Jan Hatzuis

Jan Hatzuis

Postby profittaker » Tue Nov 20, 2012 11:48 pm

Jan Hatzius – Love his firm or hate it, the Goldman Sachs Chief Economist is probably the very best analyst at any of the big banks.

Hatzius is one of the few analysts who has established himself as having a keen understanding of the monetary system and the way that government policy can be implemented in a manner, that helps achieve private sector prosperity.

He is one of the few who consistently uses Wynne Godley’s work, appreciates Hyman Minsky and mixes in a deep understanding of the more mainstream economic thinkers.

Hatzius isn’t just an economic geek, however. He has proven that he understands how the business cycle relates to markets and provides invaluable research to the clients of Goldman Sachs.

Source: http://pragcap.com/the-market-practitioner-analyst-must-read-list
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Re: Jan Hatzuis

Postby profittaker » Tue Nov 20, 2012 11:50 pm

GDP Accelerating to 2.9% Helping U.S. Overcome Sandy Woes
By Shobhana Chandra and Steve Matthews

Gross domestic product probably increased at about a 2.9 percent annual rate in July-September, according to economists from Goldman Sachs Group Inc. and Barclays Plc. That would be the fastest quarterly growth this year, beating the Commerce Department’s initial estimate of 2 percent.

“The economy’s momentum has picked up a bit” as the fundamentals of the private sector “are improving,” said Jan Hatzius, chief economist at Goldman Sachs in New York. He projects third-quarter expansion will be revised up to 2.8 percent, and the fourth quarter may come in at 1.7 percent.

Help is coming from a housing recovery, strengthening job market and healthier household finances that are driving gains in consumer confidence and spending. While the damage from Sandy and an anticipated tightening of fiscal policy mean growth will decelerate this quarter and next, the world’s largest economy may emerge on stronger footing in the second half of 2013.

The Bloomberg Economic Surprise Index, which compares 38 U.S. indicators with analysts’ forecasts, exceeded zero in mid- October for the first time since May and was 0.04 on Nov. 16, up from this year’s low of minus 0.4 on July 30. The projected upward revision to third-quarter GDP, due from the Commerce Department Nov. 29, will come largely from a narrower trade deficit and a bigger jump in stockpiles than initially estimated, economists said.


‘Heartening’ Signs

While the inventory-accumulation data “don’t have much carry-forward signal in them,” consumer spending in the last few months has been “heartening,” Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, told reporters Nov. 15 in Charleston, West Virginia. “That is a positive for growth.”

One immediate restraint is the fallout from the largest Atlantic storm ever to hit the U.S. Retail sales fell in October for the first time in four months as the hurricane hurt receipts at some stores. The 0.3 percent drop followed a 1.3 percent gain in September that was larger than previously reported.

Sandy may trim as much as 0.5 percentage point from fourth- quarter GDP, according to Hatzius, while Dean Maki, chief U.S. economist for Barclays in New York, projects a “downside risk” of as much as 0.3 point.


Fiscal Cliff

A bigger concern is more than $600 billion of tax increases and government spending cuts slated for the start of 2013 unless Congress acts. Maki projects about $200 billion of fiscal tightening; under these circumstances, “solid momentum” entering the final quarter of the year would give the U.S. enough of a cushion to sustain growth.

“It doesn’t make us invulnerable,” he said. “But it’s better than if the economy had already been slowing sharply and then we were hit with these types of events.” His growth forecasts include 2.9 percent for the third quarter and 2.5 percent for the fourth, followed by 1.5 percent in the first three months of 2013 and a pickup to 2 percent for April-June.

Concern over the budget showdown between President Barack Obama and the Republican-controlled House of Representatives has helped push the Standard & Poor’s 500 Index down 4.8 percent since Obama’s Nov. 6 re-election.

