Goldman Sachs’ Jim O’Neill, famous for coining the term ‘BRIC’ to describe the major emerging markets, is bullish on the U.S. economy and, perhaps more importantly, senses more of his colleagues shifting their mood to his more positive tone.
“I spent most of this past week in New York, and to my slight surprise, there appears to be some shift in the mood about the state of life,” wrote O’Neill in his ‘Viewpoints’ letter to clients. “Whether this is because it is the start of the year, asset prices have been perkier or there is some recognition that the U.S. economy and other parts of the world are not as bleak as the second half of 2010 is not so clear. It was certainly quite nice to hear and, in my judgement, is more reflective of what is going on.”
The S&P 500 is up more than 4 percent to start 2012. If the head of Goldman Sachs Asset management is sensing a sentiment shift from atop his perch, that could mean more gains are ahead.
O’Neill cited changing evidence in four domestic areas that validate his bullish view: commercial bank lending, the housing market, manufacturing and increased supply of energy. Last week, a reading of manufacturing in the New York area, the National Association of Homebuilders sentiment index and weekly jobless claims all topped economists’ consensus expectations.
“I continue to believe that the consensus on the 2012 U.S. outlook needs to get a bit cheerier since most professional forecasters have not yet captured this mood,” said O’Neill, whose asset management arm of Goldman has an official annual GDP forecast of 2.5 percent for the U.S. in 2012. “There is a view that much of the improvement has been seasonal. While possible, I have increasing anecdotal evidence and belief to suggest it is more.”
O’Neill also went on to dismiss concerns about China and Europe dragging the U.S. back into a recession. He said people he talked to called the long-term refinancing operation being offered by the European Central Bank to member banks as a “game changer.”
However, not every presentation he witnessed or colleague he met was getting more positive. The chairman of Goldman Sachs Asset Management, which has more than 700 billion under management, said one presentation he sat in on gave a U.S. banking crisis originating in Europe a one-in-four chance of occurring.
“I cannot see this risk being anything close to this in the next 3 years,” said O’Neill, who started to get bullish on the U.S. in August. “In my view because of the LTRO, it can’t be much at all.”
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