According To Goldman's Jim O'Neill, The MENA Revolutions Are "Essentially Rather Bullish"

Tyler Durden's picture

It appears we may have misspoken earlier when we suggested that today's peak-lunaticism will be that spouting from the mouth of one ex-Goldmanite Bill Dudley. Here is another current Goldmanite (whose recent GSAM P&L track record is in dire need of public dissemination), vying for today's prize. "If I look at the whole region together, then just at Africa in general,
MENA has the combined potential to be a BRIC-like economic group. In
this spirit, and despite all the horrible things happening in some of
these places, this revolution strikes me as being essentially rather
" If it weren't for my horse...


I returned from a very nice vacation in Florida this morning, having watched the markets interplay with the remarkable events unfolding in the Middle East. I also read and watched many discussions about the issues. It seems to me that there are essentially two main forces at work. The first is the eruption of protests against the “status quo” and the desire by the citizens of many countries across the Middle East and North Africa (MENA) for a better life. In my view, this is essentially a positive development, and has the potential to be a very bullish story. The second force is the perennial oil price issue, and concerns about where prices are now headed and how much damage these rising prices (and possible reduced supply) will cause. This issue is unpredictable but has the potential to be quite damaging.

On the first issue, a useful independent source of ongoing analysis can be read from Maplecroft, an independent risk mapping company, I should disclose that I am an investor in this company. Their set of analytics had highlighted the risks of trouble in some places, placing Egypt and Libya as high risk, and Yemen as extreme. This weekend, their CEO, Alyson Warhurst cites three issues when I quiz her to think about it. One, the scope for further contagion to countries in the region that have avoided the protests to date. (And, by implication, further disruption to oil prices amongst other things.) Two, the considerable business interests of a number of Western countries, which is understandably why these countries want the troubles to be brought to an end as soon as possible. And finally three, the terrorist issue and the need for any leadership vacuum not to be seized as an opportunity for these unruly characters to re-assert their troubled ways.

I wrote about Egypt around three weeks ago and, goodness me, a lot has happened since. On Egypt per se, I stick with the same broad judgments outlined in that piece. As an N11 economy, Egypt has the potential to grow dramatically in coming decades if their 80 million – and rising – population is allowed and encouraged to enjoy the same opportunities many of the rest of us face. Looking at the MENA issue more broadly, and including the whole of the Middle East, Iran is another N11 country, which likewise has significant potential. A different leadership there would be especially interesting as, below the surface, Iran has some attributes that would allow the country to advance much more easily than others. Its Growth Environment Score (GES) is notably higher than a number of N11 countries.

Of other individual countries, Saudi Arabia is particularly important, not least as its key role as a major oil producer. It is also important as regional power within the GCC. Although Saudi Arabia doesn’t have enough people to warrant inclusion in the N11 economies (as population is the sole criteria), it is currently the largest economy in the region and, has some potential to be regarded as a “Growth Market”, i.e., being 1 pct of global GDP at some stage in the future. The policy response of the Saudi leadership last week to spread the benefits of the country’s vast wealth is an important development in my view.

Looking more broadly into the background of the protests, they seem to have been broadly focused against their current regimes and based around a desire for “a better lot”. They are neither religion-based nor anti-Western. These characteristics are especially encouraging as it is a marked shift from the past in terms of disturbances in the region. For Western leaders, many of whom have needed to make complex arrangements with regimes they perhaps didn’t particularly admire, it is presumably important that they shift gears to support these middle class aspirations. It is also important in terms of the battle against terrorism as, at least so far, the terrorist groups have been dealt a major blow. If I look at the whole region together, then just at Africa in general, MENA has the combined potential to be a BRIC-like economic group. In this spirit, and despite all the horrible things happening in some of these places, this revolution strikes me as being essentially rather bullish.

This brings me to the second issue: oil. Of course, this aspect of the MENA issues has the potential to be rather negative. There are some credible analysts that argue all major global recessions can be generally associated with periods of rapidly rising oil prices. Professor James Hamilton of the University of California is amongst the most well known, and also one of those that argue the 2008-2009 recession may have been, at least in part, due to sharp oil price increases.

In my old life in the GS Economics Department, many years ago we used to have a very rough rule of thumb that a 10 pct increase in oil prices would, if sustained over a year, lead to a 0.5 pct slower rate of global GDP growth. We stopped believing this, however, many years ago, for the simple reason that the evidence started to change. Oil prices continued to rise a lot and GDP didn’t slow. In fact, it had actually accelerated.

