US's Looming Stagflation Bodes Poorly for Asia

Excerpts from Dr. Enzio von Pfeil's May 7, 2008 appearance on CNBC Asia:

1. Corporate earnings results in Asia so far - what are they telling you?
   • I don’t follow these closely, so I cannot add value at a micro level.
   • While I do believe that domestic demand is more powerful than when I arrived in Asia back in the mid-eighties, I do not believe the wishful thinking of “de-coupling.”
   • This means that America's slowing infects Asian exporters, and that, in turn, infects domestic consumer psychology in Asia. So my guess is that going forward, Asian profits will be more subdued, albeit still showing growth.
2. Asian markets have been making stabs at coming back. What signs are you looking for before you give Asian markets a clean bill of health?
   • This reinforces my point just made about the myth of de-coupling. The simple fact is that when America roars, Asia roars. And when America snores, so does Asia.
   • Thus, once America starts turning sour again on account of her dreadful Economic Time™, her stock market tremors will be felt in Asia yet again.
   • While overall, the Economic Time is fine in most of Asia (excluding Japan), our markets out here move very similarly to American markets. That won’t change.
   • This is all the more so once markets finally grasp that America is staring at the jaws of stagflation.
3. Where do you see markets going from here? Which sectors do you favour, and which shows the most promise when markets make a comeback?
   • As I remain bearish on America’s Economic Time, I would be very conscious of markets here. In other words, this is not “buy and hold” time.
   • Yes, Asian markets will not plunge as much as America’s, but they are linked at the hip.
   • Thus, I would go for defensive sectors such as consumer staples, shorting exporters and financials (subprime messa solemnis, etc.).
4. Where should investors be putting their money, and what is your advice on asset allocation strategy? Would you still say to hold cash?
   • Cash remains king, particularly in non-dollars.
   • We remain commodity fans, particularly of platinum and gold.
5. Any other topics you'd like to discuss?
   • We have ranted on since 2006 about America’s looming stagflation. We just read that Alan Greenspan is warning of a long, hard recession. The weaker dollar propels import costs, then you have higher commodity costs and lower productivity (which drives up unit labour costs). Finally, with everyone now agreeing that there is an “excess supply of goods” in the diction of The Economic Clock™, no growth + inflation = stagflation.
   • This is not great for markets, going forward – and certainly not for long bonds!

Comments

[adan]

no growth + inflation = bad for long bonds, if, deflation, and fear, don't take hold; then it'll be a shame one didn't have some of these 4+ % - 30 yr bonds already in hand

risk rises both directions