Goldman Takes Spin To New Highs: China Rate Hike Should Be "Welcomed By The Market"

Tyler Durden's picture

When all else fails, just make stuff up. That appears to be the Plan B for Goldman analyst Helen Zhu, whose take on the faster than expected Chinese rate hike over the weekend is beyond incredulous: "even though our economics team believes that rate hikes are more of a signaling tool rather than the most effective way to curb inflation, we believe this move will be welcomed by the market." So now we know that according to Goldman, rising mortgage rates are good for the economy (that dropping mortgage rates were good is beyond obvious), and the removal of excess liquidity (we have yet to check on where the 1 week Chinese repo rate is) is just as good if not better than the endless pumping thereof. H.M.M.M.M. Fair enough: does Goldman also provide free lobotomies to those clients who followed its FX trading advice in 2010 and are now wanted by the Feds for involuntary manslaughter by way of insanity? Incidentally, we attribute the current drop in ES by 0.5% only to the fact that Brian Sack has been precluded from reaching his Bberg terminal due to snow, and hit the "any key", which on his keyboard just happens to be Buy. And since there is no POMO today, the momo crew may be about to hit a Panic button of their own.

The hilarious "it's funny cause it's retarded" Kool Aid from Goldman's Helen Zhu:

The shoe falls’ – market should not react negatively to the rate hike

PBOC announces rate hike on Christmas, similar format to Oct hike. PBOC announced that as of Dec 26, China’s deposit and lending rates will be hiked – the second such announcement in 2010. The format of the rate hikes is fairly similar to the mid-October hike: a) no changes to deposit rate at 0.36% (same as last time); b) 3-months and above deposit rates raised by 25-35 bp (vs 20-60 bp last time); c) lending rates raised by slightly less at 25-26 bp (vs 20-25 bp last time); d) 1 year rates are raised by 25 bp symmetrically for deposit rate (to 2.75%) and lending rate (to 5.81%).

No major negative surprises, so market should not react adversely. Although the market’s anticipation of a rate hike may have been highest in mid-Dec post the Central Economic Working Conference (PBOC only announced a 50bp RRR hike that Friday), we do believe that this rate hike is not unexpected. As highlighted in our economics team’s recent notes, more significant monetary tightening is much needed near-term to keep inflation under better control (and there is improving consensus in this regard by decision makers). As also mentioned in our strategy report of Dec 2 2010, ‘Hibernate for winter, re-awaken for spring’, our marketing feedback indicates that investors already widely expect a combination of policies to be implemented including multiple interest rate hikes, RRR hikes, administrative measures and lending control. In fact, we think market sentiment has quickly been evolving from concerns over over-tightening to concerns over insufficient or not prompt enough counter-inflationary moves. We note that the 25 bp size and the fact that the hike was not deposit-rate only should remove some near-term concerns as well. As such, even though our economics team believes that rate hikes are more of a signaling tool rather than the most effective way to curb inflation, we believe this move will be welcomed by the market. That said, the market may still remain range bound in the near-term given volatile policy news / data point releases and uncertainty regarding the speed and effectiveness of policy measures. We remain medium-term positive on China equities on mid-to-high-teens earnings growth in 2011E and reasonable valuations.

Paging Nurse Ratchett: lobotomy in flow trading aisle 4.

Comment viewing options

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

Tyler and ZH members


Flash Crash in Europe


Please switch off computers...algos...and devils...


Spanish banks close to massive default


Damn, and it was looking like we were in for another ndx 100 run like the one from the entire decade of the 90's. I would'nt let a little crash or two bother me, that just means it buy the fucking dip time.

malikai's picture

I read that in bloomberg last night before bed. I have to wonder. Is the news better in China or the "West" these days? It seems tough to differentiate which department of truth is more truthier.

squexx's picture

Allrrriiiggghhhttttt!!!!! A chance to buy the fucking dip! This has got to be bullish for gold plated tungsten!

