Excerpts from Dr. Enzio von Pfeil's July 23, 2008, appearance on CNBC:
Asian financials are contributing to a positive session in equities, following a rally in their U.S. counterparts overnight. But we got weak after-the-bell earnings from Washington Mutual (NYSE:WM) prompting Moodys to review the bank's debt, with a possible cut to junk status. How will Asian financials fare in their earnings season?
- I am not a sector specialist, as you know.
- But, based on the Economic Clock™, here are my macro concerns. They all hinge on the simple observation that ALL banks are intertwined with each other globally, very much due to their correspondent banking relationships, whereby they lend each other money through the interbank markets.
- American banks remain the gorillas on the block.
- They have further storms ahead, what with the Economic Time worsening in America:
- Mortgage rates have rocketed by 23%, to 6.75% since January. On an annualized basis, this represents an increase just shy of 50%!
- Even more sickening is that the percentage of mortgages that qualify for re-financing has plunged by over 90% in two months, or by about 500% if annualized.
- Just because Asian (as well as other, non-American) banks have not reported their exposure to and difficulties with US banks does not mean that do not have problems!
- Besides, next to the external “America” problem, don’t forget that the
Economic Time is worsening out here, adding internal issues that will
exacerbate banks’ woes:
- Korea is having huge currency problems,
- China’s bosses are so worried because of rising social unrest, that they are meeting, and
- here in Singapore I detect lots of political tensions particularly in Malaysia and those revolving around the Thai-Cambodian border dispute (where, ironically, armies are facing-off on temple grounds!)
- So, I am not so optimistic about banks’ earnings out here.
Energy stocks though are mostly lower as crude oil hits a 6 week low, on continued expectations of slowing demand. The U.S. Senate votes to move ahead with speculation bill. How will these developments move Asian markets?
- I am unaware of the Senate’s speculation bill, but know that it cannot be implemented overnight.
- I also don’t believe in the “slower demand will depress the oil price”: it is supply issues that are keeping the price high.
- Finally, I believe more and more that Israel will attack Iran, all the more so now that Obama has publicly agreed with Iraq’s Maliki that the US will pull out of Iraq quickly. This creates a huge threat to Israel, so she will opt for a pre-emptive strike before December. Bush will back this as he is keen on another unreflected punch-up…not to mention more campaign finance for the Republican party from his pals in the defence industry.
Where should we put our money in nowadays? Which sectors or asset classes?
- Currencies: Euros and Australian dollars
- Commodity ETFs
- Commodity-based stocks, e.g. coal, oil.
- Niche defence contractors (see my last point under theme 2).
Any other exciting topics you want to highlight?
- Are you ok if I unmask this stuff about Chief Economists misleading funds and investors and costing them trillions of their investment dollars? It's a bit like the current fight about better regulation of the rating agencies.
- If yes, then let’s do a “stronger dollar after the election.”