The Euro Has Become Schrodinger's Money: Goldman Sees European Currency As Both Alive And Dead

Tyler Durden's picture

It's time for a shirt: "Irish bondholders got a bailout and all the EURUSD managed was a measly 35 pips higher." It seems the currency vigilantes are calling the bluff in JC Trichet, and tomorrow Portuguese bonds will be next on the bidless brigade, further validating that the IMF's, just like the Fed's, primary mandate is to rescue insolvent bankers everywhere there is a taxpayer population that can be raped. But back to the EUR: at last check the currency was trading well inside 1.33, and only about 2.2k pips from Thomas Stolper's 12 month target of 1.55. Not to begrudge anything to Tom: after all, post QE4 he will certainly be spot on (the only question is how long it take Blackhawk Ben to get us there), but we wonder if another Goldman luminary got the memo. To wit: in an interview with the Telegraph, Jim "BRIC" O'Neill told Kamal Ahmad that "the eurozone must embark on a significant round of fiscal and political harmonisation if the euro is to survive...there are elements of the black swan concept that seem rather applicable
to the EMU story
" and if that wasn't clear enough, he added that the "euro should carry a "risk premium" and that it was over-valued by at least 10pc." Bottom line, according to O'Neill the "fair value for the euro is €1.20 against the dollar and anyone buying it 10pc above that is not very sensible." Uh.... What? Did Wikileaks intercept the memo from Thomas Stolper sent out just this November 25, in which the chief currency strategist said: "Overall, we believe the EUR/$ remains very much on track for the projected trajectory of 1.40 in 3mths as well as  1.50  and 1.55 in 6 and 12 months." And like that, Goldman has all bases covered. Of course, seeing how the outcome is binary, Goldman has just discovered the Schrodinger currency: per the bank that rules the world, the euro is now both alive and dead at the same time.

As a reminder, here is what Stolper said 3 days ago:

Eurozone Risks

The primary market
focus currently is on Eurozone sovereign risks again. Our baseline is
that these risks will not escalate much further. Specifically we believe
that Spain will not need a bail-out as Francesco Garzarelli and Erik
Nielsen have continued to highlight. Should this assumption turn out to
be right, the EUR will likely strengthen again, otherwise we could see
another sustained broad decline. In any case the current drop in EUR was
not really a surprise. For example we highlighted since the summer in
our FX research that the implementation phase of European fiscal
tightening and further reforms will likely lead to renewed tensions and
pressures on the Euro. Though to be fair, we initially thought this
would materialise earlier.
At the latest forecast revisions in
early October, we explicitly mentioned the risk of a temporary dip below
1.30 in EUR/$ on European sovereign issues and broader risk aversion.
However, our baseline is that sovereign stress abates fairly quickly as
otherwise our view of a relatively quick move back up may not
materialise. And these fiscal worries are a powerful force, which even
managed to temporarily overcome the risk correlations as we could see at
the beginning of 2010, when stocks did well globally, the correlations
in daily returns remained unchanged but where the sovereign concerns in
Europe led to a strong temporary EUR down trend nevertheless.
related risk is that fiscal tightening leads to much weaker growth
performance in the Eurozone, but there again Germany acts as an anchor.
With very little fiscal consolidation needed the overall fiscal
tightening in the Eurozone will be far less than in the peripheral
On the positive side, the latest round of PMIs
suggests the core of the Eurozone may continue to show upside surprises,
which over time would likely help alleviate sovereign stress and
support the case for tighter ECB policy.
Overall, we
believe EUR/$ remains very much on track for the projected trajectory of
1.40 in 3mths as well as  1.50  and 1.55 in 6 and 12 months.

Of course, the biggest near term risk is further deepening of the
Eurozone sovereign crisis and there is no doubt that further EUR/$
weakness would be the result. On the other hand, if things calm down
again, opportunities for tactical long positions look increasingly good.
one question we face very often is about the viability of Eurozone
growth with EUR/$ at 1.55. Our answer is that we really believe in broad
USD weakness and hence the trade weighted appreciation of the EUR will
be fairly limited if our forecasts are correct. 

