Expect a Market Crash and the Worsening of Global Economic Time

Excerpts from Dr. Enzio von Pfeil's July 7, 2009, appearance on CNBC Hong Kong:

What are you expecting for the G8 meeting? Will there be a debate on USD as a reserve currency?

• The usual talkfest prevails.
• Everyone will pat themselves on the back, proclaiming how they have “saved” the world economy.
• All will mutter something about China, the emerging superpower.
• The dollar will get some attention, but the problem is that its size alone makes it irreplaceable as a reserve currency.

At the mid-year point, there are renewed doubts over 2H global economic recovery, following several worse than expected economic reports. What are your thoughts?

• This will be discussed at the G8.
• But the representatives bravely HAVE TO talk up the world economy. Think of what would have happened had Prof. Bernanke talked of “black shoots” and not of “green shoots”? Then markets really would have tanked and things would have gotten substantially worse, “things” being banking bail-outs.
• In my opinion, the global Economic Time® has to keep worsening, i.e. the excess supply of goods has to keep intensifying, what with rising unemployment.
• Besides, the stimulus effects of what has been introduced so far are going to wear off, particularly in the West.

Q2 corporate earnings season is upon us - what do you expect?

• With the worsening global Economic Time®, I expect a bifurcation:

- The labour intensive industries (e.g. garments) perversely will show healthier profits – because they have gotten rid of workers.

- Meanwhile, the capital intensive industries (e.g. chemicals) perversely will show worsening profits – because they cannot just shut down capacity.

• Overall, I expect worsening profits to set in. The only “improvement” will be some “rise” (= less rot) when compared to profits a year ago…

What themes and trends for financial markets will be prevalent in the second half of 2009?

• Worsening Economic Time®: rising volatility is telling you this.
• Increased political tensions in Iran and North Korea.
• Market crash in October.

Comments

[Larry House:]

Something to consider. We are facing a lot of economic problems. The outcome is anything but certain.

Jul 06 03:20 PM

[David McSwain:]

I agree that there will be another market crash in October. Economic fundamentals have been ignored in the current rally. One reason the rally is happening at all, is due to a lot of positive political talk. But ‘spin’ can only last so long.

Another reason for the rally is the strange phenomenon of getting a bump from economic reports being "better than expectations". I can’t tell you how many times in the last couple of months where I have seen headlines of huge job losses, horrendous earnings, or other concrete bad news, only to see stocks rise because “only 400,000 people lost jobs instead of 600,000”. What kind of madness is this? It's getting worse not better! Hello!!

Sooner or later the shell game will be found out and the fundamentals of overall reduced demand from unemployment will be exposed. Also exposed will be the high supply of certain goods, namely housing.

When the market wakes up from whatever it is they have been drinking, we will see the DOW head below the $6,600 level of this last March. Don’t be surprised if we see it flirt with values in the $3,000 range.

Jul 06 03:55 PM

[BPYHO:]

#1) This guy should be called Dr. Doom Jr, after perusing his previous articles.
#2) New Manlaw - No more addressing people who are not MEDICAL Doctors as DR!!! Just a lil pet peeve of mine :)

Jul 06 05:03 PM

[Charlie J:]

I tend to believe that the market is being propped up right now. I understand the arguments about why it shouldn't be going up now (and they are persuasive), but it is going up.

So if this is artificial (from stimulus money, Goldman Sachs, etc, whatever, etc.), why can't it continue to be propped up, even past October?

(This is an actual question, not a comment that I think the market will continue to go up.)

Jul 06 06:31 PM

[Mad Taxpayer:]

I hope that he is wrong. However, all signs indicate that he is right, in my opinion.

Jul 07 02:39 PM

[MA:]

Have you read that Dr. Von Pfeil's advice: Go long on what people "need" ( food, water, electricity ect) and short on what they "want" ( luxury etc)? The basic bear rally approach is closer to the general Asian perception (within context) than to the general American perception (without context). Take the housing market and unemployment as examples. If anyone bothers to take a looks, here in Phoenix is it all "context" - on any given day there are still reports of 45,000 homes in foreclosure and prices continue to fold inward. In North Dakota & Montana the unemployment is a stable 5% versus the national level nearing 10%.
MDs are not the only doctors out there. PhDs are also doctors of science. Just a pet peeve of mine.


On Jul 06 05:03 PM BPYHO wrote:

> #1) This guy should be called Dr. Doom Jr, after perusing his previous
> articles.
> #2) New Manlaw - No more addressing people who are not MEDICAL Doctors
> as DR!!! Just a lil pet peeve of mine :)

Jul 07 03:37 PM

[User 388717:]

When a former KGB General, (Putin) begins
to make public statements of concern about how
the West in general and the USA in particular are
monitizing debt, seizing private companies, and
raising taxes, forcing financial institutions to make
sub-prime loans, just how stupid do we have to be to
continue supporting those in power ??? Command &
Control economies never work...we're just too brainwashed
to know it...just ask the former Soviet Union.

Jul 07 05:20 PM

[Stone Fox C...:]

Does anybody actually read the economic reports these day? The drop in jobless claims, improvement in ISM, and new orders for durable goods all suggest that the recession is over. This noise about the jobs report is absurd. Less jobs and hours worked will just add up to more profits for corporations.

Jul 07 05:27 PM

[MarvinMBA:]

Certainly the fundamentals of China are great for China...they seem to specialize in selling to us and not buying anything from us thus their large dollar holdings. Its their own fault if they hold too many dollars...the answer is obvious..they should start spending a few bucks here in the old USA and that will help both us and China..MarvinMBA

Jul 17 12:11 AM