1. While GDP growth was 1.9% in the first quarter, it will drop to only 1.6% this quarter and average 2.0% the rest of the year. They stated that “fiscal policy remains the biggest source of uncertainty in the outlook.” (This investor agrees.)
2. They don’t expect the miserable job market to improve much, despite a decreasing unemployment rate. “The reasoning is that the high level of long-term unemployment may lead to lower labor force participation rates as workers lose skills, develop a stigma in the eyes of employers, or simply become discouraged.” (This has awful long-term implications for millions of people but may give some “bragging rights” to the incumbent president if that unemployment rate falls just prior to the November election, but I doubt it falls enough to make a difference before November.)
3. Despite massive balance sheet expansion by the Fed, they don’t believe inflation is a major concern, and that the Fed still has room to maintain loose monetary policy. (This investor thinks there is a real risk to printing so much money. Unless the Fed does an unbelievably good job of withdrawing money as the growth rate increases, I don’t see how you avoid inflation. And, when it comes, it will come quickly.)
4. Europe will “muddle through,” and Greece stays in the Euro zone. (This investor badly wants to believe this but thinks there will be a great deal of nerve-wracking drama before it happens. It will make cash feel good.)
5. They have become bullish on commodities, such as oil, gas, copper, aluminum and gold, because prices have gotten so low. (This investor agrees that commodities are cheap but are cyclical, which means they will increase in value faster than GDP growth rates . . . when GDP growth rates start increasing.)
6. Because central banks around the world have such a low likelihood of rate increases in the foreseeable future, they are buying long-term bonds. (This investor is not doing this, because the stampede out of bonds when the first bank increases rates the first time will be dramatic; crushing the value of those bonds.)
7. They believe the Fiscal Cliff of December 31st this year will be extended past December 31st of next year. But, they didn’t say when that highly-important decision will be made. (This investor thinks that kicking-the-can-down-the-road one more time is likely in order to protect the politicians, while hurting business. Everything has a cost . . . including uncertainty.)
Often, I ask myself if I’m too “Pollyanna” or sanguine or calm about bad market conditions. However, when I read that the legendary Goldman Sachs is more “Pollyanna” than I am, I feel even more confident!