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Jim O'Neill Mea Culpa: "Hey I Was Dead Wrong On The Whole Yuan Thing, But... Hey Look Over There, Stocks Are Up"
Permabull Jim O'Neill of Goldman Sachs surprises everyone by issuing yet another missive after being dead wrong on the Renminbi a month
ago, and very vocally so. The surprise is not in his persistent
frothiness (the man is a singularly male version of an undoubtedly
female A. Joseph Cohen after all), or his attempt at mea culpa'ing
(we wonder what sport instrument Roach would recommend using on Mr.
O'Neill), but that Jim is still at Goldman after the entire Red Devils
fiasco. Oh, and speaking of sport, O'Neill joins the Krugman-Schumer team in providing most unwelcome policy advice to China.
Either way, on February 11th, Jim had the following things to say.
I have returned with a rather dangerously strong feel that China might be close to doing
something of note on the CNY. It has been my rising view since the
inflation evidence picked up in early January, that the circumstances
were starting to change, and in the weeks before this trip, the
evidence has built, and a couple of bits and pieces I have thought
through, as well as chatting with some interesting people on my trip, I
think something is getting closer. Moreover, contrary to our formal
forecast of a 5pct rise of the CNY versus the $ starting in a few
months time, I have a hunch that as and when they move the exchange
rate, it might involve something different, possibly a one off
revaluation followed by a broader band. I emphasise that this might
just be what I think they SHOULD do, as oppose to will do, but the two
have merged in my jet lagged mind.
Mkkk. Scratch one for the propaganda team. The "dangerously strong feeling" that Jim was experiencing was Jiabao's reverse fornication with anybody who not only was calling for a Yuan reval, but expecting one in the near, medium, or far future.
Anyway, here is the latest from Jim, in which he admits that having rerun Goldman's voodoo machine, the bone formation "no longer suggests the CNY is widely undervalued." Gee, pretty dramatic shift from a month ago. And to think how much has changed in China since then... Yet despite this, and despite Roach's caveats that any American attempting to determine China's FX policy is pure hypocrisy, O'Neill claims "China needs to introduce more independence to its monetary policy, and
do so, by letting its currency rise very soon, and to introduce some
vol." Well, we guess Jim is probably exempt from being branded a hypocrite. After all he is from across the pond (ok, how about a hypobrit?)
Full Jim O'Neill note for all you Man U fans.
China, its Currency and a couple of other bits and pieces
Well, that is what I’d call a “ whack from Wen”. So much for me having some insights on matters to do with China. Some pretty strong comments out of Beijing last weekend suggest that those of us looking for an early move on the CNY should take a vacation with the Real Madrid football team, following their exit from the Champions League. Or does it? Here’s some thoughts on all of that, and a couple of other things;
1. Chinese currency valuation. First of all, two weeks ago yesterday, I published a Global Economics Weekly on the topic and made reference to our so-called GSDEER model. Please get one of our sales people to send it to you if you haven’t read it.
All sorts of well known people, including in the past two days, Martin Wolf, and Paul Krugman have written strongly worded stuff on the topic, once more assuming it is clear that the CNY is massively undervalued still. As I wrote in the GEW piece, it is not quite so clear to me any more. It might be, but it might not, and in any case, these intellectually populist arguments are missing the point-as they often do-. China is not currently deflating, on the contrary, it is facing the opposite problem- more on this below.
On the valuation issue, our GSDEER, a pretty simple concept, no longer suggests the CNY is widely undervalued. It used to, but it has moved by 20pct since 5 years ago. Our model used to have vaguely similar results to those of the PIIE, who recently, have estimated that the CNY is undervalued still anywhere from 15 to 40pct. They actually appear to assume that China’s current structural current account surplus is 10pct of GDP, and once you have done that, then of course, it is easy to reach a conclusion that it is widely undervalued.
Now, I have never done a stint at the IMF or such seats of great study on exchange rates, but I have immersed myself for much of the past 29 years in exchange rate models, and I know many of the pitfalls , of which for most currencies, they are considerable. For an economy changing at the speed of China’s, then the pitfalls are massive. While our GSDEER model has a number of possible shortcomings, it is not alone in the world of exchange rate modeling. ( all constructive ideas to Messrs Stolper and co)
2. The Chinese balance of payments. Last year, the Chinese current account surplus fell to 5.8pct of GDP, so I am not quite sure where the PIIE is coming from, unless you argue China experienced a boom-all year. It was by the end of the year, but it sure wasn’t early on. Our proprietary GDP model, the GSCA, suggests correctly measured Q4 2008 and Q1 2009 GDP was below 8pct. It is conceivable that China’s current account surplus maybe closer to 3pct of GDP or less in the next couple of years.
