Goldman's Jim O'Neill Makes Last Market Call
Renowned investor Jim O'Neill ended his 18-year career at Goldman Sachs by forecasting the yen will continue declining, pushing through the key 100-level against the U.S. dollar.
"I can see the yen at 100 to 120 in the next 18 months, but getting through the 100-barrier is going to require a couple of trickier things," O'Neill, the outgoing chair of Goldman Sachs Asset Management, told CNBC, in his last interview pre-retirement. "One, is that the U.S. is definitely doing better, and with it, acceptance from the U.S. that continual yen weakness is not going to be really bad for U.S. competitiveness."
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"Secondly, linked to that, that Japan is showing more domestic recovery, so that some of their Asian competitors do not freak out—obviously for South Korea, and for China, it is a big deal," he said.
The yen has flirted with the psychologically important 100-level since early April, when the Bank of Japan Governor Haruhiko Kuroda unveiled a massive stimulus to help meet the central bank's 2 percent inflation target.
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While O'Neill found international fame when he coined the term BRIC to describe the emerging economies of Brazil, Russia, India, and China, he was originally recruited by Goldman Sachs due to his success as a currency specialist. In particular, O'Neill successfully forecast the yen's rise in the mid-1990s, and the euro's decline in 2005.
"I really try and pride myself on the yen, because that is what led me to be hired by Goldman Sachs, my supposed success as a currency person in the '90s," O'Neill, told CNBC. "People think of me as Mr. BRIC, but currency is my first love, despite the fact it is like the world's biggest fruit and vegetable stall. You can only be a hero for 15 minutes in something as transparent as the foreign-exchange market."
O'Neill said the term BRIC remains valid 12 years on from his famous report, irrespective of the importance ascribed to other emerging countries like Mexico and Indonesia.
"In terms of sheer economic size, which is what the original idea of mine was, there are no other four emerging economies that can vaguely compete with them. … What all four share—and China is in a league of its own—is they are much bigger than any other emerging market," he said.
Unexpectedly, O'Neill said the catalyst for penning "Building Better Economic Global BRICs" in 2001 was the Sept. 11, 2001, terrorist attacks.
"I concluded—perhaps a bit oddly, and occasionally to the annoyance of some Americans—that this kind of horror meant that going forward, if globalization were to thrive, it would have to be different. It could not be equated with Americanization. … In that sense, the BRICs thing does not just mean those four countries, it is a statement about a more complex world, needing better economic bricks."
In his final research paper for Goldman Sachs, O'Neill reviewed his first BRIC report, and noted that global policymakers had yet to adjust to a world where emerging countries are key players.
"I still do not think many, outside Western multinationals and the BRIC policymakers themselves, truly understand the degree to which the world is changing. Global governance has perhaps moved in the right direction with the advent of the G-20, but it has not moved particularly far towards a more workable or effective condition," he said in his last paper, entitled, "The world still needs better economic BRICs."
O'Neill was cagey about his post-Goldman plans, having dismissed working for a rival investment bank in a previous CNBC interview, saying that working anywhere else would be "downhill."
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He did say however that he had always planned to leave Goldman's at the peak of his game.
"It is a really competitive, tough place, and to keep the place churning around, and the strength that it has, it needs to have turnover," he said. "I did not quite fancy the phone call saying, 'Isn't it about time you call it a day?'"