Enzio's Clock

"Be willing to have it so" is Dale Carnegie's proven strategy against worry. But not so with markets.  They keep wanting to believe this official  hype about "green shoots": well, imagine what would happen if he said the opposite.  Prof. Bernanke would have shot himself - and Hank Paulson - in the foot, dragging down their immediate rescue actions with them. This suggests that Prof. Bernanke had to talk his own book - and why not?

However,  in this morning's press we read that an economic adviser to President Obama already is hinting at the need for a second American stimulus package, what with the unemployment rate  already reaching 9%+.

So what does this have to do with a short, sharp market crash this October? Everything:

1. Earnings disappoint. According to the Economic Clock®, America's Economic Time® is characterized by an excess demand for money (banks won't lend, so people/companies  undergo the pain of cash shortages) and an excess supply of goods (unemployment keeps rising, so people spend less/ save more). This Economic Time has to be bad for most corporates' earnings. Indeed, already yesterday we read that Wall Street tumbled because of nervousness surrounding earnings. Indeed, none other than investment greats like Soros and Paulson were in today's Wall Street Journal Asia casting doubt on the earnings prospects of corporations, and Presidential Economics Adviser, Dr. Laura Tyson, was one of many musing about the need for a second stimulus package.  Golly, so if some truly remarkable minds are worrying about growth and thus earnings, then how  about you and I? ;
2. Bond market crash?  If Obama goes ahead with a second stimulus package, I do not stand alone in wondering whether this will not scare debt markets - and cause a run on US Treasury bonds..;
3. Flight to safety. With"Joe normal" devastated at losing his job (alias: rising unemployment, standing at 9.5% this June) or seeing his retirement savings wiped-out (alias: Madoff, retired free of charge in jail), he/she will be disinclined to buy stocks - or to get into funds touting "safe" stock investments for retiree.  So out goes that chunk of demand for stocks, and
4. Proprietary trading desks will demand their pound of flesh. Having gorged themselves on an (orchestrated?) bull run since March, our bonus-cowboys now will get hungry for that next million dollars in rewards for punting with someone else's money. If the market is not going to go up anymore (see reasons one and two above), then how do you make big bucks? By shorting, of course. So the appropriate arrangements will be made at the trading desks of these purveyors of dishonest corruption....

How to make money off this looming trend.

1. Always  consult your financial adviser first.
2. To go short the U.S. market, one ETF which I own is SDS:US. It is up by around 8% over the past month. (We are not ETF experts, and some of our astute subscribers correctly have chided me for such long-term recommendations on ETFs. I accept this criticism, but have no other way of conveniently shorting sectors or specific instruments.)
   
3. To go short U.S. financial stocks, have a look at another ETF which I own, SKF:US. It is up by around 12% over the past month.
4. Have a look at an ETF through which you can short the U.S. 20-year+ Treasury Bonds, TBT:US, another instrument which I own.  It is down by 11% over the past month, but the technicals indicate that this ETF is firmly in buying territory.
5. Once the crash hits, go long of particularly Hong Kong/China  and India.  At that time, we will be looking to buy into these instruments:
• Hong Kong: Hong Kong Exchanges and Clearing, 388:HK
• China:
• China Railway Construction, 1186:HK (specializes in railway construction & related)
• Tencent Holdings,700:HK (one of China's largest if not largest internet companies)
• Baidu, BIDU:US (one of China's largest if not largest internet search engine)
• iShares FTSE/Xinhua A50 China Tracker, 2823:HK (tracks the  iShares FTSE/Xinhua A50 China index)
• India:
• iShares Asia Trust  - iShares BSE SENSEX India Tracker, 2836:HK  (tracks the performance of India's SENSEX Index)