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Goldman's Jim O'Neill On "The Most Important Thing This Week"

Tyler Durden's picture




 

This is Jim O'Neill in about the most pessimistic light that his genetic
makeup, not to mention GSAM employment contract, will allow him:

What Was the Most Important Thing This Week?

So once again, what a week. To most people, there has only been one thing that has mattered, Italy. I have been conducting a small poll throughout the week as I went about my usual crazy schedule. Since Wednesday, at all the events I spoke at, I asked, “There have been two really important things that happened this week, what were they?” Italy came up immediately as the most popular first choice. In many cases, angles on the Italy issue came up as 2nd, 3rd and 4th too. For the second issue, there were a host of options, with one person amusingly suggesting the debate about whether England’s football team should be allowed to wear poppies on their shirts in the probable embarrassment against Spain this weekend. Seriously though, as only one participant answered correctly, the second important event was Chinese CPI inflation.

China: The Latest Data and the BRICs.

This week, we saw the usual monthly release of most of the important data in China, which again showed signs of slowing momentum in the economy. The data also showed slowing inflation and signs of a continued narrowing in the trade balance. Also important was the monetary data. While M2 showed further softening, the data also contains hints of stabilization and more high frequency signs that suggest monetary signals are shifting. While many debate whether China’s “soft landing” will allow monetary easing, at the margin, it looks as though they are already tinkering.

China’s trade surplus widened over the previous month, but by a much lesser degree than expected. Moreover, with 10 months reported, the annualized trade surplus is not much over 2 pct of GDP. Exports are weaker than expected and imports are stronger. In my view, this continues what appears to be a relatively clear trend. It continues to baffle me why so many Western commentators and policymakers seem to ignore pretty strong evidence that this “global imbalance” has turned significantly for the better.

The latest inflation data confirms what most forecasters have believed. Some of the pickup in Chinese inflation earlier this year was highly likely to reverse as base effects from late 2010 diminished. Together with a turnaround in some domestic food prices and the consequences of a slowing economy, Chinese inflation is heading back below 5 pct, possibly even close to 4 pct by year end, and back below in early 2012. As I have written about repeatedly since the Summer madness in markets, this development is extremely important for both China and the rest of the world. If inflation continues to ease, then the likelihood of a soft landing rises, and China will be able to achieve a shift more towards domestic consumption-led growth. As I am fond of saying to people, in 2011, the change in China’s nominal GDP in US$ will be the equivalent of creating three new Greek economies. In the context of the above question and what is important this week, I realized that, along with the other three BRIC nations, the probable change in the US$ value of their combined GDP in 2012 is likely to be close to $2 trillion. They will effectively create the equivalent of another Italy.

This is what the BRIC countries can do to help the world, and especially troubled Europe, way more than any specific steps to invest in European beleaguered bonds.

On Friday morning, our money market team hosted a client breakfast about China and I was joined by the head of our Chinese asset management business, Wang Yi, to lead the discussion, which turned out to be very interesting and quite broad. We discussed all the usual issues and many more. And, as I said in concluding, Yi and his team have a very exciting future ahead of them and for us.

The US Appears to be Doing Just Fine Too.

Another reason why I have been more sanguine than many about the European mess is my views on the US. Although the US economy has turned out to be much softer than some optimists, myself included, believed at the start of 2011, it is actually stronger than most concluded by the time the mayhem broke out in August. Amongst many useful coincident and leading indicators, this latest week’s drop in job claims to 390,000 is as good as many pieces of evidence I could cite. It seems to me that, while there is considerable focus on the budget issues, it wouldn’t take much in terms of successful policies to turn the housing market around. And, if it did, then it wouldn’t take much for people to start thinking more optimistically about the US economy.

An “ok” US, together with a Chinese “soft landing,” is the key to world equity markets in my view, and it will take a lot of persistent bad news from elsewhere to avert this. Unfortunately, the Euro Area keeps trying hard to provide it.

Italy and a Highly Troubling Week for EMU.

