Goldman Sachs Says U.S. Economy May Be ‘Fairly Bad’

Goldman Sachs Group Inc. said the U.S. economy is likely to be “fairly bad” or “very bad” over the next six to nine months.

“We see two main scenarios,” analysts led by Jan Hatzius, the New York-based chief U.S. economist at the company, wrote in an e-mail to clients. “A fairly bad one in which the economy grows at a 1 1/2 percent to 2 percent rate through the middle of next year and the unemployment rate rises moderately to 10 percent, and a very bad one in which the economy returns to an outright recession.”

The Federal Reserve will probably move to spur growth as soon as its next meeting on Nov. 2-3, Hatzius said. Expectations for central bank action have already led to lower interest rates, higher stock prices and a weaker dollar, according to Goldman, one of the 18 primary dealers that are required to bid at government debt sales.

Fed Chairman Ben S. Bernanke and his fellow policy makers are debating whether to increase Treasury purchases to spur the U.S. economy by keeping borrowing costs low. U.S. five-year yields dropped to a record 1.1755 percent today amid signs the recovery is losing momentum.

The “fairly bad” outlook for slow growth and rising unemployment without a recession will probably be the one that occurs, the e-mail said.

Renewed Recession

Hatzius’ note reiterated comments he made yesterday at a forum in Washington, when he placed the odds of a renewed recession at 25 percent to 30 percent. He told reporters that was up from 15 percent to 20 percent at the start of the year.

Another $1 trillion of asset purchases by the Fed would probably lower long-term interest rates by about 0.25 percentage point, adding a “few tenths of additional GDP growth,” he said yesterday.

The Fed bought $1.7 trillion worth of Treasury and mortgage debt in a program that ended in March. The purchases helped push mortgage rates to historic lows.

New York Fed President William Dudley, the Boston Fed’s Eric Rosengren and Chicago’s Charles Evans have all advocated further Fed action. Bernanke said Oct. 4 that restarting large- scale asset purchases would probably spur growth, after saying last week the central bank has a duty to aid the economy as unemployment holds near 10 percent.

Investors forecasting Fed purchases pushed two-year Treasury yields to a record low of 0.3987 percent on Oct. 4. The Standard & Poor’s 500 Index rose 2.1 percent yesterday to the highest level since May.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, slumped 0.9 percent yesterday to the lowest since January.

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BOJ Pledges Near-Zero Rate Policy

The Bank of Japan pledged to keep its benchmark interest rate at “virtually zero” until deflation has ended after unexpectedly reducing borrowing costs for the first time since 2008 and expanding its balance sheet.

The bank cut the overnight call rate target to a range of 0 percent to 0.1 percent, the lowest level since 2006, from 0.1 percent, it said in a statement in Tokyo. Policy makers will set up a 5 trillion yen ($60 billion) fund to buy government bonds and other assets, inflating the balance sheet at a time when U.S. and U.K. central bankers are contemplating similar moves.

Genting up on short-covering, OCBC upgrade

Shares of casino operator Genting Singapore rose as much as 5.9% on Friday as investors bought the stock to cover their "short" positions and a local brokerage raised its target price.
OCBC Investment Research on Friday raised its target price for Genting Singapore to $2.38 from $1.85 and maintained its "buy" rating.

Gamuda, MMC, MRCB to benefit from infra projects

OSK Research said key players involved in infrastructure development are expected to benefit from the implementation of the Economic Transformation Programme, including the RM36 billion KL mass rapid transit which features in the Greater Kuala Lumpur plan.

In a research note on Wednesday, Sept 22, it continued to see the beneficiaries being those involved in infrastructure development, including Gamuda (TRADING BUY, FV: RM4.00) and MMC Corp (TRADING BUY, FV: RM2.59) for the MRT and MRCB (TRADING BUY, FV: RM1.80), which may be involved in land development around KL.

“Do note that all these stocks have minimal or no upside to our fair values, and are very much Trading Ideas riding on positive sentiment from economic reform,” it said.

Wilmar target cut to $7.45 from $8.00

Morgan Stanley cuts Wilmar (F34.SG) target price to $7.45 from $8.00 after reducing FY10-12 earnings forecasts by average 9% to factor in plantation group’s weak 2010 results, later-than-expected 2H10 recovery in midstream margins, according to Dow Jones.

Morgan Stanley expects share price to be capped by lack of growth this year but still keeps Overweight call on view Wilmar remains most vertically integrated plantation play. “In addition, Wilmar has significant direct exposure to China and India, which makes it a rare emerging market play,” says research house. Shares +0.2% at $6.35.

