As Jim O'Neill's Koolaid Dispenser Runs Out, The Goldman Sachs Asset Management Head Sees QE3

Tyler Durden's picture

Sometimes observing the counterclockwise rotation on Jim O'Neill's Koolaid-O-Dispener knob from 10 to 1.5 is the most gratifying thing that can happen to a person. Which is precisely what the most recent weekly report by the man who was sanctimoniously relegated to managing Goldman's most unprofitable division, GSAM, present: a bleak world in which the perpetual twisting of reality by the Man Utd fan has lost all credibility. To wit: "On Thursday lunch time, I joined some Goldman Sachs colleagues for a lunch with some leading macro hedge fund investors, most of which I had enjoyed a similar lunch with last October. The mood this time couldn't be more different. I guess it is kind of understandable given the recent run of data, the markets and the apparent policy impasse in DC on fiscal matters. But it seemed to me it was all a bit over the top. The general mood around that lunch table was gloomy, whether it was about the US, Europe or China, both with respect to data and policy options. I was regarded as a raving lunatic for suggesting it was possible that US unemployment might fall below 6 pct by the end of 2013." Hmm, whoever could possibly conceive of the man whose predictive track record is only better to DB's Joe Lavorgna, as a raving lunatic. Anyway, more importantly, even O'Neill is now forced to admit that in the off case that he has OD'ed on the Keynesian-spiked red substance, that the Fed will have no choice but to launch into another round of easing, something which is pretty much a given for everyone else, and would indicate that the US economic depression, which started almost 4 years ago never ended, but was briefly interrupted by bear market rallies inspired by dollar dilution: "while a QE3 would clearly involve “externalities,” it seems obvious to me that if the recent weak US data is for real, then there is a good chance that the Fed would deliver on something more." Naturally O'Neill then goes on to explain why even a negative GDP print which may be in the cards for Q3 is absolutely nothing to worry about. Lastly, there is always next year's Champions' League for Manchester United...

And just like with John Noyce, here is O'Neill's podcast recapping all of the below:

jim o'neill June 11 by user5452365

Full note:


Dear reader, contrary to what a number of you have suggested, I have not abandoned writing Viewpoints because of the unfortunate events that took place at Wembley 2 weeks ago. Admittedly, it did take me quite some time to get over the mauling United received, but last weekend I was walking in the Swiss Alps for a couple of days, and was travelling all week.

Since I last wrote, I have been at the FT Annual Luxury Goods Conference in Lausanne, and then on for a few very interesting days in New York. I have to say the mood amongst some people I met in the two different places was quite a contrast.

Over the past two weeks, we have seen widespread evidence that the world economy has lost some momentum. Not surprisingly, many financial markets participants and policymakers are concerned. Following the poor equity market performance in May, it seems ominous to many. “Sell in May” is taking on some mystic belief. Here is my take on it all, as well as some of the tidbits I picked up on my travels.


Aspects of my Swiss visit were in stark contrast with aspects of my NY trip.

We went hiking around Les Diablerets for about 3 days. Near the village is a ski lift that you can ride up to the glacier for panoramic views at 3,000 metres. It costs a whopping CHF 77 to ride there and back. Given today’s exchange rate, it is not exactly a bargain! My wife, who thinks I live in cloud cuckoo land, thought it was a bit extravagant. While we were debating it, an Indian gentleman came up to the kiosk, handed over five crisp CHF 100 notes and paid for six of them without a blink! We finally decided to go up. Needless to say, it was cloudy at the top, and within 40 minutes, we were back down to carry on with our walk. On the lift run up and down, virtually everyone else was Indian.

On the way down, we noticed a rather large advertising board extolling the virtues of a well-known bank and its expertise as the choice private banker for the emerging markets. I remember days of the late 1980’s when there were special train sections for Japanese tourists up to the Jungfrau. How times are changing!

The pre-conference dinner for speakers at the Lausanne event carried the same mood. A number of leading luxury goods CEO’s were present and they all seemed rather upbeat – not surprising given the BRIC demand for their products. Just today I read a piece suggesting that Chinese buyers might be responsible for around 50 pct of all European luxury goods sales.

