Jim O'Neill, Goldman SachsJim O'Neill shot to fame by predicting the staggering rise of emerging-market economies. Now the head of Goldman Sachs (GS) Asset Management, O'Neill recommended investors buy into so called BRIC economies of Brazil, Russia, India and China a decade ago.

Few economic trends have been more consequential since, and O'Neill deserves plenty of credit for spotting it early on. Investors following his advice would have made handsome profits even as the developed world struggled. Indeed, O'Neill's recommendation is often seen as the call of the decade.

So, what economy is he predicting will shine in the coming year? The U.S.

In a note to clients earlier this week, O'Neill wrote that he recently found himself "dubbing 2011 as the likely 'year of the USA' following a spate of stronger-than-expected economic data.

Even Employment Could Pick Up


O'Neill anticipates strong stock market gains of 20% in the year ahead. And while the jobs picture has continued to struggle even as the market surprised to the upside, that could change as well. "The growth is likely to be strong and robust enough to lead to declining unemployment which, if correct, should mean that the worst of the social consequences of the credit crisis should start to ease," he wrote.

Bonds would get hit as yields rise in anticipation of growth, and the dollar could rally substantially, he predicted.

Of course, the U.S. economy continues to face problems like indebted consumers, low personal savings rates and big current account deficits. But 2011 "will be the beginning of a new phase in which the U.S. has strong GDP growth," O'Neill wrote, led by exports an investments.

From "New Normal" to "Normal"


Bearish holdouts for much of the year, economists at Goldman Sachs recently threw in the towel and are now forecasting strong growth for the U.S. in the years ahead. While government statistics released Wednesday revised third-quarter growth up to an annualized 2.6% from the initial 2.5% estimate, Goldman now predicts a growth rate of 3.4% for 2011 and 3.8% for 2012.

During 2010, however, many in the U.S. worried about the prospects of a double-dip recession, while many emerging market juggernauts found themselves coping with strong growth. China and India raised interests rates to keep inflation in check, even as the Fed embarked on a second round of quantitative easing to try stimulating the economy and to avoid deflation.

Sour sentiment in the U.S. as high-profile investors predicted a long period of subpar growth under a "new normal" scenario weighed on financial markets. Investors huddled into safe assets like bonds despite meager yields even as corporate earnings boomed.

But brightening sentiment could change investor preferences and give stocks a boost. "All of this will result in a mood that the U.S. is returning to 'normal,' which will have predictable consequences for financial markets," O'Neill wrote.

O'Neill's predictions may seem farfetched to U.S. investors mired in years of pessimism following the financial crisis. But they should recall that his prescient call on the BRIC economies at a time when most investors were still focused on the aftermath of the dot-com bubble's bursting seemed even less likely. You may not want to ignore him again.


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cozypaws

The middle class is SCREWED no matter what

December 30 2010 at 5:13 PM Report abuse +1 rate up rate down Reply
Debbie Heeney

Pick any ten economist and have them explain inflation, in fifty words or less.

December 29 2010 at 8:50 PM Report abuse +1 rate up rate down Reply
kayboo912

Who trusts anyone from Goldman Sachs? I bet he has already placed bets against BRIC countries. This guy did no prediction of emerging markets b/c this was all planned out. Just like the 5.00 gal for gas "prediction". It has been planned too. I remember Obama saying he was not against 5.00 gas if it happened incrementally. This article is smoke and mirrors to get you suckered into the stock market so they can finish you off.

December 29 2010 at 2:51 PM Report abuse +2 rate up rate down Reply
gking3n10

The President blasts business leaders, compliments Congressional leaders and rewards his friends for bad business practices and we blame all business leaders? The stimulus was needed, but wasted with ridiculous projects. They rewarded unions who have huge benefits and they offer no concessions. They give special loan considerations to those who don't pay their bills and keep the heat on those who manage their bills. They set up a healthcare system written by lawyers, not doctors and with unrealistic goals and then act surprised that it will cost far more than advertised. Give me a break. Give the government more money and they will ask for more - I wouldn't mind if it was spent well, but it is wasted. Both parties have asked for budget marks for projects that are not worth a dime and do nothing or very little to help the economy. We pay for a NYC Imam to tour countries to help the understanding of Islam. We ask NASA to help better relations with Muslims and we strip our space program to nothing. The President has no vision of America leading the way in space and he insists on major investments in energy for products that haven't proven viable. Our Treasury Sec can't figure out his own taxes and yet, he'll assure the government sticks it to us if we make a small mistake. And the list goes on.

December 28 2010 at 1:30 PM Report abuse +5 rate up rate down Reply
jimmy

I keep hearing comments from all over that we are in tremendous debt.Agreed, but where is the collateral that all this debt was taken out on and who has it? Can we get it back and and invest it or did it simply vanish into an overseas bank somewhere? Find it,reinvest it or tax it. If there is none then quit cooking the books, go bankrupt and start over like the rest of the poor schmucks out there..

