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Goldman Provides Estimates For Q2 GDP - 2.2% Downside Case, Offset By High Case Based On Arbitrary Numbers
The most recent addition to Goldman's economic team Zach Pandl is fitting in nicely: overnight he was told to come up with a note discussing the range of Q2 GDP numbers, following the firm's Friday night cut of Q1 GDP by over 50% to 1.75%, which he does admirably: on one end he proceeds to show that based on traditional methods of regression analysis, Q2 GDP is about to surprise far to the downside again, coming at 2.2%. However, here is where some creative liberty with reality comes into play: As Pandl says: "it turns out that real GDP growth in any given quarter is not a particularly good predictor of GDP growth in the next quarter, once other information is taken into account." And in order to "take other information into account" Goldman reverts to its recently inaugurated GDP substitute, the CAI (also defined by Zero Hedge as the Completely Arbitrary Index, discussed previously here). As a reminder this is the artificial economic growth indicator that literally plugs selected goalseeked numbers that allow Goldman to print out whatever "growth" number it desires. Such is the case here as well. Because in the case when one uses the CAI and does some autoregression mumbo jumbo, one ends with a 4.8% implied Q2 GDP growth. So basically: 2.2% to 4.8% in Q2 GDP. Way to earn your money Goldman. Here is our estimate: Q2 GDP will come below the firm's worst case (i.e., based on reality) scenario.
From Goldman: How Much Information in Weak Q1 GDP?
Consensus forecasts for Q1 GDP growth have recently moved down sharply. Similar to our estimates, the Bloomberg median forecast for Q1 was 3.4% qoq annualized in March, 2.6% in early April, and now stands at just 1.8%. Our forecasts for GDP growth in the most recent quarter – and we think those of most other financial market economists – come from a “bean count” of monthly expenditure data. We take monthly figures on retail sales, durable goods shipments, and other items, map them into the Commerce Department’s methodology for each type of expenditure, and add up GDP.
We think this approach provides the most accurate forecasts for GDP in the current quarter. But a natural question is: what does the GDP bean count tell us about growth in subsequent quarters? This is particularly relevant when the bean count estimate diverges from other measures of activity – so how much weight should we give it as a signal of the current growth trend?
It is worth noting that there is a still a great deal of uncertainty about Q1 growth itself. First, consensus forecasts of the advance (first) GDP release are not particularly accurate: “surprises” – the difference between consensus forecasts and the actual result – have a standard deviation of about 80 basis points. Second, the Commerce Department heavily revises its GDP estimates. Revisions from the advance release to the second estimate have a standard deviation of about 70bp – quite large compared to trend growth in the US.
More importantly, it turns out that real GDP growth in any given quarter is not a particularly good predictor of GDP growth in the next quarter, once other information is taken into account. To test this idea formally, we estimated a number of equations relating GDP growth in the next quarter to GDP growth in the last quarter and other variables (in all cases GDP is the advance estimate, i.e. what the number looked like as it was first released rather than what it looks like today). For the present, these models help determine how concerned we should be about Q2 growth if the advance estimate of Q1 growth comes in as low as expected.
The exhibit below summarizes our results. Starting with the left-most column, a simple regression of real GDP growth on its own lag finds that past GDP growth is statistically significant, and – assuming Q1 growth comes in at our 1 ¾% estimate – the equation predicts Q2 growth of just 2.2%. Equation (2) shows that past GDP growth remains significant even after accounting for financial conditions – as measured by the GS Financial Conditions Index (GSFCISM). However, lagged GDP quickly becomes insignificant when we control for other available information on real activity. For example, in column (3) we add the ISM index for each month of the preceding quarter (in the table we report only the sum of the coefficients for the three monthly variables). Here lagged GDP growth becomes insignificant, and the implied Q2 growth rate rises to 4%. Using industrial production instead of the ISM we found that lagged GDP growth was also insignificant, and the model implied Q2 growth of about 3% (not shown in table).
Forecasting Next Quarter's GDP Growth With Current Information
In columns (4) and (5), we replace the ISM with our new US Current Activity Indicator (CAI) (for background see Zach Pandl, “CAI: A Measure for Tracking US Growth.” US Daily, April 12, 2011). For a variety of technical reasons, we do not have a readily-available unrevised measure of the CAI. We therefore estimated two regressions: one with the current/fully-revised CAI, and another with a “pseudo real-time” version of the CAI. For the latter, we replaced component variables which are heavily revised with first-reported observations where possible (e.g. industrial production), and removed those for which a long history of unrevised data was unavailable (e.g. core durable goods shipments). We left in all the variables that are only revised for seasonal factors (e.g. initial claims and the ISM).
