Goldman's Tom Stolper Conducts Sunday Hitfest On The USD

Tyler Durden's picture

It is one thing for Tom Stolper to release precious tidbits about what is not going to happen in the future on a weekday - for those we are very grateful. But doing so on god's (or is that Goldman's) day is truly a first. In a note just blasted out, it would appear there is no rest for the Stolper, and according to the world's most admired FX strategist (remember: batting 0.000 is just as useful as batting 1.000), "Dollar downside forces on the rise" and that Goldman is positioned "short the USD again"... Just as Goldman was positioned long the Russell 2000 literally the minute the market topped on Thursday (no joke - check it). And to think it was only three weeks ago that the same strategist saw downside risks for the EURUSD to 1.20...

Goldman Sachs at its goalseeking best:

Dollar Downside Forces on the Rise

1. We are Positioned Short the USD Again. The Dollar is likely to embark on a round of broad weakening. The underlying BBoP situation has not improved at all, suggesting that the trend decline remains intact, as we highlighted in the last FX Monthly. But over the last couple of months, the increase in broad risk aversion has helped the trade weighted Dollar to a 6% rally, broadly following the pattern of what we have seen in 2008 and 2010. In both cases, the subsequent relaxation in risk aversion led to a substantial move lower in the Dollar, which then reasserted the underlying down trend. Earlier this week, following the Fed meeting, we initiated fresh short Dollar positions against the EUR, CAD and MXN on the back of this view.

2. Many Risks Remain but Skew has Changed. The key point is that we think much of the bad scenarios have been priced by the market and that there is more scope to surprise on the upside from here. That does not mean that downside risks have all gone. We and our European economists remain concerned about a derailing Greek PSI negotiation, contagion to Portugal or the impact on Eurozone growth from continued fiscal tightening. The upcoming elections in France could create policy uncertainty as well. But our worries are widely shared already and hence likely reflected in market prices. Against that, cyclical indicators continue to improve in all regions, even in Europe now. And on some of the most threatening policy issues in the Eurozone signs of tentative progress can be identified, for example in relatively smooth ESM and Fiscal Compact negotiations. From a tactical point therefore, the scope for further escalating risk aversion may be smaller than the relaxation of already rich risk premia. This would imply more downside risk for the Dollar and less downside risk for the EUR than before. A spike down to 1.20, as we had signaled earlier as an important near-term risk, now appears much less likely.

3. Why We Like the CAD and MXN. US activity has surprised more notably relative to expectations than any other region so far. This has already led to some market repricing in growth sensitive assets. Our current long recommendation the Russell 2000 initiated by Noah Weisberger and team, as well as the current short UST recommendation by Francesco Garzarelli and team follow this logic. If a broader USD decline now follows on the back of further declining risk premia, North American currencies should be the obvious beneficiaries. On one hand they should benefit from better external demand from the US, and on the other, they will benefit form broader USD weakness. In addition, the Mexican central bank has maintained a relatively hawkish stance, as Alberto Ramos points out. In Canada, the BBoP remains very favourable and in both currencies substantial speculative short positions suggests ample room to rally in case of broader USD weakness, as Robin Brooks has highlighted in his regular IMM reports.

4. Better US Growth Won’t Help the USD. As discussed in the previous section, we believe that better US growth rather acts as a USD negative factor because of the dominance of risk correlations. In fact, these risk correlations have become even stronger since repeated intervention in the JPY and CHF has reduced the attractiveness of these traditional safe have alternatives. Moreover, even when we try to nail down empirically how US growth correlates to the Dollar, the overwhelming result is that there simply it is neither strong nor persistent. Fiona Lake looked at this in some detail in a recent daily and only finds some evidence pointing towards a negative relationship in recent times - consistent with the dominating risk correlation mentioned before. Two important points in that respect: Large and mature economies with deep asset pools invested globally may react differently to growth shocks than small open economies. In the former group, a positive growth shock may predominantly trigger a search for riskier investments abroad and hence currency weakness. To the contrary, in a small economy a positive growth shock may trigger capital inflows from foreign investors and hence appreciation. As our regular analysis of the TIC data highlights, better US growth numbers in recent years have consistently failed to improve capital inflows into the US. 