As I have written about a number of times, the REAL story involving China and the rest of the world post crisis is their IMPORTS. The data shows it, the anecdotes abound. Of hundreds of examples, simply the best is the latest regional breakdown of German exports, which shows exports to China literally booming. And as Dirk Schumacher wrote the day they released, on the current path, this time next year, German trade with China could exceed German trade with France. Simply amazing. COULD SOME ACADEMICS AND G7 POLICYMAKERS PLEASE TAKE NOTE OF THIS BEFORE YOU DO ANYTHING TOO SILLY.
3. The Chinese cycle and the currency. While China was possibly growing sub 8pct in Q4 2008, and early 2009, since Q4 2009, our GSCA suggests it might be growing close to 14pct. We have no idea what trend Chinese GDP growth is, but it is almost definitely not above 12pct. Unless China slows down growth, inflation is going to rise.
As Thomas Stolper has articulated re the BRL in recent days, there are often good reasons why currencies trade expensive to GSDEER ( and cheap) and the case for China to do it now, is overwhelming. China ( and Brazil) need to tighten financial conditions more, and to slow growth . The least painful and powerful way, and one that is helpful to the G20 is for China to let the currency rise a bit ( and have more volatility). If Washington DC could keep quiet for 5 minutes, it will probably happen.
There is an interesting story in the FT today about Hong Kong, “ Poverty blights the dream of Hong Kong”. Those of us who visit frequently and briefly observe and here stories of dramatically rising property values, and of course, those of us that have been around for 30 years have seen many of these, and the subsequent crashes also. As that article today points out, not all participate in these massive property explosions. While I don’t believe much of the China property bubble hype nationally, the fact is the longer China adopts the monetary policies of the Federal Reserve Board, the more Hong Kongs there will be all over mainland China. For China to continue to grow its wealth, success, it needs to have all benefit. This means massive diversion of property prices, and rapidly rising inflation are simply not do-able.
China needs to introduce more independence to its monetary policy, and do so, by letting its currency rise very soon, and to introduce some vol.
4. The UK. Slightly better mood with reference to the UK cycle , but most people continue to think we are completely nuts about believing growth might positively surprise. I spoke at a travel dinner Tuesday night, and many there believed the UK had not much to offer, other than –of course-their services to export people to all places around the world on vacation. The real story, and opportunity, now, for everyone, irrelevant of who wins the election, is manufacturing, and UK based tourism. Another FT story caught my eye this am. Page 4 . “ Nissan plug-in car to be built in north east”……..need I say more.
5. Equities. Fresh highs in the major markets as some of the grizzlies start to back pedal…………. Lets see how far us bulls can travel before you all find something else to worry about…
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Clueless on China. How surprising.
"Lets see how far us bulls can travel before you all find something else to worry about…"
Right.
i don't read anything published by goldman. complete waste of time. zh is a weiner for even mentioning those scumbags.
Not all bulls are idiots, but most idiots seem to be bulls.
Everybody knows the Yuan should be valued higher but does Goldman know exactly when it will be valued higher and how much are they levered up to profit from such revaluation and of course, whomelse, other than the obvious Chinese jobs and dirt poor chinese product purchasers, will stand to lose and how much?
Does it all go in Goldman's pocket or do they spare some change for the serfs?
How much does Goldman stand to make when the FED pulls the rug from under the market?
http://funy1.blogspot.com/2010/03/how-long-before-fed-after-hours-ponzi....
And how much does he get paid, courtesy of the US taxpayer, for producing this drivel?
Probably about the same as Ryan Giggs, who is also more successful.
For a squid? A sashimi knife works well. Not surprised he is still there over manyoo red knights, the Glazers are small change for Broad Streeters. But if he goes on working for Krugman gangs or end up offending the CPC, he would be gone in no time, as would Lord Blank.
Well the focus seems to be on renminbi valuation and layoff off GS (and their BS) for now. Just saying. Damn those guys are smart.
China ramps up money supply, blows out loan volume, massive stimulus and all they got was their book cooking 8-9% gdp numbers. I would say a reval is a long way off. Race to the bottom continues.
Abby Joseph Cohen is a woman??! Lol
Yeah really Tyler, what's up with this "undoubtedly female" thing with AJC? You usually do better fact checking than that!
lick a finger, stick it in the wind, make millions of dollars.
lol what a cunt!
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