Better times may be ahead for the stock market as the economy is showing “a pickup, a broadening out, a firing on more cylinders,” said James Paulsen, chief investment strategist in Minneapolis for Wells Capital Management, which oversees about $325 billion. Shares of American manufacturers and basic-materials producers are most likely to benefit as growth strengthens, he said.


Rising Shares

The S&P 500 Industrials index, which includes General Electric Co. (GE) and Caterpillar Inc. (CAT), is up 5.3 percent this year, while the S&P 500 Materials index (S5MATR), with Alcoa Inc. (AA) and Dow Chemical Co. (DOW), has risen 3.6 percent.

Better-than-projected economic growth has broad implications, ranging from a continuing decline in the unemployment rate to higher company earnings than the market predicts, according to Paul Zemsky, the New York-based head of asset allocation for ING Investment Management. The S&P 500 could end 2012 in the 1,400 to 1,425 range, compared with 1,359.88 at 4 p.m. on Nov. 16 in New York, and appreciate as much as 10 percent next year, he said.


Fully Invested

“The economy is somewhat stronger than people are giving it credit for,” said Zemsky, who helps oversee $170 billion. Once the fiscal clouds clear, “there will be plenty of opportunities for the market to run up” so “we’re definitely keeping some powder dry.”

For now, some investors are seeking safety in bonds as the year-end deadline for fiscal tightening approaches. Yields on 10-year Treasuries fell to 1.58 percent on Nov. 16 from 1.68 percent on Nov. 5.

“The fiscal cliff is being priced in because it’s the biggest risk facing the market right now,” said Priya Misra, head of U.S. rates strategy at Bank of America Merrill Lynch in New York. “Without the cliff, we would grow 2 to 2.25 percent” next year.

In the interim, some areas of the economy continue to improve. Housing -- the industry that helped trigger the last recession -- has turned the corner as borrowing costs near a record low are driving demand. Combined sales of new and existing dwellings climbed to a 5.1 million annual pace in September, up 40 percent from an all-time low in July 2010.


Healing Path

Home Depot Inc. (HD), the largest U.S. home-improvement retailer, posted third-quarter profit that topped analysts’ estimates, reflecting “the start of the path toward the healing of the housing market,” Chief Executive Officer Frank Blake said in a Nov. 13 statement.

Consumer spending, the biggest part of the economy, accelerated to a 2 percent annual rate last quarter and has reason to keep growing. The jobless rate has fallen 1 percentage point from a year ago to 7.9 percent in October, payrolls are growing faster than forecast, and Americans are turning more upbeat. The Bloomberg Consumer Comfort Index climbed last week to a seven-month high.

The annual pace of U.S. expansion probably will reach “the good old standard” of 3 percent within three or four years, Stanley Fischer, Bank of Israel governor and a former No. 2 at the International Monetary Fund, said in a Nov. 14 interview in Jerusalem.


‘Underlying Strength’

Third-quarter GDP growth near 3 percent “makes us more confident” the economy can tackle any headwinds around the turn of the year, said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. It indicates “the labor market’s underlying strength is firmer than we thought,” he said, and “the unemployment rate may fall faster than people think.”

As the holiday-shopping seasons begins, Hasbro Inc. (HAS)’s retail customers are “cautiously optimistic,” David Hargreaves, chief operating officer of the Pawtucket, Rhode Island-based toymaker, said during an Oct. 22 call with analysts. “Certainly consumer demand has held up pretty well.”

In contrast, business sentiment is stagnating as the lack of clarity on taxes and government spending pushes companies into a wait-and-see mode on investment. Still, some pent-up demand may be building as orders are postponed, based on comments from company executives.


Rapid Improvement

“We’ve seen people speak explicitly about not placing orders until they see how things come out here at year-end,” Alexander Cutler, chief executive officer of Eaton Corp. (ETN), a Cleveland-based maker of industrial equipment, said Oct. 31 on a teleconference with analysts. In the event of a bipartisan agreement on the fiscal cliff, “business confidence will improve fairly rapidly.”

