Enzio's Clock

We provide thoughts on China's sickly banking system, US GDP and how to make money off diverging trends.

Topics Covered

-         Earnings season in full swing now: What do you think of the corporate results so far? We will be getting HSBC interim results on Monday, Any comments on that? And broader comments on Chinese banks overall?

o       Corporate earnings are a backward-looking indicator

o       In America, the results are a two-edged sword: it seems like earnings are improving by virtue of cost-cutting. Hence unemployment stays high.

o       No comments on HSBC's resuls, as I do not cover individual companies

o       Chinese banks

1.      am very worried about the extent of their "forced lending": in the most recent stimulus package, bank lending was used as a substitute for outright fiscal spending: Beijing got the state-controlled banking system to stump up the money first

1.      In 11/08, the gov't announced a RMB 4 trillion stimulus package. But of this, only RMB 1.2 trillion was central gov't money; the other 70% (RMB 2.8 trillion) consisted of money stumped-up by local governments and by banks.

2.      But local governments are not allowed to raise money via issuing bonds.  So where did they get their money from for this "stimulus"? It has to have come from the banks

3.      Besides, the government virtually guarantees loans of the banking sector, so the whole stimulus package becomes a rather circular argument

2.      As long as Chinese growth stays strong, these "hidden liabilities" (FT, 28/7/10, p.2) won't surface. But once growth slows, these hidden liabilities can rear their ugly heads very quickly

3.      Thus, I am concerned about the contagion effects of a Chinese banking crisis infecting the rest of Asia...

- Economic recovery: U.S. Q2 GDP number out tonight, response to the data; plus, we will get China PMI data next week. What's your expectation? Where do we stand in terms of economic recovery?

o       USA

1.      The GDP data, like corporate profits, are riddled with accounting fiddles and are backward looking

2.      I, for one, have maintained for a long time that it is inventory cycles which are dictating the quarterly pace of American growth

3.      But there is no "trend" growth: unemployment is simply too high.

o       China

1.      The PMI will disappoint slightly on the downside, is my guess. Reason: growth must be faltering, otherwise the government would not be loosening policy yet again in order to support growth.

- M&A deals on the rise recently in Asia. Do you expect more to come? Are the financial markets ready in Asia to fund more deals?

o       Really not in my circle of knowledge

o       It just seems that Asia, like Europe and America, wants to achieve growth via scalability, i.e. by creating behemoths that can get more "bang for their buck" of costs

-Investment strategy: what to buy and sell at this moment? 

o       GENERAL

1.      caution is advised, as the global economic recovery is faltering yet again. In the diction of our Economic Clock®: there remains a dangerous excess supply of goods in the West.

2.      This implies that corporate earnings, going forward, cannot be so great in the West

3.      So: excess supply of goods in the West, and excess demand for goods in the East

o       BUY

1.      short-dated bonds

2.      consumer staples

3.      utilities that have high yields

4.      consumer cyclicals in the East

o       SELL

1.      consumer cyclicals in the West

2.      banks

Just last week we gave you our view of "bifurcated inflation", arguing that its nature is very different in the West when compared to that of the East.  Today we hone in on the Economic Time® in the East a little more, suggesting which markets are most attractive for you, the investor.

Topics Covered

1. Recent Asian policy moves
2. China
3. How to make money off this idea

The economics jury seems to have concluded that inflation is yesteryears' story and that we need concern ourselves only with deflation.  Yet on-the-ground analyses suggests something more subtle. Find out how to make money off this theme by reading on. 

Topics Covered

1. Inflation and the Economic Clock®
   
2. Inflation in the West
3. Inflation in the East
4. Impact upon profits
   
5. How to make money off this idea
   

The G-20 just finished their meeting in Pusan yesterday.  Is there a policy pattern that is starting to emerge? What does it imply for your portfolio? Any specific sector plays to engage in/avoid?

Topics Covered

1. Policy patterns

2. Implications for your portfolio

3. How to make money off this idea

Against the backdrop of America's second strategic dialogue with China today and tomorrow in Beijing, I offer some thoughts on 

• the RMB
• the Economic Time in China, and
• her "indigenous innovation policy"
  

Topics Covered

• The Yuan
• The Economy
  
• Indigenous Innovation Policy
  

We recently re-issued a warning of last February not to touch Greek bonds until July.By that time, Greece must have reduced her debt/GDP ratio by a full four percentage points.  Going by recent riots in Greece, I hardly see this as coming, do you?  Today we take a closer look at the banks' three problems - and suggest how to make money off this disaster.

Topics Covered

1. The three problems of European banks
2. What could happen
3. How to make  money off this idea

Readers know of our skepticism concerning Japan: she has gone nowhere at a snail's pace for a good 20 years. What is the outlook for the Bank of Japan's meeting tomorrow and what are the market implications?

Topics Covered

1. What will happen
2. Outcomes
   
3. How to make money off this idea

Just last Friday we released a piece outlining the interaction between the Economic Clock® and foreign exchange rate policy. Today we delve a little deeper, citing two currencies and three  markets which you should buy, based on our framework.

Topics Covered

1. Another bifurcation worth pondering

2. How to make money off this idea 

A little while ago we wrote about the bifurcation of interest rates in a twofold sense.  We also gave you a quick "primer" on monetary policy under rising exchange rates. Today we spin this story further, advising which markets look the least promising in light of recent monetary developments.

Topics Covered

1. Currency regimes and the Economic Clock®
2. Which markets appeal - and which don't
3. How to make money off this idea
   

Of late, the press has been littered with articles about how the outlook for a stronger RMB is driving up other currencies in the region. We analyse this thought from the perspective of the Economic Clock® - and tell you how to make money off our thoughts. 

Topics Covered

1. A stronger currency and the Economic Clock®
2. Currency effects of a stronger RMB
   
3. How to make money off this idea