I was often very suspicious about these models anyhow, having had the dubious pleasure of spending 1979-1982 researching OPEC and oil prices, for which I was surprisingly awarded a PhD. I learnt two things. First, I learnt that OPEC wasn’t an effective cartel. In reality, Saudi Arabia was the only producer of the group that mattered. Second, it was my first encounter with “never be with a lazy consensus”. I had a stack of articles from the late 1970’s confidently predicting crude would race above $100 per barrel then. It took 38 years for that to happen. Instead, oil prices spent most of the period from 1983 to 2000 declining. Confident oil price forecasting makes FX forecasting seem straight forward…

In my view, the reasons why oil prices rise, and an understanding of the corresponding impact on the broader financial market is key to forecasting the potential damage.

For much of the last decade’s rise in oil prices, the reason why it didn’t cause the trouble that simple econometric models might have suggested is probably because there was a shift in the global demand curve, as China especially but also India, and other new “Growth Markets” started to see their economies become much bigger. In many cases, their own demand was also less sensitive to rising global oil prices as they were subsidized.

As far as the circumstances are concerned, it is probably the case that rising oil prices “appeared” to cause the damage they did in the 1970’s – and possibly also in 2008 – is because they occurred at the same time as tightening financial conditions. This is why the GS Economics Department started analyzing the potential consequences in terms of oil price-adjusted financial conditions. It seems to me that this is still valid. If oil prices contribute to/coincide with rising inflation expectations and central banks are forced to tighten monetary policy, then indeed it may appear that they have contributed to a big economic slowdown. On the other hand, if central banks are more concerned about the depressing consequences to real incomes and postpone monetary tightening, then it is quite possible that any increase in oil prices will not have the negative consequences that many fear. This is also obviously dependent on the time period of any increases.

This brings me to last week. Two things seemed to happen. Events in Libya have gotten people worried about the loss of oil supplies certainly in that country, but also elsewhere. That’s why prices spiked so much. As a result of this, and presumably as part of its desire to show its leadership role, Saudi Arabia announced a boost in oil production. So in effect, as there has been no disruption apparently yet in Libya, global oil supply was increased. I shall leave it to others to predict what may or may not happen next to oil prices, but as with many other periods of Middle Eastern turmoil I have studied and lived through, they may go up, but they may go down. Clearly, the stability of Saudi Arabia and its willingness to act as a swing supplier is likely to remain key.

One other issue I have been asked a lot about the past two weeks. Doesn’t the MENA protest suggest that similar uprisings are likely in any country that is not a true democracy? Of course, China is the country that many are asking about in particular. The past 4 weeks have demonstrated that anything is possible (yet again), but I am not convinced by these simple arguments. The protests don’t seem to be necessarily about the system of governance, although that is clearly a big element in some countries. It is about wanting a better life. As it relates to China, it is interesting to see that local markets seem to have taken all of these events in stride, which I suspect is partly because they and their leadership know, spreading China’s immensely rising wealth to all is a policy priority anyhow.

Jim O’Neill

Chairman, Goldman Sachs Asset Management

And here are some excerpts from Niall Ferguson on why the outcome may be just a little more bearish than expected, via the Daily Beast:

For many years U.S. administrations tried to have it both ways in the
Middle East, preaching the merits of democratization while doing next
to nothing to pressure the region’s despots to reform, provided their
misbehavior remained within tolerable limits (no invading Israel or
Kuwait, no acquiring weapons of mass destruction). The Bush
administration put an end to that double-talk by practicing as well as
preaching a policy of democratization—using force to establish elected
governments in both Afghanistan and Iraq.

The Obama administration was elected by a great many Americans who
regretted the costs of that policy. Yet in place of the Bush doctrine
came… nothing. Obama’s obsequious 2009 speech in Cairo offered a feeble
hand of friendship to the Muslim world. But to whom was it extended? To
the tyrants? Or to their subject peoples? Obama apparently hoped he,
too, could have it both ways, even shaking hands with the odious Muammar

The correct strategy—which, incidentally, John McCain would have
actively pursued had he been elected in 2008—was twofold. First, we
should have tried to repeat the successes of the pre-1989 period, when
we practiced what we preached in Central and Eastern Europe by actively
supporting those individuals and movements who aspired to replace the
communist puppet regimes with democracies.

Western support for the likes of Charter 77 in Czechoslovakia and
Solidarity in Poland was real. And it was one of the reasons that, when
the crisis of the Soviet empire came in 1989, there were genuine
democrats ready and waiting to step into the vacuums created by Mikhail
Gorbachev’s “Sinatra Doctrine” (whereby each Warsaw Pact country was
allowed to do things “its way”).

No such effort has been made in the Arab world. On the contrary,
efforts in that direction have been scaled down. The result is that we
have absolutely no idea who is going to fill today’s vacuums of power.
Only the hopelessly naive imagine that thirtysomething Google executives
will emerge as the new leaders of the Arab world, aided by their social
network of Facebook friends. The far more likely outcome—as in past
revolutions—is that power will pass to the best organized, most radical,
and most ruthless elements in the revolution, which in this case means
Islamists like the Muslim Brotherhood.

