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Goldman Cut’s China’s 2022 GDP To Just 5.2%

Goldman Cut’s China’s 2022 GDP To Just 5.2%

Less than a month after Goldman stunned its Wall Street peers when it slashed its Q3 China GDP…



This article was originally published by Zero Hedge

Goldman Cut’s China’s 2022 GDP To Just 5.2%

Less than a month after Goldman stunned its Wall Street peers when it slashed its Q3 China GDP forecast to just 0%, forecasting no growth in the world’s second largest economy, Goldman has done it again and in a note published late on Sunday, not only does the bank admit that China has entered a phase of “temporary stagflation”, but in a tone that is almost apologetic as Beijing will likely take great offense at this provocation, the bank cut its 2022 GDP forecast form an already low 5.8% to just 5.4%.

Goldman first summarizes the stagflationary dynamics of the recently concluded third quarter, in which just Chinese real GDP growth slowed to a 0.8% annual rate while at the same time, PPI inflation reached 10.7% yoy in September, the highest on record.

However, and this is where Goldman is ever so sorry for offending Beijing with its “math“, Goldman’s Hui Shan writes that this “stagflation” is very different from the experience of the US and other developed countries in the 1970 (spoiler alert: it actually isn’t different at all as we explained in “Is Stagflation Here: Comparing The 2020s With The 1970s…“).

Goldman then spends the balance of the note not so much focusing on China’s deep economic problems, as much as apologetically explaining (to anyone who will listen), why these challenges are so transitory, they can effectively be ignored. As Shan writes, “the weakness in Q3 growth was driven by a number of factors, including the August Covid outbreak that impacted many provinces, the sharp slowdown in the property market, and the energy shortages and power cuts in late September. We think the Covid outbreak probably played the biggest role in negatively impacting Q3 activity, followed by property and energy.”

It gets better: to make sure the message is received loud and clear in Beijing, Goldman goes so hyperbolic as to call events in Q3 a “perfect storm” (which of course is unpredictable, so it’s not Beijing’s fault for what is taking place in the economy). Here are Goldman’s key observations on this topic:

The weak Q3 growth was driven by a number of factors – Covid outbreaks and chip shortages that the government has less control over on the one hand, and property tightening and power cuts that are mostly policy-driven on the other. The September activity data show evidence on the combination of various shocks to the economy (fig.3) For example, catering sales (i.e., restaurant services) rebounded sharply in September after slumping in August on Covid lockdowns in multiple provinces. Auto production and sales remained soft on chip shortages. Property sales continued to drop on the government’s deleveraging efforts and lending restrictions. Output of high-emission products such as steel and cement fell sharply on the “dual controls” of energy use and severe coal shortages which led to power cuts and production halts in these sectors.

After the anemic sequential growth year-to-date (averaging only about 2% annualized rate), the Chinese economy appears to have gone from a positive output gap at the end of last year to some excess capacity in Q3.

Looking across different sectors, Exhibit 5 shows that, with the exception of agriculture, all industries are currently at or below trend level of output, assuming a pre-Covid sector-specific trend. In the case of leasing and commercial services (e.g., travel agencies and large conferences), hotel and restaurant services, and other services (e.g., household cleaning services), the negative output gap remains significant. Eighteen months after the onset of the Covid outbreak early last year and with no end of the “zero Covid” policy in sight, activity in these sectors is at risk for longer-term scarring effects.

Household consumption was the hardest-hit part of the economy last year on both lower income growth and a higher saving rate. By Q3, household saving rate has mostly normalized to its pre-Covid level, falling from a peak of 35% in 2020Q1 to 30% now (Exhibit 6). The main constraint to consumption is income growth. As of Q3, the growth of household disposable income averaged only 6.6% per year over the past two years, compared to 8.8% in 2019. Among different sources of income, growth of business income underperformed the most, averaging 3.6% per year over the past two years compared to 8.0% in 2019 (Exhibit 7).

In other words, China’s stagflation is “temporary” and should reverse soon. Until it does, however, Goldman is tracking the contribution of housing to GDP growth, and calculates it as subtracting 0.5% from Q3 GDP. The bank admits that it expects “even bigger drags in the coming quarters.”

Meanwhile, as the property market shrinks, and the overall economy is barely growing, PPI inflation soared in September, but here too Goldman expects CPI inflation “to remain muted in the coming months for two reasons. First, food and service inflation has little relationship with PPI inflation and is likely to stay low. Second, even at extremely high levels of PPI inflation, the pass-through into CPI inflation is fairly low: we estimate an additional 1pp increase in PPI inflation raises headline CPI inflation by 0.1pp.” It explains further below:

September PPI inflation reached the highest level since the data were available in 1997, raising questions about both the duration of the high PPI inflation and its potential passing through into CPI inflation which has remained low. On the first question, PPI inflation is likely to stay high in the near term, but should soften notably in six months on base effect. If prices were to remain unchanged from here, PPI inflation would drop to about 2% in mid-2022. On the latter, we expect the pass-through from PPI to CPI to be limited for two reasons.

