everything fundamental and trade the FED's reflation, deflation swings...until it all inevitably turns to shit . For anyone still grappling with these concepts i cant recomend the book "Dying of Money" by Jens O. Carsson enough. No link sorry

Sun, 04/03/2011 - 21:08 | 1130914 bob_dabolina
bob_dabolina's picture

GDP is a joke

GDP is gay

I want to know the definative answer to QE

Sun, 04/03/2011 - 21:18 | 1130940 duncecap rack
duncecap rack's picture

Don't we all. I'm betting temporary pause. Then buy that chasm.

Sun, 04/03/2011 - 21:07 | 1130916 TemporalFlashback
TemporalFlashback's picture

"...the risks are skewed toward a somewhat earlier date for the first rate hike than our current forecast of 2013Q1."

That should read '2012Q1', right?

Mon, 04/04/2011 - 09:25 | 1131984 earnulf
earnulf's picture

Wells Fargo is predicting rates will start rising in 2012Q1.

Sun, 04/03/2011 - 21:06 | 1130918 jkruffin
jkruffin's picture

I'm just gonna sit back and watch USD/JPY run up through 85 overnight.....the squeeze is coming on all the dollar shorts. Bill Gross will be trapped in his hedge.

Sun, 04/03/2011 - 21:08 | 1130921 B9K9
B9K9's picture

Well, I'm still in the "no more QE camp". Take a look around - see how light the traffic is? More than anything else, rising gas prices are having a direct life-style effect. How much higher can they go before people really begin to wake up & learn/realize that their lives are being fucked over by a small group of chosen, oops, 'preferred' constituents?

Sun, 04/03/2011 - 21:20 | 1130943 Fish Gone Bad
Fish Gone Bad's picture

Traffic has been light, but then again, it has been spring break for various schools around me.

Sun, 04/03/2011 - 21:32 | 1130967 nmewn
nmewn's picture

"Take a look around - see how light the traffic is?"

Noted the same...been like that for a couple months around here.

Sun, 04/03/2011 - 22:06 | 1131051 captain_menace
captain_menace's picture

rising gas prices are having a direct life-style effect

You've completely missed the upside psychological effect!

I no longer feel so lame for being a homebody.  Surely I'm not the only one soaking up this intangible?

Sun, 04/03/2011 - 21:14 | 1130927 bania
bania's picture

just watching silver go through $38 late sunday night.  sweet dreams.

Sun, 04/03/2011 - 21:15 | 1130930 Misean
Misean's picture

It's gonna be entertaining, for at least a few minutes, when "Project 401K Bubble" implodes.

Sun, 04/03/2011 - 21:22 | 1130947 Long-John-Silver
Long-John-Silver's picture

I remember everyone telling me that cashing out my 401k's and IRA's and paying the tax penalties was a big mistake. That was when Silver was $12 and Gold was $700. Now tell me who made the mistake?

Sun, 04/03/2011 - 21:48 | 1131004 Misean
Misean's picture

Yeah. I did similar. In 1999.

Sun, 04/03/2011 - 22:00 | 1131042 Jreb
Jreb's picture

Did the same with my CDN RRSP's. A close relative told me I was insane. That was back at $17.00 spot.


My only regret is that I didn't sell my house and use the equity to do the same.... my wife woulda taken half anyways...

Sun, 04/03/2011 - 21:17 | 1130935 Yen Cross
Yen Cross's picture

They are just buying time to rebalance their bond portfolio. Inflation!

Sun, 04/03/2011 - 21:22 | 1130945 booboo
booboo's picture

"But it’s all a little messier than we would like"

"Jeeves, is that a family of four embedded in the grill of the Bentley? wash that mess off before the guest arrive"

Sun, 04/03/2011 - 21:28 | 1130960 philgramm
philgramm's picture

Thanks a lot.  Glenlivet all over keyboard

Sun, 04/03/2011 - 21:23 | 1130950 tickhound
tickhound's picture

Now that the plane has landed, we are obligated to inform you of an increased chance for a mid-air collision.  Thank you for flying Goldman air... And should you choose to fly with us again, it is important to note that we disagree with this story, and so do most experts.

Note: The subject matter discussed does not necessarily reflect our own opinion, unless proven true, in which case we warned you that flying can be messy.

Sun, 04/03/2011 - 22:04 | 1131052 Yen Cross
Yen Cross's picture

That was a good one! (Goldman/Boeing) merger on the squawk!

Sun, 04/03/2011 - 21:34 | 1130969 monopoly
monopoly's picture

long john silver. +1


A little messier, you mean looking out over the horizon the tsunami is forming. Yup, this is really going to work just fine Bernank.

what a freaking idiot.