December 27 2010 at 5:36 PM Report abuse +1 rate up rate down Reply
1 reply to jimmy's comment
Joe

I would say that prediction could probably be true but it will last for only a short period of time. After all, all of this so called growth is being built simply by taking on massive amounts of debt at the federal level. Sonner or later, all of that borrowed money will filter back out of the economy and we will be right back where we started.

December 27 2010 at 5:08 PM Report abuse +1 rate up rate down Reply
jujudahlman6

To bring America back we need the Mega unpatriotic Banksters and the unpatriotic American mega corporations to once again put all their resources into the American economy creating jobs and reserach and development and to grow this economy to sustainability. We need to produce what we need right here in America. Our ancestors fought how many wars to thwart communism/fascism? yet, all our patriotic corporations are taking their money and resources and setting up shop and growing the Chinese economy? making a middle class in China? Do you Americans want them to be the next superpower, the leader of the free world you say? That is exactly what will happen if our unpatriotic corporations continue to outsource there resources while we the taxpayers give them tax breaks to do so. During the last legislative session we tried to discontinue that tax break, but republicans would have nothing to do with it so it did not get done? and it was not reported in the major media outlets that are suppose to inform the American public? Why? They are own by these same "patriotic" corporations.
It is our American corporations and Wall Street Banksters who are investing alot of money in these emerging markets and not here in America. Come on people, get it. They are supporting and growing communism and dictators around the world and thumbing their nose at the American worker. Get your heads out of the Fox News Room and all MSM.

December 27 2010 at 1:55 PM Report abuse +1 rate up rate down Reply
2 replies to jujudahlman6's comment
jheinze007

I second your motion! But I would use another word to describe them, i.e., traitorous!

December 27 2010 at 5:27 PM Report abuse rate up rate down Reply
gking3n10

What about the patriotic unions? They are bankrupting states and corporations and have no interest in any concessions or even working on solutions. The Dem's solution is to add more regulation without working with business leaders.

December 28 2010 at 1:35 PM Report abuse -1 rate up rate down Reply
elmer koski

REMEMBER:
REPUBLICAN = HIGH TREASON

December 26 2010 at 10:27 PM Report abuse rate up rate down Reply
1 reply to elmer koski's comment
gking3n10

CHANGE -- YOU GOT WHAT YOU ASKED FOR. TAX AND SPEND WITHOUT WORRY

December 28 2010 at 1:36 PM Report abuse +1 rate up rate down Reply
Greg

Google....THE U.S. PATH TO COLLAPSE.....September 1, 2010.........Leading Chinese economists are now calling Japanese debt less risky than U.S. debt and with the Japanese savings rate in decline, the U.S. will soon have nobody left to borrow from. ~~~~~ The only option will be monetization and already the Federal Reserve is getting ready to buy $10 billion to $30 billion per month in U.S. treasuries to keep its balance sheet at inflated levels. ~~~~~ There are now 50 million Americans on Medicaid, with annual Medicaid costs rising 36% over the past two years to $273 billion. ~~~~~ The recently enacted health care bill will add 16 million more Americans to Medicaid beginning in 2014, but the U.S. government will likely go bust by then. ~~~~~ It is impossible to have an economic recovery when jobless benefits are encouraging Americans to stay unemployed. U.S. unemployment insurance spending has nearly quadrupled since 2007 to $160 billion annually. ~~~~~ Even food stamp costs have surged 80% over the past two years to $70 billion annually.~~~~~ Once Americans get used to receiving and relying on government entitlement programs, it is hard to wean them off of them. ~~~~~ The National Inflation Association has been hearing reports from members with friends who say they will only "come out of retirement" if they can find a job that pays $25 per hour or more, because with anything less it wouldn't be worth losing their jobless and food stamp benefits. ~~~~~ Americans expect to receive their jobless benefits forever and we are sure Obama will continue to extend them leading up to the 2012 election. ~~~~~ There are now countless warning signs all around us on a daily basis that the U.S. is headed for a complete societal collapse. ~~~~~ When asked the question if America was headed towards a total moral, spiritual and financial unraveling, NIA received an overwhelming response from its members. ~~~~~ The response we received was so strong that we are now in the beginning production of a documentary about the greatest modern day empire ever known now teetering on the brink collapse. NIA believes this documentary will appeal to a very mainstream audience and help open up the world's eyes to the truth about the path this country is on..........

December 26 2010 at 2:08 PM Report abuse +5 rate up rate down Reply
1 reply to Greg's comment
Trevor

Were there any depth, there would be no need for cutting and pasting someone else's words over and over and over. In other words, what you've seen is all there is.

December 26 2010 at 10:14 PM Report abuse rate up rate down Reply
princess

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December 26 2010 at 1:24 PM Report abuse +1 rate up rate down Reply