Enzio's Clock

1) Discuss expectations and outlook for the U.S. economy, on the back the

economic data due this week.

· America’s consumers as well as investment banks are de-leveraging

· This means that banks won’t lend, or in the jargon of our Economic Clock®, there is an excess demand for money

· That will intensify America’s excess supply of goods

• The lame duck Congress, at best, will pass an extension of unemployment benefits (The Economist, 22/11/08: "...serious debate about a broader stimulus has been put off until the new president and legislature take over in January". Congress re-convenes on 6th January and Obama takes office on 20th January....

How long will it take the U.S. economy to

recover?

· My guess is that the consumer will see an improving Economic Time® on the horizon in 1H2010

2) Your views on Obama's top economic team, the transition of power in

Washington and Obama's plans to steer the U.S. economy out of the doldrums

a) Obama’s economic team: Timothy Geithner is fabulous as the head of Treasury, as he understands how it works, is experienced in disaster management, AND has an international upbringing

b) The transition to power in Washington:

• he inherits two wars and the worst economic crises since the Depression, according to The Economist of 15th November 2008 (TE 15/11/08)
• According to the same magazine, he is a good organizer. He has been working on this transition since the summer with John Podesta, a former White House Chief of Staff to Bill Clinton
  
• he is handling this in a very focused, open-minded and positive manner. The great thing is that America has a very deep pool of talented experience to draw upon.
• For his transition, according to TE 15/11/08, he is adopting Reagan's model of transition: he, too, understood that the the Administration's real engine of power is in its White House staff - rather than in the cabinet. Besides, Obama, too, wants to hit the ground running.
• His key challenge is manage expectations. His buzzword was "change" - but by appointing previous war horses such as Larry Summers, John Podesta, Kerry and Gore: how much room for "change" is he really creating?

c) Obama cannot do that much to get the economy going, however:

• the chickens of irresponsibility will keep coming home to roost
• another impediment is that individual states, on the whole, may not run state budget deficits, so their room for fiscal maneuvering is limited
• crucially, even if the basics of the Economic Clock® keep ticking, there are some important caveats as to its structure that the investor best had be aware of.
• here also are structural reasons why Obama's "plans" cannot "steer" the economy of out its doldrums, for instance

• you cannot “skip a cycle” : other than if you are jetting to totally different hemispheres, nature disallows you to just switch from summer to spring - without going through winter first!

• Besides, never forget that certain investment banks have vested interests in driving the market, and thus the economy, down...

3) Your views on the U.S. government's move to save Citi, and the

implications for the U.S. financial sector

· This is really where the chickens of irresponsibility come home to roost: compare the executive pay and perks with the money that these guys have lost, and the whole thing becomes an acerbic joke. I wonder how many private jets Citibank has? More than the "Three Musketeers" festooned as running "VIP" car companies? Maybe the $306 bn Treasury injection will help to upgrade their fleet of luxury cars and jets?

· Citi just moved itself into the “too big to fail” league, as did the Club that got the USD 700 bn bail out funds, and as did the "big 3" automakers....

· But, in most instances, executive pay levels have remained the same…

· Implications for the US financial sector:

1. seems like “why me” will rear its head, as in: why did “they” let Lehmans go under but not Citibank?

2. I hope that tax payers won’t stand by idly to watch their banking friends’ compensation “protected” by the US government!

3. Having said this, it is good that Washington is doing something; thus, it is stopping the rot

4) What should investors do in the present investment environment?

· Fear has to overtake greed

· In God we trust, but cash is better!

· Beware of holding time deposits at your “trusted” bank

5) Other issues, concerns that you like to highlight

· How China could influence the US economy. Two routes

1. first, via interest rates. China could stop buying so much Treasury debt. This would push US long bond yields up

2. second, via the Chinese operations of US MNCs. If Congress goes too populist-protectionist, there is

· The chickens of irresponsibility are coming home to roost

1. So where were all of today’s “smart guys” nine months ago? Who was foretelling a global slowdown?

1. Where were the rating agencies, the regulators, Congress, indeed the IMF, etc.

2. What about the lies propagated by the chief economists and chief strategists of some major investment banks – propelled by what their gods were telling them what to say

3. Now they all “authoritatively” talk of the meltdown – which makes one suspicious of just how conflicted all of this “research” is

4. In this age of the internet, it is striking just how “mental independence”, too, has vanished down the drain of cyberspace…