This reliance on DMs has a simple explanation: Goldman expects that after three years of disappointment, the development markets are "about to turn the corner: "2016 could be the year EM assets put in a bottom and start to find their feet... there is the prospect of improved growth and better returns, even if it is not a rerun of the roaring 2000s."
Actually no, there isn't, for one simple reason: China has 300%+ debt/GDP and now the entire world is watching. In fact, as Goldman itself admits China's growth is likely about 2% (if not more) below the official, and quite bogus, 7% number. Which means it is all up to India, the same India where the first rumblings against Modi's cabinet were heard loud and clear recently. In fact, in our modest opinion, if there is one country where the global DM slump will hit next, it is precisely the one country which is growing "faster" than China.
Furthermore, as Goldman itself notes, with oil prices set to continue dropping for at least the next 12 months, the hit to oil-exporting DMs will persist, and the reverse savings glut, aka Quantitative Tightening will continue to wreak havoc on capital flows and asset prices around the globe, all of which suggests that far from a rebound in 2016 GDP, we would expect global growth to drop below 3% for the first time since the financial crisis.
DM growth aside, it is more interesting what Goldman thinks will happen to the US. This is what it says: "We expect all DM economies to grow in 2016, but the US will be the first to grow GDP demand above potential."
Which brings us to the topic of this post: if the US economy does indeed grow "above potential" as Goldman expects, what does that mean for US capital markets? According to the firm, the shift in central bank posture in 2016 will be unprecedented, and instead of the "Bernanke Put" which pushed markets from 666 to over 2100 recently while the US economy kept deteriorating, will be replaced by the "Yellen Call."
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