Excellent Excerpts From Jim O'Neill's Latest Viewpoints Later | Exploring Markets

Excellent Excerpts From Jim O'Neill's Latest Viewpoints Later

First, his witty comment on the Goldman Sachs conspiracy theorists:
Judging by the way I got chased around, anyone would think I had the inside scoop on Wayne Rooney, but it was my comments about Mr Grillo that had caused it. In addition to being generally surprised that I had described his Five Star Party’s election showing as rather exciting, apparently the conspiracy theorists thought it was part of some coordinated Goldman Sachs and hedge fund plot to bring the Euro down. Hilarious!

Highlighting the export strength out of Germany, the one country that is holding up in the Euro Area: 
In the more serious part of the proceedings, page 37 of my presentation (see attachment) included a chart of German exports, showing their dramatically changing pattern. I repeated a remark I often make that on current trends, by 2020 Germany would rather be in a monetary union with China than with France.

Richard Koo knows how to save Europe, and offers two suggestions, as he believes it is in a balance sheet recession much like Japan:
Richard Koo of Nomura presented a Japan-style outcome for Europe, suggesting it faces the same balance sheet problem as Japan, and offered two interesting ways to help break it.

First, policymakers should introduce a differential risk-weighting system that favours investors holding their domestic bonds (hardly in the spirit of a free trade and capital movement zone, but so is the rest of much else emerging to save the Euro, such as directives over industry compensation and financial transaction taxes, etc).

Second, the fiscal agreement should be adjusted to have independent experts opine on limits constrained by balance sheet constraints.
China, the one country everyone should be watching in the currency wars:
Despite this, it is interesting to see the Chinese now starting to add their voices to the ongoing currency war type mood, and this is much more important to me than other countries making noises. I recall the critical role that China indirectly played in bringing the Yen’s decline in 1997-98 to an end, by threatening to devalue, sufficient to get a policy reversal on intervention from the US Treasury as well as their help to stop Yen weakness.
As I pointed out in Cernobbio, China growing at 7.5% is essentially equivalent to the US growing at 3.75%, given China is now $8.2 trillion in size. My pal Nouriel Roubini argued that the BRICs slowdown suggests the BRIC thesis was overhyped, to which I responded that indeed it may, but if anything, I said China is “underhyped”. In the first two years of the decade so far, China has averaged 8.5% growth. So, unless it grows by 7% or less the rest of the decade, it will contribute more than we are assuming.
A quick note on the U.S., keep in mind the old "sell in May and go away" adage:
I am not that confident about what happens next and as to whether all these trends are going to continue, not least because May is now less than two months away and the infamous “Sell in May and go away, come back on St Leger’s Day” (which I am physically actually going to be doing post retirement, of course!). US equities seem set to strengthen further in the near term, given the momentum in the data, but as page 47 shows, they are hardly bargain basement these days from a CAPE perspective.

The Final Word:
They (G20 Meeting in Chile) added a new statement, albeit brief, saying they were focusing on doing things to try and improve the environment for long-term investing, including specific research on it. It simply adds to my view, as also evidenced on page 45 of the attached presentation, that given the continued high equity risk premium (ERP) it is actually a great time for long-term investors.