Sell the U.S. Market Before October

Readers know of our incessant bleating about the worsening Economic Time in America.

But we are now on "red alert" for the current month of October - and suggest how to earn off this.

1. What is so bad about October?

Call it instinct. Many of the bigger market crashes have occurred in October, but nobody knows why. So we are just going to accept the reality of this perception.

What we would say is that finally, finally, markets have woken up to our long-held concerns about The Economic Time™ in America getting worse and worse.

Their next shock is another long-held belief of ours: stagflation is returning.

Those of us who survived the oil shocks of the seventies and eighties know this scenario: growth stops and inflation rises.

Inflation rises because of cost-push pressures. Today's cost-push pressures are:

• Rising RMB. The avaricious politicians in Congress keep forcing China to revalue. That means that Chinese exports to America rise in cost.
• Falling dollar. Besides, the rate cut in America implies that the USD has to fall more - as all superpower currencies do.
• Rising commodity prices. Wheat, oil, gold - you name it, people are scrambling for safe havens.
• Slower productivity growth. As suggested in The Economic Clock™ of America: unit labor costs are rising 6x faster than when they bottomed.

The bottom line: companies either pass higher costs on, or they don't. If they pass such higher input costs on, the Fed will have to tighten yet again. So down goes turnover. Alternately, if they don't pass these higher input costs on, with demand receding, their margins wilt. Either way, profits have to disappoint.

This stagflation scenario is going to start souring the market subconscious this month, so expect a bear run to follow. Initially, all markets will get hit. But America will get hit the longest and hardest...

2. How to Make Money Off This Idea

1. Always consult your financial advisor before investing!
2. Buy commodity ETFs and individual commodities like gold, oil and wheat.
3. Buy high yielding Asian currencies.
4. Buy the Euro and Sterling.
5. Buy a "short" ETF on the US stock market.
6. Load up on China and Hong Kong.

Comments

[EL-GRECO:]

I fail to understand how a US market wide sell off can occur without affecting the commodity ETF's. We know from the last few sell-offs recently that everything goes down when hedge funds are selling. It is also still a matter of debate as to whether Asia can stand up alone without western demand for its goods; in the event of a recession or stagflation is the USA, are the goods being produced in Asia going to be fully abosrbed locally? It hasnt happened yet; it could of course, but anyone who is advocating hold Asia, sell US, hasn't seen what happens to HK stocks like ACH and YZC, to name but two commodity plays, when the Dow sells off. I agree that currencies is a good way to play the scenario you predict.

2007 Sep 24 05:59 AM

[poet1:]

How do you feel about buying euros? Doesn't one make out on the up & down? I currently am in gold & silver- but wonder if silver will be the 'best choice' if October falls.

2007 Sep 25 03:40 AM

[flow5:]

but nobody knows why --- It is mathematically impossible to miss a forecast. Nearly every economic crisis was the result of a flawed monetary policy. Oct will be the bottom.

2007 Sep 24 08:00 AM

[ikkyu:]

Buy sterling??? What about England's real estate bubble? Have you noticed this massively inverted yeild curve?
www.bloomberg.com/mark...

Not exactly my idea of a safe haven, my friend....
john

2007 Sep 24 09:16 AM

[Frank Chen:]

I don't think the US congress is avaricious. They are just playing politics without thinking through the real effect of their political stances. But, I know, you are just being kind.

2007 Sep 25 05:06 PM

[razormd:]

The more pertinent question, I believe, is who exactly is "Enzio Pfeil"...read his biography and discover -- uh, oh -- he's an economist...that's strike one -- how many wealthy economists do you know?...strike two: he believes in Friedman and Keynes -- need I say more?...strike three: he has a newsletter -- "The Economic Clock" -- in which he says using his "economic principles" has returned 320% since 1999...wow, that's great!...funny, though, I can't find any evidence to support that claim...it doesn't show up on any newsleetter ranking services...I can't find any mutual funds that use its "economic principles"...now, in MY world, those that "can" do; those that "can't" sell newsletters and appear as guests on Bloomberg...until he shows me a real investment portfolio and how it has performed over 5-10 years, I consider him no more credible than "Howdy Doody."

2007 Sep 26 09:19 AM

[mj:]

Some of the recommendations are confusing and contradictory to say the least! 'Load up on China'!-at least US market's valuations are reasonable, unlike China's. And what will china ride on when US tanks!

As for Euro and Sterling- isn't the growth in Europe already slowing and business confidence lower than probably in US! That sure will weigh down the markets there in medium term if not immediately.

2007 Sep 26 05:58 PM

[TekToniKshift:]

I agree October is time to be cautious, But don't count on a rising RMB. Any slowdown in US economy will postpone RMB appreciation.

China has too much exposure to US market.
I would diversify international holdings into India, Russia and Latin America ETF's or mutual funds. These economies are more sheltered from the US economy.

2007 Sep 27 01:22 AM