For a couple of days this week, it actually felt as though Europe’s post-war project was nearing the end of the road and, as a result, emotions have been running high. For those that never believed it was a good idea, some have been expressing a mood of jubilance. For many involved in its creation, this has not been a good week. I got more caught up in the middle of this than usual as a result of a newspaper interview, where the headline distorted what I had actually said, claiming that we were predicting a break up. While this was not a fair reflection, I did say that some major issues were now on the table and needed to be recognized. The EMU, as created, has not really worked and needs to change. It is quite clear that many countries should not have been allowed to join. It is also clear that the Growth and Stability Pact has not worked. Policymakers need to be more open in at least acknowledging this, and then doing something about it. If all of this wasn’t enough of a challenge, Italy’s issues have become front and centre. Italy is no Greece. Indeed, although the BRICs can create another Italy in 2012, Italy is close to 4 times the combined size of Greece, Ireland and Portugal. Its total debt is close to 25 pct of the Euro Area GDP. Quite simply, Italy cannot be allowed to stay in the position it found itself this week.

On top of this, Italy is an important historical player in creation of not just the EMU, but also the EU. Italy was the first country that I was allowed to analyze professionally some 30 years back and I have retained a lot of affection for it as a result. (I’ve not enjoyed some evenings in Milan and Turin watching United getting a good occasional lesson over those years though.) When it came to EMU in 1998, it was quite clear to me that, despite many objections, the EMU couldn’t start without Italy, primarily due to its size and the key fact that large swathes of Northern Italy are just as competitive as parts of Germany and France. This remains the case today, and it is tough to see the persistence of the EMU without Italy involved. So, while I can see the case for an EMU without some others, and despite all of Italy’s complications, I can’t see an EMU without Italy. At the same time, I can’t see Italy sustaining life with 6-7 pct 10-year bond yields. So something has to give. Let’s see what Italy brings over the weekend, and how Frankfurt, Berlin, Brussels and the rest of us all react.

A Moment on Mexico.

I had a pleasant diversion from all the European madness with a visit from a Mexican delegation. While they didn’t quite go as far as some Mexican policymakers and recommended that BRIC become BRIMC, they were highly intrigued about our “Growth Market” concept and, of course, the fact that we included Mexico. Listening to their views on a couple of critical issues, it added to my suspicion that the decade we have started could be a better one for Mexico than the past one. At the core of this suspicion is the issue of the RMB and Chinese competitiveness. This conversation adds to my belief that Mexico is getting back something that was lost to China in the past. And of course, a certain Chicharito is from that country, which helps…

Anyway, let’s see what the next twist and turn brings. Good luck!

Jim O’Neill

Chairman, Goldman Sachs Asset Management

 

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Fri, 11/11/2011 - 22:44 | 1871501 LongBallsShortBrains
LongBallsShortBrains's picture

.....Anyway, let’s see what the next twist and turn brings. Good luck!

Long uncertainty. ( and December vix calls)

Fri, 11/11/2011 - 22:52 | 1871511 X.inf.capt
X.inf.capt's picture

again

PISS OFF, SQUID!

IM GOING TO GO HAVE A PINT!

Fri, 11/11/2011 - 23:16 | 1871550 FEDbuster
FEDbuster's picture

The bigger question is how will the US survive with 6-7% 10 yr. rates?  Let's see $15 trillion @ 7% = $1 trillion/year in interest expense against $2 trillion in revenues.  Maybe the FED will send them a 0% for 12 months balance transfer offer in the mail?  Opps, they already did.

Fri, 11/11/2011 - 23:31 | 1871569 Carlyle Groupie
Carlyle Groupie's picture

How will the US survive? Entrepreneurs.

'Method and Apparatus to convert bio-waste into fuel oil'

A series of Resomator's joined together. 30 in total.
http://www.resomation.com/index_files/Page1230.htm

How it works:
The machines are filled with 'candidates' and the 'process is started'. (understand the process to continue)

The resultant fluids are placed into a centrifuge and after centrifugal force is applied out comes almost pure carbon.