The fallout from Sandy also will abate. Reconstruction work could add as much as 0.75 percentage point to GDP in the first quarter of 2013, according to Goldman Sachs’ Hatzius. General Motors Co. (GM) and Ford Motor Co. said auto sales probably will rebound this month on deferred purchases and replacement demand.

The hit to the labor market, reflected in jobless claims jumping in the week ended Nov. 10 to the highest since April 2011, may unwind in the next few weeks, economists said.

Even so, employment is far from robust. The jobless rate exceeded 8 percent for 43 months through August, the longest since 1948. It still may be between 7 percent and 8 percent by the end of next year, Fed officials projected in September.


More Stimulus

Policy makers aren’t ruling out more stimulus for the economy just yet. Minutes of the Federal Open Market Committee’s last meeting showed a number of officials believe the central bank may need to expand its monthly purchases of bonds next year after the expiration of Operation Twist, a program to extend the maturities of assets on its balance sheet.

For the Fed, “the recent data will likely be viewed as positive but not enough,” Barclays’ Maki said. The FOMC “has a high bar before they’ll acknowledge that growth and the labor market are improving in the way that they would like.”

Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts, is among analysts who remain cautious for now. An upward revision to GDP for July-September would continue “a pattern over the last few years with some extremely poor quarters and some quarters that are much better,” he said. “The fourth quarter looks soft,” though “conditions are in place for accelerating growth” over the longer term.

James Bullard, president of the Federal Reserve Bank of St. Louis, is more optimistic. He predicts the economy will expand 3.5 percent next year, up from close to 2 percent in 2012, and unemployment will fall to 7.2 percent by the end of 2013.

“Housing in particular has had a better year,” and Europe’s debt crisis “is in a pause mode here for the past several months,” Bullard told reporters Nov. 8 after a speech in St. Louis. “The headwinds we have been facing have been lessening gradually over time.”


Source: Bloomberg
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Re: Jan Hatzuis

Postby profittaker » Tue Nov 20, 2012 11:51 pm

Obama's best friend at Goldman Sachs

The President may have lost many of his supporters at Goldman, but the bank's chief economist, Jan Hatzius, has advocated his economic policies.

By Mina Kimes

FORTUNE -- When we learned that employees of Goldman Sachs, a group that overwhelmingly supported Barack Obama in 2008, shifted their allegiances to Mitt Romney this election, many saw it as a sign that the President had alienated the investment bank. But while Goldman's rank and file may have turned against Obama, he still has an important ally at the firm: Goldman's chief economist, Jan Hatzius.

To be sure, the German-born Hatzius hasn't publicly stated that he supports the President. But his analysis, which is widely read in financial circles, has long jibed with the monetary and fiscal policies embraced by Democrats. In numerous notes published over the last few years, Hatzius has advocated stimulus spending and called for more quantitative easing, renouncing efforts to slash the deficit as premature.

He summarized these views in a speech last year, after accepting the 2011 Lawrence R. Klein Award for making the most accurate forecasts during the previous four years. In his remarks, the economist quoted former Treasury Secretary Larry Summers, who said that, while the crisis was "caused by too much confidence, borrowing, and spending," it could only be resolved by "increases in confidence, borrowing, and spending." Hatzius continued:

I believe that this is true. But unfortunately, it is probably too much of an irony to resonate with most voters and elected officials. Especially after a period in which some fiscal stimulus has already been applied and the economy is still in bad shape, it is all too tempting to believe that government deficits are part of the problem rather than part of the solution, and that macroeconomics is a morality tale where virtuous governments are rewarded and wicked ones are punished. That view is held more strongly in some countries and cultures than in others but it has been gaining ground everywhere, including the United States.

Hatzius' views have endeared him to the likes of liberal economist Paul Krugman, who has mentioned the Goldmanite nearly a dozen times in his New York Times blog. Krugman has repeatedly referred to Hatzius' group as "excellent," calling the economist a "very calm, measured guy." Back in 2009, he noted that Hatzius' analysis was "spot on."

