In two paragraphs in his latest note, Goldman’s Jim O’Neill packs quite a wallop discussing the economy, investor sentiment, Bernanke, and the odds of more QE.
Just read the whole thing:
On Thursday lunch time, I joined some Goldman Sachs colleagues for a lunch with some leading macro hedge fund investors, most of which I had enjoyed a similar lunch with last October. The mood this time couldn’t be more different. I guess it is kind of understandable given the recent run of data, the markets and the apparent policy impasse in DC on fiscal matters. But it seemed to me it was all a bit over the top. The general mood around that lunch table was gloomy, whether it was about the US, Europe or China, both with respect to data and policy options. I was regarded as a raving lunatic for suggesting it was possible that US unemployment might fall below 6 pct by the end of 2013.
Having witnessed the Bernanke speech and Q+A, I can understand the mood regarding risks of excessive regulation. But, while a QE3 would clearly involve “externalities,” it seems obvious to me that if the recent weak US data is for real, then there is a good chance that the Fed would deliver on something more. After all, their mandate is pretty clear. That being said, I return from the US far from convinced that the Fed is going to have to worry about this. I was rather relieved to observe that the Beige Book included many references to the impact of supply chain disruptions from Japan in the recent period. I suspect that this, along with higher oil prices, is the main culprit for the significant soft patch the US has recently been through. As I pointed out to the lunch group, US financial conditions had eased since we all had met last October. Given that, I can’t see why the US is suddenly into a sustained downturn, unless the impact of regulatory measures is hurting credit provisions that much. There is not much evidence of that in the data. Anyhow, we shall soon see.
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