First, CPI has three distinct components – food, non-food goods, and services (Exhibit 11). Food inflation and service price inflation are likely to remain low in the coming months on depressed pork prices (which dominate food prices) and negative output gap (which is a key driver of service inflation). Second, historically the sensitivity of CPI non-food goods inflation to PPI inflation is statistically significant but economically small. Exhibit 12 shows a nonlinear relationship where relatively mild year-over-year PPI inflation (i.e., between -5% and +5%) appears to have very little impact on CPI non-food goods inflation.

But even at more extreme levels of PPI inflation, the magnitude of the pass-through remains modest: an additional 1pp increase in PPI inflation from its currently elevated levels boosts CPI non-food goods inflation by 0.25pp which translates into 0.1pp for headline CPI inflation.

Goldman’s bottom line is please don’t revoke our operating license in China for telling it how it is that things are bad but will get better soon because “unlike the stagflation of the 1970s, the very low growth and high inflation in China in Q3 were policy-driven (e.g., property tightening and decarbonization), partial (e.g., PPI only), and likely temporary (e.g., policies have already been adjusted to boost coal production and accelerate fiscal spending in Q4).” Again, all of this is a pure figment of Goldman’s goalseeking imagination. For a full picture of how the 1970s stagflation is ominously similar to what is going on now, read this.

In any case, with China’s economy now at stall speed, Goldman had a choice: bad news and even worse news, or good, if meaningless news and, well, worse news. The bank picked the latter writing that it now expects a sequential pickup in growth in Q4 – which by the way  is unchanged from Goldman’s previous forecast – with year-over-year GDP growth to drop to 3.1%. However, while nobody cares about Q4 without the bigger picture, it was here that Goldman saved its worst news for last, warning that “long-term policy direction such as property deleveraging remains unchanged as evidenced by the latest news on starting property tax trials in select cities.” As such, the bank has slashed its 2022 growth forecast to 5.2% from 5.6% previously.

And, as was the case with Goldman’s overoptimistic 2021 GDP forecasts, expect  many more GDP cuts as China’s economy gets dangerously close to a hard landing, if not outright crash. Not surprisingly, Goldman’s conclusion suggests as much:

Given the continued slowdown in credit growth – the year-over year growth in the stock of total social financing (TSF) dropped to 10.0% in September from 13.5% a year ago – and the “just do enough” approach of policymakers, we revise down our credit growth forecast to 10.5% for 2021 (previously 11.5%). This still implies a modest pick-up in sequential credit growth in Q4. In addition, we recently changed our monetary policy forecast and no longer expect a RRR cut in Q4. This is not a call on the broader monetary policy stance. Rather, recent communications by the PBOC suggest that the central bank is likely to use targeted liquidity instruments (e.g., SME and green financing relending programs) instead of broad-based RRR cut to replace the large amounts of maturing MLF loans.

Finally, Goldman looks at its downside case scenario (the onw which will happen), and says that “if growth were to deteriorate sharply, we believe the government will react decisively, especially as China prepares for next year’s Beijing Winter Olympics” (starting from Feb 4)and the 20th Party Congress (October/November). Spoiler alert: growth will deteriorate sharply from here, something which the PBOC clearly see and is why the central bank just injected a net $190BN in reverse repo, the biggest liquidity injection since January. Here, too, expect much more.

And while Goldman expects a sequential pickup inQ4, its year-over-year growth is poised to decline further. But under the “just do enough” mentality of policymakers, especially as the unemployment rate remains low despite weak growth, the bank warns that “growth headwinds are likely to linger and the slower-than-expected credit growth over the past few months should weigh on economic activity next year based on historical experience.”

Tyler Durden
Sun, 10/24/2021 – 22:04

Author: Tyler Durden


Dow Jones, the S&P 500, and Nasdaq price forecast after weak U.S. job report

The Dow Jones, the S&P 500, and the Nasdaq weakened on a weekly basis as investors still face uncertainty about how contagious the new Omicron coronavirus…

The Dow Jones, the S&P 500, and the Nasdaq weakened on a weekly basis as investors still face uncertainty about how contagious the new Omicron coronavirus is and how well current vaccines work against it.

The World Health Organization (WHO) announced on Friday that the Omicron coronavirus had been detected in 38 countries, and it is unknown at this point would it initiate new lockdowns around the world.

