Jan Hatzius

Goldman Previews The Fed's Statement, Plays Down Expectations Of A "Dovish Surprise"

As widely expected by Zero Hedge, barely a few months after the arrival of former Goldmanite Mario Draghi to head ECB, the ECB's balance sheet exploded by nearly $1 trillion. Naturally, such is the way of central banks infiltrated by tentacles of the squid: no surprises. Which brings us to the first Fed meeting of 2012 and its public manifestation: the FOMC's January 25 statement. As is well known, while the Goldman addition to the ECB is a recent development, its agent at the Fed, the head of the FRBNY Bill Dudley has been there for a quite a while - in fact ever since the tax-challenged Mike Judge character impersonator left to become Treasury Secretary. As was suggested on Zero Hedge, it was the meetings of Bill Dudley with Goldman's Jan Hatzius at the Pound and Pence, and of course elsewhere but these are the only public recorded ones, that have shaped monetary policy more than anything. In other words, if anyone can predict, not to say define, US monetary policy, it would be Jan Hatzius. Below are his just released "thoughts" on what to expect on Wednesday. What is odd is that whereas a month ago Goldman was convinced that an LSAP version of QE was imminent, now the firm has become substantially less optimistic. Is it time to manage down expectations? To wit: "Given the improvement in the economic indicators and the easing of financial conditions that has occurred in the meantime, we believe it is less central now. While Fed officials are certainly not targeting a tightening of conditions, we doubt that they will "bend over backwards" to deliver a dovish surprise relative to current market expectations." So just how much QE3 is priced in if Goldman is already doing disappointment damage control. Or did Goldman finally wise up and realize that the only effective Fed statement is the one that surprises. So if Goldman does not publicly expect QE3, and we do in fact get a notice thereof, it will have an immediate knee jerk reaction on risk, and of course, Gold. These and many more questions shall be answered at 12:30 pm on Wednesday.

Goldman On The Five Key Questions For 2012

As US markets remain in hibernation for a few more hours, Goldman picks out the five critical questions that need to be considered in the context of 2012's economic outlook. Jan Hatzius and his team ask and answer a veritable chart-fest of crucial items from whether US growth will pick up to above-trend (and remain 'decoupled' from Europe's downside drag), whether inflation will find its Goldilocks moment this year and if the US housing market will bottom in 2012 (this one is a stretch). Summarizing all of these in a final question, whether the Fed will ease further, the erudite economist continues to expect an expansion of LSAP (focused on Agency MBS) and an official re-adjustment to an inflation targeting environment. Their view remains that a nominal GDP target combined with more (larger) QE improves the chances of the Fed meeting its dual mandates (unemployment target?) over time but expectations for this radical shift remain predicated on considerably worse economic performance in the economy first (as they expect growth to disappoint). We feel the same way (worse is needed) and recall our recent (firstly here, then here and here) focus on the shift in the balance of power between the Fed and ECB balance sheets (forced Fed QE retaliation soon?).

Goldman Says Good Riddance to 2011

"Not many market participants will lament the passing of 2011" is how Goldman starts a brief note today looking back at a year full of adverse shocks in order to judge the year-ahead's potential to destroy forecaster's perspectives. The 'shocks' as well as the known unknowns are summarized effectively as the experience of 2011 suggests that the global economy remains at a delicate juncture as we head into 2012. They note that by definition, shocks are unpredictable. But slowing growth (and in places outright contraction), public sector cuts, and a renegotiation of the social compact between state and society in different parts of the world is an environment ripe for political turmoil, and this may well be a source of more shocks as the year progresses.

