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Goldman Says Good Riddance to 2011

Tyler Durden's picture


"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.


Goldman Sachs: Good Riddance to 2011, a Year Full of Shocks

Adverse Shocks Weighed on Global Growth in 2011

Not many market participants will lament the passing of 2011. Global growth is likely to end up at 3.8% for the year, below the 4%-plus growth rates that we and the consensus expected at the start of the year. Global equity markets are solidly in the red, with only the US really managing to stay flat on the year, volatility has increased despite a decent pullback in the last month, and bond yields across many Eurozone economies remain perilously high. And yet it was a year that promised so much, with economic indicators such as US jobless claims and global PMIs visibly improving and markets moving higher into the start of 2011, only to fall back as a series of shocks affected the economy and the markets.


The first adverse shock was an increase in oil prices linked to the disruptions in Libya and more broadly the “Arab Spring”. As we discussed in a Global Weekly back in June (Anatomy of the Global Slowdown, GEW 11/21), the cross-sectional pattern of actual PMI falls across the world were related to estimated changes in response to a 20% oil price shock (somewhat less than the observed increase in oil and gasoline prices between February and April).


Second, global industrial activity was also impacted by the disruption caused by the East Japan earthquake and tsunami. The impact on Japan itself was significant, with industrial production falling sharply along with most measures of demand – Japan is likely to end the year with a growth rate of -0.8% yoy versus +1.1% that we expected at the start of the year. The disruptions were also transmitted globally, primarily via reduced supply of key Japanese components to the transportation industry, producing a drag on growth in some advanced economies including the US.


Finally, there was the shock of the ‘manufactured’ US debt-ceiling crisis and the subsequent downgrade of the US sovereign debt rating by Standard & Poor’s. While it is unclear if this had a measurable impact on economic activity, there was a sharp fall in several confidence indicators coincidentally, and cyclical assets reflected the risks to growth to a much greater degree than sovereign credit risk per se. Our US Wavefront growth basket moved sharply lower through July and August, and following the political stalemate through much of July, the Philly Fed business outlook survey fell to -30.7 in August and consumer sentiment fell back to late 2008/early 2009 recessionary lows.

A Fragile Global Growth Picture for 2012, Still Vulnerable to Shocks

In addition to the adverse shocks described above, 2011 also saw the crystallisation of three important and arguably ‘known’ risks that we highlighted at the end of 2010. First and most obviously, the intensification of the Eurozone sovereign crisis has extracted a significant toll on markets and the economy and a second recession in the Euro area is now likely after 08/09. On this front, we continue to remain concerned that without more decisive policy actions most of the risks to our already downbeat European economic forecasts are still to the downside. Second, as Jan Hatzius pointed out in a US Daily last week (A Retrospective on “10 Questions for 2011”), greater fiscal restraint at the state and local government level and a more protracted private sector balance-sheet adjustment process have been more significant drags on US growth than we expected. And finally, while EM inflation did peak over the summer months as anticipated, the policy tightening stance has only recently begun to shift, and the weakness in EM cyclical data is a key risk going into 2012.


In sum, the experience of 2011 suggests that the global economy remains at a delicate juncture as we head into 2012. The dynamics of a post-bust recovery that we have highlighted in past research are reflected in a growth outlook that is pretty fragile to shocks. The inability of the private sector to generate strong growth even as the public sector retrenches, coupled with central banks that have very limited room to ease policy, paint a picture of below-trend growth in advanced economies. This means that even moderate shocks like those experienced in 2011 can push an economy uncomfortably close to renewed contraction. Emerging markets are better placed in most of these regards, but it will be important to see the degree to which cyclical activity here responds to a shift in policy.


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. At the same time, with a number of important political transitions coming up in 2012 (in Russia, France, China and the US to name only a few), there is also the possibility of more thoughtful debate and closure on some of these issues.


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Thu, 12/29/2011 - 10:33 | 2019000 CClarity
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A shame we couldn't say good riddance to the squid, which is morphing into yet another diabolical financial beast.

Thu, 12/29/2011 - 11:31 | 2019196 Oh regional Indian
Oh regional Indian's picture

Clarity, did you say morp-hing? As in present continuous? I think it was a diabolical financial beast at it's inception. Behind every great fortune no , not a woman, a CRIME.

Banks are criminal organizations. As are insurance companies. 

And I'll second and third your feelings... Let's say Good Riddance to Gold Mansacks.



Thu, 12/29/2011 - 10:37 | 2019007 Dr. Engali
Dr. Engali's picture

Too bad we can't say goodbye to Goldman.

Thu, 12/29/2011 - 10:35 | 2019008 lolmao500
lolmao500's picture

LOL 2011 will be heaven compared to what's coming in 2012.

Thu, 12/29/2011 - 10:37 | 2019014 Clam McCain
Clam McCain's picture

Silver down for the year - but dont worry its cheap now!! You are right and the market is wrong

Thu, 12/29/2011 - 10:40 | 2019027 SheepDog-One
SheepDog-One's picture

Silver down for the year, but up 4X from $6 only 4 years ago. Stocks never have recovered from 4 years ago levels, not even close.

Thu, 12/29/2011 - 10:38 | 2019018 Captain Kink
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"In sum, the experience of 2011 suggests that the global economy remains at a delicate juncture as we head into 2012. The dynamics of a post-bust recovery that we have highlighted in past research are reflected in a growth outlook that is pretty fragile to shocks."

so, Bad, or Worse?  I am betting on Worse. Shocking.

Thu, 12/29/2011 - 10:38 | 2019020 Tsar Pointless
Tsar Pointless's picture

To echo above sentiments in a different way, we should have been saying "good riddance" to the VampSquid back in 2008, but NOOOOO - we couldn't have THAT. We needed to save those enslave us.