The next 2 steps are proprietary and cannot be given freely but let me tell you the result is very similar to crude oil if you understand how promiscuous hydrogen is when it comes to freely binding and then there is the magic called catenation.

The result when fed through a cracking refiner can purify to obtain blended fuels(unleaded and diesel).

Humans converted into energy. India here we come!

Sat, 11/12/2011 - 01:32 | 1871733 AldousHuxley
AldousHuxley's picture

http://www.youtube.com/watch?v=Gyvy4_3kkKo&feature=related

debt crisis predicted 10 years ago by some cartoon.

Sat, 11/12/2011 - 09:24 | 1871940 King_of_simpletons
King_of_simpletons's picture

The 1% are the very best destroyers of wealth: Guardian

http://www.guardian.co.uk/commentisfree/2011/nov/07/one-per-cent-wealth-destroyers

Fri, 11/11/2011 - 22:50 | 1871508 jeff montanye
jeff montanye's picture

i realize this guy works for an operation that, notoriously, says one thing and does another, not to mention all brokers tend to cheerlead (where are those customers' yachts?), but imo the current softening in china and the u.s. is not part of a soft landing.  more like the wile e. coyote kind (tip of the hatlo hat to john hussman).

Sat, 11/12/2011 - 11:12 | 1872012 Hansel
Hansel's picture

Here's my doing business in China story.  I'm very familiar with a company that produces in China and exports all over the world.  They also have a manufacturing facility in TX.  The people in TX are all about to be fired and management and everyone else is taking a paycut.  The Chinese have been pushing for price increases regularly.  Both sides are sucking wind now, and the business just sucks.

I don't know how much this says about anything because the business was heavily dependent on the boom-time economy, and is grossly mismanaged.  It seems like most companies are grossly mismanaged though, e.g. Mutha Fuckin' Global.

Fri, 11/11/2011 - 23:02 | 1871525 Reese Bobby
Reese Bobby's picture

Remember when Goldman Sachs was relevant?

Fri, 11/11/2011 - 23:03 | 1871528 Piranhanoia
Piranhanoia's picture

Bullish on drug cartels and money laundering.   "Europe's Post War project"   I had to see that for myself.  He seems to have misplaced some 55 years in between the last war and the creation of the Euro.  Dementia much?

Fri, 11/11/2011 - 23:59 | 1871566 DavidPierre
DavidPierre's picture

Declassified ameriKlan documents reveal, offical spying and covert warfare agencies ran a heavily financed campaign throughout the 1950s and 1960s with the goal of creating a single European market and political structure.

By amazing coincidence, it's exactly like the current European Union. Doubtless, the theory is that it's easier and cheaper for the connected mafia boys in the back rooms to control one set of controlled politicians and unelected bureaucrats than twenty or thirty different sets. The instrument designed to bring this new utopian Europe about is the American Committee on United Europe (ACUE) which is dedicated to funding and directing the European federalist movement.

The first chairman of the ACUE is Wall Street lawyer, General William J. Donovan, former head of the Office of Strategic Services (OSS), the wartime predecessor to the Central Intelligence Agency (CIA).

A memorandum, later declassified, bearing Donovan's signature and dated dated July 26, 1950 gives instructions for a campaign to promote a fully fledged European parliament. The vice chairman of ACUE is none other than Nazi shyster, Nazi war criminal escape organizer, Rockefeller front man and CIA Director-to-be Allen Dulles. The board of ACUE includes Walter Bedell Smith, the first director of the CIA, and a gang of current and former OSS and CIA agents and functionaries and various members and minions of the U.S. ruling class.

The documents, declassified in 2000, prove that the CIA front ACUE financed the European Movement, the most important federalist organization in the years following World War Two, providing more than half of its operating budget.

Other organizations working towards a European Union, such as the European Youth Campaign, were entirely funded and controlled by the CIA. The Council of Europe, the European Coal and Steel Community and the proposed European Defence Community were all funded by the CIA's ACUE.

