Goldman Issues Apology #3 For Its Economic Renaissance Call

Tyler Durden's picture

Just released - apology #3 from Jan Hatzius on his ill-timed "golden age" call. We expect many more. We almost feel sorry for the German strategist and the replacement of FRBNY's Bill Dudley. For our most recent roasting of Hatzius (and there have been several), read here.

From Goldman Sachs: Now What

1. Nice timing on our GDP forecast upgrade!  The November employment report was a disappointment, and there weren’t a lot of redeeming features buried underneath the headlines.  Private sector payroll growth fell back to +50k, the slowest pace since January 2010.  The household survey was also weak, with a rise in the unemployment rate to 9.82% and a drop in the employment/population ratio to 58.18%, just a hair above the cycle low seen in December 2009.  The jobs report followed higher initial jobless claims on Thursday and a soft manufacturing ISM survey on Wednesday.
2. So are we nervous about our shift?  Not really.  For one thing, our new forecast does not say that the US economy is now off to the races.  We are not predicting above-trend growth until the second quarter of 2011, so it is hardly a huge surprise that the labor market is still struggling (indeed our own forecast for Friday’s number was somewhat below consensus).  More importantly, the report leaves the rationale for our forecast upgrade unaffected, which is that GDP growth is firming modestly at a time when the short-term impact of inventories and fiscal policy has turned from positive to negative.  This says to us that the growth rate of underlying final demand—GDP excluding the effects of inventory changes and fiscal policy—is improving.  And the news on the demand/service side of the economy has remained fairly encouraging, with auto and same-store retail sales both stronger than expected, an upward revision to core capital goods orders, and a good nonmanufacturing ISM survey (interestingly with a 3-year high in the employment index).
3. What lies behind the demand improvement?  In our view, the main reason is an incipient decline in the private sector financial balance—i.e., the gap between the total income and total spending of US households and businesses—and a slowdown in the speed of private sector deleveraging.  To a first approximation, the private sector balance is the “flow” equivalent to the “stock” of private sector debt.  When the private sector balance is below the long-term average of +1½% of GDP, households and firms are increasing their leverage, relative to the long-term trend; when it is above average, households and firms are reducing their leverage.  In late 2006, the private sector balance was -4% of GDP and starting a long trek toward surplus—a terrible combination because it implied that spending was falling relative to income and had a long way to fall before the increase in leverage would be halted.  Now, the private sector balance is +6½% of GDP and falling—a good combination because it implies that spending is rising relative to income and has a long way to rise.
4. How fast demand rises depends on how far we are from a sustainable private sector debt/GDP ratio.  Unfortunately, nobody knows the answer to that question.  We can make educated guesses based on the historical trend of the private sector debt/GDP ratio, the historical average of the household debt service/disposable income ratio, the experience of other countries that have gone through deleveraging cycles, or credit-related indicators such as loan delinquencies, credit standards, and bank lending.  But these deliver a wide range of estimates, none of which is obviously superior to the others.  While the uncertainty is therefore sizable, we feel like we’re being reasonably cautious with our projection that the private sector balance will still be at +4½% at the end of 2012, which wouldn’t imply a particularly rapid return to the historical average but could still be consistent with decent demand growth.
5. Unfortunately, “decent”—or even somewhat better than decent—demand growth isn’t likely to restore anything resembling full employment anytime soon, and we still expect an unemployment rate of 8½% in late 2012.  Indeed, Friday’s report of a 0.2-point increase implies some upside risk to this forecast.  Meanwhile, core inflation is already below 1%, and we think it’s likely to stay low or head even lower.  There has never been an increase in core inflation over the subsequent 2-3 years when the unemployment rate was above 8%.  That’s obviously not a law of nature, but it is a useful observation that neatly encapsulates the idea that idle resources weigh on wages and prices.
6. The monetary policy outlook is both simple and complicated.  In terms of conventional policy, it is simple because rate hikes in 2011 or 2012 seem unlikely unless the economy evolves very differently from our forecast.  In terms of unconventional policy, it is complicated because the outlook for QE beyond June 2011 is cloudy.  If growth at that point is decent but unspectacular, the unemployment rate hasn’t changed much, and inflation remains very low, further QE would still seem very sensible.  Our forecast is therefore that Fed officials will keep buying until they reach a QE2 total of $1 trillion.  Indeed, Chairman Bernanke confirmed in his “60 Minutes” interview this evening that additional purchases were “certainly possible.”  However, it is quite a close call, not just because it depends on the data but also because of the political backlash.  Fed officials view the benefit from QE2 as positive but not very large.  A decision to buy more therefore requires that the costs not be too large either.  If the cost in terms of threats to the Fed’s independence looks low when June 2011 rolls around, further asset purchases would probably still be worthwhile from their perspective.  But if that cost looks high, Fed officials may decide to pass, even if they are still missing their mandate by a large margin.

Jan Hatzius

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
bugs_'s picture

"The monetary policy outlook is both simple and complicated."

Could Goldman be right this time?