Economic calamity and tanks in the streets and all that jazz.

Eh, who cares anyway? The NFL playoffs start in a week, and the Steelers are right there in the hunt for another division title and possible first-round bye-week, dontcha know?

Priorities, bitchez!

Thu, 12/29/2011 - 10:39 | 2019024 DaveyJones
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CNBC/Onion headline: Jobless Claims Drift Higher, Still Below Key Level

Thu, 12/29/2011 - 10:41 | 2019032 SheepDog-One
SheepDog-One's picture

Oh! Well as long as we're not at the 'key level' yet, rock the party ON!

Thu, 12/29/2011 - 10:53 | 2019042 DaveyJones
DaveyJones's picture

I think Goldman won the Onion contest this morning though with "Manufactured US-Debt Ceiling Crisis"

Fri, 12/30/2011 - 00:29 | 2021015 ThrivingAdmistC...
ThrivingAdmistCollapse's picture

That is true the debt ceiling crises was totally manufactured.  In reality the economic collapse is going to be caused by too much debt and not the lack of a debt ceiling.

Thu, 12/29/2011 - 10:40 | 2019025 AngryGerman
AngryGerman's picture

i think their flow desk had a pretty good year. at least given the terrible advice they gave to their clients.

Thu, 12/29/2011 - 10:40 | 2019026 youLilQuantFuker
youLilQuantFuker's picture

Warning OT.

Breaking. Holy Shiite! Delta Force targeting Straits.

Thu, 12/29/2011 - 10:40 | 2019029 usualsuspect
usualsuspect's picture


Thu, 12/29/2011 - 10:48 | 2019060 AngryGerman
AngryGerman's picture



Thu, 12/29/2011 - 10:49 | 2019061 SheepDog-One
SheepDog-One's picture

BUT, we STILL rule the WORLD!! 

Muahhh hah ha haaaaa

Thu, 12/29/2011 - 10:41 | 2019031 Jim in MN
Jim in MN's picture

Of course, for many 2011 refuses to just go away--Japanese government is informing some areas that they will be the 'national sacrifice zone' for storing radioactive debris (because decontamination is 'impractical'):


Govt requests sites for waste soil storage

The government has officially requested permission to temporarily store radioactive waste soil in 8 municipalities around the crippled Fukushima Daiichi nuclear plant.

Environment Minister Goshi Hosono on Wednesday met governor Yuhei Sato of Fukushima Prefecture and the mayors of 8 districts of Futaba County.

Hosono said Futaba County was chosen because areas exposed to over 100 millisieverts of radiation per year are concentrated there. He said this makes ordinary decontamination methods impractical.

Hosono said the government will buy up or borrow land on long-term leases to build temporary storage sites.

After the meeting, Governor Sato said it will be very painful for the people of Futaba County to accept the government request. He said the government should adopt great courtesy in explaining its plan to the relevant municipalities and residents.

The governor said he would decide whether or not to allow the plan after listening to responses from the municipalities.

Wednesday, December 28, 2011 17:08 +0900 (JST)

Thu, 12/29/2011 - 10:41 | 2019033 The_Emperor
The_Emperor's picture

Are clients still listening to what these guys are saying ?

Thu, 12/29/2011 - 10:47 | 2019053 XtraBullish
XtraBullish's picture

If you had faded Goldman's superb "gold call", like i did, you would have $20k per contract in your bank by now. even more for that flea-ridden dog SILVER has made. Look for $1225 gold by Jan 15th. $10 Silver will be an excellent entry point!

Thu, 12/29/2011 - 10:47 | 2019055 AngryGerman
AngryGerman's picture

oh boy, these greeks. again, their tax collectors won't work. two of their "top" anti-tax fraud prosecuters (Grigoris Peponis and Spyros Mouzakitis) just threw the towel. and all public employees working in the tax collecting agency are on a 48 hours strike.

this is how you celebrate new year

Thu, 12/29/2011 - 11:35 | 2019205 DeadFred
DeadFred's picture

Tax collectors off the job? Any way we can import this?

Thu, 12/29/2011 - 10:56 | 2019069 bpom
bpom's picture

The DOW will close up for the year.  If the S&P can close above ~1257, that will be positive for the year ,and the PR machine (ministry of propaganda) will sing its praises ad infinitum.

Thu, 12/29/2011 - 11:40 | 2019214 DeadFred
DeadFred's picture

Try to imagine being a hedge fund manager explaining to clients why their accounts are down 25% or however much in an 'up' year. I predict 1256 just so they can spin it with "We'll do better next year when the market recovers". 

Thu, 12/29/2011 - 11:01 | 2019103 gamorck
gamorck's picture

I can't say I disagree with Goldman on this front.  Good riddance 2011!

Thu, 12/29/2011 - 11:09 | 2019124 disabledvet
disabledvet's picture

We're celebrating. One of the best years we ever had actually. Now if you're planning on celebrating New Years in New York City I have one word for you: don't.

Thu, 12/29/2011 - 11:12 | 2019135 vegas
vegas's picture

Not many of your clients are looking at green. Only your prop desk that front-runs clients provides any cash for the Vampires that inhabit this shithole of a firm.

Thu, 12/29/2011 - 11:25 | 2019174 markar
markar's picture

If only 2012 could say good riddance to Goldman

Thu, 12/29/2011 - 12:14 | 2019322 falak pema
falak pema's picture

+10 Out of the frying pan into the GS perpetrated fire!

Thu, 12/29/2011 - 13:48 | 2019659 asteroids
asteroids's picture

GS started the year around $160. It's now around $91. No wonder they are saying good riddance.

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