Global and China: Investment Strategies

 |  Includes: DIA, QQQ, SPY
by: Enzio von Pfeil

A Recap of Enzio Von Pfeil's appearance on CNBC, Thursday January 14th.

Market's outlook for Q1 of 2010 -- what are your expectations?

  • Much greater market volatility: investors will lose confidence in top line growth as a driver of earnings, and there is little room to keep slashing costs, what with unemployment already at around 18% in the US and probably 25% in China
  • This implies an unwinding of carry trades, therefore a stronger dollar and yen

What are your investment strategies?

  • Short-dated bonds
  • Stocks: consumer staples
  • Currencies: dollar and yen, with a continued long on the Australian dollar as rates there will keep rising

What are your thoughts on China's surprise tightening moves?

  • The move is not surprising, given that the Central Bank raised its auction rates a couple of days before: that already sent a signal effect to markets about tighter monetary policy
  • These suggest that the Central Bank, the Peoples’ Bank of China, or PBOC, has prevailed in its fight with the politicians.

1. The Central Bank has wanted to tighten for at least a year, but

2. The politicians have wanted to maintain loose monetary and fiscal policies

  • It seems as if the PBOC will keep raising reserve requirements, but more in order to ensure the “health” of the banks - as opposed to reining-in their lending
  • Ultimately, though, expect any “tightening” to have a muted effect: the politicians’ understandable need to keep creating 100 million jobs each year will prevail.
  1. The same applies to recent chatter about “tightening” in the property market….

Is there anything else you wish to add?

  1. .Market worries about the exploding level of US federal debt suggest that volatility will rise at the long end of the curve, and
  2. These very market worries will result in a major sell-off in US treasury bonds