Bastiat's picture

If the apology were sincere it would have ended with:  "Should I just go fuck myself?

cosmictrainwreck's picture

LOL....excellent. I have a new qualifying criterion... thx

knukles's picture

If they'd ever acted in thier counter-party's interest, it would've ended; "I shall now go fuck myself."

unum mountaineer's picture

Jan, my man, (word of advice): be good or be good at it

Justin Credible's picture

fuck people= this isn't   rock sxcience, fuck!

doggis's picture

lying pricks!!!!

Caviar Emptor's picture

Ben to print more bills.

Pay me in specie.

Careless Whisper's picture

how much do the zh whores get paid to publish this crap?

cbxer55's picture

How much does it pay to be a troll?

Don't like what ya read here, leave.

Don't let the door hit ya where the good lord split ya.

Careless Whisper's picture

what i don't like reading is stupid economic forecasts from mister hatzoos all in the name of trying to help idiots like you. goldman sachs are scum. zh knows it, yet they publish this drivel; so to me they acting like the fi dolla ho that they are.

cbxer55's picture

The squid is not helping me, I have no money in any of their "banks". Do not own goldman sucks stock.

Nope, not helping me. And if I do not want to read something, I have the choice not to click the linkie.

So do you.

tickhound's picture

unsure if you... err, I.. they... ah fuck it.

cosmictrainwreck's picture

yeah...I was thinking the same thing

Tyler Durden's picture

Absolutely nothing. We rely on the donations of our generous readers. We are confused by why donations drop when zerohedge becomes a complete and total echo chamber of the type preferred by you

H. Perowne's picture

As long as we read only that which we agree with, we learn nothing. Sort of like the current US Community Organizer in Chief, Zimbabwe Ben, and all our other credentialed but not qualified fearless leaders. If nothing else, reading the enemy's words allows you to predict their actions (they are as frequently predictable as they are incompetent) and allows you to clarify your own thought process better. That is what ZH brings to the table. 

Id fight Gandhi's picture

If they fail to stimulate job growth with all the printing till now, they'll just keep doing it. Smart.

Caviar Emptor's picture

QE as the national allowance. Fed has to condition the world to accept is as routine. A POMO a day keeps deflation away.

Convolved Man's picture

All well and good, but what does this have to do with the price of tea in China?

SDRII's picture

NYT magazine about Dimon being the least hated banker and Bernanke on TV as the NYT leads with an article on preditory china hacking. Welcome to oz. 

Careless Whisper's picture

controlled media spreading propaganda

George Costanza's picture

I believe QE is a declaration of economic war on China.  Our "leaders" woke up and realized that several million of our jobs got exported to China.  QE is debasing the dollar to help level the playing field, and exporting inflation to further level the playing field.

Devore's picture

How much will have to debase, to level this playing field?

Coldfire's picture

No apology necessary, Goldie, we already know that you can't predict the future with any material accuracy. Don't take it personally; no one else can either. Pretending otherwise is a delusion.

Careless Whisper's picture

Pretending otherwise is a delusion.

correction: Pretending to be an investment bank is a delusion.


UP4Liberty's picture

George Orwell, 1984:

"The Party seeks power entirely for its own sake. We are not interested in the good of others; we are interested solely in power. Not wealth or luxury or long life or happiness: only power, pure power. What pure power means you will understand presently. We are different from all the oligarchies of the past, in that we know what we are doing. All the others, even those who resembled ourselves, were cowards and hypocrites. The German Nazis and the Russian Communists came very close to us in their methods, but they never had the courage to recognize their own motives. They pretended, perhaps they even believed, that they had seized power unwillingly and for a limited time, and that just round the corner there lay a paradise where human beings would be free and equal. We are not like that. We know that no one ever seizes power with the intention of relinquishing it. Power is not a means; it is an end. One does not establish a dictatorship in order to safeguard a revolution; one makes the revolution in order to establish the dictatorship. The object of persecution is persecution. The object of torture is torture. The object of power is power."

Ese Pinche's picture

"One does not establish a dictatorship in order to safeguard a revolution; one makes the revolution in order to establish the dictatorship.

+ # of BLS revisions

knukles's picture


For which recommendation is this apology now?

Are they shooting for first place in the Increasingly Bad and Embarrassing Decisions of the Soon to Be Irrelevant Investment Advice Dispensaries Event?



