Is Goldman Sachs Moving Markets With Doubletalk?
Goldman Sachs (NYSE:GS) has confused (or perhaps cajoled) investors over the last two days by releasing “contradictory” trading advice, according to one market analyst. Tuesday morning the banking big shots lowered their forecasts projecting the growth of the Chinese (NYSE:FXI) economy in 2011, revising original estimates of 10% growth to 9.4%. To Goldman’s credit, they were neither the first nor the only major bank to pare its projections of Chinese GDP this year. Earlier this month, Credit Suisse (NYSE:CS), JP Morgan Chase & Co. (NYSE:JPM) , and ING Groep NV (NYSE:ING) had already made revisions in line with the Goldman report.
According to Goldman (NYSE:GS) analysts there were two major reasons for the downsized revisions. The first has to do with Chinese (NYSE:FXI) monetary policy, which is expected to tighten as Premier Wen Jiabao intensifies his efforts to curb inflation. Less available credit in China could mean a slow-down in manufacturing, which in turn could affect job growth and overall economic output.
The second reason for the Goldman revision was a projected rise in Chinese inflation this year, which makes sense given the credit-cutting agenda of the country’s economic regulators. Goldman (NYSE:GS) expects Chinese inflation to rise to 4.7% this year, revised upwards from earlier estimates of 4.3% inflation.
What has investors scratching their heads today is a statement another Goldman analyst made this morning calling for a more bullish attitude towards the commodities (NYSE:RJI) market. The recommendation came from Jeffrey Currie, head of Goldman Sachs commodities research in London, and highlighted Crude Oil (NYSE:USO), Zinc, and Copper as the sector’s best bets in the in the coming months. According to Currie, “The risk/reward once again favors being long commodities.”
The confusing nature of this scenario is that China accounts for some 33% of global demand for commodities (NYSE:RJI), and with Goldman’s report yesterday showing downward projections of Chinese GDP, it seems counterintuitive and borderline irrational to believe that the prices for commodities will rise in line with Currie’s projections. Whether or not Goldman (NYSE:GS) is aware of these contradictions is one question … whether or not they matter is another.