The U.S. released the Nonfarm Payrolls report on Friday, which showed that the country added only 210K jobs in November.

The job report missed economists’ estimate of 550K in November, while average hourly earnings increased by 0.3% after a 0.4% gain in October. Pantheon Macroeconomics Chief Economist Ian Shepherdson said:

Overall, while this report is disappointing, it does not change our view that faster tapering will be announced in December unless the scientific news on the omicron variant over the next couple of weeks is disastrous.

The positive news is that the unemployment rate fell to 4.2% from 4.6% in October, and the pace of recovery is likely sufficient to prompt the U.S. Federal Reserve to accelerate the taper of asset purchase.

According to Fed Chair Jerome Powell, the U.S. central bank will consider a faster wind-down of its bond-buying program, which also raises speculations ​that interest rate hikes would also be brought forward.

Jerome Powell also said that inflation had spread more than previously expected and that the risk of persistent inflation has risen.

Monetary tightening is usually seen as a drag on stocks, but the focus of investors will turn now on the release of the consumer price index and core inflation readings next Friday.

S&P 500 down -1.2% on a weekly basis

For the week, S&P 500 (SPX ) weakened by -1.2% and closed at 4,538 points.

Data source:

The upside potential remains limited for the week ahead, and if the price falls below 4,400 points, it would be a strong “sell” signal.

DJIA down -0.9% on a weekly basis

The Dow Jones Industrial Average (DJIA) weakened -0.9% for the week and closed at 34,580 points.

Data source:

The current support level stands around 34,000 points, and if the price falls below this level, the next target could be 33,000 points.

On the other side, 35,000 points represent the first resistance level, and if the price jumps above this level, the next target could be around 35,200 points.

Nasdaq Composite down -2.6% on a weekly basis

Nasdaq Composite (COMP) has lost -2.6% on a weekly basis and closed at 15,085 points.

Data source:

Nasdaq Composite continues to trade above 15,000 points; still, if the price falls below 14,800 points, it would be a strong “sell” signal.


Wall Street’s three main indexes weakened on a weekly basis as investors still face uncertainty about how contagious the new Omicron coronavirus is and how well current vaccines work against it. The upcoming week will be busy, but inflation readings will be in focus as data are expected Friday on the November consumer price index and core inflation.

The post Dow Jones, the S&P 500, and Nasdaq price forecast after weak U.S. job report appeared first on Invezz.

Author: Stanko Iliev

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Canada’s Labour Market Exceeds Pre-Pandemic Levels as Income Support Programs Phase Out

Canada’s labour market finally exceeded pre-pandemic levels last month, as the end of the federal government’s income support programs spurred

Canada’s labour market finally exceeded pre-pandemic levels last month, as the end of the federal government’s income support programs spurred new hiring.

According to the latest Labour Force Survey published by Statistics Canada, the country’s labour market added an additional 153,700 new jobs in November, significantly exceeding the 37,500 increase forecast by economists polled by Bloomberg. The latest figures put employment levels 1% above the February 2020 pre-pandemic level, as the unemployment rate dropped from 6.7% to 6% last month.

November’s data marks the sixth consecutive month of job gains, as employment levels rose across both the goods-producing and services-producing industries. In fact, the majority of last month’s gains were concentrated in the health care, retail trade, and professional services subsectors, while manufacturing led the gains in the goods-producing sector.

However, the proportion of Canadians still working from home remained relatively unchanged for the third consecutive month at 23.5% in November, suggesting that remote work opportunities may become permanent despite the economic recovery.

The latest employment data comes just as the Liberal government withdrew its flagship income support program in October, prompting hundreds of thousands of Canadians to return to the workforce. A large part of the decline in last month’s unemployment levels was among individuals that were unemployed for more than 52 weeks. Moreover, the figures also illustrate that the country’s economy is reaching full employment, suggesting that policy makers will likely phase out pandemic-related monetary measures.

“Labor markets are tightening sharply, and that positions the Bank of Canada to hike earlier than we had expected,” said CIBC economist Royce Mendes to Bloomberg. The Canadian dollar jumped more than 0.3% to around $1.28 against the US dollar.

Information for this briefing was found via Statistics Canada and Bloomberg. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

The post Canada’s Labour Market Exceeds Pre-Pandemic Levels as Income Support Programs Phase Out appeared first on the deep dive.

Author: Hermina Paull

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Precious Metals

True Portfolio Diversification Includes Owning Some Alternative Investments

From my perspective, true diversification is more than just a balance of conventional investments spanning cash, equities and fixed income. There’s a…

…From my perspective, true diversification is more than just a balance of conventional investments spanning cash, equities and fixed income. There’s a vast universe of alternative investments out there that may suit your risk profile and are worthy of a closer look. Let’s discuss. 

