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Goldman Sachs’ macro analysts were significantly more optimistic about 2023 than almost everyone else on the Street, essentially getting it right.

Sure, there are a few asterisks – things are actually looking more chaotic in China after the grand reopening proved a wet trigger, the bond market still had some vomit to unload, the stock market rally is driven primarily by the “magnificent seven” and the Geopolitics continues to cause unrest for many people out there.

But it’s fair to say that things have turned out MUCH better than most people would have predicted a year ago – most people, except Goldman. We actually have to give it to them.

Here’s their victory lap, recorded:

Her big macro outlook for 2024 is out now and is notable for humming the same catchy song “Everything Is Awesome.” If you think we’re exaggerating, the title is “The Hard Part is Over.”

Global economic growth will remain good, there will be no recession in the US, inflation will continue to fall, interest rates have peaked, and all major financial markets will outperform cash (which, frankly, is a much harder hurdle to overcome than it is now a few years ago). before).

Here are the most important points from Jan Hatzius & Co.:

— The global economy even exceeded our optimistic expectations in 2023. GDP growth is on track to beat last year’s consensus forecasts by 1 percentage point globally and by 2 percentage points in the U.S., while core inflation fell to 3% quarter-on-quarter from 6% in 2022 Corona crisis saw a price increase.

— Further disinflation is expected next year. Although normalization in product and labor markets is now well advanced, its disinflationary impact is still fully felt and core inflation is expected to fall back to 2-2½% by the end of 2024.

— We continue to see limited recession risk and reiterate our 15% probability of a US recession. We expect several tailwinds for global growth in 2024, including strong growth in real household income, a reduced burden from monetary and fiscal tightening, a rebound in manufacturing activity, and an increased willingness of central banks to cut insurance as growth slows.

— Most major central banks in developed markets have likely completed their rate hikes, but rate cuts are unlikely to occur until the second half of 2024, according to our baseline forecast of a strong global economy. If interest rates eventually stabilize, we expect central banks to keep policy rates above their current estimates of long-term sustainable levels.

– The Bank of Japan is expected to begin exiting yield curve control in the spring before officially exiting and raising rates in 2024H2, assuming inflation remains on track to exceed its 2% target. Near-term growth in China should benefit from further policy stimulus, but the multi-year slowdown in China is likely to continue.

— The market outlook is complicated by compressed risk premiums and markets whose prices are quite favorable for our central case. According to our baseline forecast, we expect interest, credit, equity and commodity returns to exceed cash returns in 2024. Each offers protection against a different tail risk, so in 2023 a balanced asset mix should replace the cash focus and duration should play a larger role in portfolios.

— The transition to a higher interest rate environment has been rocky, but investors now have the prospect of significantly better forward returns on fixed income assets. The big question is whether a return to pre-GFC interest rates represents equilibrium. In the US the answer is more likely to be “yes” than elsewhere, especially in Europe, where government bond issues could arise again. Without a clear challenger to the US growth story, the dollar is likely to remain strong.

Many of you will want to blow up your thesis yourself, so here is a link to the full note.

Of particular note is their argument that the “last mile of disinflation” will actually not be that severe, will not require a recession, and may not even require further interest rate hikes.

We like how that sounds, but we have to worry that Goldman is tempting fate by having the “hard part behind him.”

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