I was there to participate in a panel about the state of the world with my ex-colleague Gavyn Davies, along with Martin Wolf from the FT. As a sign of the abrupt shift down in the developed world, the first question we were asked to consider a few weeks in advance was where the recovery was the strongest and likely to be the most robust? Martin used some nifty footwork to ask it differently, and Gavyn kicked off the answers by pointing out how slow everything had been recently. Within minutes, the idea of “QE3” in the US came up as a policy discussion and all three of us agreed that, if necessary, the Fed would provide it. I suspect we might differ on the likely need, but we never got really into that.

Where we did diverge was on the importance of the large emerging world, and not for the first time, Martin and I especially differed on China. I pointed out that that weekend, the well-regarded Chinese Academy of Social Science (CASS) had released a study, forecasting that the US$  value of consumption would double from around $2 trillion by 2015. But Martin didn’t seem too excited about that. I didn’t have time to emphasize that this would be consistent with something equivalent to a 4 pct per annum vicinity in the glory pre-crisis days of the US consumer. As I found out at a hedge fund lunch later in the week, the issue of imbalances seems to worry so many still. I increasingly suspect that many Western minds, including some of the smartest, just simply don’t really look at the evidence when it comes to China. It either can’t be true or, if it is, it must be unsustainable! Friday we got the very latest Chinese trade data, which once more was softer than expected, and for the first 5 months of 2011, it is less than $30 bn. This is around 1 pct of GDP annualized, and a far cry from its heady days of 10 pct or more. Imports, while a bit softer for the month, are $156.7 bn higher than they were a year ago, which when annualized is about $ 376 bn. At this pace, China’s import growth will be strong enough to import another full Greek economy, as it did in 2010.


From the modest heat of Switzerland via a quick return home, I went to the blistering furnace that New York suddenly became last week. On 4 of my previous 5 trips this year, it was covered in snow and freezing. But, as the week wore on, the heat did little to lighten the mood.

On the first day, I was due to be interviewed on CNBC about the world. But, I found myself in competition with Fed Chairman Ben Bernanke and his Q+A. I joked with Maria Bartiromo that I thought it was highly inappropriate for me to be kept waiting, but we both had the pleasure of hearing Jamie Dimon grill the Chairman about the economic impact of excessive regulation. Like a number of others that I spoke to the rest of the week, I was quite surprised by his candid answer that the Fed thought it was too difficult to judge. Even for someone who is trying to see the US glass half-full like me, it was not pleasant to hear.


Just to complete a nice relaxing day, and my specific purpose for being in the Big Apple, I attended a Latin American educational charity function, Worldfund. I was an honoree for my services to charitable education. As I joked about when I received the award, I rather suspect it was more for putting the “B” in BRIC. I also added that deciding to put the “B” in there was one of the better things I had done in the last decade, along with helping set up the specific educational charity, SHINE. As there were many Mexicans present including one of the other honorees, I also said that if I hear more evidence about the smart steps going on with teaching efforts in Mexico, maybe I should add the “M” at last for it to become BRIMC. And, for good measure, I suggested that the existence of a certain Chicorito was taking me in that direction. For full measure, in case there were any Argentineans, I also added there would be no chance of an “A” being added, unless somebody  kidnapped Messi and forced him to play at Old Trafford.


The following day, I spent much of the time with a number of US corporations, especially their pension fund investment teams as well as some pension advisors. Along with discussing the state of the world, the dominant and reoccurring discussion point was the appropriate benchmark for investing in global equities. This happened to be very timely, as we continue to work on creating something which I think is extremely interesting for such investors. We shall keep you posted.