This post by Lorimer Wilson, Managing Editor of, is an edited ([ ]) and abridged (…) excerpt from an article by David Wieland, founder and CEO of Realized Holdings, for the sake of clarity and brevity to provide you with a fast and easy read. Please note that this complete paragraph must be included in any re-posting to avoid copyright infringement.

Modern Portfolio Theory is an investment strategy that helps investors manage investment portfolio risk while at the same time seeking increased returns using diversification.

  • MPT posits that markets are more efficient and reliable than investors. According to its creator, Harry Markowitz, you can potentially get better returns. theory, based on increasing the level of risk that you’re willing to take.
  • MPT assumes that investors want the highest returns with the least amount of risk but risk and reward when it comes to investing have a positive correlation; when you invest in low-risk assets like bonds, your returns will generally be lower than when investing in higher-risk assets like stocks. Investors have to find a balance between risk and reward. MPT says this balance can be achieved via diversification.

Conventional investments are things like stocks, bonds, cash and cash alternatives, such as money market accounts and CDs., but we believe a balanced portfolio that contains a variety of asset types, including alternative investments like real estate, can help investors improve returns while managing risk. Let’s explore some alternative investments to consider in a portfolio and the potential return an investor can expect by including them in their diversified strategy…

In the past, alternative investments were only of interest to high-net-worth and institutional investors but, in recent years, they have become more mainstream and begun attracting the attention of everyday investors too.

[The above being said,] keep in mind that alternative investments are riskier than conventional ones;

  • they don’t have a long track record,
  • in some cases, they are less regulated and transparent…and
  • they are often less liquid than conventional assets

but alternative investments can offer:

  • higher returns,
  • and because they’re typically not correlated with the stock market, they can help protect your portfolio from market ups and downs.

Current MPT dictates that a diversified portfolio can contain between 10% and 20% alternative investments, including real estate. Most individual investors are falling well short of that, devoting only 5% to alternative investments, while pension funds and endowments are well above that, with 30% and 50% respectively invested in alternatives. These large investors gravitate to alternatives – and real estate in particular – to further diversify their portfolios and because of the income and yield opportunities real estate provides.

Based on data from Griffin Capital, alternative assets can help enhance portfolio return while managing overall risk and volatility of an investment portfolio. Over the past 20 years, a 60/40 portfolio of stocks and bonds has shown returns around 6.86% but, by modifying that split to 55/35/10 of stocks/bonds/real estate, returns increased to 7.06%. Additionally, adding real estate to portfolios decreased the volatility from 9.90% in the 60/40 breakdown to 9.15% in portfolios with 55/35/10.

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80% of my investable income is in cash, precious metals and a small number of stocks. That might seem crazy, but the Pareto Principle, Zipf’s Law and the bell curve have convinced me that it’s a waste of time and money to get any more diversified. [Let me explain why that is the case.] Words: 396

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Do you really need portfolio diversification?…Everyone assumes that broad asset class portfolio diversification is advantageous…[as it] reduces the risk associated with events that can trigger a decline in any one asset class…[and makes] financial planning more reliable and predictable by reducing the variations in portfolio performance from year to year. Simply put, portfolio diversification is a sound investment practice but, [that said,] exactly how much risk reduction, in actual numbers, is obtained through application of this philosophy? [Bottom line, is] asset class diversification all that it’s cracked up to be? This article…addresses…the benefits of diversification among various classes.

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Gold stocks have historically ranked among some of the most volatile asset classes – about three times that of gold bullion – but despite this volatility, our research shows that investors can use gold stocks to enhance returns without adding risk to the portfolio. [Let me explain.] Words: 560

9. Your Portfolio Isn’t Adequately Diversified Without 7-15% in Precious Metals – Here’s Why

The traditional view of portfolio management is that three asset classes, stocks, bonds and cash, are sufficient to achieve diversification. This view is, quite simply, wrong because over the past 10 years gold, silver and platinum have singularly outperformed virtually all major widely accepted investment indexes. Precious metals should be considered an independent asset class and an allocation to precious metals, as the most uncorrelated asset group, is essential for proper portfolio diversification. [Let me explain.] Words: 2137

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We are reading a lot of hype these days about gold and the necessity to own it but only about 2% of ‘investors’ actually have gold in their portfolios and those that have done so have insufficient quantities to offset the future impact of inflation and to maximize their portfolio returns. New research, however, has determined a specific percentage to accomplish such objectives. Words: 1063

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Author: Lorimer Wilson

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