Temporalist's picture
Pimco Says U.S. Yields ‘Fully Reflect’ Growth Outlook

"Pacific Investment Management Co., which runs the world’s biggest bond fund, said Treasury yields have priced in forecasts for faster economic growth after surging to a seven-month high earlier in December.

“Changes in U.S. interest rates and bond prices over the last four or five weeks, in our opinion, fully reflect the upgrade in U.S. growth prospects for 2011,” Saumil Parikh, a portfolio manager for the Newport Beach, California, company wrote on Pimco’s website."


Kool-aid drinking is prevalent to end 2010.

One_Eyed_Pony's picture

Oh No's... Goldman is outsourcing their Market Manipulation SW to the EU?  Yeah, Panda Rate Hikes for all those 'ghost cities' behind the bamboo curtain.

Key in that movie AIRPLANE, when they are just about to land & the ATC guy pulls the plug on the runway lights and says, "Just Kidding" ;)


Sequel coming SHORTly.

SheHunter's picture

And for your viewing pleasure.  The upcoming POMO week:

Oh regional Indian's picture

Actually, if one really thinks about it, raising rates is actually good for the economy, in a bitter medicine way.

Why would that statement be derided here of all places, this bastion of let's-fix-the-system?

The US can/should/has to raise rates too. Sooner rather than later, or ZIRP just goes on to prove, every day, that the market is nothing but a massive joke.

I had a hard time getting my head around it, but once I understood the falling interest rate thesis of tjhe good hungarian gold doctor, whose name slips my mind, it, as in some things, became clear.

Falling interest rates are poison for "good" investment and heaven for mal-investment. Look around and mal-investment abounds, eh?

Worthy of a thought/ponder.


NotApplicable's picture

I believe you're referring to Prof. Antal Fekete.
His thesis is that neither wildly falling nor rising rates are beneficial to society. The preference is for a stable environment where one can plan for the future. Fluxuating rates means someone has encurred a loss by lending too low, or borrowing too high, and loses capital relative to other market actors who did not make such an error.

Oh regional Indian's picture

Thanks NA, Prof. Fekete it is and you've paraphrased his thesis well.

His particular example of post Vlocker slide in real interest rates is what caught my mind.


lamont cranston's picture

Hell, let's just arbitrarily set prime at 10% right now and watch the economy BOOM!!!

Yeah, sure. Who taught this woman Econ 101 - Captain Peter Peachfuzz? Chumley The Walrus? Ben Bernanke?

Wheatman's picture

This crap from Goldman is moronic. I can't wait for these idiots to go bankrupt. The only problem is that they are loading up on gold to hedge against f^&%wit  analysists they employ.

DaveyJones's picture

their lines are so idiotic, they should write speeches for our politicians. Oh wait.

Bubbles...bubbles everywhere's picture

This spin is really getting out of control. I wouldn't be surprised if very soon we started reading things like "Our dear leader Barack Obama" in the WSJ.

DaveyJones's picture

"when all else fails, make stuff up"  - Actually, I believe the Goldman creed does not limit dishonesty to disappointment 

TexDenim's picture

‘Hibernate for winter, re-awaken for spring’

Who is this Helen Zhu chick? A Confucius clone? Or is this just a pseudonym for Jan Hatzius?

knukles's picture

T'is a tale of a fellow who once wanted so bad to be a senior partner at GSAM that he didn't believe in anything but himself as he sat on the right hand of God Almighty, Maker of Heaven and Earth.  Mortals saw through him.  Poor chap, little did he know he never even had a chance for the job.  Too bad.  Probably'd of fit right in.

huggy_in_london's picture

why the fuck does anyone listen to any of these idiot analysts who have NEVER TRADED A BEAN in their lives.  The only thing people like her and the jim o'neals of the world trade are their careers.  total utter jokes.

D-Falt's picture

Who gives a flying kfuc about "The market?"

This should be welcomed by hard-working Chinese who try to put money in the bank.  It's genuine shame our Fed won't do likewise. 

The US economy will not be rebuilt by JP Morgan or BOA.  We get well when millions of small, household savers get return on minimum-risk portfolios.  That's the only road that allows us to climb back from Hell.