What Does Economic Time Mean for Global and Chinese Markets?

Excerpts from Dr. Enzio von Pfeil's January 16, 2008, appearance on Bloomberg Television Deutschland:

Global

1. Where are we in the market cycle?
   • The global Economic Time® is remains characterized by an excess demand for money and by an excess supply of goods.
   • In 4Q08 markets finally accepted the excess demand for money story: banks just won’t lend.
   • Now markets are accepting the excess supply of goods side of the Economic Clock®, namely that with cash flows drying-up, people are being fired in order to ease cash flows.
2. How long will this phase of the Economic Time last?
   • Probably through 2010, as when banks don’t want to lend, this is a profits – and not a policy – decision.
   • Indeed, in a recent piece for clients on the stock market and the lending cycle, my research shows that we have witnessed two major “down legs” in America’s lending to the real estate sector: 1978 and 1987. My pattern prediction given to our subscribers is that lending to the US real estate sector will bottom earliest in 4Q2011.
3. But what about markets?
   • My guess is that they will remain in “L” at least until the end of 2009.
   • This means that they will flop around like a fish on a hot cement sidewalk, directionless.
   • Our subscribers are up by nearly 16% vs. the market plunge of 40% since October 2007...
   • The key driver will not be profits, but will be collusion between hedge funds and props books: they will agree to drive markets, sectors and stocks in one direction.
   • Finally, expect bedlam in the U.S. Treasury bond market. Clients recently read my note on why we are shorting U.S. government bonds….

China

1. What do you make of the chances of success of the RMB 4 trillion package?
   • Not very much.
   • China is not governable like the U.S., Japan or Europe is: “matrix muddle” prevails, so nobody is “really” in charge.
   • This is why Beijing keeps coming up with new packages in order to stimulate domestic demand, now that it is accepted that the export engine will remain dead for a long time.
   • Of particular import is the non-effect of the stimulus package on the financial sector: Beijing and local governments will force banks to lend more money, so their profits have to worsen. Meanwhile, foreigners are pulling out of their stakes in Chinese banks – either because they smell a rat on account of China’s worsening Economic Time, or because they need to raise cash in order to plug other holes.
2. Any implications of what the Economic Time means for the direction of the RMB?
   • Recently we issued some research on the observation that the RMB’s “free lunch” has been over with for a good half year.
   • All politics are local, so whilst you will see protectionist screams rise in America, so will they in China. Thus, Beijing will no longer have the luxury of accommodating U.S. politicians by allowing the RMB to keep rising..