Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Are Goldman Sachs’ Predictions Accurate?

CNBC reports that Goldman Sachs is predicting that the US has a 40% chance of entering another recession – that is two or more quarters of negative growth. Jan Hatzius, Goldman Sachs’ chief US economist, defended the prediction, saying, “Ultimately, it’s a judgment call… We’re basically indicating that we think the risk is sizable and elevated, especially given the already underway deterioration in the labor market, although it’s a gradual one.”

BAUPOST GROUP

Citing Goldman Sachs’ estimate that the US unemployment rate is expected to jump to between 9-10 percent, Hatzius explained, “Historically, U.S. business cycles have been quite vulnerable to rising unemployment and deteriorating dynamics in the labor market.” Goldman Sachs is estimating a growth of 0.5% for the first quarter next year, after elevating its predictions for the last quarter of 2011.

Of course, Hatzius has been wrong before.

In January 2011, he was bullish about the US economy, predicting that inflation would stay around 0.5% throughout 2011 and 2012 (see his early predictions here). Inflation is currently closer to 3.8%. In contrast, fund managers like Seth Klarman were more accurate, expressing concerns about runaway inflation and a weakening US dollar (read Seth Klarman’s predictions).

Hatzius also predicted in January that interest rates would “stay at zero for another two years” while fund managers like David Einhorn, Greenlight Capital, think that interest rates will continue to rise and, as a result, are pushing more money into commodities (check out Einhorn’s outlook here). In this case Hatzius was correct but for the wrong reasons. Interest rates are lower now because of the poor GDP growth rates. Hatzius was predicting a 3.4% growth rate for 2011 and 3.8% growth rate for 2012. Now he is expecting a contraction in 2012. We don’t think Hatzius or Goldman Sachs are doing any “real work” to make predictions. They just “predict” what the markets are telling – with a couple of months’ delay.

Loading Comments...