5. Cross Atlantic Monetary Policy Differentials and Risk Premia. FX markets continue to face the challenge of having to compare very different non-conventional policies across the globe. Are two ECB LTROs a more dovish signal than the new Fed commitment to keep rates at exceptionally low levels until late 2014? We don’t really know. But we would make the following observations. First, the ECB policy easing via rate cuts and the first LTRO has already been reflected in rate and FX markets. Eonia has already dropped back to the lows seen during the Global Financial Crisis. On a relative basis, the dovish Fed surprise is more recent and – maybe – not fully be priced yet in FX markets. Second, the ECB LTRO not only affects the FX markets via a straight interest rate correlation but also via reduced funding stress. As a back stop to the financial sector, the LTRO has therefore reduced the likelihood of tail risk events. This in turn may help a gradual further relaxation of Eurozone fiscal risk premia and more EUR/$ upside from current levels. Similarly, the dovish Fed surprise will likely affect the Dollar negatively via broader risk sentiment in addition to the more direct rate channel. In the last FX Monthly and even more so in a Global Markets Daily this week by Robin Brooks, we have tried to quantify a risk premium reduction via several different approaches and they all point towards 1.40 and above.

6. Global Imbalances Remain Pronounced. With all the focus on the Dollar and European risk scenarios, it is important to not forget the bigger picture of global FX markets. In the latest Global Economics Weekly, Themos Fiotakis has updated our work on global imbalances and found further evidence that not much has changed since the global financial crisis. Imbalances remain large, highly dependent on demand differences and remarkably insensitive to FX moves. This suggests currency markets have scope – and in fact need – to move very substantially in order to help reduce imbalances. The current 9% trade weighted undervaluation of the USD is likely not big enough, therefore, to help induce a declining US current account deficit and global rebalancing. Looking at valuation signals in this context suggests that some countries with external vulnerabilities will ultimately see further currency weakness – or at least substantial underperformance. TRY, INR or HUF spring to mind on this context.

7. “Wall of Money” Implications for Reserve Currencies. Finally, to add to the USD negative tone, there is evidence of re-accelerating capital inflows into EM. We have discussed this dynamic extensively in the last 18 months under the title the “Wall of Money”. One very interesting aspect of this dynamic, discussed by Themos Fiotakis and Robin Brooks in another Global Markets Daily, is the implication of funding. For many Asian surplus currencies the natural anchor currency is the Dollar, and with the Fed arguably being one of the most dovish central banks in the world, “Wall of Money” flows have a high likelihood of being predominantly funded out of USD. To prevent appreciation of their local currencies, Asian central banks then accumulate these Dollars in their FX reserves, and subsequently diversify the Dollars into other liquid reserve currencies. In other words, the combination of “wall of money” flows, a dovish fed, systematic reserve accumulation and diversification boils down to one big leveraged global USD short trade. Of course during period of risk aversion this dynamic goes into reverse. However, as we explained above, the skew in the key risk scenario has changed, which suggests the USD negative dynamics will prevail for now.

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Dapper Dan's picture

Would you like your gold and silver in 45 ACP or 9mm?

A Novel Opportunity

Whether or not the apocalyptic prophets are right, tumultuous economic conditions will inevitably continue to nudge investors to invest in precious metals – especially gold and silver. Considering the penchant of investors in emerging economies like India and China to buy gold, which is a deeply rooted cultural status symbol in those nations, the gold market will continue to thrive as the world spirals towards the apocalypse next December. Consequently, gold and silver bullets will probably increase in value as more people begin to prepare themselves and their families to survive in a post-apocalyptic world.

