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Goldman Sachs cannot see the future

Ben Chu

jim 150x150 Goldman Sachs cannot see the futureWe know that Goldman Sachs is extremely good at making money for its bankers. But is it any good at economic forecasting? To judge by the frequency that the Wall Street bank’s analysts appear in the media and the ultra-respectful manner in which they’re treated by interviewers, one would assume that they’re as good at predicting macroeconomic trends as they are at creaming off rents from the global economy.

Jim O’Neill (pictured), the head of Goldman Sachs asset management and the man who came up with the BRICS acronym, is on Radio 4 so often that they might as well give him his own show. And Gavyn Davies (himself a former Goldman economist) cites  one of the bank’s forecasters approvingly in his latest FT blog post.

But I would argue that Goldman’s forecasting record in recent years has not been particularly impressive. Eighteen months ago the bank’s analysts were very bullish about the prospects of the UK coming out of recession. In December 2009, Goldman forecast that UK growth in 2011 would be an impressive 3.4%.

But a year later that forecast from the bank was quietly reduced to 2.4%. The Office for Budget Responsibility is presently forecasting growth of 1.7% for 2011. And the recent disappointing first quarter results of just 0.5% (mostly a bounce back from weather disruption late last year) put even that outcome in doubt.

This is not to argue that O’Neill and the other Goldman analysts are any worse than any other economic forecasters. And the bank can legitimately claim that its forecast in late 2009 for 2010 growth (1.9%) was pretty close to the outcome (1.7%).

But the point is that the economists who work for the fabled vampire squid have no special powers of prescience denied to others. They are not infallible – and should certainly not be treated as such by journalists.

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  • Jake_K

    And equally relevant point is that the journalists who work for the fabled “Independent” have no special powers of prescience denied to others. They are not infallible – and should certainly not be treated as such by readers, especially when their political bias is so obvious and overarching.

    (NB – also NOT a fan of GS by any means, but spotting that others are wrong is a long way from being right yourself).

  • JaitcH

    It’s all PR and if there is one thing Blankstein and company is good at is spinning a good tale – even if it’s not true.

  • GW74

    Their sell side advisory has always been poor. Just look at their ratings in industry surveys like II and Extel. They rarely feature. Rock bottom of the bulge brackets. This is well-known within the industry. And it is partly by design. The best recruits get creamed off for the prop desks, FICC and investment banking divisions. The chaff that’s left goes to Equities Broking and Asset Management: the margins aren’t there for the big gun Goldman employees to make their money and climb the greasy pole, and for the same reason Goldman care little for these divisions. Both are mediocre – at best – by Goldman and even Street standards. Players like O’Neill and Davies are simply the exceptions which prove the rule.

    Journalists generally seem to have a tin ear for this sort of thing, viewing all investment banks as brainy xerox copies of each other. But investment banks are as different as the countries in Europe, each with a unique culture and unique strengths and weaknesses. Journos would do well to educate themselves , for the good of business journalism and indeed the wider economists. You need to understand the quality of the person you are interviewing. Simply looking them up in II or Extel to see how analysts are rated, or talking to a headhunter to understand each bulge bracket’s strengths and weaknesses, when choosing interviewees, would be an excellent start. But I shouldn’t have to explain to journalists to do their research should I? Perhaps business journalists are like teachers: if you can’t do it, report on it.

  • krisbei

    To be fair when they predicted growth rates for 2011, no one could have guessed how incompetent the Tories were going to be.

  • bearfacedliars

    Goldman Sachs cannot see the future.

    Who needs to when they have such influence at the US treasury and FED

  • http://www.yahoo.co.uk/ Firozali A.Mulla

    Great so where does that leave the poor man.

  • Lord Bigglesworth

    Well I don’t think you’ll get much disagreement from this crowd. Indeed, it seems the Neo-liberal economic elites have the same sway as the Catholic Church in the Middle Ages, except the church was more humane with their heretics. They just killed them outright.

  • RCR100

    Ben your blog is good and you need to keep up the good work.. I always read but seldom comment. I suspect you have more lurkers/followers than you imagine..

    Although the sentiments that you express tend to be relatively obvious, they are not often given a decent platform ( even on the Indy they are buried? ).

    As for Goldman? My cousin recently did an internship there and he said it was meh.. Said it was bit cult-like..

    Saying that he wants to be a rocket scientist..

    Goldman cannot predict the future but they ain’t half good at ‘engineering’ it..


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