No one wants to take risks right now !!

“No one wants to take risks right now,” said Tomomi Yamashita, a fund manager at Shinkin Asset Management Co., which oversees $6 billion. “The effects of the stimulus measures are waning in the U.S., and fears about the global economic recovery are increasing. The market can’t help but be worried.

” Ireland’s credit rating was cut one step by Standard & Poor’s to AA-, the lowest since 1995, on concern the rising cost of supporting the country’s struggling banks will swell the budget deficit. Sales of new homes in the U.S. probably held at a 330,000 annual pace in July, the second lowest on record, according to a Bloomberg survey before today’s report. Japanese Finance Minister Yoshihiko Noda pledged to take “appropriate action” to halt the yen’s rally.

“The flood of money into bonds reflects expectations of low inflation, low interest rates and low returns on equities and encapsulates a very cautious view of global growth, raising fears that this is the next bubble ready to burst,” David Hufton, managing director of London’s PVM Oil Associates Ltd., wrote in a report today. “Bond yields are in many cases at record lows, inviting predictions of a price collapse. This money is betting on a very muted global GDP growth at best.”

Fed's Hoenig-Keeping rates low 'dangerous gamble'

The Federal Reserve is undertaking a "dangerous gamble" by keeping rates at near zero for so long, and it must start raising rates or risk damaging the nascent U.S. recovery, a top Federal Reserve official said on Friday, Aug 13.

"To be clear, I am not advocating a tight monetary policy," Kansas City Reserve Bank President Thomas Hoenig told a town hall meeting organized by the Lincoln, Nebraska, Chamber of Commerce and U.S. Representative Jeff Fortenberry.

"I am advocating a policy that remains accommodative but slowly firms as the economy itself expands and moves toward more balance."

Hoenig has been the lone dissenter on the Fed's policy-setting panel, which on Tuesday repeated the U.S. central bank's pledge to keep interest rates extraordinarily low for an "extended period."

The Fed also said it would begin reinvesting cash from maturing mortgage bonds to buy more government debt. The decision reflected its concern over the slowdown in the economic recovery it helped bring about by cutting rates to near zero in December 2008 and buying nearly $1.3 trillion in mortgage-linked debt to shore up the housing market.

However, Hoenig said on Friday he believes the economy "barring specific shocks and bad policy ... should continue to grow over the next several quarters."

Genting Singapore reports 2Q net profit of $396.5m

Genting Singapore Plc reported second-quarter profit of $396.5 million compared with a loss a year earlier as its new casino resort in Singapore “made an impact” in its first full quarter of operations.

Revenue surged to $979.3 million in the three months to June 30 compared with $120.1 million a year ago, according to a filing to the Singapore stock exchange today. Earnings before interest, tax, depreciation and amortization, or Ebitda, were US$513.9 million ($700.1 million), with margins of 52%, the statement said.

Singapore overturned a 40-year ban on casinos in 2005 to spur economic growth. Genting’s US$4.7 billion Resorts World Sentosa opened on Feb. 14 and features Southeast Asia’s only Universal Studios theme park. Billionaire Sheldon Adelson’s Las Vegas Sands Corp. opened its rival US$5.5 billion Marina Bay Sands casino resort in the financial district in April.

Morgan Stanley upgrades Genting Singapore (G13.SG) to Overweight from Equalweight, raises target price to $1.60 from $1.06 after casino operator’s 2Q results top house’s expectations; results include first full quarter of earnings from Resorts World Sentosa, says Dow Jones.

Treasuries Rally on Growth Concern

(Bloomberg) -- Stocks dropped and Treasuries rose, sending the two-year yield to a record low, amid speculation the Federal Reserve’s stimulus measures mean the recovery is more threatened than was feared. The yen advanced to a 15-year high against the dollar.

The Fed yesterday said it would maintain stimulus measures to support a weaker-than-anticipated recovery. China’s industrial output rose the least in 11 months, retail sales growth eased and new loans climbed less than estimated, adding to signs that the world’s third-biggest economy is slowing. Growth in oil demand will decline in 2011, the International Energy Agency in Paris said, citing “significant” risks that the global recovery will falter.

“We’re in a world-wide soft patch and investors wonder why the Fed didn’t do more,” said James Swanson, chief investment strategist at Boston-based MFS Investment Management, which oversees about $197 billion. “People are dumping stocks because they’re afraid earnings will decelerate and the economy is losing steam.”