Moreover, if the apocalypse doesn't occur your precious metal ammunition will still be worth more than you paid for it, and if the world does end you can hand over your investment to any thieves - through the barrel of a gun at +/- 1000 ft/sec.

Simply put, the end of civilization doesn't come around too often, and it presents a unique opportunity to do things we've never done before. Things like shoot valuable precious metals out of our firearms to protect our other precious things.

How cool is that?

Money 4 Nothing's picture

Sweet link! I looked through their inventory and I didn't see any Silver bullets to fix the problem were in though.

gmrpeabody's picture

Goldman shorting the dollar...

Guess that means a consolidation in PMs is on tap this week.

philipat's picture

On the contrary, what this means is that the squid is actually buying dollars (From You). The public voice of the squid is never to be acted upon other than conversely because providing free accurate information on anything to the proletariat is not God's work.

ironsky's picture

OK. So it's a good idea. Still going to shoot my Warsaw Pact surplus for target practice.

SeverinSlade's picture

I guess this is a confirmation that a Greek default ISN'T priced in.

DoChenRollingBearing's picture

@ Motley Fool

+ $55,000!

Durn tootin' about "el oro para las putaz!"


I review this weekend's Barron's at my blog, including Jonathan Buck's article on Davos, among various other items (including Goldman Sachs' own Abby J. Cohen's stock picks) of interest in this issue of the paper. Interested in taking a look?  Gmail me at my name and promise you will behave.  I ask for good behavior as I have had two spammers/bots/trolls get through the gates.


DoChenRollingBearing's picture

Nice blog Motley Fool!  Keep it up!

Maybe I should start one...     :)

francis_sawyer's picture

I refuse to join a club that would have me as a member...

~Groucho Marx

He_Who Carried The Sun's picture

I can't believe this garbage:

Second, the ECB LTRO not only affects the FX markets via a straight interest rate correlation but also via reduced funding stress. As a back stop to the financial sector, the LTRO has therefore reduced the likelihood of tail risk events.cial sector, the LTRO has therefore reduced the likelihood of tail risk events. This in turn may help a gradual further relaxation of Eurozone fiscal risk premia and more EUR/$ upside from current levels. Similarly, the dovish Fed surprise will likely affect the Dollar negatively via broader risk sentiment in addition to the more direct rate channel. In the last FX Monthly and even more so in a Global Markets Daily this week by Robin Brooks, we have tried to quantify a risk premium reduction via several different approaches and they all point towards 1.40 and above.

I have no reason to trust this analysis! Whom are they trying to mislead? Since when is massively DILUTING a currency (via LTRO's) a bullish event on which that very currency should rise? The dollar will go up, the EUR is worth shorting again...! That's all.

Manthong's picture

Uh oh.. next EU activity might cause an an explosive dollar upside move.

They know something.

Long-John-Silver's picture

In this game of musical currency's Gold and Silver have reserved seats and just sit and watch as the others lose all their chairs.

ABG LINE's picture

Place a "Stolp-Loss" on this trade.

Popo's picture

This is serious stuff.  Stolp joking around.

Money 4 Nothing's picture

Caution, the Stolp sign at the busy DXY Euro intersection has been removed. Procede at your own risk.. off preferably.

RobotTrader's picture

If Stolper is to be faded and the USDX is going to have another massive run to the upside.


What happens to the "Goldbugz"???

What if Stolper recommended going long gold or silver?

Would he be "cheered" or "jeered" on this site?

Tyler Durden's picture

Stolper is a currency "strategist" hence he would very likely not advise on precious metals. Instead, for advice on PMs one should go to Econ Ph.D's who shorted gold ever since it broke the 200 DMA over a $100 ago lower.

SeverinSlade's picture

Robo throws a weak jab. TD capitalizes on a big opening and throws a killer right cross right into Robo's chin. KO'd

Mr Lennon Hendrix's picture

Roubini reminds me of the magicians that work at little kids birthday parties.

