MacroScope

Jim O'Neill, the new Goldman Sachs Asset Management chairman who is famous for coining the term BRICs for the world's new emerging economic giants, reckons he knows why Germany might not be rushing to bail out all the euro zone debt that is under pressure. Europe is not as important to Berlin as it was.

Speaking at the Reuters 2011 Investment Outlook Summit being held in London and New York, O'Neill pointed out that in the not very distant future Germany will have more trade with China than it does with France.

"It's a different global environment. That's why maybe Germany (ties)  itself to a rules-based game with the rest of Europe because economically it doesn't mean so much to them now. What goes on in China is more important than what goes on in France and that's puts a different economic (spin) on the situation for the Germans."

O' Neill also drew parallels between the current situation which sees Germany being asked to stump up for ill-disciplined  southern euro zone economies and the problems faced in 1990 when West Germany had to do something similar for East Germany. "Fast forward 20 years and this time its not even our own people. I think the germans will stay pro-european but  but it's a diff set of circumstances."

"Fast forward 20 years and this time (they are saying) it's not even our own  people. I think the Germans will stay pro-European ,  but it's  a different  set of circumstances."

How quickly times change. Russia's stock market, unloved for months, last week overtook India to be the best-performing of
the four BRICs.  The Moscow stock index jumped 5 percent last week, posting its biggest weekly rise in seven months, bringing
year-to-date gains to 17.5 percent. Fund managers such as Goldman Sach's Jim O'Neill, creator of the BRICs term, are predicting it will lead the group next year too.

So what's with the sudden burst of enthusiasm for Moscow? One catalyst is of course soccer body FIFA's decision to award
the 2018 Soccer World cup to Russia. Investors are piling into infrastructure stocks, with steel producers especially tipped to
benefit as Russia starts building stadia, roads and hotels.  But the bigger factor, according to John Lomax, HSBC's head of emerging equity strategy, is the optimism that has started creeping in about U.S. -- and world economic growth.

Some of that may have been dampened by Friday's lacklustre U.S. jobs data. But overall, checks of U.S. economic vital signs show the economy looking sturdier than it was six months ago and most banks, including the pessimists at Goldman Sachs, have upped 2011 growth forecasts for the world's biggest economy. And China and India are continuing to grow at rates close to 10 percent.  All that is great news for the commodity and oil stocks -- the mainstay of the Russian market. Merrill Lynch, for instance, expects oil prices to be $10 higher by next December than now.

Given the ubiquity of BRICs and PIGS, it seems everyone else in the financial and business world is attempting to conjure up catchy acronyms to group economies with similar traits. All with varying degrees of success.

HSBC chief Michael Geogehan has been championing 'CIVETS' to describe Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa as the next tier of developing economies poised for spectacular growth.

Evoking the skunk-like animal blamed for the spread of the deadly SARS outbreak in Asia is not exactly auspicious but then it will probably be less offensive than the porcine moniker for Portugal, Italy, Greece and Spain. The collective term -- with permutations such as PIIGGS to include Ireland and Great Britain among the list of debt-ridden countries -- has been denounced by politicians in Portugal and Spain.

It is beginning to look like financial markets cannot handle more than three risks. First we have, as MacroScope reported earlier,  Barclays Wealth worrying about U.S. consumers, euro zone debt and Asian overheating.

Now comes Jim O'Neill and his economic team at Goldman Sachs, with three slightly different notions about risks in the second half, this time in the form of questions. To whit:

1) How deep will the U.S. economic slowdown be and what will  the policy response be? (That's two questions, actually, but let's not nitpick).

After financial firms slashed hundreds of thousands of jobs in 2007 and 2008, the bloodletting slowed in 2009 as major banks rebounded from the financial crisis. Even though firms like Goldman Sachs Group Inc and JPMorgan Chase & Co reported billions of dollars in profit, they still did not announce major hiring initiatives.

Recession layoffs Headcount (end 2008) Headcount (end 2009) Bank of America 45,000 240,202 283,717* Citigroup 75,000 323,000 265,000 Goldman Sachs 4,800 34,500 32,500 J.P. Morgan 23,700 224,961 222,316 Morgan Stanley 8,680 45,295 61,388* UBS 19,700 77,783 65,233 Credit Suisse 7,320 47,800 47,600 Barclays 9,050 152,800 144,200 Deutsche Bank 1,380 80,456 77,053 Santander 2,600 170,961 169,460

* Includes additional employees from Morgan Stanley Smith Barney merger and Bank of America’s merger with Merrill Lynch, both of which were completed in 2009 (Steve Eder and Steve Slater)

May’s U.S. trade figures have economists feeling quite a bit better about second-quarter GDP. The surprising strength in exports should provide a big lift.

JPMorgan economist Michael Feroli thinks trade may contribute almost 2 percentage points to second-quarter growth, and he adjusted his Q2 GDP forecast to a  much-less-dire decline at a 0.5 percent annual rate from his earlier view of -2.0 percent. Goldman Sachs economist Jan Hatzius is also looking at a less-ugly Q2.

“Absent significant downside surprises in either retail sales or business inventory data next week, this report suggests that our standing estimate for real GDP in Q2 — down 3 percent at an annual rate — is too negative,” he wrote in a note to clients.

Goldman Sachs has long been a keen advocate of the BRICs — Brazil, Russia, India and China – as a new power tool for world growth. Indeed, it is credited with coining the phrase.

In a note, the firm says that even though the group is being hit differently by the global slowdown — Russia suffering most,  India least — a uniform drive from the four will return as soon as the cycle starts to turn.

It is predicting big things as early as next year.  It says China’s economy is already the third largest in the world and it sees it eclipsing current No. 2  Japan as early as 2010. Furthermore, as a group, the four countries are set to be dominant.

Goldman Sachs is previewing the 2009 outlook from a light hearted perspective. “We hope readers take these thoughts in the spirit that they are meant and don’t take any offence at any of the contents,” reads the disclaimer.

The year starts with an interesting twist in the UK, where Chelsea Football Club releases a letter written to incoming US Treasury Secretary, Tim Geithner, asking whether if they signed David Beckham, would it make them eligible for TARP funds?

In February, Russian Prime Minister Putin declares that the American word recession would not be translated into Russian.

JPMorgan economist Michael Feroli is getting that sinking feeling.

He is out with a bold forecast calling for the Federal Reserve to drop its benchmark interest rate to zero by January.

“We believe the Fed then continues to conduct a zero-interest rate policy (ZIRP) for the remainder of 2009,” he wrote in a note to clients. “The change in our call is motivated in large part by the risk that deflation becomes more likely in an environment where labor market slack is building, and ongoing financial tightening is delaying the prospect that slack begins to get worked down.”

Ugly economic data and growing concern about a deep U.S. recession has prompted a flurry of aggressive — and gloomy — calls from the big Wall Street firms. At Goldman Sachs, economist Andrew Tilton has built two scenarios for the fourth quarter that he calls “worst case” and “just awful”.

It’s Thursday and that means another installment of U.S. jobless claims. For those keeping score at home, workers filing new claims for jobless benefits rose by a larger-than-expected 15,000 last week, taking the grand total to 478,000. Add in the daily dose of poor earnings results and the mood on Wall Street is looking grim. Again.

While the White House still won’t use the “R” word, company after company is warning of recession. Dow Chemical says “all bets are off” now that the global economy is sinking. Even Goldman Sachs is hurting.

So who isn’t suffering? Cigarette maker Altria. It seems they still managed to turn in a healthy quarterly profit.