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Goldman Sachs Doubling Down On Failed Gas Price Prediction

Goldman Sachs Doubling Down On Failed Gas Price Prediction

Goldman, as well as everyone else, was dead wrong when it predicted that the tumbling gas prices are "unambiguously good" and would unleash a wave of spending unseen since the Lehman collapse - because all those "gas savings" had to go somewhere, right? Instead, what happened was that retail sales disappointed 5 months in a row, and personal spending data that has consistently missed expectations.

Zero1min

So now that the plunge in oil, and gas prices, is history, what does Goldman do? Instead of admitting that like every other economist, it was wrong in expecting a surge in spending, it took a deep look at the "consumption puzzle" and concluded that the spending boost is merely deferred. Related: Big Oil May Be Caught Off-Guard By Wave Of Retirement

But before we dig into the humor, we should note that Goldman isn't entirely wrong. It does observe that "the puzzling lack of impact so far is likely explained in part by consumers' initial skepticism that low gasoline prices would last. As Exhibit 2 shows, only over the last couple of months have consumers come to believe that lower prices are here to stay."

Zero2min

Related: Are US Drillers Actually Making A Comeback?

Then Goldman does the "economist" thing: it goes full retard.
How puzzled should we be by the absence of a boost from cheap gas prices so far? To answer this question, we use a range of models to estimate the usual time pattern of the consumption response to changes in energy prices. We find that low gas prices should have boosted Q1 consumption growth by 0.5-1pp, reinforcing the Q1 disappointment. However, the models also imply that only one-fourth to one-half of the eventual consumption impact should have been felt by Q1, suggesting plenty of remaining upside in coming quarters.
And even provides a pretty chart that should somehow justify it being right when it was already so massively wrong:

Zero3min

But while we can't confirm if Goldman is merely wrong about consumer expectations of future gas prices, as it has been wrong about everything else, or if indeed consumers are merely confused, one can easily ignore all of the above because there is one simple problem with all of Goldman's assumptions shown above.

To show the problem, we will present a chart of our own, one which shows why either consumers or Goldman, are wrong in expecting that the household spending surge has been merely "sidelined." Related: Oil To Return To $80 With Or Without OPEC Cut Says Iranian Official

Exhibit A: gas prices, year over year, in the largest US market: California. At this rate, the great "gas price plunge" of 2014 will be a distant memory within 2-3 weeks.

Zero4min

Which is great news for economists: they will be able to blame not only plunging gas prices, but also soaring gas prices, on having been wrong about everything, all the time. That, and demanding that a third seasonal adjustment be applied to any piece of "data" that does not conform with the ‘permabullish’ narrative.

By ZeroHedge.com

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  • avenger426 on May 20 2015 said:
    Until there is real and sustainable DEFLATION, there will be no recovery. Gas and oil are too high as are any product that has an oil derivative in it. Gas is close to where it was before the drop In oil and gas dealers are hosing the puplic with non-supported gas price increases. Price fixing and collusion abounds.
    Prices across the board didn't drop at all when oil dropped so there was no extra money in the economy.
    It never fails to amaze me how truly brain-dead execs and oil speculators are. They and the press figure they can print rosey articles and all will be well. The economy is in depression. Real inflation is through the roof. Wages continue to drop, people are tapped out. The government is corrupt and real unemployment or under employment still is out of control
    There has been no price roll-back, that's why there was no increase in spending.
    There never was been and never will be a recovery spurred by high oil, basic economics. Speculated all you want and you will still be wrong. Prices across the board are to high and wages to low, until prices drop, oil drops and governmental corruption goes away, the denial depression will continue. BASIC ECONOMICS.

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