"A Markets Carol" - Goldman Scrooge Gets A Visit By The Three Ghosts Of The Global Economy

In its "pre-Christmas" note, it is somehow appropriate that Goldman's Jose Ursua reprises the role of Ebenezer Scrooge, and explains how, in this contemporary Christmas Carol, "The world economy is struggling: to begin with. There is no doubt whatever about that" and, logically, gets a visit from the three ghosts of the world's past, present and future. However, while the narrative is similar for the most part to the Carol morality play, where it diverges is in the Hollywood ending: "As in Dickens’ story, avoiding this outcome will require decisive actions. Unlike Ebenezer Scrooge’s overnight redemption, however, we believe the solution to the current global problems will potentially take much longer. So, although some steps are clearly visible in the right direction, the post-holiday environment will likely continue to be challenging for both policymakers and markets alike." And that's only for the macro; the "micro", as Morgan Stanley explained yesterday, is already slipping regardless of how long the US pretends that Europe is irrelevant for the big picture. The only question is whether the macro follows suit (which in Morgan Stanley's case was left as the optimistic case with full resolution), in which case the ghost of the coming "Great Stagnation" will be one scary dude.

Goldman's Economists Score 7 Out Of 10 For 2011

Since the 2012 Outlooks have now slowed to a drip, its appears retrospectives are the stocking-filler of choice for the week. Goldman's economist group reflects on their '10 Questions for 2011', released at the end of December 2010, and finds they were correct seven times. The tricky thing about judging the 'score' is the magnitude of the error - or more importantly the magnitude of the question's impact on trading views. Jan Hatzius and his team have had their moments this year, for better or worse, in economic sickness or health but they have largely been accurate at predicting Fed policy (or should we say 'directing/suggesting' Fed policy), but were significantly off (along with emajority of the Birinyi-ruler-based extrapolators from the sell-side) on growth (high) expectations and inflation (low) expectations. Nevertheless, the lessons learned from over-estimating the speed of healing from the credit crisis and the disin- / de-flationary effects of a large output gap (which BARCAP would argue is not as wide) when inflation is already low and inflation expectations well anchored are critical for not making the same overly-optimistic mistake into 2012.

Exclusive Interview With Diapason's Sean Corrigan

Zero Hedge has the pleasure to bring its readers this extensive Q&A with one of the most prominent voices of "Austrian" economic sensibility, and foremost experts on capital markets and commodities: Diapason's Sean Corrigan, who has repeatedly graced our pages in the past and who always provides a much needed 'on the ground' perspective on his native Europe. Among the numerous topics discussed are the Eurozone, its collapse, its insolvent banks, and the EFSF as the Swiss Army Knife ex Machina; the 3rd year anniversary of Lehman's failure and what lessons have been learned (if any); how to fix the US economy; on Goldman's relentless attempts to intervene in, and define, US monetary policy; what the Fed's role should be (if any) in the economy and capital markets; his views on the Occupy Wall Street movement; his advice to an inexperienced 25 year old looking to make their way in the world; And lastly, the $64K question: what is the endgame. A fascinating must read.

Goldman: "Some Lessons From The Past Four Years"

This is the boilerplate: "The following is based on remarks at the University Club in New York at the ceremony for the 2011 Lawrence R. Klein Award for the most accurate forecast over the prior four years to the Goldman Sachs US Economics team. The award was sponsored by the W. P. Carey School of Business at Arizona State University and Blue Chip Economic Indicators, Inc., and was presented by Dr. Lawrence H. Summers, Charles W. Eliot Professor of Economics at Harvard University." Hmm. We assume the University Club in New York did not read the following post. No matter. The attached analysis, ignoring that it is from the team that was 100% wrong less than a year ago, and is 120% wrong now with its ridiculous Nominal GDP targetting proposal, does have its "finer points", and as such is worth of mockery by ZH readers.