The second part of our strategy should have been to exploit the
divisions within the Islamist movement. These are very deep, most
obviously because Shiite Iran has an altogether different vision of an
Islamicized Middle East than, say, Wahhabi al Qaeda. As I write, the Iranians have made their most brazen move yet by sending two warships through the Suez Canal
into the eastern Mediterranean. This should not worry only Israel. It
should also worry Turkish Prime Minister Recep Tayyip Erdogan, who
dreams of a revived Ottoman Empire as the dominant power in the region.

In the absence of an American strategy, the probability of a
worst-case scenario creeps up every day—a scenario of the sort that
ultimately arose in revolutionary France, Russia, and China. First the
revolutions in North Africa and the Middle East could turn much more
violent, with a death toll running into tens or hundreds of thousands.
Then they could spark a full-blown war, claiming millions of lives.
Worst of all, out of that war could emerge an enemy as formidable as
Napoleon’s France, Stalin’s Soviet Union, or Mao’s China.

read full article here

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Charlie Bravo's picture

Those guys at Goldman Sucks have no shame.

Charlie Bravo

CPL's picture

Rose colour glasses are on sale in florida people.  Get them while they are available.

NotApplicable's picture


I just saw this over on FT Alphaville and don't see anything here on ZH yet.

LSE Under attack.

It seems both LSE and ASX are having difficulties today.


CPL's picture

Third session in a row.  Thurs and Fri they were halted as well.

unwashedmass's picture


well, if your goal is the complete decimation of the middle class in the US and complete confiscation of their assets, it would be bullish for you.

Dick Darlington's picture

Wouldn't expect nothing less from Jimbo.

Dr. Richard Head's picture

Croatia seems bullish then -

Why is itthat RT is the only source really leaking all of these videos? Oh yeah, the videos are not real.  This was done in a studio like CNN and the Desert Storm. Weeee!!!!!

Hondo's picture

He's a fool hocking his wares!!  He knows absolutely nothing of the culture of the region....He looks a every revolution as a good investment theme yet ignores this is just one of many over the history of the region.....there is no catalyst for meaningful change......expect GS wants you to believe so.  By doing so they will get you to destroy your wealth by investing in the region and make fees with absolutely no or very little risk to using your savings or wealth.

TruthInSunshine's picture

I just finished a phone call with one my long-term, 62 year old clients, who is a man of significant means, and who has seen much in his life.

He made a short but succinct remark about the economy. He said that people are in a fog because they can't reconcile what they are reading in newspapers and hearing on the 'telly' (he's from Britain but is a U.S. citizen, too), and what they're seeing with their own two eyes in real life, and the gap between these things has never been greater in his lifetime.

NotApplicable's picture

That's that ole cognitive dissonance fog, where one isn't sure if they want to see, but doubt that they can survive the blindness.


(CD, tell them what they've won!)

Rainman's picture

All Three Rails of Democracy have been captured by the Bigs. The world is in a perfect environment for lingering fog.

TruthInSunshine's picture

Oh, as far as gasoline prices are concerned, U.S. gasoline inventories are beyond their highest levels in 21 years, now.

"...gasoline inventories in the US are still at the highest level since 1990..."

WTI quiet
TruthInSunshine's picture

Following up here, this is the laughable headline from the home of Andrew Ross Sorkin (i.e. The New York Times), on today's "Wall Street Action:"


Oil Prices Ease; Wall Street Moves Higher
redpill's picture

Nothing says "investment opportunity" like tens of thousands of dead Libyans

johnnymustardseed's picture

Looking more broadly into the background of the protests, they seem to have been broadly focused against their current regimes and based around a desire for “a better lot”.


falak pema's picture

Florida is right next to Cuba. Do you think he went there secretly and learnt to dance the salsa like a real pro..? It must now be part of GS corporate skills...float like a butterfly sting like a when we were kings...of hi-flying WS...not of the boxing ring...that's hard work, smells of your own honest blood and sweat. Not that of other...suckers.

tahoebumsmith's picture

And when all these starving people in the Middle East wake up to the reality that the likes of Goldman and all the other IMF backed CRONIES are behind their demise, you won't be enjoying sunshine on the beach anylonger. You will have to hide in a dark crack somewhere with all the other ROACHES that continue to turn a crisis into their own personal gain.

redpill's picture

The last of the first-hand witnesses of the Great War has finally passed on.  A sad generational indicator that TPTB figure we are probably overdue for another big one to make the peasantry drop any notions of curtailing government power.

