Earlier today, Goldman's Peter Oppenheimer made the news following publication of his report "The Long Good Buy" posted here. In itself, that would be nothing spectacular - just one man's opinion. However, when taken in the entirety of Goldman's views on the world, it bears some criticism, because while on one hand we have a key Goldman strategist telling the world it is all clear in stocks, virtually at the same time Goldman's chief economic strategist, Jan Hatzius, who is German, gave the following interview to Handelsblatt, in which he lays out his "doubts about an early recovery of the U.S. economy. In this interview he explains why positive unemployment figures are deceptive, and why the real estate crisis will have lasting effect." Perhaps his most important observation, when asked if Americans have learned anything from the crisis: "I do not think there has been a big change in behavior. During the crisis, Americans simply responded to the realities. They could no longer borrow as much money. Now again a little more credit is available, and you can borrow some more money again. But I do not think there has been a fundamental change." Alas he is correct, and incidentally the reason why Goldman has such a massive credibility problem is that while on one hand one part of the firm goes ahead and pitches equities, on the other, a respected economist says that the economy is so sluggish that he gives a greater than 50% chance of more QE. Perhaps at this point it is bear reminding what a third Goldman strategist said back in October 2010: "Goldman Sachs Admits The Truth: "The Economy Is Not The Market And QE2 Is Not A Panacea." Then again, with career risk once again paramount for every money manager out there, as the bulk of hedge funds once again underperform the market, perhaps not.
From Handeslblatt, google translated.
Handelsblatt: Mr. Hatzius, America went through after the financial crisis is a difficult time. Now it seems to recover the labor market. Are the United States to make a comeback?
Jan Hatzius: I do not see a strong comeback in the U.S.. No one speaks more about a new recession. But you can out of the development on the labor market does not close on strong growth. We expect only a little over two percent in 2012.
What makes you so cautious?
I suspect that some of the good data from the labor market is due to temporary factors. This includes the very mild winter, which is solely responsible for up to 40,000 last month of 245 000 new jobs. In addition, the companies have recently increased the storage back to normal levels. According to our forecasts the rate will fall only slightly to 8.2 percent in 2012.
What slows the growth?
The healing process, especially in the housing market is not yet complete, and there are headwinds in the form of higher oil prices and tighter fiscal policy.
The see some of your colleagues but unlike earlier this year and expect a stabilization of home prices.
This is perhaps a bit too optimistic. We expect a further decline in prices by three to four percent and a stabilization until 2013. The surplus is still large. The vacancy rate for houses has fallen from 2.9 percent in the peak in 2009 to 2.3 percent. She is still significantly above the 1.7 percent before the crisis.
You mentioned the rising oil price. What role does he play?
Makes itself felt. In the U.S., the price of gasoline has risen by a seasonally adjusted least ten percent. That can cost up to 0.4 percentage points growth. A higher gasoline price means just that people have less available for private consumption.
Keyword use: Have the Americans learned from the crisis? The debt is rising again, the savings rate falls.
I do not think there has never been a big change in behavior. During the crisis, Americans have simply responded to the realities. They could no longer borrow so much money. Now is again a little more credit available, and you can borrow some more money again. But I do not think there has been a fundamental change.
"America needs to save"
And the government? Expect to pay for after the November elections with a more restrictive fiscal policies of the U.S.?
Yes, we must assume that some of the stimulus measures such as reducing the payroll tax and the extended unemployment benefits expire at the end. What happens also depends in part on the outcome of choice. Course is clear: America needs to save.
In addition to fiscal policy, monetary policy plays a major role. The Fed will decide another bond purchase program under the name of QE3?
I think the probability is still greater than 50 percent. One wants to return to full employment. According to the estimates of the Fed, the unemployment rate 2.5 percentage points above the "natural rate". In order to reduce, one needs higher growth over a longer period.
How big would be another program?
If one estimates the usual 300 bis 800 billion U.S. dollars as a basis, then I would say the bigger the better. And I expect in the first half, because the mid-life extension program of the Fed - also known as "Operation Twist" - is expiring. Because it makes the most sense to launch another QE is the successor program.
The market prices up a turnaround in interest rates in early 2013. Are they right?
The Fed will wait longer for it. Currently, it promises in its communiqué even low interest rates until late 2014. But because of the labor market issues, I do not expect rate hikes before 2015.
Has the Euro-America's debt crisis slowed growth?
Hardly. The export of the United States to Europe is not so great. At best, the crisis has made evident the fact that European banks have issued fewer loans in this country. The effect on growth was very low.
The euro debt crisis was finally tackled strongly. Is it over?
Certainly not. In the peripheral countries are the private and public sector remains under pressure.
"The private sector is not subject to forced saving"
Can Germany decouple?
We think that the divergence between Germany and the weak countries of the EU is larger and can grow in Germany this year, one percent. The private sector is not subject to forced saving, and the public sector must be at least at present being not directly related to the consolidation. And the €, is measured against the currencies of the trading partner, about ten percent undervalued against the long-term average.
There are increasing voices that Greece should leave the euro area. Would that be a solution?
I do not think so. The risks of withdrawal from the EU would be enormous.
What would be the biggest risk?
Then the risk of an even bigger banking crisis in stocks in the peripheral countries. The risk that depositors could try would be to withdraw their deposits at these banks. And then it could also destabilize banks in other peripheral countries.
How America sees the conflict between the Bundesbank and ECB monetary policy?
One hopes that this will not return to a narrowing of monetary policy in Europe.
The banks, the ECB needs additional funds in long-term programs, the so-called LTROs set, available?
You must be willing to do this if the conditions worsen again. This one will not say experiencing. We assume that the ECB is willing to do more, should that be necessary.