Much of ACUE's own funding came directly from the ameriKlan ruling class via the Rockefeller and Ford Foundations and from American business groups with close ties to the CIA.

All of the OSS-CIA-ACUE principals involved in the "European federalist movement" - Donovan, Smith, and Dulles - were Council on Foreign Relations members.

Sat, 11/12/2011 - 10:34 | 1871986 RiverRoad
RiverRoad's picture

Thanks David Pierre.

And, boy, did the EU concept ever come in handy when the decision was made to trash the dollar to compete with the Third World.  Nice appreciating currency for GE et al to stash their profits in while the unenlightened little folks here lost their shirts in the US dollar.  Now they want their moola back in the US ASAP and untaxed at that!

Sat, 11/12/2011 - 13:46 | 1872215 CTG_Sweden
CTG_Sweden's picture

 

 

DavidPierre:

 

"The documents, declassified in 2000, prove that the CIA front ACUE financed the European Movement, the most important federalist organization in the years following World War Two, providing more than half of its operating budget."

 

 

 

You make it sound like the CIA financed some kind of Nazi organization. Richard von Coudenhove-Kalergi, who became the honorary president of the European movement was definitely not a Nazi, but rather the very opposite in all respects that count today:

 

http://www.paneuropa.org/gb_int/geschichte.html

 

It is true that Coudenhove-Kalergi, just like the Nazis was against traditional democracy, i. e. one man one vote, free spech, free elections and the right to form new political parties. In his book "Praktischer Idealismus" he argued that some kind of élite rule was the best way to control the electorate and that the masses in Europe represented "der Sklave Mensch" (the slave man). It is true that the Nazis also thought that since the masses could not really think they should obey their unelected leaders. But Coudenhove-Kalergi´s élite that should rule the masses was not the same as in Nazism, but rather the opposite.

 

As far as I know, Coudenhove-Kalergi never explained in detail how his élite rule would work. Obviously, he was a great admirer of Leon Trotsky (read Praktisher Idealismus, for instance). Trotsky was originally a moderate socialist although he joined the Bolshevik party in order to topple the Czar regime. Remember also that property that once has been socialized easily can be privatized again. That is what happened shortly after the Frensh revolution in 1789 and in the 1990s in the Soviet Union/Russia. My impression is that the conflict between Trotsky and Stalin was the result of a clash between Stalin´s strategy which was to wait long enough before distributing the loot while Trotsky promoted a more hazardous strategy which implied this should happen much earlier.

 

It also seems as if Wall Street never saw Trotsky as a communist enemy. There seems to be mainstream literature that supports the theory that Wall Street supported rather than opposed guys like Trotsky. That is my conclusion after reading Wall Street and The Bolshevik Revolution by Antony C Sutton which was published by Arlington House in 1974.

 

I don´t think there is any major contradiction in the idea that capitalists could support communists or revolutionary socialists, provided that their own property will not be socialized. If the capitalist instead is promised a part of the loot this is not bad for the capitalist. I think you can compare this with colonialism. Suppose that a country in Europe conquers a part of Africa or South East Asia in the 19th century. Shortly after the natives have been defeated the government of the conqueror gives a gold mine in the conquered country to a businessman who has supported the government in the conquering country. My impression is that Trotsky´s business model was about the same for Russia as for European colonies. Stalin, however, thought that the general public in the West would might understand what was happening in Russia and that this would infuriate them. Stalin probably thought that it was easier for people in the West to identify themselves with Russians than Africans and Asians and that you therefore had to wait longer before distributing the loot.

 

Fri, 11/11/2011 - 23:10 | 1871540 Waffen
Waffen's picture

That was a waste of time.

Fri, 11/11/2011 - 23:15 | 1871548 quacker
quacker's picture

I can start him off on the twists and turns of next week. Huge rally Monday on Bloomberg headline "New Italy pm moves pictures and things into office, takes first shit in private bathroom" Should be good for 300 on the dow.