On Thursday lunch time, I joined some Goldman Sachs colleagues for a lunch with some leading macro hedge fund investors, most of which I had enjoyed a similar lunch with last October. The mood this time couldn’t be more different. I guess it is kind of understandable given the recent run of data, the markets and the apparent policy impasse in DC on fiscal matters. But it seemed to me it was all a bit over the top. The general mood around that lunch table was gloomy, whether it was about the US, Europe or China, both with respect to data and policy options. I was regarded as a raving lunatic for suggesting it was possible that US unemployment might fall below 6 pct by the end of 2013. Having witnessed the Bernanke speech and Q+A, I can understand the mood regarding risks of excessive regulation.

But, while a QE3 would clearly involve “externalities,” it seems obvious to me that if the recent weak US data is for real, then there is a good chance that the Fed would deliver on something more. After all, their mandate is pretty clear. That being said, I return from the US far from convinced that the Fed is going to have to worry about this. I was rather relieved to observe that the Beige Book included many references to the impact of supply chain disruptions from Japan in the recent period. I suspect that this, along with higher oil prices, is the main culprit for the significant soft patch the US has recently been through. As I pointed out to the lunch group, US financial conditions had eased since we all had met last October. Given that, I can’t see why the US is suddenly into a sustained downturn, unless the impact of regulatory measures is hurting credit provisions that much. There is not much evidence of that in the data. Anyhow, we shall soon see.


This discussion has left me thinking that perhaps the key place, oddly for the world momentum in coming weeks, might actually be Japan. Luckily, I am off there Monday for a brief trip, my first since the tragedy earlier this year. One of our European portfolio managers, Ed Perkins, had suggested soon after the tragedy that the supply chain impact was likely to be considerably bigger than many realized. It looks like he was right. Interestingly, at our latest CIO call last Thursday, his evidence from companies was that Japan was in significant production rebuild mode. I hope to hear more about this in coming days. If it is true, then a number of parts of the world might suddenly do a bit better than people think.


The contrast between the report from CASS, the tone of top European luxury goods companies and the mood I heard from many in NY about China was really quite striking. It will be fascinating to observe all their data releases in coming days. For me, the key is when the CPI will start to turn, allowing the PBOC to take its foot of the monetary brakes. It seems clear to me still that the economy is slowing cyclically more than the revised-lower consensus think. And, in contrast to the “hard landing” mood of more and more observers, once they are happier about inflation, I think the next phase of their transition emerges, and the basis for the next global equity market rally.

What is also clear is that their actions continue to be the absolute near-term key for energy demand. This week, the annual BP Statistical Review confirmed that in 2010, China overtook the US as the world’s biggest energy consumer, taking 20.3 pct compared to the 19.0 pct of the US. Global demand actually rose more than global GDP, by 5.6 pct versus 4.9 pct. This is the sort of thing that excites both commodity bulls and equity bears. They share the common belief that there are simply not enough resources for all of this to continue.

At the same time, there appears to be growing excitement about aspects of the alternative energy world, in which China is so actively investing. There was a fascinating clip in the FT one day last week quoting the US Energy Information Agency, suggesting that within 3 years, the cost of solar power will drop by another 60 pct making it comparable to other conventional energies. All most interesting.


What a complex state of affairs. Aside for the strength of Germany, and some other pockets of European export driven strength, I tend to share the mood I heard from all those macro hedge funds. On one level, it is all rather exciting theatre as Europe’s key policy actors continue to debate how to reduce the burden of Greek debt without causing excessive pain for key players. Perhaps an interim European Football Championship can be organized between the banks, the ECB, the IMF, the French Authorities, the German Finance Ministry and the German Chancellor’s Office. Oh, and I guess someone should invite the EU to play also.

I shall offer a couple of comments. Firstly, I can’t see how the Euro can stay above 1.40 against this background and the not inconsiderable risk that something goes wrong. Secondly, and in contradiction to that, am I that naïve to believe that the policymakers have not figured out what might happen if they make a mess of the Greek debt discussions? Surely, this is not that big a deal, so long as Spain and Italy don’t get dragged down?

Anyhow, I will be in both Japan and Russia next week, after which I hope to be on terra firma for some considerable time.

Good luck!