Krugman recently touted a note that Goldman's team put out on the subject of "policy uncertainty." Republicans (and business leaders) often argue that uncertainty created by the Obama administration's excessive regulations have prevented companies from hiring new workers.

Hatzius disagreed. "[W]e do not believe that the economy's poor performance has been caused by an exogenous increase in policy uncertainty," he wrote. The note includes a chart showing that an index measuring uncertainty tracks closely with the economic output gap. "[M]uch of the increase in policy uncertainty is probably a consequence of economic weakness, rather than its cause," he wrote, knocking down an argument that is frequently espoused by conservative politicians.

In early October, Hatzius expressed dismay that Congress would let the $126 billion payroll tax cut expire, arguing that it would likely counteract the boost from QE3. "We are surprised that neither party has seriously challenged the case for fiscal retrenchment," he wrote. He added: "While we agree that the U.S. government will ultimately need to tighten its belt, a big move in a restrictive direction still looks decidedly premature to us."

The Goldman economist has been a thorn in the side of deficit hawks, arguing in 2010, for example, that "inflation is unlikely to become a problem for years." In 2011, he published a note titled "The case for a Nominal GDP Level Target," giving his endorsement to the idea, which has since gained momentum.

NGDP targeting, a concept that was promoted early on by the professor and blogger Scott Sumner, would have Fed officials targeting a nominal GDP level, and then pledging to do whatever it takes (e.g. buying assets) to reach that level. In his note, which cited Sumner, Hatzius called NGDP targeting "the Fed's most promising option."

The economist rose to prominence during the financial meltdown, largely because of his accurate prognostications leading up to the crisis. Schooled at Oxford and the University of Wisconsin-Madison, Hatzius joined Goldman's Frankfurt office in 1997. He became the chief economist at Goldman in 2011, succeeding William Dudley, the current president of the Federal Reserve Bank of New York.

Federal Election Commission records show that Hatzius donated $1000 to the Democratic National Committee in 2004 and $2300 to Obama in 2007. During this election cycle, he only donated to Goldman's political action committee, which had backed candidates from both parties.

Hatzius sounded warnings about the housing market as early as 2005, when he published a report that asked "Bubble Trouble? Probably Yes." In December of 2007, the economics writer Ben Stein criticized Hatzius in the New York Times for his gloomy prognostications, accusing the economist of fear-mongering in order to support Goldman's bearish position.

Stein (incorrectly) mocked Hatzius for his view that the subprime mortgage crisis could spin out of control, hampering lending and slowing growth. "He is also postulating," Stein wrote, "that lenders would have to retrench so deeply that lending would stall and growth would falter -- an event that, again, has not happened on any scale in the postwar world, except when planned by the central bank." (The piece, available here, is worth reading for its comedic value alone).

While Wall Street economists typically avoid giving explicit political commentary, some well known forecasters have said that a Romney win would boost the market. Barry Knapp, the top U.S. equities strategist at Barclays, predicted in October that a GOP sweep would likely send stocks higher; he observed in a separate note that a Romney win would "carry a dual mandate" of "pro-growth tax reform and entitlement reform." David Rosenberg, a notoriously bearish economist with a large following, recently said in an interviewthat Romney would be more likely to compromise, making him "overall better for the economy."

Hatzius has not said outright that he believes an Obama victory would benefit the economy. A Goldman Sachs (GS) spokesperson said, "Forecasts are informed by our views on how the economy works and what government policy will mean for markets and interest rates. Our goal is to be as accurate as possible, not to champion the policies of either party."

And yet, Hatzius' positions have no doubt pleased the administration. The President may have lost many of his supporters at Goldman, but he has maintained an intellectual ally—which may be worth more than the decline in donations.


Source: Fortune
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