Love them or hate them and there are many in both camp you have to accept that Goldman Sachs has been phenomenally successful in reading (and possibly manipulating markets) during the last decade. So when they come out with predictions on what the markets will be doing over the next two years people usually listen.
Jim O’Neill, Goldman Sachs’s chief economist in London is reported in a Bloomberg article as saying, “Our projections suggest that both 2010 and 2011 will be rather strong years. Specifically the bank is saying the global economy will expand 4.4% in 2010 and 4.5% the following year as the world recovers from the credit crisis, led by Brazil, Russia, China and India, which are collectively seen as growing by 9.2%. Growth of 2.1% is expected in the US according to separate coverage of the report in CNNMoney. The banks position is based at least in part on the premise that interest rates and inflation will remain low. With so much spare capacity in the economy, inflation is only likely to be driven by commodity prices or the unexpected building of asset bubbles in the short term. But the report says the combination of low interest rates and a return to appetite for risky assets suggests the development of asset bubbles at some stage in the future is high, it’s just a matter of when. Among Goldman’s recommendations are investors should buy the British pound against the New Zealand dollar and the Polish zloty versus the yen. The bank also backed Russian equities and suggested the worst is over in Ireland but more is to come in Spain by suggesting investors should go “long on credit protection on Spain and “short protection on Ireland. Their buy recommendation on the Bank of Ireland in a separate report this week promptly lifted the share price over 4%.
Not everyone agrees with the bullish outlook mind you. Pacific Investment Management Co. (Pimco), which runs the world’s biggest bond fund expects a “new normal investment climate that includes lower and slower economic growth, higher risk premiums, volatility and a prolonged correction phase, according to a statement covered in this article.
Meanwhile Goldman is unwinding the last four of its top trades for 2009 after “potential gains for nine of the 11 bets. They don’t always get it right though. Their recommendation to buy the dollar against the yen made them “significant losses according to their own admission, losing 9% during the year.