Enzio von Pfeil

An Interesting Play on China's Banking Sector: Bank of East Asia

I agree with your BEA analysis.

My only concern is that China plays are going to get wounded if US Congress forces China to revalue. This month, two bills could be decided on. I have posted an article on my website enziosclcock.com, suggesting that China's trade surplus has NOTHING to do with its exchange rate, but EVERYTHING to do with multinational corporations producing in China (thus replacing imports) and exporting from (cheap) China. Have a read and forward that note to your policy friends, especially those in Beijing and in Washington! Tragically, globalisation has left trade balances behind!

Lightening Up on the India Fund

Travis, I fully agree with your thoughts:

"But after a huge run up, I'm quite cautious about the near term performance of the Indian stock market, even after their big selloff in the last month or two."


India's Economic Time is still o k - but the RBI is still printing money too generously, driving up inflation and thus yields. At some point I expect a hefty tightening, one that will worsen India's Economic Time and the economy's profits outlook.

Why The Fed Should Raise Rates

YOur points re. real interest rates are interesting.
We suggested to our clients back in June 04 that Fed Funds would reach 6%: this has been the extent of previous tightening cycles.

I am afraid that Mr. Bush's juvenile militarism in the Muddle East, where he refuses to talk with the enemy such as Syria and refuses to give the military what it needs to fight the war, will depress the dollar further. That implies a bout of imported inflation, on top of those higher oil prices which he, the Texan oil boy, seems to be so in love with...

Nomura's Individual Investor Survey for August: Caution Prevails

Steven, another reason the Japanese investor is turning cautious has to do with the increasingly awful policy mix: base money contracted by 18% yoy in July, and next year the MoF has to increase VAT: on 7th July, the government decided that by 2011, it wanted to eliminate its primary deficit.

Sounds like there is gloom ahead; I am looking for a similar bout of market violence as we had in May - when investors finallly moved out of denial and accepted that Fed Funds have to keep climbing. This time, the "moving out of denial" will be that investors see that Japan's growth outlook is NOT rosy at all, courtous of the dark clouds of the policy mix just discussed.

European Rate Hikes Mean Declining Demand for Dollar

Roger, agreed. I would add another point: super power currencies ALWAYS sink. Look at the Br. Pound and indeed at the dollar: it started "life" at yen360...

The reason is simple: super powers run out of money defending their empires. Look at America's more recent military forays and you have tragic, live example....

Disney's Kingdom Giving Off A Lot Less Magic

I think that your point is right: buying into Western management doing business in China is less risky than buying local Chinese companies.

The only point that I would add: Peter Lynch always recommends that you make sure that the impact on the company's overall profits warrants the investment. In this case: can the China operations/profits of the Western (or indeed other Asian, etc !) companies influence that company's global profits significantly?

Dollar Could Tank vs. Yen By End of Year

I am not so confident that one should view BoJ policy with Western eyes. My years in Asia teach me that especially in Japan, policy-making is "tribal": no "one" individual stands out, as say a Prof. Bernanke or a Claude Trichet...

My take is different: that next year, Japan has to raise its VAT considerably, as they on 7th July decided to cut their primary deficit to zero by 2011. We all know how badly the economy and market fared in 1989, when they introduced VAT, and in April, 1997, when they increased it. So one member of the tribe, the MOF, will oppose rate hikes on top of tax hikes.

Another member, the future PM, Abe, also will oppose: he won't want to start his stewardship by allowing Japan to dunk into recession yet again.

My favorite fx play: long Euro, long Pound, short yen.

BoJ Rate Hike Was Expected, Same Day Effect Limited Given Global Situation (EWJ)

It seems as if our view re. "tribal" policy0-making has prevailed: rates will stay at this level for a long time, according to Steven's quotation above. The reason is simple: with debt/GDP standing at 150% and with debt servicing costs gobbling up 22% of all budget outlays at this low level of rate, there is no way that rates can be hiked.

Our concerns with Japan, however, lie elsewhere.

China Will Act to Prevent Economic Overheating

Investors need to exercise caution when reading such headlines. Having studied under von Hayek, I often am more intrigued by the assumptions underlying the statement than the statement per se.

Here: "China will act to prevent overheating". This assumes that "China: can prevent overheating. And I dispute that "it" has this power. For one thing, Beijing is losing control over it provinces. That is because, secondly, everyone is growth-obsessed in the runup to the 17th Party Congress, a theme we are discussing widely with our investor clients. Thirdly, China really does have the tools to prevent overheating. Finally, I am perplexed: last year we talked about profitless growth due to massive capacity expansion; how all of that supply has shrivelled and we are facing inflationary pressures?

More Pressure for Yuan Appreciation, Implications for China ETFs

In response to Scott: I think that David is just saying that if you buy these ETFs, you get a currency gain, too.

My concern is the extent of the appreciation of the yuan. All politics are local - that one did NOT come from Sun Tzu or some Oriental, but from an Irishman, Tip O'Neill, in Congress! Why would China, that "emerginging superpower " (never heard such nonsense), allow itself to stoop to the whims of white folks in Washington?

My Economic Clock suggests that China's Economic Time is just fine - regardless of what happens to the yuan. So where I agree with Daivd is: yes, buy China ETFs, but for a different reason!

Korean Missile Launches Could Mean Buying Opportunity Ahead of Earnings (EWJ)

I agree with Steve re. the reactions to NK's missile antics. But I was a little more alert when in today's press I read that Japan may go for a pre-emptive strike. We know how much confidence such pre-emptive strikes have created in the Muddle East! In my opinion, the real player is China, and the real issue is Taiwan....

The Long Case for Japanese Stocks (EWJ)

Who knows? I would not put too much emphasis on US demand dictating Japan's current account surpluses. Seems to me like China is playing an increasing role via cheaper japanese imports from China and thus more Japanese exports to America, once the China-made product has had a final once over in Japan.
Get a good stock person to tell you what is mainly responsible for Japan's stock market performance. My guess, as a macro guy, is mainly the domestic plays.

Will Bernanke Throw Investors a Bone?

I would love to subscribe to your "wait and see" scenario, but my guess - and we all are in that game of informed guessing - is that at the start of his Fed rule, he wants to be seen by markets as more safe than sorry, what with consumer confidence on the up yet again...all of which underlines my guesstimate of Fed Funds of around 6% this year and a worsening Economic Time for America for at least the first half - three quarters of 2007....

The Long Case for Japanese Stocks (EWJ)

Hi Pascal,
Fully agreed. Who can guess what the US financial community will think if more FOMC tightening occurs? I've been suggesting Fed Funds of around 6% this year, so that would suggst slowdwn in America. For me, the further question is: must this unequivocally have a knock-on effect in Japan and thus its market, if Japanese growth is driven increasingly by domestic demand as opposed to exports. If my "domestic demand" story is right, then Japan has to be a screaming buy, courtesy of an ever-improving Economic Time....

Making Sense of the Indian Market: Classic Bear Market Rally or Bottom Firmly in Place? (IFN, IIF)

Asif, I like your humility re. not being able to predict the future with certainty. "The trend is my friend", and my Economic Clock for India is telling me that there is plenty of upside potential. I think that current market convulsions have everything to do with a simple observation: since June 2004, markets were in denial about the extent of Fed Funds hikes. Only recently have they accepted the reality of Feds at around 6% - something we told our clients (heretically?) back in June 2004. Once markets have digested their denial, smart investors will start seeing that the Economic Time has to worsen in America - but that it, inter alia, has to keep improving in India, China, Europe, Japan, Korea and so on....