Fri, 11/11/2011 - 23:21 | 1871555 Unprepared
Unprepared's picture

Surreal, just surreal

Fri, 11/11/2011 - 23:37 | 1871578 phungus_mungus
phungus_mungus's picture

Does anyone seriously think Italy can actually survive this? And as in part the EU too?

I mean who the hell is smoking stuff that would even make them think its even possible... this whole house of cards is starting to fall and we all have a front row seat to what was once only talked about on conspiracy forums...

Its all coming down, the only question left unanswered is how badly it'll hit us Asia and the smaller markets. 

 

Sat, 11/12/2011 - 11:23 | 1872034 Bobbyrib
Bobbyrib's picture

TPTB know it will be coming down, they are trying to fleece as many investors as possible along the way. It's the only game in town that is currently paying. The EU may be foolish enough to think they can keep it intact, but the people running the show know it's only a matter of time.

Fri, 11/11/2011 - 23:52 | 1871593 Unprepared
Unprepared's picture

"An “ok” US, together with a Chinese “soft landing,” is the key to world equity markets in my view, and it will take a lot of persistent bad news from elsewhere to avert this."

 

Holy Shit!

 

Mental image: A dopamine-washed Macaca mulatta conditioned to monkey-hammer the buy-horn when the 2 lights in front of him are green. With sever hue-distinguishing deficiency.

Sat, 11/12/2011 - 00:08 | 1871609 TrulyBelieving
TrulyBelieving's picture

Quite the pretty picture for being painted with rubbish. 

Sat, 11/12/2011 - 00:51 | 1871671 Bansters-in-my-...
Bansters-in-my- feces's picture

Ooooppps

Did I forget to say it.?

..........................FUCK YOU'S Goldman Sachs...........................

Sat, 11/12/2011 - 01:01 | 1871687 knukles
knukles's picture

Yeah.
Let's just sit back and see what transpires over the weekend.
What a novel idea.
Have a few cocktails, enjoy a few dinner parties, bask in the glory of being recognized as a prestigious, powerful, influential individual whose recently happened to lunch with LaGarde, G&L-Paps, Junker, Merkel and Sarkozy.  With all the social graces and airs.
Let's just fucking sit back.
After all, it's not as if our money is tied up in all of those funds that we run for our counter-parties, is it? 
Let's just sit back. 

Jolly good burgundy that was.  Love an Ardbeg 30, old chap.  Brilliant.  Just brilliant.   

Sat, 11/12/2011 - 01:53 | 1871744 whoisjohngalt11
whoisjohngalt11's picture

 At the same time, I can’t see Italy sustaining life with 6-7 pct 10-year bond yields. (((So something has to give.))) http://www.youtube.com/watch?v=mib1SS17b-s

Sat, 11/12/2011 - 03:02 | 1871775 jez
jez's picture

I have been conducting a small poll throughout the week as I went about my usual crazy schedule.

That's wonderful, Jim. I may call you Jim, mayn't I, Jim? None of us knows how you do it. Your usual crazy schedule, and a small poll. Maah-vellous, dahling!

. . . with one person amusingly suggesting the debate about whether England’s football team should be allowed to wear poppies on their shirts in the probable embarrassment against Spain this weekend.

Such witty friends you have! I'm secretly rather envious, Jim!

[China] will effectively create the equivalent of another Italy.

Just a teensy question here, Jim my sweet, if I may: as opposed to what? Here's what I'm getting at, Jim, my love: how could China ineffectively create the equivalent of another Italy? See what I mean, mon petit choux? Wouldn't that be the same thing as not creating the equivalent of another Italy? Isn't this a teensy-weensy solecism?

Although the US economy has turned out to be much softer than some optimists, myself included, believed at the start of 2011, it is actually stronger than most concluded by the time the mayhem broke out in August.

Well, that's all simply lovely. Softer than you thought in January, but stronger than these anonymous chappies thought in August. Lovely!

. . . it wouldn’t take much in terms of successful policies to turn the housing market around. And, if it did, then it wouldn’t take much for people to start thinking more optimistically about the US economy.

