Grim Outlook for U.S., Japan, and China Markets

Excerpts from Dr. Enzio von Pfeil's March 2, 2009 appearance on CNBC Cash Flow:

1) What is your near term view on where the U.S. dollar and markets are heading?

• The Dollar remains strong as a safe haven, as does market until the middle of the week, when reality sets in again off bad economic news. Unemployment data was bad.
• Our views have returned investors about 35% since the market peak of October, 2007.

2) Mapping/comparing the health of the three largest economies - the U.S., Japan and China - which of these are you most optimistic/pessimistic about and why?

• America and China have cyclical problems, what with their respective Economic Time getting worse. We have a very different view about US federal debt levels.
• Japan, however, is a structural problem, one that I see no way out of. It seems as if only her very successful overseas operations keep the country afloat.

3) China's National People Congress is this week - What are your expectations on what the Party will do about the economy?

• Yet more stimulus packages will be discussed, and correctly so.
• I am afraid, however, that the focus should be on bolstering domestic demand. After all, this is about 2/3 of any normal economy, but it is under 1/20th of China's!
• China is not "insulated" in the conventional sense.

4) How and what should investors invest in right now? What strategies, sectors or markets do you recommend?

• Our overall strategy has returned investors about 35% since the 10/07 peak
• I am very keen to stay short of markets and long of the dollar and the yen.
• Sectors: just stay in consumer staples and other "idiot proof" ones for now.

Comments

[William Gamble:]

Economists are correctly encouraging China to stimulate its domestic demand. What they underestimate is the difficulty. I disagree that China's problems are just cyclical. Like Japan it has an enormous legal and regulator infrastructure designed to encourage exports. Its lack of social safety nets further discourage consumption and outmoded policies allocate capital to more inefficient state owned companies. It can be changed but probably not by this government. As Japan's experience illustrates, it is very difficult for any party that has been in power for over 50 years to adopt a new policy direction

Mar 04 09:36 AM

[Amitabha Mu...:]

Both China and Japan are doomed alongwith with downturn of the American economy. These two economies very foolishly coupled their economies with the very high level of consumption of the Americans. Now since the Americans have changed their lifestyles and stopped consumptions it will be extremely difficult for the two asian economies to survive. In case of China already ten million people are out of jobs.But this is only the tip of the iceberg. Mere huge investments in the areas of infrastructure will only temporarily solve the unemployment problem. What China could do is to increase its middle class population tremendously by making its farmers owners of small land parcels. Agricultural productivity would rise tremendously thereby giving the farmers a scope to get into the world of consumption.

Mar 04 02:12 PM

[who:]

The figure is more like 20 million of migrant workers returning to farms, hills, etc. China is in desperation mode. Giving away cookers, water heaters, TVs, etc. to the poor and rural areas is "stimulating" demand. Next in line will be computers then cars! Hence, need for better infrastructure in rural areas and hills.

Mar 04 03:18 PM

[EX-AD-MAN:]

China's rural poor need to become China's suburban-in-debt-to-th... in my view. I hope it happens. Advertisers over there are feverishly pitching Hilfiger, Nike and the joy of No Down Payment in every available venue. Give it time, the boys will reel them in.

Mar 04 04:24 PM

[H.J. Huneycutt:]

Realistically speaking, China doesn't have "parties". A one-party system is effectively a no-party system, so I don't think there's an issue of having one ideological group in control of policy and that never shifting. You can see policy shifts throughout the PRC's history. In fact, modern Chinese policymakers are on a completely different track than those from 50 years ago.


On Mar 04 09:36 AM William Gamble wrote:

> Economists are correctly encouraging China to stimulate its domestic
> demand. What they underestimate is the difficulty. I disagree that
> China's problems are just cyclical. Like Japan it has an enormous
> legal and regulator infrastructure designed to encourage exports.
> Its lack of social safety nets further discourage consumption and
> outmoded policies allocate capital to more inefficient state owned
> companies. It can be changed but probably not by this government.
> As Japan's experience illustrates, it is very difficult for any party
> that has been in power for over 50 years to adopt a new policy direction

Mar 10 11:29 AM