And some more:

Our EUR/$ Baseline Forecast

we find it useful to look at an ideal USD downside scenario before
comparing our forecasts with this benchmark. This approach helps looking
beyond all the short term factors dominating the headlines and to cut
out some market noise.
Starting with continued strong
correlations to risky assets, it is pretty clear that the USD tends to
weaken when risky assets perform well and vice versa. This in turn
suggests that USD weakness requires a clearly positive outlook for
cyclical assets. One of the reasons why this correlations still holds in
our view is that a large number of foreign investors in US equities are
currency hedged, whereas US investors in foreign stocks rather tend to
be unhedged. As a result a global risky asset rally tends to translate
into asymmetric flows from foreign investors who end up being under
hedged and need to sell more USD against their home currency. A positive
global decoupling scenario with persistent US imbalances is pretty
close to such a weak USD scenario from a risk correlation point of view.
hedging asymmetries also suggest that a scenario where the US is
clearly in the process of adjusting the structural imbalances would
ultimately be USD positive as equity investors may start reducing their
hedging asymmetries. This in turn would lead to sizable USD buying.
looking at the policy mix, tighter fiscal and easier monetary policy in
the US than in most other countries would also help reduce support for
the USD.
Our current macro forecasts pretty much tick all the boxes.
We expect a continued global recovery with still persistent imbalances
in the US and easier monetary policy by the Fed than in most other
places. On the basis of this global view USD weakness remains the most
likely trend to dominate FX markets.
As part of a trade
weighted Dollar decline we would certainly expect the Euro to join in.
And in fact, many of the macro factors in the US seem to be the other
way round in the Eurozone, including tighter monetary policy and a
positive risk correlation for the currency.

So how come Jim O'Neill can hit the press circuit less than 48 hours later and say that the Euro is virtually doomed:

"There are elements of the black swan concept that seem rather applicable to the EMU story," Mr O'Neill said.

"You have to consider that very extreme outcomes could be possible. I'm generally a person that sees the glass half full, but there are aspects to this European situation that could involve some pretty ugly developments.

Is there a power struggle within Goldman? That is the only one to explain such a dramatic divergence in opinions on the future of the common European currency:

"The euro deserves a risk premium - it is expensive compared to fair value. I think fair value for the euro is €1.20 against the dollar and anyone buying it 10pc above that is not very sensible.

"[The question is] how can you have a monetary union with such disparate countries without having some form of fiscal union? It's a pretty good question. I think the evidence is growing that you actually can't."

Asked directly whether, looking over a five to 10- year horizon, he agrees with the argument that there will either be a break-up of the single currency or a fiscal union, he said:

"I think that is right. We won't get an answer for many years and we will waver between them both but you will get greater evidence of [fiscal union]. People talk about a European monetary fund which effectively would have the ability to approve a budget plan before it was put to a country's voters."

Of course, it wouldn't be Jim O'Neill if he didn't infuse half a metric ton of his own personal unfounded hopium in the mssage:

He said that he expected to see a pick-up in the US economy and that the
dollar could therefore strengthen. That would then would then exert downward
pressure on the value of gold.

Odd. We on the other hand anticipate that the complete collapse of the sovereign debt house of cards may actually result in upward pressure in the price of gold.

But who are we to say anything: after all our opinions are, gasp, consistent, with what we say at least two days earlier.

Full O'Neill clip.


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Sudden Debt's picture

So it kind of makes sence silver will drop 5% near term right?

Just asking because I'm planning to buy some more.

unky's picture

Yeah, it will drop 5% but in USD currency. In € it will not drop signifianctly in the near term. Thats my guess

Sudden Debt's picture

At the peak in the late '70s the US had almost 20 million manufacturing jobs with a population of a little over 220 million. In June of 1998 the US still had 17.7 million manufacturing jobs. But by October, 2010 the US was down to 11.6 million manufacturing jobs in a country of 320 million people.

Six million manufacturing jobs have been lost in the last 12 years, and 2 million in the last two years alone. The US now have fewer manufacturing jobs than it had in 1941.


The news goes bad in turns for the US and the EU. Now the EU gets hit, it only means the US will get a beating in 2 weeks. It's like it's a constant these last few years.

Rotwang's picture

Sometimes I joke with my friends. "Production has been solved". "It is consumption that is the problem, i.e. how do you extend the proceeds of the solved production dilemma to the population".

