Thursday, September 1, 2011

A top Goldman Sachs Group Inc. strategist has provided the firm's hedge-fund clients with a particularly gloomy economic outlook and suggestions for how these traders can take advantage of the financial crisis in Europe.

In a 54-page report sent to hundreds of Goldman's institutional clients dated Aug. 16, Alan Brazil—a Goldman strategist who sits on the firm's trading desk—argued that as much as $1 trillion in capital may be needed to shore up European banks; that small businesses in the U.S., a past driver of job production, are still languishing; and that China's growth may not be sustainable.

“Here we go again…solving a debt problem with more debt has not solved the underlying problem. ...Can the US continue to depreciate the world's base currency?”


Manufacturing activity stalled across much of the world in August, increasing fears of another downturn for the global economy.

Factory output throughout Asia continued to slow last month, offering more evidence that weaker demand in the developed world is weighing on Asia's export-driven economies.

Meanwhile, manufacturing in the euro zone fell back into contraction in August, ending a near two-year run of growth as activity shrank in France and Italy. U.K. factory activity slumped to the weakest level in more than two years, with production falling for the first time since May 2009. U.S. manufacturing data is set to be released later Thursday morning.

The slower growth in Asia comes as inflation remains elevated across much of the continent, posing a dilemma for policymakers caught between a desire for low interest rates to spur their economies and a growing need to tighten monetary policy to keep prices under control.