Jim O’Neill
Chairman, Goldman Sachs Asset Management

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Quixotic_Not's picture

I was regarded as a raving lunatic for suggesting it was possible that US unemployment might fall below 6 pct by the end of 2013.

I don't think that's crazy at all, I mean by then most of the 99ers will have fallen permanently off UE bennies (i.e. no longer counted as unemployed), and post Greater Depression graduates that never got jobs will have never been counted to begin with!

Fudging numbers has never been so easy...

Oh regional Indian's picture

nice life. Strollign in the alps and all.

But, one thing has started to get my goat a little.

Germany is no great miracle. They are fantastic designers and low-volume, high quality manufacturers. But they get most of their sales via washed back "loans" to poor countries, whether as development loans or SAP opeing a 10,000 person know, off-sets. THrough EADS etc., Germany is hugely "in". So, yeah, they are not some amazing story.

It was set up like this. Just as it was for Japan. The Axis, Two amazing manufacturign nations, One craftsman, one mass market and a bumbling manufacturer, Italy, in the middle.


Anyways, Germany is super weak. Japan weak. And both highly Nuclear. Go figure.


Franken_Stein's picture

You are probably right.

Germany is weak.

falak pema's picture

Today strength is being less weak than your neighbor. I see Germany big in renewables in ten years time ahead of USA and France. They have big projects in MENA. Only China can match and they have huge energy problems....I still think that Germany has protected markets in EU/EM through technology and a strategic supply link to Russia and Turkey. Turkey will be key player in ME along with Iran when it breaks free from ideological rift.

All will depend of relative role of USA in coming years. By 2016 if the USA slips into structural reform and EU breaks into two tier reform, Germany will start to climb very fast. It is essential for the Eurozone to split into two tier structure...Before it rejoins in ten to twenty years...But that is crystal ball gazing...

PY-129-20's picture

You're basically right about Germany. I wouldn't call it "super weak" though. It is definitely not a miracle story. Keep in mind that Germany was reunified. Although the working force from the East is in a good shape, the West had a lot of work to do. It isn't the same country I was born in and grew up.

Germany is just doing what everyone else in the world is doing - pretending to be something they aren't. Faking a way our business elites always copied the American model. You could say this about almost every other economy now - everyone is pretending, everyone is faking numbers... you said it once, ORI, numb-ers.

I do not believe in this Chindia story. I think India has a long way to go. But I am more optimistic about India than about China. I like both countries. There is only one thing about India that frightens me - Pakistan. The complete outlook of Pakistan is just grim.

I hope that Asia will never make the same experiences that Europe did. There are many problems - especially border conflicts (part of European colonialism)

TooBearish's picture

So this asshole gets his anecdotal evidence from 100$ chairlift rides, globe trottting and eating his face off and calls it research?  Fuck off

fonestar's picture

Don't most of these aloof asswipes?

SolidSnake961's picture

looks like jim left out the models part of models and bottles

GeneMarchbanks's picture

Tyler are these podcasts from these raving lunatics gonna be a regular thing now?

Anyway the man is delusional.

slow_roast's picture

It was snowing tsunamis in Japan bitchez!  BTFD

Corduroy's picture

Are we ever going to get a financial industry serial killer... Surely there must be a serial killer out there intelligent enough to know that they would be famous beyond compare...

Rational Psycho's picture

Someone smart enough to kill off the right people would be smart enough to not become famous for it

Corduroy's picture

Nice handle.. And I take your point, however if it ever were to happen Im sure the MSM would like a conviniently placed credit card or blank cheque left on the body for tracking purposes...

Hedgetard55's picture

At what point does further debasement of the dollar result in stock market destruction, rather than juicing, as nobody is able to afford to buy anything anymore and margin compression becomes murderous?

dracos_ghost's picture

Methinks we are going to see within the next month. I don't think they have unwound this QE2/Dollar carry trade yet. Now that they might have to wait a bit, it might be "RISK OFF" big time.

apberusdisvet's picture

Isn't is odd that whenever these guys mention Japan, there is never a comment about the nuclear fallout and the eventual wasteland that the country will become.  A conspiracy of silence or just plain delusion?