Manufacturing of the 40's, 70's, 90's etc. can no longer be measured in manpower inputs, when robotics and methodologies have caused the lathe operator turning the dial obsolete. The 'problem' is consuming this largesse that a lathe loaded by a couple of industrial robots produces. We really can be way too productive for the sake of our landfills.

Disambiguation's picture

Sudden Debt,


While we hace clearly lost many manufacturing jobs since the 70s, the us maufactures nore goods now than in the 70s. Productivity gains have allowed many US producers to wrow output while shedding emplyoees.......

Selah's picture

You can't eat Silver...


Oh wait, it's Gold that you can't eat!


Might as well munch on some Euro's and watch some telly.


Sudden Debt's picture


unky's picture

I prefer to eat on paper and plastic plates and keep my PMs as bullions. This way I dont need to care to wash dishes ;- )

Best Satan in Town's picture

I love me some colloidal silver.

tahoebumsmith's picture

When the bank runs begin, It's GAME OVER! Coming soon to a theater near you!

carbonmutant's picture

You're too generous... It's currently trying to hang on to 24 pips...

TemporalFlashback's picture

Fiscal independence with monetary dependence does not make for a very good long-term outcome.

hungrydweller's picture

As an engineer and physicist this is the type of comment that makes me an avid Zero Hedge reader.  How many financial types even know about Erwin Schr?dinger's thoeries?  Go ZH!!!!

Aristarchan's picture

I think Goldman may be practicing a little "political" quantum physics here...trying to have it both ways, and obviously subscribing the the "many worlds version," not the Copenhangen interpretation.

Aristarchan's picture

I think Goldman may be practicing a little "political" quantum physics here...trying to have it both ways, and obviously subscribing the the "many worlds version," not the Copenhangen interpretation.

Goldilocks's picture

Where is the capital / money going ... seriously?

Cash out of ... " €  $ ¥ £ " ... buy PM's.

~ ~ ~

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Joseph P. Farrell has a doctorate in patristics from the University of Oxford, and pursues research in physics, alternative history, science, and “strange stuff”. Joseph joins us to discuss "Babylon's Banksters", the search for "The Philosophers Stone" and the survival of the Nazi empire. Where did all the bailout money go? What and who are they using the money for? In this program, Joseph describes financial blackmail on a massive scale connecting it with world domination, new weapons development and factions of the old Nazi empire remaining and still pulling strings behind the scenes today. Joseph talks about the "Nazi serum", the "Soviet mercury" and "American gold", which he says are all parts of an occult alchemical process. Stay with us for the next two hours to find out what all this could be about. Topics Discussed: alchemy, physics, finance, Hitler, state issued money, banks lending money, Anthony Sutton, parallel issue, financing world wars, financing the Bolshevik revolution, the Bilderberg group, Rothschild, I.G. Farben, Martin Borman, financial blackmail, dominating the world, coupling credit swaps, breakdown of the financial system, Japan, European Union, post war international fascist organization, Herman Joseph Abs, Red House Report, EW-Pa 128, The Great Heroin Coup, different types of socialism, A-tomb bomb, The Nazi Bell and more.


hungrydweller's picture

C'mon - don't hyperling that much text dude.  It makes us want to ignore you.

RobotTrader's picture

Very muted reaction to the Ireland bailout.

Stock futures up, gold down.

Not exactly what the "Gold Bitchez" had in mind....

Sudden Debt's picture

Silver follows the drop in Euro at a 50% rate.

francois's picture

I would not be so brave to call gold until comex closes tomorrow :-).

Internet Tough Guy's picture

Oil at 84. Robotranny rides the city bus.

Spitzer's picture

Out comes the 5 minute charts !

haha, what a joke you are Robo. We know there will be seasonal weakness in gold from now till December 6th.

Tyler Durden's picture

I believe this is more along the lines of what the "gold bitchez" crowd had in mind.


revenue_anticipation_believer's picture

don't accidently kill the enemy, get the skill, to recusitate over and over, until there is no useful information, promise to release them if names/crimes/places are revealed...15,000 ft ocean depths....

DonutBoy's picture

The bond traders may be moving on to the Iberian peninsula, but the Irish citizens are not quite signed on to their ECB "gift".  Maybe this blows-over in a few days and they resign themselves to 10 years servitude to "senior bond-holders".  Maybe not.  It's not clear that an Irish default has been avoided.