"Goled iz een a bauble!"  Said Roubini as he took a hold of his cape and flashed it around the top hat on the table in front of him.


"Where did eet go?"  Roubini raised his eyebrows and looked around the room.  A few boys and girls followed his gaze and looked around.

"It's in your hand, I can see it!"  Said the little tot, pointing at Roubini's white glove.

Gold again proves it is not the safe haven many had hoped for, breaking the 200-day moving average, the first time since 2009 and signaling that prices may drop to US$1400/ounce.

What a duche.

DoChenRollingBearing's picture

+ 1


Nouriel had his one brief shining moment in the sun.  Now he is ridiculed for being just another douchebag.  I guess that means he has not had his smile on while gold climbed its way back ove $1700, with MUCH MORE to come (IMO).

Mr Lennon Hendrix's picture

Economists should stay away from finance.  They (economics and finance) are two seperate beasts, although both equaly flawed. 

Does Roubini chart?  I bet he uses crayons to draw vampires around a ten year gold chart and says he does.

"Diz iz a goled vampire.  Eet seez dat goled iz een a bauble, end eet wantz to suck eets blud!"

Freebird's picture

Agreed, the guy was pretty good pre-crash, then it appeared he
became a mouthpiece for vested interests, then reverted to more independent views but still making lame metal calls. Guess he's still on the payroll.

LowProfile's picture

I get the kneejerk reaction to Robo's permabulishness, but (s)he asks a pertinent question:  What if the USD rallies hard?

In that event, I expect a pullback in the order of ~30% from the last high - SOMETHING GOLD HAS DONE SEVERAL TIMES ALREADY.  In fact, I expect it to happen several times more before the inevitable "reset".

So expect volatility (they will shake the weak hands hard) and keep some dry powder.

The endgame is the same.

Oh and...  Bitchez!

Mr Lennon Hendrix's picture

It's best to think of Robo as an it.  Like a fembot or a Thai lady boy.

KickIce's picture

Or at what point does the dollar "strengthen" and gold also increases in price.  IMO, that's the decoupling, or fear we need to force the ponzi out of business, until then it's just another BTFD opportunity.

LowProfile's picture

I don't expect that to happen except on short timeframes, although if the euro tanks hard enough, gold and the USD could rise together a bit.


KickIce's picture

That won't happen until sheeple figure out that the dollar is junk, which will come through increasing food and/or fuel prices.

francis_sawyer's picture

Robo throws a weak jab. TD capitalizes on a big opening and throws a killer right cross right into Robo's chin. KO'd

Why go through all the hassle? Just kick him in the balls... Oh no wait... Robo has no balls... Sorry, carry on...

dcb's picture

if we assume channels hold, the 75% of this up move is about over (down move for the dollar). if we break above the channel I wonder how much further it will break. although I always postion my portfolio with the assumption that long term we will see further dollar weakness.

The Monkey's picture

That's funny. My portfolio is positioned exactly opposite. The US is fast loosing remaining politically tenable monetary policy - nominal rates. Commodity currencies and emerging markets still have decent nominal rates which can be manipulated to stimulate credit. As worldwide growth slows, these countries can weaken their currencies markedly without causing an uproar. The Fed can only wish it were so in the US.

Looking for long-term USD strength. Anything can happen short-term, but after the reaction to QE2 (and the increase in nominal rates), the Fed will be playing an increasingly dangerous game with trading partners and US voters.

May take a while to play out, but the Fed is in between a rock and a hard place of it's own making.

The doves are in control and they won't be able to contol themselves with core CPI dropping. Fed credibility looks momentarily firm, but it will take a nosedive soon enough (without any durable impact to core CPI IMO).

chinaguy's picture

Remind me again, which Investment Bank was it that got busted for selling clients toxic MBSs out the front door & shorting the shit out of them out the back?

ISEEIT's picture

I can only speak for myself:


I adore your beautiful tits.

Beyond that ( is there really such a thing?) I say hold your short (shorts?) and keep your eye on the prize.