Conrad Murray's picture

While we were debating it, an Indian gentleman came up to the kiosk, handed over five crisp CHF 100 notes and paid for six of them without a blink! We finally decided to go up.

This is all you need to know about this clown. Argues with his wife like a bitch until some Indian comes through and shows them up. Not an original thought in his pea brain. Just do whatever the herd is doing. "Fukushima? That's not on the news, nothing to worry about. I'm sure the EXPERTS would have something to say if there were a problem. Yes yes, quite right".

TraderMark's picture

Also, Roubini starting to get Roubini-ish about 2013.  Chinese hard landing, kicking the can eventually stops, U.S. cyclical slowdown. 


southsea13's picture

"I don`t think people should be as stressed out at they are...." I guess by `people`(?) he means his mates and the macro bush trimmers he`s rubbing shoulders with. Jim`s just jealous that there`s `too many` Indians who can afford the chairlift without the blink of an eye; he`ll probably be bitching about it over a few pints of ale while watching Manchester United`s overpaid prima donnas kicking a ball around.

I guess life`s just one big cloudswept chairlift ride for Jim. God knows when he`s going to come off it. 


glenlloyd's picture

his commentary continues to be superficial, he's clearly wearing rose colored glasses.

equity_momo's picture

I'll donate 1000 bucks to a charity of Jims chosing for every 0.1% below that 6% UE rate , any month he likes in 2013.  - i'll go with the standard BLS nonsense statistics too but working in FEMA camps doesn't count to bringing the rate down though


- fuck it , i'll make it 10k on the condition for every 0.1% above 6 he donates an equal amount to Zerohedge. Or resigns from the Squid.

RockyRacoon's picture

His picture should be next to the "talking book" definition....

buzzsaw99's picture

that's not as bad as b. gross constantly whining his book.

buzzsaw99's picture

Come on guys, stop buying treasuries already! [/sniveling high pitched voice]

topcallingtroll's picture

There are ways to do qe3 that steal value from the rest of the world, the most obvious is moderate inflation in a low inflation expectations environment.

Let us be smart and force the world to subsidize us thru this mess since they most have pegs or soft targets and refuse to free float. Take advantage while we can

eureka's picture

tct - indeed, you are a troll, and to top it off a proto-nationalist hegemon - too immoral to be a Libertarian; remember, Libertarianism rejects government regulations and rather rests on morality to actuate self-control, which leads to the question: What ARE you doing on zerohedge?

topcallingtroll's picture

We fucked up the best way to get out of this situation.

Now we need to take advantage of the world ex europe refusing to value currencies fairly.

They have tried to hollow out the usa economy. We can now use their economic warfare against us ( because that is truly what they are doing) as a way to force them to subsidize us.

Turnabout is fair play.

Subprime JD's picture

Jim O'Neill is a genius and will be proven right when unemployment hits sub 6% by 2013. Once the Bureau of Labor Statistics starts counting chronically unemployed persons as nonpersons the headline unemployment rate will fall which will lead to greater consumer confidence leading to a cyclical recovery.

fonestar's picture

Yeah, some genius all right.  Sub 6% unemployment too, I would buy that for a dollar too.  Unemployment is typically low when everyone is fighting a global conflict or sweeping up a FEMA camp or racing to join your local citizen's spy service!

Subprime JD's picture

Sarcasm aside, I truly fear that the US is going down the route of Oceania (1984) where numbers will be complete fantasy in order to keep the proles from getting antsy.

eureka's picture

For the sake of fantasy perfect Disney-US-HomeLand appearances remember to keep Foodstamps and motivational Hollywood dreck flowing as well. 

Jim O'Neill has "Luxury Goods" (he always talk about how well LGs are doing). 

Even proles have needs; To maintain the fantasy, as O'Neil gets LGs, proles must get junk.

Fake stats alone won't do it.


Awwww...Poor babies are going to have to start trading fundamentals again. Now all the lousy data points that the markets have been completely ignoring for the last year are finally going to start to mean something again.

