QII '11 SHORT-TERM SENTIMENTS

[rffrydr]

Follow the leader?


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Today is the Tomorrow you worried about Yesterday!

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Well they found a place to lean against....the '07 highs:

Trouble at the Highs

By Helene Meisler

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There's a natural reason for volume to thin out at "new highs"--there's no short presets to lean against.
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Today is the Tomorrow you worried about Yesterday!

[rffrydr]

Goldman's outlook:

Goldman Sachs Cuts First Quarter U.S. Growth Estimate to 2.5%


^c.2011 Bloomberg News

By Simon Kennedy and Alexis Xydias

April 4 (Bloomberg) — Goldman Sachs Group Inc. economists cut their estimate of U.S. economic growth in the first quarter by a percentage point to 2.5 percent and warned there are risks to their forecast of 4 percent growth in the second half of the year.

“We don’t see anything dramatic at this point, just a fewer weaker signals here and there,” Jan Hatzius, Goldman Sachs’s New York-based chief economist, said in a report today, citing higher U.S. gasoline prices, tighter fiscal policy and some softening economic data.

With the first quarter now behind us, we have downgraded our Q1 GDP estimate to 2.5% from 3.5%. By itself, that’s not a big deal. Most indicators other than those that happen to go into the GDP bean count—in particular, virtually all business surveys and labor market indicators—continue to look solid and are probably a more accurate guide to the economy’s true strength. We believe that first-quarter GDP was held down by temporary factors, including poor weather and perhaps a bad draw from noisy data. Because temporary factors must eventually reverse by definition, this could mean a very strong quarterly GDP reading in Q2 (we are at 4%).


2. But the risks to our second-half GDP forecast of 4% also remain on the downside, and that’s more meaningful. We don’t see anything dramatic at this point, just a few weaker signals here and there. Gasoline prices are making new highs again, fiscal policy is starting to tighten a bit more aggressively, and a couple of indicators—specifically ISM new orders and consumer expectations—have softened a bit. So H2 is on downgrade watch.

We disagree with this story and so, we think, does the FOMC majority. It stands and falls with the assumption that (bank) loans are financed by deposits subject to minimum reserve requirements, and are therefore “constrained” by the amount of reserves in the system. In reality, however, most bank loans have long been primarily funded from sources other than deposits subject to minimum reserve requirements, including nontransaction deposits, bonds, and commercial paper. This means that bank lending was not constrained by the availability of reserves even prior to the increase in excess reserves. Relieving a non-existent constraint cannot be important for credit creation or inflation. If so, the monetary base is essentially meaningless. (This does not mean that QE2 had no effect, but it does mean that the effect is much more limited and works through the impact of the Fed’s larger asset holdings on bond yields and financial conditions, not through the liability side of the Fed’s balance sheet and the monetary base.)

8. The upshot is that the growth news is a little worse, the inflation news is a little worse, and the risk that the Fed might tighten before early 2013 has gone up a little. None of this is dramatic, and we think the basic story of good growth, low inflation, and friendly monetary policy that we have been telling since late last year still stands. But it’s all a little messier than we would like
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Today is the Tomorrow you worried about Yesterday!