Fortunately, we found similar results with both series: lagged GDP growth is insignificant, and in fact has the wrong sign; the CAI is a significant predictor of next quarter’s GDP growth; and GDP growth is likely to rebound substantially in Q2.
A variety of recent shocks point to downside risks to our US growth forecasts – most importantly, higher oil prices, fiscal tightening, and potential supply-chain disruptions resulting from the natural disasters in Japan. However, we think it is important to keep in mind that heading into these shocks, US growth had considerable momentum. If we thought the underlying growth trend in the economy was really 1.8% – consistent with the Q1 GDP “bean count” – we would be much more concerned about the near-term growth outlook.
In other news, we expect Goldman to release its fourth consecutive crude downgrade imminently as we are positive its prop desk has hardly been able to accumulate enough of the oily substance yet ahead of the next global monetary loosening episode.
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Not only that, but K.K. has just retired from Priest http://judaspriest.com/News/Doc/KK-Downing-Retirement-Announcement.pdf
Let's face it. They will issue propaganda after propaganda until your head spins. The whole system is hotwired to take you for a ride you'll never forget. When they have control of darn near everything (media, markets, currencies), they create the virtual reality for you and change it in an instance to suit their fancy. All in all, the market will continue upwards especially in light of the "bad" news that has been issued for the past few days.
Plan on a double top at 1576 before even considering a 10+% retrace. The markets are rigged! And they want them up regardless of your interpretation of the news or the reality of the situation. Get it??
nice!!!!
A person can be over weight and live essentially a normal life in terms of years. While I believe that Zero Hedge may be corr3ect in terms of telling the world that you cant eat candy and lose weight Zero Hedge has failed to realize that intensity of the forces in terms of keeping the game going. Therefore while all of these articles that Zero Hedge posts are on point the masses are still playing the game they all learned when they were in first grade called "musical chairs" and there are still many chairs left on teh floor.
So GS may be part of the party keepingthe chairs on the floor and that is their job as they define it. My suggestion is read Zero Hedge but dont act on it as there is more Hollywood in it than day to day reality, This doesnt mean that I dont absorb what is written I just dont act on it anylonger,
Thanks, Lloyd.
That position is Pure Sophistry.
There are a lot fewer chairs than you think. (and remember, he's using an asinine, unnecessary game to describe the economic system....only in that way is it correct)
Over a billion people are starving, more by the day. Almost every bank in the world is insolvent, more by the day. Pension funds, same. Sovereign nations, same. Hedge Funds, yep. IMF, yep. Everybody's money above the FDIC limit, if your country has one, or if they can pay it out when it all goes to crap. There's a million things just ready to pop. Revolutions everywhere, Japan is becoming a glo-stick, the federal reserve and other central banks are printing money that has no purpose being created...and can never be paid off.
The fraudulent borrowed anti-american economic system is breaking down, anyone with an impartial mind can see it a mile away. It could be days, months, or years. But only a limited amount of years...and only if the status quo is lucky.
It's all lies and gamesmanship, nothing real that you are calling 'chairs', and there aren't many at all. Those smart guys in the room with the chairs? They're certifiable idiots. They are running around saying their shit don't stink. Well it does, and given the fact they don't realize it, proves my point. They are blind to what is, and in reality already has destroyed them...if not a ton of looking the other way at criminal acts, to the bailouts...they'd and all the other parasites would have been toasted ~3 years ago. Yeah, they're smart. The collapse is still happening for everyone else, but they got a 3 year reprieve.
If Ireland defaulted on all it's loans...it would either take the whole system down that week, or the IMF/ECB would HAVE to print it to avoid it. Same goes with any nation. If we pass Glass-Steagall it would do it immediately.
There's only one chair left, print....and it's covered with shit infected with dysentery.
Keep making light of the endgame scenario. If this goes down without it being taken down smartly, and it will go down if not taken down, we WILL be in a new dark age.
Many chairs on the floor left? Yeah fucking right. There's only one, and everyone that cares to, knows that. Everyone that doesn't, feels its effects, and is pissed off. Talk to Mubarack, Gbago, Ghadaffi, about how many chairs are left, because it was the central banks that caused those revolutions...and we ain't seen nothing yet. I've been saying it since 2008, we're only in the 1st inning of this ballgame, and yes you can lose it in reality before the 9th inning is up.
Glass-Steagall, or the idiots...masquerading as slightly competent, WILL destroy everything, and be clueless to it all. They aren't there because they are smarter than anyone else, they're just the most useful idiots the assholes can find to run their fraudulent system...and the award for the Best, Useless Imperial Monetarist Fraudsters goes to...Goldman Sucks. They're just monetary alchemists.....believe in something...and you can turn dogshit into gold. Perception is not everything. Psychology of the markets, means everyone is a lemming. Goldman the biggest lemming of them all. Anyone that believes in this psychology needs to go see one.