You do provide us all a valuable 'gut check' Robo (Tyler).

In the end though all will in time return to the beginning.

Always has, always will.

Excursionist's picture

I shorted EUR/USD at 1.3107 last week based on the latest Stolper recommendation, and I'm losing money on the trade.  Someone call me a waaaaaambulance.  Is Stolper's perfect streak coming to an end?

DoChenRollingBearing's picture

Once in a while Goldman gets it right (even when frontrunning their customers).  They sold their holding of Molycorp (MCP) at its IPO at $14.00, and of course recommended that people buy it...  MCP then went on to over $60.  It is now around $30.

oddjob's picture

MHFT rec. on MCP was the kiss of death.

DoChenRollingBearing's picture

+ 1

Bruce Krasting wrote that he sold his around $50, did not want to be too greedy.

lotsoffun's picture

not to be disrespectful of such an astute poster here - but i might posit 'sometimes goldman gets it wrong'. ??

ISEEIT's picture

Just cover. Might see 1.35 bfore it hits 1.25. We evil speculators must be stopped out.

The Monkey's picture

Waiting for the bubble-busters with SPXU (3X inverse S&P)... Guidelines that I use for this liquidity fueled market considered by many to be "impossible" to short.

a) Dollar-cost average as you would with a long position. Only buy after the market is heavily overbought and trading at the top end of it's range, which is now, if you are a believer in a secular bear. Volume and VIX must be very low, nearing or at extremes. Look for a persistent bullish expansion in the silver/gold ratio and narrow spreads on high yield.

b) Look for bullish oriented technicians to call a liquidity melt-up based on the charts.

c) Buy chunks on bullish sentiment price spikes. Keep a lot of dry powder.

d) Use SPXU. The other leveraged shorts have a far greater rate of decay.

No stops. Cover when counterparty risk rears it's head in a panic most visible in spreads of financial bonds. This can run a long ways, so be patient.

squale's picture

I routinely play in the FAZ/TZA 3x inverse ETF's... I was lookiing at the Proshares stuff.... the SPXU seems to have good volume... but I'm a little confused at what you mean by the SPXU having much less of a rate of decay versus something like FAZ/TZA, etc.?  aren't all these 3x ETF's compounded daily.. thus they would all perform the same over the long term of holding them.. which long term holding these things is a nightmare!!!

chinaguy's picture

Last week's record number of euro shorts had increased again another 9% by Friday. Someone is going to make a killing on that squeeze...& I'm selling into strength - Ha.

DosZap's picture


What happens to the "Goldbugz"???

Not a damn thing...........................we sit, we wait, for the inevitable.

Strong hands do not waver.

LowProfile's picture

Robo does have a tendency to confuse mo-mo's with buy-and-hold.

The Monkey's picture

I am long 30 year treasuries and 3X short the S&P 500 with 96% of my assets. The money is cheap, liquidity everywhere.

The printing presses are about to roll. Come and get me !

DeadFred's picture

What good is a Stolper trade without good targets. I assume this is a reprint of his last one with a stop at 1.29? A good sized hiccup will take EURUSD back to 1.29. I yearn for the good old days when a Stolper trade was an epic event. And by the way if he did say buy gold it should make one wait for the next excellent buying opportunity.

GeneMarchbanks's picture

Stolper can't always be wrong, can he?

bank guy in Brussels's picture

Good question ... How DOES Stolper keep his job at Goldman? THAT is the story for ZeroHedge to detail!

So on the surface he's a goofball making lots of wrong calls ... So wrong he's a money-making contrarian indicator.

But is he right some of the time, where we don't hear about it on ZH, so Stolper gets to the 55% correct level and still makes a trading profit?

Or is he a shill to help dupe retail into buying what Goldman is selling, or vice-versa ... and Stolper keeps his job just for his credibility in lying and spinning a story ... or for being the 'useful idiot' Goldman laughs about, all the way to the bank?