Goldman's Investment Strategy Group has just circulated the most bearish 2011 outlook presentation, detailing why the US economy in 2011 will likely stall and post negative growth. As the chart below demonstrates, the current case, where ongoing QE will likely persist through 2011 and even into 2012, and thus make any discussion of raising rates irrelevant (likely forever, as the Fed will not be able to absorb all the excess slack before it is forcefully removed after 2-3 sequential dollar devaluations) lead Goldman to a GDP expectation of well under half of the Fed's greenshooty outlook of 3%.
Here is how Goldman describes the its across the board outlook revision:
- Lower growth: We expect GDP to grow 1.5-2.5% in 2011 (down from 2.5-3.0%). Our view is that the growth baton will be passed successfully from inventories and government spending to consumption and investment so growth should remain positive over the next 12-18 months.
- Higher uncertainty: Our forecast range for GDP is wider (1% instead of 0.5%) at 1.5-2.5%
- Lower rates: We are lowering our long-term rates forecast to 3.0-3.75% by end 2011 (from 3.75-4.25%).
And according to the "Bad Case" which the Fed is about to enact, Goldman sees a fundamental S&P valuation range of 725-800 based on 10-11x multiples:
It is all about to get very interesting.