A Wall Street Trip Could Trigger a Chinese Fall

Oct. 10, 2007 5:28 PM ETFXI, PGJ, SPY, DIA8 Comments
Enzio von Pfeil profile picture
Enzio von Pfeil

Many of us older folk are getting a little nervous. That is why I preserved my profits some time ago, my Economic Clock Fund having risen 11% in September alone, and my Theme Fund having shot up 30.7% in one month. This represents annual gains of 283% and 3200%, respectively.

1. Why worry about Wall Street?

We have been bleating on about the Economic Time™ getting worse in America for many moons. And we have been wrong in an absolute sense: Wall Street has risen. But, The Economic Clock™ suggested China, Hong Kong and India instead, and these markets, in fact, have outperformed Wall Street handsomely over the past year or so.

We also have kept alluding to the empirical, albeit unfounded, observation that October is a crash month. All the more when it is festooned with the heavenly 'seven'. Just because I cannot explain this does not mean that it does not exist. Any doctors here who can explain where the common cold originates from?

Here are some more market chillers protruding from Wall Street:

  • This year, 10,000 guys lose their jobs on Wall Street.
  • Industrial production rose by an annual 6% last September; this August, it rose by 1.7%, i.e. by less than one third. Adieu turnover.
  • Retail sales peaked at an annual growth rate of 9.2% in 5/06; by this August, they were limping along at 3.9% , i.e. by less than half. Adieu, turnover.
  • Unit labour costs rose by an annual 2.4% in March, 2005; by this July, they were rising by 5.1% - or by over twice that rate. Goodbye margins.
  • Profits, unsurprisingly, are cooling. Having risen by an annual 6.6% in 1Q05, by 2Q07 they were sputtering at 4.7%, which represents a slow down of nearly 30%.

So how can profits rise if The Economic Time is worsening? We keep sensing that stagflation is on the way.

2. Beijing hangover

Another idea grabbed me this morning after the CNBC show (and thus video clip). We have suggested for many harvests that China's markets will prosper in the run up to the National Party Congress and then again towards the Olympics.

But there also is a hangover when people vote (Party Congress) and before they sweat (Olympics). Here is our pattern prediction:

  • The last two National Party Congresses (NPCs) occurred from 12th - 18th September, 1997, and from 8th - 15th November, 2002;
  • On average, the Shanghai Composite fell by 22% during these NPCs:
  • from 12th May 1997 - 29th September, 1997, the market fell by 28%, and
  • from 5th November 2002 - 2nd January, 2003, the market fell by 15%.
  • The band is a fall of between 15 - 28% around and after the Party hangover has begun.

Now you have another reason for market caution.

3. If Wall Street sneezes, what cold does Shanghai catch?

Now, let's assume that Wall Street does, in fact, tumble. Since May, 2006, Wall Street has fallen four times in conjunction with Shanghai.

Here is your road-map to possible ulcers:

  • On average, Wall Street fell by 8% and Shanghai by 111% from peak to trough in each period;
  • Thus, when Wall Street falls by one percentage point, Shanghai tumbles by 1.4 percentage points.
  • The band of the Wall Street fall is from 5% to 11%, so the equivalent for Shanghai would be from 7% to 15%!

4. How to Save Money Off This Idea

Simple: preserve your profits and put your profits into high yielding cash!

This article was written by

Enzio von Pfeil profile picture
Raised in America, Germany and the UK, I studied inter alia under Nobel Laureate Friedrich von Hayek in Freiburg i. Br., Germany. The next 30 years were spent as a financial economist with leading banks of their day: Morgan Guaranty Trust, J Henry Schroder Wagg, N M Rothschild and S G Warburg. Moving to Hong Kong in 1989, I was the Chief Regional Economist for the latter two banks and a smattering of others. Affiliated with IAM Legacy Ltd., I now provide especially non-financial professionals with experienced, commission-free financial structuring advice - saving them costs northwards of 90% in the process. ================ Enzio von Pfeil (http://www.enziosclock.com/) has been an investment economist all of his professional life. Having studied under Nobel Laureate Friedrich von Hayek in Freiburg, Germany, he got his PhD in economics and then joined some of the major banks in their day: Morgan Guaranty, Schroders and Warburgs. He was Chief Regional Economist for major stock brokerages in Hong Kong since 1990, where he is happily married. Author of books and thousands of research notes, he is a regular guest of Bloomberg-UK and Bloomberg-Germany, and is invited frequently to CNBC and other channels. His focus always has been on how to make money out of economics, and his application is real: he now lives off his own investments. He founded Enzio's Clock (http://www.enziosclock.com/) in November 2000 with the objective to help his subscribers profit from cycles through rigorous application of his proprietary Economic Clock.

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