Goldman Gets It Wrong on Dollar, Crude Oil

Goldman Sachs might be the biggest and the best, but they are human. And they are willing to admit when they are wrong, and have reversed course on their outlook for the greenback:

Goldman Sachs Group Inc. reversed course on its dollar forecast, saying the greenback has `bottomed'' as global growth weakens, oil prices decline and the U.S. trade balance improves.

The U.S. currency, after reaching a 5 1/2 month high of $1.48 per euro, will climb to $1.45 per euro in three months, analysts led by Thomas Stolper wrote in a research note. Goldman had forecast a decline to $1.56 for the same period. From today's 109.8 yen, the dollar will strengthen to 110 yen in three months, up from a previous forecast of 106.

The Dollar Index traded on the ICE futures market, which tracks the U.S. currency against six major U.S. trading partners, touched a six-month high today on concern the U.S. economic slowdown is spreading to other developed nations Bloomberg

Arjun Murti, Goldman's energy analyst is apparently digging his heels in however. In a rare media appearance in early June Murti called for oil to run up to $150 to $200 a barrel. The call, combined with a dramatic prediction from Morgan Stanley that crude would reach $150 by the fourth of July, lit the fuse on crude oil in June.

The events of early June smelled funny to me, and I tried to connect the dots on the global macro chessboard.

Reading between the lines it would seem Murti is standing pat with his call; he got it right for a few weeks after his interview Barron’s interview (self fulfilling?) but the trade has turned against him. He bought himself some time, however:

Goldman analyst Arjun N. Murti predicted in May that oil may rise to between $150 and $200 a barrel within two years because production was failing to keep up with demand. Crude oil had dropped 22 percent since hitting a record $147.27 a barrel on July 11.

The U.S. currency may still trade at $1.50 per euro in six months as weakening U.S. consumer spending slows the U.S. economy, the analysts wrote. The dollar will recover to $1.40 in a year, they said. The previous forecasts were for $1.60 and $1.45 for the six-month and 12-month periods.

``Until the end of the year the road may remain bumpy, given risks for U.S. demand, oil price volatility,’’ and ``stretched’’ bets on the currency’s gain, the analysts wrote. ``The underlying picture has turned much more dollar positive.’’

If Murti caves in could conceivably lead to 3%-5% drop in oil; but nobody is bigger than the market and we might soon find out if Murti is as flexible in his thinking as his colleagues who tried to divine the direction of the dollar, but threw in the towel when it appeared the game had changed.

Goldman Reverses Course, Says Dollar Has `Bottomed’
Bloomberg
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