They have one card to play, one chair, and they've already shown it and shit in it. By all means sit on it if you want. That is, until they pull that last chair away from you, because you don't fucking matter, only they do, and they don't play by any rules, except the ones that they attempt to win on at your expense. But it won't work, because the imbalances are already too big, and every action they make, grows that imbalance. The end game will be so absurd, the imbalance so large, and so obvious, and even on that day, they'll think it's their right and patriotic duty to enact it.
Or they can stop printing, and the debt destroys us all, as it IS unpayable. Hell it was unpayable 10 years ago.
Glass-Steagall is the only real method out. Default is child's play and is a hammer, when we need surgery, but surgery everywhere. It is another way, but a piss poor one. One that raises the risk of a new dark age significantly because unlike best laid plans...that way is pure ad-hoc, and has no overarching standard.
It is amazing, here we are, going through this bullshit as a species for the umpteenth time unnecessarily, using the same bullshit pathways, the same root causes, and we have the same number of idiots, who claim this time it'll be different. No it won't. Apologists for the current system beware, you'll have the hardest time when reality hits....and everything your men are doing, is causing it to happen.
I'm speaking to a general audience for most of this. I just had to attack the chairsatan has many chairs left. Because I see now the Bernanke put has fooled some people. Why? Time? People need to be less jumpy and have more patience. Even Moses, only parted the red seas for only so long. (or so the story goes)
It's amazing though, some people that get the info from ZH, and know how the system is crooked, then can't see past the crookedness, and take that as they have many more chairs, bullets, options, time...and thus either it's far enough in the future...or they'll be able to fix it. Nope...it's not very far off, could happen any day...or month..or any near year, and without a doubt...no matter how long it takes...there is no fixing this. We'll just make people suffer hell for no reason until we as a whole figure that last part out. Maybe a world war erupts, or 100 more revolutions, or the numbers at the top get 1/10th fixed, but 5 billion people are then starving.
Glass-Steagall...and there is no need to hire, nor pay the 'smartest people in the room', because all of that shit would be illegal, and the dunces unemployed.
GDP is about 0%, all else is blowhorning.
below GS's worst case scenario?? how long will you stay bearish? timing is everything for bears. for now while we are still in april, expect a rally into month end: http://www.hedgefundlive.com/blog/its-april-time-for-the-market-to-rally
Yes PM's are rallying quite well. Not so much for things solely valued in plunging FRN Fiatscos.
ZH is balance. If the only information I had access to was banker, media, government contrived spin...then I'd be a fucking sheep like the rest of this country who blindly go about believing all of this BS they are told. They want you to be obedient, stupid, and turn over your money. That's what they want.
I don't need disclaimers. I'm a big boy. One day, these crooked fucks will get theirs. I am confident in that. I've lived long enough to witness it.
"Completely Arbitrary Index"
:D
http://www.zerohedge.com/article/goldman-forget-plunging-gdp-tracker-us-...
is the 1.75% 1stQ GDP believable, it sounds optimistic to me
whenever ya throw this much crapola up on the wall, something usually sticks.
what gets me? what abt inflation? how much of this "GDP growth" is just due to prices going up? und up? and up? if ground beef goes from $1.99 to $2.99/lb, this is "GDP growth"?
i was recently in Whole Foods. a 12 oz. box of frozen chicken tenders or nuggets cost $7.99. no shit. organic. is this positive for GDP? as long as the score is kept in green stamps, who knows? break sales down in terms of PMs, oil, or wheat. oops!
the last ISM report had buyers fainting from price increases, if i recall. in volker's day, this was called stagflation. now it is called GDP growth. hello?
Turns out past performance is not a great predictor of future performance, but we'll use the regression method anyway because that's the only thing I learned with my advanced "economics" degree. Garbagian.
+1, this report is complete garbage. I'm not saying GDP will be much worse, but just going by past performace like that yields no prescience at all. When did their regression say 2008 would be a bad year? I'm guessing at the end of 2008.
Also, the other day I saw an analyst predict markets would go up this year. His reasons? Was it the fundamental strength of the global economy? Rising demand? Productivity increases? Sound finances? No, it was that apparently recessions happen once every 6 years so the next one wasn't due until 2014. Go figure.
Goldman Sucks
I am sure the Goldmanite CAI is as accurate as anything coming out of the B(L)S <SARCASM><OFF>...
Since Goldmanite jackoffs probably staff the B(L)S as well as Treasury...