Josh Randall's picture

War profiteering never goes out of style boys; Now grab your Carpetbag and get to work

Johnny Lawrence's picture

I'm assuming "Goldman Sachs Asset Management" is their mutual fund arm?  If so, what else do you expect from someone whose income is directly linked to keeping people in the equity market?

Oh regional Indian's picture

It's all bullish. War is bullish, peace is, of course, bullish, glut is bullish, famine is even more bullish, civil war is locally bullish, all out grand war is super bullish.

And here is something I'm sure everyone here has given a thought to at some point.

Bullish is painful. An upward toss on the pointed tips of a bulls horns? What's with that analogy? And a Bear swipe down?
The law of the jungle is deeply embedded in Wall Street Symbology.

John Law Lives's picture

I suppose people feel empowered to say bold things when they can commit misdeeds and basically get away with it with a slap on the wrist... and print massive bonuses for themselves a year later.

Goldy = Satan incarnate?


lsbumblebee's picture

If you read that one sentence as "My friend Mena has the potential to be built like a brick shithouse", and ignore the rest of the article, then it kinda sorta makes sense.

truont's picture

this revolution strikes me as being essentially rather bullish.

Right now, Goldman analysts are running an office pool to see who can come up with the most inane, neuron-wilting statements, yet still have their dumb-as-shit retail customers believe it.

With this analysis, I think Jim just pulled ahead...

And everyone on this board is now dumber for having listened to this.

monger's picture

and yet..GS is looking to control facebook and the JPM is sniffing at twitter's butt.

weren't these two of the prime avenues the revolutionaries used?

GS is looking at these as a good thing?  because they want to empower people?  the brooklyn bridge is almost in my view and i can show it to any interested buyers..

viahj's picture

thanks for this, a very important point because when the sheeple start to organize to burn down your banks...


i guess they are thinking that Obama may not get his internet kill switch so they will buy their own

Squids_In's picture

The problem is Jim ... we have a global intifada going on. All authoritarian and expoitative regimes are ultimately in the firing line. That includes most of the corporates listed on the major exchanges. Profit margins are not socially defensible at these levels and could easily go in half. Corporations pay very low taxes on these outsize profits. I could see the effective tax rates double with the closure of some of the most obvious loopholes.

There you have it, earnings atributable to shareholders could easily go down 75% - and the world would rejoice.

So no Jim, I don't think this revolution is bullish.

PS. Goldman is a prime candidate to get the WikiLeaks treatment.

falak pema's picture

wb7 says it so eloquently, I'm sh****** bricks of laughter.

AnAnonymous's picture

Niall Ferguson is really one intoxicated by his own spin. He can no longer tell reality from his lies. His lies have become his reality.

disabledvet's picture

Well I've kicked around a lot since High School, done a lot of nowhere gigs.  Keyboard man in a rockin' style band to haulin boss crude in big rigs.      Well i've back home to plan next move from the comfort of my cuzn Joe's couch--when I see little niece Janinine walk in and all i can say is OUCH!

curbyourrisk's picture

According to Goldman everything is bullish.  So just buy the fucking dip....

AnAnonymous's picture

Labour is a drain on resources.

Cash_is_Trash's picture

I suppose cold-blooded crackdowns on popular democracy is bullish.

How about I kill your whole fucking family Jim and go long on funeral homes and gravediggers you sick fuck!

equity_momo's picture

Exactly.  I wonder if Jimbo was also making a market in dead Kiwis last week during his vacation?

Karma is a bitch Jimbo. 

Fíréan's picture

There's only one letter missing from BULLISH , to make it an acronym of that which comes out of the Tail end of the animal.

there was something else i had to add yet forgot .

jus_lite_reading's picture

Fu*king imbecile. I worked with a whore at %^&*(*&^ with the same mentality and to this day I depise his guts.

Ahmeexnal's picture


Bernanke to head to be announced PanArab Islamic Reserve Bank.

The PAIRB will be responsible for monetary functions in all newly democratized MENA countries. The new currency, to be denominated BENBER, will be common to the new economic powerhouse that is emerging south of Europe.

Ahmeexnal's picture

And...newly released documents show what everyone knew: "left wing commies" are nothing more than CIA lackeys.  Ted Kennedy met with them in brothels:

TruthHunter's picture

Rather bullish?

Which end of the bull?

trav7777's picture

oh jeez, more muslim boogeymen from JewStreet

Art Vandelay's picture

Uh, yeah - O'Neill, typical Jew.


Grow up, asshole.

The Count's picture

Yes, I knew it. The aliens have started putting even more of their secret stupid making drug into our water supply. Wont be soon now until we will all be drooling and soiling our pants.

PulauHantu29's picture

Yes, $3.46 gas is no problem. I'll just use some of my $800,000 TARP Bank Bonus money....(that never trickled down to me).