Sun, 04/03/2011 - 21:35 | 1130974 tahoebumsmith
tahoebumsmith's picture

800 billion in tarp, 1.2 Trillion in stimulus, QE1, QE LITE, QE2, HAMP, HARP, POMO, 99 WEEK EXTENSIONS, .25% FREE MONEY And look how far we have come? The channels are stuffed and the country can't even fight its way out of a wet paper bag. When will they realize you can't solve a debt crisis by combating it with more debt?

Sun, 04/03/2011 - 21:35 | 1130979 lbrecken
lbrecken's picture

piss on GS the MFers sold out to O long ago....i use there research as poop paper now.....

Sun, 04/03/2011 - 22:11 | 1131060 Ted K
Ted K's picture

You've moved up from using your left hand fingers?? Progress is always good.

Sun, 04/03/2011 - 21:39 | 1130981 arnoldsimage
arnoldsimage's picture

why even post what the "corleone family" says the gdp is going to be?

Sun, 04/03/2011 - 21:39 | 1130988 arnoldsimage
arnoldsimage's picture

everything is a magic show. our entire financial industry is made up of bazillion misdirection plays.

Sun, 04/03/2011 - 21:48 | 1131003 steveo
steveo's picture

Off topic, but methinks important


Here are some common radioactive items, and their half lives.  

Iodine is 8 days

Cesium is 30 years

Both are readily absorbed by the human body.

Isotope     Symbol     Half-Life     Radiation     Energy, MeV

Iodine-125     125I     60 days     ?     0.035
Iodine-131     131I     8.0 days     ß?     0.606 0.364
Cesium-137     137Cs     30 years     ß?     0.5140.662

 Some estimates place that Fukushima is already way worse than Chernobyl and Three Mile Island (TMI) in terms of radiation already released.

I have placed a ton of material including links to the best sites out there.

Mainstream media is all but ignoring these issues, when facts speak otherwise, you know it is big.   It is placing the Great Ponzi at risk and the financial engineers / media controllers don't like that.

I placed an article on "Sheltering In House" as text and as a downloadable Word Doc.   Please review it, preparation is key.

Sun, 04/03/2011 - 21:58 | 1131027 Bruno the Bear
Bruno the Bear's picture

I've decided to quit reading ZH right before I go to bed. While this site speaks the truth, I can't deal with the nightmares.

I think i will end my ZH reading by 7:00 pm EST and hope my dreams of blow jobs and good bourbon return once again.

Sun, 04/03/2011 - 22:12 | 1131064 Nate Taggart
Nate Taggart's picture

Are you kidding?  I have to read ZH right before bed.  Makes me sleep sounder thinking about physical PMs stashed away.



Sun, 04/03/2011 - 21:59 | 1131028 Bruno the Bear
Bruno the Bear's picture

Deleted double post. Friggin iPad.

Sun, 04/03/2011 - 21:58 | 1131036 captain_menace
captain_menace's picture

GDP was held down by temporary factors, including poor weather

Rainy days and Mondays always get me down too...

Sun, 04/03/2011 - 22:09 | 1131057 Akrunner907
Akrunner907's picture

Hmm, I wonder if we are sinking past gold and silver and moving into bullets and butter?

Sun, 04/03/2011 - 22:37 | 1131099 plocequ1
plocequ1's picture

Who cares. Buy Apple and other assorted goodies and dont worry about nothing. Ben will shower us with plenty of loaves and fishes. News about no QE3 is nothing but Hit bait on phony conservative  websites. Good for a few clicks. QE will continue.

Sun, 04/03/2011 - 22:31 | 1131113 I am Jobe
Mon, 04/04/2011 - 00:09 | 1131361 truont
truont's picture

that link is dead.

Must've been good stuff...

Sun, 04/03/2011 - 23:42 | 1131294 Bansters-in-my-...
Bansters-in-my- feces's picture

Time for everyone to go to the swap and shop...

You shop for gold and silver and swap for FRN's...

See investing is easy...

Sun, 04/03/2011 - 23:45 | 1131308 g3h
g3h's picture

So, what does it translate into SP earings?  Down by $5?

Mon, 04/04/2011 - 01:48 | 1131485 Jesse Livermore...
Jesse Livermore of WTF Finance's picture

The US is in a major GDP Bubble as policies by the Fed Govt. and Fed Reserve have always been to inflate and to increase GDP number with non-sense policies.

Mon, 04/04/2011 - 05:01 | 1131580 bingaling
bingaling's picture

There is no growth when inflation is factored in .

Mon, 04/04/2011 - 09:53 | 1132108 Silver Surfer 1985
Silver Surfer 1985's picture

Crank up the presses gents; the endgame approaches..............

Do NOT follow this link or you will be banned from the site!