Wow, I somehow completely missed this one.
Goldman Sachs (GS) is essentially predicting a lost decade for most of the developed world.
The graphs below are from the Goldman Sachs Global Economics team:
- Output gap will not be filled till almost 2016-2018 for most of the developed economies.
- Unemployment must remain high till this time. Chimes in nicely with PIMCO's Billl Gross who feels that unemployment will remain high on a structural basis (in what El-Erian calls a deleveraged, deglobalized and reregulated world).
- I have a hard time believing the inflation theme given such data points. At the very least, inflation is 3-4 years away.
- Mexico looks like it will suffer because of it’s proximity to the US and the swine-flu.
- Indonesia and Australia are interesting non-mainstream ideas.
- It clearly helps to be a commodity exporter. The commodity super cycle is alive and well.
- Clearly, China and India look like the places to be. Sidenote: The domestic demand growth story of India is possibly the best secular growth story I can think of over the next decade, as opposed to depending on the “change” from an export dependent economy to a domestic demand driven economy in the case of China. Domestic consumption is already 60%+ of the economy in the case of India. Probably great news for the Indian Rupee as well.
- I’m not convinced as to why UK should recover before US. The UK real estate market has been described by Jeremy Grantham as the only remaining asset class bubble, and I would generally expect Europe to lag US in recovery. The chart below illustrates that the real estate markets in Europe have been lagging those in the US.
Here’s what the team says:
- Emerging markets are likely to see a return to trend growth about six months, on average, before advanced economies. Similarly, emerging markets on average will close their output gaps – the difference between actual growth and trend growth – about two years before advanced economies.
- Equities should grind higher in the months ahead and long-dated equity vol is expensive relative to the improving macro backdrop.
- Countries that get back to trend growth sooner should see their currencies strengthen.
- Emerging markets, particularly Asia, should offer more opportunities for outperformance for equities and forex, and could support commodity prices, especially industrial metals.
- Suggests going long GBP and short EUR/GBP
- Carry trades should prove popular because of smaller current account imbalances.
- Recommends Hong Kong (EWH), Taiwan (EWT) and Chinese (FXI) equity markets.
2009 so far looks like a repeat of the old weak-dollar, strong-commodities, strong-emerging markets story. Not sure how sustainable that’s going to be. The decoupling story is back in vogue.
Source:
Goldman: Past the worst
http://www.investmentpostcards.com/2009/05/27/goldman-past-the-worst/
Fuller money
http://www.fullermoney.com/content/2009-05-26/document.pdf