DavidRicardo's picture

Well then, let's just split the baby: they accept it and Ireland defaults.


Remember, there are still too many of the Irish bourgeoisie working.  That trash has to lose EVERYTHING before there's a shining path to revolution.

Quinvarius's picture

So now the Euro will rally because goldman is always wrong/raping clients?

Tyler Durden's picture

The euro will both rally and plunge at the same time for the reason you highlighted.

DavidRicardo's picture

That's not very illuminating.  It is now happening with every currency.  It's called divide and conquer.  Only the oligarchy wins.  Do you really think they think in terms of "currencies?"  How quaint.

Tyler Durden's picture

Actually the reference was to the above article. In case you missed it, Goldman Sachs sees the EURUSD fairly priced at 1.55 and rich at anything over 1.20

Quinvarius's picture

Well then.  No need to hedge.  LOL

walcott's picture

suks the euro or dollar fiat crap paper is forced on the population.

The minions are too fat and stupid to do anything about it unfortunately.


DavidRicardo's picture

You're telling me Mellonesque liquidation is irrational.  Who knew?

Lord Welligton's picture

The Euro is dead.

You can take it from Wellington.

Sudden Debt's picture


The US is closing down dozens of sites that sell chinese replica stuff. Stage 312 in the US protectionisme game. If they would start closing down all the sites that inflict against US patents, this could become hughe!


Internet Tough Guy's picture

They aren't taking over sites, just redirecting domain pointers. No biggie, the sites will register new domains.

AUD's picture

"Schrodinger Money", I like that one, wish I'd thought of it.

Might pull out Schrodinger's Cat Trilogy, it's been a while since I read it.

bania's picture

Headlines like this... one of the things that make this site so great.

Conceptwizard's picture

Buy PMs By PM's...Geeesh I here this a lot on here.

When the shelves are empty of food, and you are trying to buy some with metal good luck. I wont be parting with any of mine for anything I cant eat, drink, plant or trade.

You guys are smart but you have to start thinking outside the box, about living without money.

Diversify.. The smartest people on earth are..

goldsaver's picture

Ok, understand there are several possible scenarios. I will not pretend to speak for other ZHers but in my case:

1.I have a year worth of staples in both long term basic form (5 gallon buckets, mylar lined, oxygen free environment) and mid term storage (cans with 18-24 month shelf life). Water filtration and a 5k gallon pond.

2. Hand/long guns for every member of my household, 1k rounds of ammo per gun and Class III vests.

3. 60% silver, 20% gold and 20% cash.


If we see a stagflation similar to Argentina you will see rioting and closed stores for a few weeks followed by high food prices and poor availability of food and basic needs. In this scenario stored staples and guns will be necessary for a short period of time. The high food and energy prices will require supplementation of purchased staples with stored staples in order to be able to afford to eat.

If we see hyperinflation you will see a complete collapse of the currency. Similar of the above scenario but followed by a new fiat been issued and destruction of fiat savings and paper instruments. In this scenario all of the above applies but PMs will provide a bridge for the new normal once the new currency is issued. You will see people desperately selling assets (art, real estate, furniture) at pennies on the dollar in order to survive. This would be a good time to pick up bargains and build up future wealth. PMs will help here also.

I also have a couple of acres, goats, rabbits, sheep and a half acre garden. Canned goods wont last forever and fresh veggies are just awesome.

Notice I did not mention Zombie Biker Gangs or Mad Max. Just a replay of every empire collapse in history.

kaiserhoff's picture

Prediction is very difficult, especially in regard to the future.

                                                       Mark Twain

robertocarlos's picture

Turning blue is no fun.

Aristarchan's picture

I don't know...ever heard of Smurf sex?

Aristarchan's picture

Goldman knows that analysis can be used in many ways to talk their own book. When things as complex, unpredictable and well...Schrodinger Verschrankung such as the Eurozone situation need massaging for popular consumption...then they know they can talk it up and down simultaneously, since many people will take their analysis and fit it almost perfectly to their own preconceived notions. That exemplifies how the Schrodinger's Cat situation that Durden mentioned is so very perfect for the Goldman model of leading the sheeples by their nose rings. They are hedged on this deal to the they can feed their subliminal bullshit to "investors," and make money either way.