Bull on Wall StreetOn Main Street, Goldman Sachs (GS) has been paraded as an example of conflicted interests and shady dealings that resulted in a famous vampire squid comparison. But the firm retained its status in the financial world as a cut above the rest on Wall Street.

A penchant for sober, hard-nosed analysis even as rivals got carried away helped distinguished Goldman. That caution helped the firm flip its positions and profit from the real estate meltdown even as other banks were left holding the bag.

And it's for that reason that Goldman's bearish stance on the U.S. economy even as other Wall Street stalwarts turned bullish carried special weight. The contrast in views was personified over the summer by the starkly different stances taken by Morgan Stanley (MS) Chief Economist Richard Berner and his counterpart Jan Hatzius at Goldman.

While Berner predicted a strong rebound, Haztius emphasized the potential for a deflationary spiral amid a sluggish recovery.

"Demand Is Now Accelerating Sharply"


But in a rare turn of events, it's now Goldman Sachs that's throwing in the towel on its downbeat view following a wave of strong U.S. economic data. In a note to clients on Wednesday, the firm increased its GDP growth targets from 2% to 2.7% in 2011 and to 3.6% the following year.

Like bond giant Pimco -- which popularized the "new normal" view of the economy -- Goldman had long argued that anemic demand would weigh on any recovery as households focused on paying down debts. But after a sharp downturn 2007 and stagnation until the middle of 2009, Goldman has changed its tune, saying "underlying demand is now accelerating sharply" and is currently on pace to grow at a 5% rate in the fourth quarter.

"This outlook represents a fundamental shift in the thinking that has governed our forecast for at least the last five years," Goldman economists wrote. "Five years ago, we became very pessimistic about the U.S. economic outlook."

Housing Is a Wild Card

But "recent data reveal a firmer trend in domestic final demand and suggest that it will be sustained via improvements in net hiring and credit availability," Goldman says. Accommodative policy by the Federal Reserve along with mounting chances that tax cuts will be extended should add to the tailwind, the firm notes.

Goldman still expects unemployment to remain at a historically high level of 8.5% at the end of 2012. And it notes that another major downturn in the housing market could imperil any economic recovery.

As Goldman plays catch-up to Morgan Stanley for once, investors should note that the latter has been taking an even more bullish position on the U.S. economy. In November, Morgan Stanley analysts revised their forecast for fourth-quarter GDP growth to 3.5% from 2.5%. They also calculated that October's job additions may actually have been as much as 240,000, much more than the reported 151,000 that already exceeded all Wall Street estimates.

Given Goldman's overall track record, bullish investors should be happy to have its endorsement.


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Ken Weinberg

This is like bank robbers sending out a press release boasting how successful they expect future robberies to be. Why aren't these crooks put behind bars before they do any more damage to this nation and its people?

December 06 2010 at 2:52 AM Report abuse rate up rate down Reply
crimson00king

Americans we must agree on 1 thing the rich do not need any more tax breaks. They have not created jobs in fact they have helped send jobs out of the country. It is shameful what the GOP and a few Demcrats are doing useing what i would call as extortion to get tax breaks for the rich. The time is now to e-mail or call your senators congressmen and the White House and TELL THEM NO MORE TAX BREAKS FOR THE RICH

December 05 2010 at 10:42 PM Report abuse -1 rate up rate down Reply
ubergeist

Yes, we at Goldman Sucks have destroyed the American Ecomonomy so much Now is the right time to buy! We'll tell you what to buy and then dump the stock as soon as you buy it! And we'll make some huge side bets that the stock is going to tank because we're the ones that are going to cause it to tank! And if the gov't thinks we're being naughty and breaking the rules they'll fine us 50 million or so,but that's okay because we probably made a few billion on the dirty deal!

December 04 2010 at 11:00 PM Report abuse +2 rate up rate down Reply
1 reply to ubergeist's comment
bmasterv

AMEN!!!! You put it correctly!!! GOVERNMENTSAKS!!!!!

December 05 2010 at 1:25 PM Report abuse rate up rate down Reply
hinehn1

our congress is made up rich white oldmen from both parties whoplayamericans like fiddles they uses good cop bad cop bs to get us to vote for thewm theyenrich themselves and wepaytaxes to feed there evilways and politics

December 04 2010 at 1:18 PM Report abuse rate up rate down Reply
hinehn1

wonder why theses friggin crooks are still in operation goldmen sucks

December 04 2010 at 1:15 PM Report abuse +2 rate up rate down Reply
mikebiles

It's time to let go of Republican vs. Democrat and see that neither is on our side. They are both on the side of whoever pays them. Just puppets for the global elite and multi-national corps and banks. Good news is, there are way more of us. Stop thinking that the Republicans are better than Dems or Dems better than Rep. Can you tell me anyone who has really stood up for the American people on either side in the last two decades? Just talk.. NO INTEGRITY.

December 04 2010 at 1:14 PM Report abuse +2 rate up rate down Reply
1 reply to mikebiles's comment
Ken Weinberg

Senator Bernie Sanders of Vermont, but he's just a voice in the wind. What's needed is a second American revolution beginning with a few million people marching on Wall Street and Washington. The French got it right in 1789 --- let's now do the same.

December 06 2010 at 2:57 AM Report abuse rate up rate down Reply
mikebiles

Can't believe anything Goldman Sachs says. Those guys would steal their mother's last dime.

December 04 2010 at 1:06 PM Report abuse +1 rate up rate down Reply
cgino

Bullish about the economy? Give me a break! You notice the expected 151,000 jobs they thought was added to the economy ended up only being 39,000. These people are so full of it. Just more misinformation to the masses so they invest and make goldmansacks richer! How is it we add 39K to the economy while 450,000 became newly unemployed and filed for benefits during the same time? To me, this means instead of adding jobs, we have a net loss of 411,000 jobs. Oh yeah, that makes me want to spend money and start investing! Now is the time to tighten up and pay off as much of your bills as possible to put yourself into being liquid. In other words cash on hand rather than wasting it on the wall street horse races. After all, don't we constantly hear the media complain how the rich are stockpiling money rather than spending and investing their wealth. Do you think the rich are doing this by accident or do they know something we don't? Don't believe a damn thing finacially that goldman or the gov tells us right now it is just one big con job!

December 04 2010 at 12:23 PM Report abuse +1 rate up rate down Reply
Robert & Lisa

China and George Soros are buying gold with the dollars they have earned. Think we might be in trouble? Thanks obama and thugs.

December 04 2010 at 11:42 AM Report abuse +1 rate up rate down Reply
jackieziol

Why haven't these CRIMINALS BEEN STONED TO DEATH YET????

December 04 2010 at 11:29 AM Report abuse +1 rate up rate down Reply