Asian Market Strategies for Stagflation

Excerpts from Dr. Enzio von Pfeil's June 4, 2008 appearance on CNBC Asia:

The below topics you mentioned sound great. We'll look at the dollar direction as well as the market murmurs that may be set for a rebound.

• Superpower currencies always wane: the empire runs out of money, prints more and with rising supply, down goes its price.
• Our technical indicators do NOT point to mounting upward pressure on the dollar.
• However, anecdotally, it seems like the press is latching on to a short-term change in mood. Particularly, if America is at the end of her rate-cutting cycle, it means that if US rates rise, the Euro’s interest rate advantage wanes.

1. Uncertainty still reigns about the state of the US economy, and over here in Asia, investors have been groping for direction. What should we be looking out for?
   • The Economic Time™ has been worsening in America for months. That is mainly because of an excess demand for money: banks don’t want to lend.
   • More fundamentally with people’s “roofs” under siege (i.e. falling house prices), the psychological effects of such catastrophes are not to be under-estimated.
   • That slowdown in the monetary economy is feeding through in the real economy: consumer confidence – unsurprisingly – is waning.
2. How can we protect our profits during this period of rising inflation?
   • It seems like there is still plenty of cash out there, so go for commodities.
   • Indeed, with a worsening global Economic Clock™, profits downgrades mean that stocks look less attractive, but the money has to go somewhere – and commodities are a natural home.
   • Also look at the stock markets of commodity producers like Russia and Brazil.
3. What's your view on Asian markets? Which are you bullish about and why?
   • Excluding Taiwan, The Economic Time is not good out here. Taiwan is ok because The Economic Clock is all right; besides which, the refreshing election results will bolster business sentiment – not to mention much more mature and profitable ties with China (again).
   • China, that “emerging super power” has under-performed Japan since the market peak of 9^th October 2007. Japan is down 15% and China’s A shares have plunged by 35%! Her H shares have skidded by 24%.
4. What's your view on commodities, especially oil?
   • Keep buying.
   • With a global excess supply of investment cash scared of investing in stock markets, commodities and currencies are the only sensible asset classes.
   • We are great fans of platinum and gold: stagflation is coming, so people will want more inflation hedges.
   • Oil: load up. We are more driven by supply considerations: it takes a long time to expand capacity, governments don’t really want foreigners in there, and nobody really wants peace in the Muddle East…

Comments

[fxtrader07:]

"there is lots of money on the sidelines" waiting to be invested. have heard that over and over,
Q1: is it really there and waiting?
Q2: Oil prices , as the prices for each and verything, are not growing into the sky. For all the peak-oil arguments (which are true, no doubt) they have yet failed to pinpoint some "fair" value or intrinsic value for oil. of course they can't - nobody can. make no mistake, the moment demand cools, the oilprices will drop (albeit not crash) there may be better entry points than 126$/bl

2008 Jun 04 06:42 AM

[proseadvocate:]

the Dr.'s answers made sense but I was hoping that he might also have liked some of the emerging market debt obligations since stocks are very iffy if not downright suicidal at this point in time.

2008 Jun 04 05:53 PM

[Pax Americana:]

fxtrader07 there may be better entry points than $126/bl, how very prescient of you , given we are at just over $60 now?

May 31 06:18 AM