Is a black swan flying over Europe?
One of the most senior partners of Goldman Sachs (GS) and new chairman of the company's asset management division, Jim O'Neill, has told the Sunday Telegraph that the Eurozone must become more fiscally and politically intertwined for the euro to survive.
He also put the value of the euro at €20 to the dollar saying that the euro was overpriced by at least 10% and should carry a risk premium.
"There are elements of the black swan concept that seem rather applicable to the EMU story, … You have to consider that very extreme outcomes could be possible. I'm generally a person that sees the glass half full, but there are aspects to this European situation that could involve some pretty ugly developments." He said.
Some would argue that a flock of black swans has been circling over the EU and paddling in its rivers and ponds for a long time now, but no-one within the system has bothered to look. Now the black swans it seems have been joined by the vultures.
Just in case you wonder what a black swan is, it is the concept that if you've only ever seen white swans then if a black one turned up you'd have your whole knowledge base questioned. Just like if all you've ever been told is that the euro is successful and then ….. . Here's Robert P Garnett on the Black Swan concept:
Another way of putting it that if we only allow ourselves to look at something from one perspective that ignores the truth 'on the ground', then when the inevitable happens it comes as a surprise. But maybe a surprise that maybe should have been obvious in hindsight.
So, the many who always said that there has not been sufficient fiscal and political union within the Eurozone for the euro to survive have not been surprised by recent events. But for those that saw the euro through rose-tinted glasses these recent events have been a real black swan.
In the interview Jim O'Neill also said that the fears over the US economy were over played and that that the country could recover quite strongly pushing the price of gold down.
Now with all this in mind one must remember that a person in Mr O'Neill's position, just like a politician, never opens their mouth in public unless it serves the purposes of the organisation they represent.
The last thing that organisations like GS want is for people to take their money out of funds etc and place it out of their reach in the gold and silver bullion vaults. Especially if some of them have been reportedly naked short selling the stuff in huge amounts!