Funny how QE2 hasn't even ended yet and  the money junkees are already screaming for more dope, more dope, more dope.

Problem Is's picture

"I joined some Goldman Sachs colleagues for a lunch with some leading macro hedge fund investors..."

Sounds like the completely inane, moronic, dickwad, Commander McBragg bullshit the madhedgefundertrader posts...

Bartanist's picture

Is that TD "in the first person"?

Didn't know he had Goldman Sachs colleagues ... but makes as much sense as anything else.

oldmanagain's picture

When the downturn started the derivative count was about 650 trillion.  Don't know the current count, or if QE's count.  The pressure seems to be getting to Dimon, and O'neal is banking on diversions of his time to not think.

I think the idea was to gently lay this turkey to rest but events in the diverging world interfered.  The blame seems to be directed at the poor(lazy mothersf's), Keynes, Freidman, Pubs, and Demos, locally.

Internationally, the major item is delivering enough resources/product to those who can pay for it.  Our daily world consumption of oil is about 85 million barrels. USA consumes about 23 million and China 2 million.  If China consumed like Amerika there would be no oil left and our own production sold off.

Just don't think we can print enough money to defeat mother nature.  We don't need any more derivatives but direct investment in readjusting our existence to cope with the new realities of resources, climate, population, etc.  Those "animal spirits" may eat us alive if we succumb to the idiocy of current crop of pubs.

eureka's picture

Jim O'Neill is a ham, a talking doll, a parlor boy. He should have been a sitcom actor.

Subprime JD's picture

There is a reason why these shills get promoted to these positions. The sole purpose of their job is to be stock market pump monkeys and nothing more.

Seasmoke's picture

if the Bernanke is really a student of The Great Depression, then he surely knows that this has only been a bear rally (same as 1930) and the Greatest Depression is still to come

Caviar Emptor's picture

We already allowed mark to market to become 'mark to unicorn'. No real price discovery necessary. So when they tell you it's worth $X, they really mean $0.0X. Next we're working on bending the definition of "Default". If Greece doesn't pay back the amount due on the date promised, we won't consider that a default, just a "debt re-profiling". So asset values and debt repayment schedules are now fungible. 

So it makes perfect sense that Jim O'Neill would think that a negative GDP print over 2 quarters would not represent a "Recession". It might just be a "growth re-profiling". Even major economic reports will soon be fungible. 

Of course it all depends on what the meaning of the word is is . 

Seasmoke's picture

no different than saying a blow job is not sexual relations

flyr1710's picture

this guy views 'unfortunate events' as man u getting spanked by barca. no wonder he is completely clueless with the recent set of data. 

richard in norway's picture

my short postion has been closed down for running out of time, this has never happened before. does this mean that the market is gonna tank tomorrow or i am just paranoid. im a newbie at trading so maybe this is normal but i would be really fucking pissed if it was a lose making short, but im not too fussed now cos i was thinking of closing it, expecting a rally sometime

richard in norway's picture

market opened market tanked


now im pissed

topcallingtroll's picture

Actually your results are fairly typical. It used to happen to me all the time.

These things are often a signal the market will sink further, but it always does so in a way that prevents the majority from profiting on shorts.

I have kept my powder dry. A good philosophy is to let the market have the first and last 20 percent of any short term run and be happy it gives you 60 percent of the trend.

Mathman had to short the market twice to finally catch the silver top. Dont be afraid to short again soon, if the signs are right.

richard in norway's picture



im gonna try oil again, it was good for me on friday

ZeroPower's picture

 Near the village is a ski lift that you can ride up to the glacier for panoramic views at 3,000 metres. It costs a whopping CHF 77 to ride there and back. Given today’s exchange rate, it is not exactly a bargain!

Really Jim? Really....?? 

Cant believe he's pretending like he didnt put that 77CHF on his GS expense card.

Eireann go Brach's picture

Easy fix...Send all the unemployed to Guam so it will finally tip over the island and disappear! I think one of Obamas brothers in Congress said this.