Wednesday, June 9, 2010

Goldman Economist: Ten Bearish Factors Facing the Economy

Jim O'Neill, head of global economic research at Goldman Sachs, wrote in a research note Sunday detailing 10 bearish factors facing the economy. Here they are:

1. Fiscal issues facing the euro zone

"Those of us that have been arguing that the issue is containable … are starting to struggle as the price action remains pretty unforgiving, especially now towards Spain, and even France," he said.

2. A lack of supply side reforms.

"The absence of significant supply-side reforms in large parts of the developed world mean weak trend growth..." he added.

3. A weak euro [Note: I see this as a strong dollar that will eventually find an equilibrium-RW]

4. U.S. unemployment
5. The imminent slowing of the Chinese economy.
6. Middle East politics
7. Growing financial stress (as measured by Goldman Sach's own Financial Stress Index )
8. Goldman's Global Leading Indicator index (GLI), which is currently negative. When coupled with bearish readings on the Financial Stress Index and the Financial Conditions Index it paints a bleak picture, according to O'Neill.

9. The G20 which is intent on tightening fiscal policy and ramping up financial regulation, [Fiscal tightening is only seen as a problem by Keynesians. Financial regulation could be very suffocating.-RW]

10. Poor technical action on stock charts.

Aside from our comments in parentheses, we find ourselves in agreement with what O'Neill writes. However, one has to ask why the zero money growth policy is not included as a factor, since it is the driving factor behind most of these warning signals.


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