But not only that, Jim. I think you're forgetting to mention that if we had some eggs we could have ham and eggs, if we had some ham.

I had a pleasant diversion from all the European madness with a visit from a Mexican delegation.

How extremely lovely for you, Jim. There's nothing more pleasant or more diverting than a pleasant diversion, that's what I always say. Did they bring any Tijuana hookers with them?

. . . they were highly intrigued about our “Growth Market” concept . . .

But of course they were, Jim. You're a highly intriguing man, after all.

Anyway, let’s see what the next twist and turn brings. Good luck!

Yes, let's. Thanks most awfully for wishing me luck. And do say hello from me to that nice Mr Corzine, when next you see him. Toodle-pip, Jim!

Sat, 11/12/2011 - 04:03 | 1871811 Waffen
Waffen's picture

Bravo fine Sir.

Sat, 11/12/2011 - 04:17 | 1871820 Use of Weapons
Use of Weapons's picture

I had a pleasant diversion from all the European madness with a visit from a Mexican delegation. While they didn’t quite go as far as some Mexican policymakers and recommended that BRIC become BRIMC, they were highly intrigued about our “Growth Market” concept and, of course, the fact that we included Mexico. Listening to their views on a couple of critical issues, it added to my suspicion that the decade we have started could be a better one for Mexico than the past one. At the core of this suspicion is the issue of the RMB and Chinese competitiveness. This conversation adds to my belief that Mexico is getting back something that was lost to China in the past. And of course, a certain Chicharito is from that country, which helps…

 

 

MEXICO CITY — A helicopter crash killed Mexico’s second-most-powerful official and seven others on Friday, dealing yet another blow to the country’s battle against a drug-and-crime scourge and leaving a battered nation in shock.

 

The official, Francisco Blake Mora, 45, was the secretary of the interior and often the public face of the antidrug campaign. He was the second interior secretary to die in an air crash in three years.

 

 

 

 

That's impressive.

Sat, 11/12/2011 - 04:58 | 1871837 Dick Darlington
Dick Darlington's picture

So, while I can see the case for an EMU without some others, and despite all of Italy’s complications, I can’t see an EMU without Italy.

See, Jimbo, that's the biggest problem You and the other broken minds have. You JUST CAN'T SEE even if it's rubbed into Your face over and over again. What You can see is shenanigans and gimmicks to mask problems and then telling everyone it's all good and sustainable. And the "solution" to any given problem is always more debt.

Sat, 11/12/2011 - 08:27 | 1871905 El Gordo
El Gordo's picture

Gosh, didn't you hear - the Eurpoean crisis is over.  Herman Cain's groping stories are now driving the markets, and Rick Perry's gaffs are the only thing holding it in check.  Next week's news will probably involve Hillary traveling to the nation of Europe and telling them how sorry we are for causing them all this pain.  All will then return to normal and Corzine can again walk the streets and resume his place in society.

Sat, 11/12/2011 - 09:04 | 1871928 oogs66
oogs66's picture

...Brussels and the rest of us react...

Is that an admission that Goldman is driving policy?

Sat, 11/12/2011 - 11:29 | 1872041 Shvanztanz
Shvanztanz's picture

Loud bang from Iranian nuclear base kills 15 people, heard in downtown Tehran 45km from the base. 

Sat, 11/12/2011 - 14:54 | 1872295 Use of Weapons
Use of Weapons's picture

It was a Republican Guard military base, allegedly from muntions being moved / stored.

17 confirmed dead

 

Oh, and if you want a nose wiggle: remember that story I posted a while back where there was a massive explosion of muntions in Greece where the Admiral was killed? That Congress noted?

 

Same. M.O.

 

Sun, 11/13/2011 - 02:20 | 1873227 merchantratereview
merchantratereview's picture

After all that Europe did to Brazil, India and China, they have the NERVE to ask for their help!

 

If I were a BRIC I would tell Europe to go fuck itself!

 

(opium wars, killing natives, colonization, stalingrad....shall i go on?)

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