Goldman Sachs Cuts Q1 GDP Estimates
Tuesday, April 5, 2011
Euro Pacific Capital
By: Michael Pento
The Pollyannas that were busy doing their linear projections for U.S. GDP back in 2010, were telling investors that the first quarter of 2011 would produce 4%+ growth in real GDP. Their logic was based on an ersatz recovery based upon government printing and spending. But now the evidence of their folly is smacking them straight in the face.
It’s nice to react to new information, but it is always better to get well in front of it. Investors could have been surprised by the news today of a decrease in the Institute for Supply Management’s index of non- manufacturing to 57.3 from 59.7 in February. Or they could have anticipated that drop and positioned their portfolios accordingly.
EuroPac investors were not so easily misled. But if you were a client of Goldman Sachs you may find it a bit disturbing that GDP growth estimates for the first three months of this year were taken down a full percentage point today to 2.5%. The IMF is joining the GDP slashing parade and cut Q1 growth down to 2.8% from 3%.
The big houses are now forced to chase their tails and lower GDP forecasts because they haven’t yet realized the dangers associated with equating growth to inflation. China is quickly waking up to that realization and has now raised interest rates for the fourth time since October 2010. Note to Bernanke; the PBOC did so ahead of the March CPI data due out next week. Now that’s what I call being proactive.
The Fed’s counterpart in Europe Jean Claude Trichet has also scheduled in a rate hike this Thursday in an attempt to offer citizens in the old country a real return on their savings. In sharp contrast, Mr. Bernanke is assuring us that this current bout of inflation is just a passing fancy.” In a speech last night in Stone Mountain Georgia, Bernanke said, ““I think my take on inflation right now is that we are indeed seeing some increases, obviously.” He continued, “I think the increase in inflation will be transitory.”
The Fed Chairman gave us a peek into the keen insight behind his sanguine stance. The reason behind his comfort with the direction of inflation is—and remember this guy has a doctorate in economics—the recent increase in U.S. inflation is driven primarily by rising commodity prices globally, and is unlikely to persist. That’s it! No mention of his monetary policy being the cause of inflation in the first place.
Bernanke’s refusal to admit his own role in global inflation assures us that he will be as wrong in his inflation projections as he was about the sub-prime real estate crisis being contained.
Michael Pento, Senior Economist at Euro Pacific Capital is a well-established specialist in the “Austrian School” of economics. He is a regular guest on CNBC, Bloomberg, Fox Business, and other national media outlets and his market analysis can be read in most major financial publications, including the Wall Street Journal. Prior to joining Euro Pacific, Michael worked for a boutique investment advisory firm to create ETFs and UITs that were sold throughout Wall Street. Earlier in his career, he worked on the floor of the NYSE.