David99's picture
These are the following sequence of events :-   Fraud Street gang = 2007 = Crisis  crisis   crisis Helicopter Ben = What happened   Fraud Street gang = 2007 = Bubble  bubble   bubble Helicopter Ben = There is no bubble, every thing is under control

  Fraud Street gang = 2007 = Housing Crisis  crisis   crisis Helicopter Ben = OK, I will reduce interest rates to satisfy you greedy buddies. Take your yearly bonus and keep quite.   Fraud Street gang = 2008 = Crisis  crisis   crisis Helicopter Ben = Now What happened   Fraud Street gang = 2008 = Bear Stearns is troubling us  Helicopter Ben = Don't worry, Bear Stearns won't be on this planet and I am reducing further interest rates  

Fraud Street gang = 2008 = Crisis  crisis   crisis Helicopter Ben = What the Hell, what went wrong now    Fraud Street gang = 2008 = Lehman is troubling us Helicopter Ben  & Paulson= We will kick out this Lehman to the galaxy, no need on earth and reducing further interest rates. We are printing $ 10 trillion but don't tell to any body on Main Street. We will keep it top secret for another 100 years. Bush = I am gifting another $ 850 billion to Fraud Street gang to calm down To Main Street = Keep working hard you slaves and pay your taxes regularly & promptly   Fraud Street gang =December 2008 = Crisis  crisis   crisis Helicopter Ben = OK, calm down boys @ Fraud Street, I am reducing interest rates to ZERO forever Take your yearly bonus and keep quite.   Fraud Street gang = 2009 = Crisis  crisis   crisis Obama = I am gifting $ 850 billion as getting me elected as President of USA, calm down boys Helicopter Ben = I am printing $ 10 trillion but don't tell to any body on Main Street. We will keep it top secret for another 100 years. To Main Street = Keep working hard you slaves and pay your taxes regularly & promptly Casino up + 50%   Fraud Street gang = 2010 = Crisis  crisis   crisis Helicopter Ben = Now what is the matter?   Fraud Street gang = 2010 = Dubai & PIIGS + Investigations are troubling Helicopter Ben = OK, I will get you QE Lite and $ 5 trillion POMO's will continue but Main Street shouldn't come to know our trade secrets and keep quite. Casino goes up another 20%   Fraud Street gang = 2010 = Crisis crisis crisis Helicopter Ben = What is the matter now   Fraud Street gang = 2010 = PIIGS + Investigations are troubling, SEC is after us Helicopter Ben = OK, I will get you QE2  and $ 5 trillion POMO's will continue but Main Street shouldn't come to know our trade secrets and keep quite. And ZERO rate of interest will continue forever. Take your bonus & enjoy Casino goes up + 1000 points To Main Street = Keep working hard you slaves and pay your taxes regularly & promptly   Thank you   Fraud FED
Ned Zeppelin's picture

If inflation is low, why does gas now cost over $3.00 a gallon? 

BW's picture

The fact that almost all of their market calls are wrong, proves that there 100% trading day average is pure front running.

BW's picture

"their" instead of "there", typo.

Tyler Durden's picture

Actually, "there" instead of "there"

HarryWanger's picture

Wrapped up our show and heading back West. This was by far our most successful event in 9 years of operating this business. People were spending like they were in the mid 2000's. But this time even more, a ton more.

I never put much into the "pent up demand" mantra that I kept hearing. But now? Wow, it was nothing short of insanity - like somebody said, "It's ok to spend now and everything you wanted the past couple of years, go buy it." 

We are excited and convinced that the economy is moving ahead nicely. It was beginning to show up much stronger in the Fall and has accelerated into the holiday season. In our business, consumer discretionary, the clouds have lifted and the sun is shining brightly.

HarryWanger's picture

Home decor, as in wall art/prints/reproductions and some smaller items. 

BW's picture

Small businesses with low overhead are doing well. 

HarryWanger's picture

Yes, I'm hearing that from everyone I talked with at this event. We should have a total of 18 employees by the end of Q1. We just signed a huge licensing agreement that will take us into international markets as well. 

We sell products at just about every price level and while the mid level products were not moving as fast, they are now moving rapidly. We never lost the high end or lower end customers throughout the recession.

overmedicatedundersexed's picture

harry, whats the problem with Harry..

keep up the dark humor harry me boy ..

some will even think it's truth which will give you even more laughs..a sick mind

Tanz der Lemminge's picture

Got any good deals on velvet Elvis prints - need one for my double wide.

jesse livermoore's picture

is "the Harry Wag" in bed with "the Goldman Sac" , or just their mouthpiece?

primefool's picture

Thanks for that input. It seems to be always "that time of the month" at zerohedge - a devastingly unproductive, unprofitable mindset.

AR's picture

It should not surprise anyone that firms get their estimates wrong. After all, an economist is the only profession in the modern day world, who can always be wrong (actually very wrong), and still make over $1-million per year.  What is amusing is that, market players actually expect these morons to get it right. We've had a colleague who has cleared his $7-billion hedge fund with Goldman  for 10 years. He says, like the rest of Wall Street, these analysts always get it wrong. He states that is not their job. Their JOB is to SELL.  Sell the market on creating "flow & transactions."  He also states that Wall Street is the greatest "selling machine" in the world. That there is no other industry in the world that can create and sell so many new products and services. Most of which are just the "renaming" of other older products with a new twist (like CDOs, or CDS', etc.) which for example have been around for a while, though "packaged" in some other deriviative form. So... next time you read their anaylsis, take it with a grain of salt. Research is not created to guide you with accuracy -- but rather, to create flow and volume (of which, like Lloyd Blankfein states, they are on the other side of that trade).  Buyer beware. Good luck this week everyone.