Bill Gross Was Right: Fed Board Member Tarullo Calls For Restart Of MBS Monetization

When we first reported on Bill Gross' massive surge in duration and accelerated purchase of Mortgage Backed Securities a week ago, we said, "That's either what is called betting one's farm on Operation Twist, or, betting one's farm that the next thing to be purchased by the Fed in QE3 or QE4 depending on how one keeps count, will be Mortgage Backed Securities." It was the letter. Confirmation that Bill once again frontran the Fed comes courtesy of Daniel Tarullo who in a speech at Columbia University, talking about the labor market of all things, just said the following: "I believe we should move back up toward the top of the list of options the large-scale purchase of additional mortgage-backed securities (MBS), something the FOMC first did in November 2008 and then in greater amounts beginning in March 2009 in order to provide more support to mortgage lending and housing markets." And there you go: watch as the market rips on the expectation that the US will bail out China all over again. Oh wait, at this point China couldn't care less what happens to the GSEs stack. So unfortunately as can be expected, this is nothing but yet another bailout of US banks, which lately have been buying up MBS like crazy (Gross is not the only one with the hotline), and expecting to flip right back to Brian Sack: after all something has to be done to save the poor things from a total pancaking of the Treasury curve.

Think An American Economic Resurgence Is Imminent? Don't Be Stupid, Warns Goldman

The recent brief uptick in economic high frequency indicators got you up? Feeling like suddenly the recession can be avoided because train traffic, whose sole goal is to stock up on even more soon to be liquidated inventory, hasn't yet collapsed? Happy by the beat in Non-farm payrolls, even though the beat was primarily a function of a one-time Verizon-strike boost, even as tax witholdings have hit an inflection point and are now declining? Amazed by the surge in car purchases, funded entirely by GM-targeted subprime loans issued by Uncle Sam, which have now declined for the first time in a year? Don't be silly, warns Goldman's Jan Hatzius, and presents a list why while the C-grade commentators out there may be caught off guard by the brief pick up in economic activity and proclaim the period of inverse economic growth over, it is all, quite, pardon the pun, "transitory."

Goldman Fires Another Warning Shot Across Bernanke's Bow

Following up his earlier note laying out expectations (translated as: "you better or else") for the outcome of the FOMC meeting tomorrow, Goldman's chief economist Jan Hatzius produces another 'concerning' research note tonight providing just enough evidence for  a growing downside risk to the firm's 2% GDP growth estimate for 2012. We assume the failure of the market to hold onto dramatic losses (easier to justify more easing) or dramatic gains (can't disappoint a Pavlovian public waiting for the FOMC bell to ring) in the last few days prompted the 'nudge' from the policy-makers-elect. It appears weak stocks, a strengthening dollar, and the European crisis were not what the doctor ordered.

Goldman's Take On Obama's Jobs Proposal: "Larger Than Expected"

BOTTOM LINE: The President’s proposal is larger than expected, with spending proposals and tax cuts both somewhat greater than expected. This proposal does not imply a significant shift in the fiscal restraint in 2012, but it is consistent with our expectation that the payroll tax cut will be extended, and the fact that some of the new proposals involve additional tax cuts increases the probability that Congress will enact them.

Goldman Reiterates The Case For A Very Disappointing NFP Number

With just half an hour left until the NFP report, all bets should have been made by now if the number will come above the consensus of 68K, or well below it. One who is confident the number will be a big disappointment is Goldman's Jan Hatzius and team who lists the following reasons for why the number will not meet Wall Street's traditional permabullish outlook: Weakened hiring, due to a deterioration in households' assessment of the labor market, weaker real time economic employment indices, fewer online job ads, moderate ADP employment gains; the picture is not better on the demand side as jobless claims remain low, and announced job cuts are rising. There is always a strawman in the form of the Verizon strike which would cut about 45,000 people from the NFP, but laslty, and most importantly, Income tax receipts have dropped substantially in recent weeks: an indication that either employees are paying less in taxes, or there are just less of them. Goldman's summary: "Taken together, our models suggest a deceleration in the pace of payroll growth in August. We therefore expect a gain of 25,000 in the 's report (revised down from 50,000 previously)." Also, let's not forget that the Fed needs some ammunition if it wishes to proceed with announcing QE3 at the September 21 FOMC meeting- yesterday's ISM certainly did not provide it.