Dr. Enzio von Pfeil

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Location-Channel:

CNBC

Day and Date:

Wednesday, 4th July 2007

Hong Kong Time:

16:40

Show Notes:

On the Asian Crises

Have countries learned from the crisis?

  • I think they have. But I have not found a convincing reason why we had the crisis in the first place - this is the definition of chaos!. Why was it that the Thai baht caused Asia to fall eludes me. I think the Thai baht was pressured because of the hedge funds - but why "contagion" followed remains unclear.

  • Countries have probably learned through that experience by fire, the policy response and co-ordination is now much faster and better - and more tightly co-ordinated, including liasing with international groups such as the IMF.

  • The big difference is that China is now the money flow focus. In 1997 its capital account was closed and even within China, normal people could put their money only into bank accounts. Now, the capital account is opening very gradually (and wisely!), and the normal citizen can go into the stock market.

  • What's going to trigger the next crisis? ("Crisis" stems from "decision" which in turn stems from "to cut off..." This indicates that crises force decisions - they "push people off the log". Meanwhile, "chaos" stems from "void")

    • I think it's going to come from the acceptance of reality. For the past year, The Economic Time™ of the West has been worsening, exactly as The Economic Clock™ has been indicting.

      • In US and Europe, I've been told no one is buying retail goods - and that buying, that private consumption", accounts for two thirds of any economy! Thus, profits can only go one way in the US and Europe: down.

      • Turnover thus is falling, but so are margins. In America, productivity keeps waning while wages are rising, so up go unit labour costs. With sagging turnover and cheap goods from China, etc., , companies cannot pass these higher costs on ("cost push" inflation"), so margins get whittled down, too

    • At some point, those big banks and hedge funds will have go "short" - the trigger being an acceptance of a worsening Economic Time. What I'm seeing is a violent correction down and the US market goes dead for a while. But what "triggers the trigger"?

    • the yen carry trade gets unwound due to perceived "tightening" by the Bank of Japan

    • The sub-prime is so complicated that even the brightest brains can't gauge its extent. All you need is a few people pushing and the whole herd will follow.

    • there is an unexpected bankruptcy of a large corporate

Will the next crisis be bigger with more people putting their money in the stock markets and especially, we hear so many stories about Chinese getting loans to invest in the A-share market?

  • In case of another crisis, I think the volatility will equal that of 1997 though it'll be short-lived.

    • Chinese have only has 6% of their savings in stocks, it's not as big as many commentators make it out to be.

    • Because of what they've learnt the last time, there's now stronger coordination across the region. the financial violence will be equal but less long.

    • I also think that you will find people exiting Europe and America along with other markets, but then re-entering the East very quickly, especially China and India.

10 years on... what's your opinion on markets which suffered badly during the crisis? Markets like Thailand, Indonesia and South Korea?

  • We don't like Thailand at all: her politics are very fluid at present.

  • We are leery of Indonesia - with her excess demand for money and thushigh interest rates.

  • We like Korea... they've gone after the companies and cleaned many of them up... there's now better governance.

  • Which countries emerged the best shape?I think Hong Kong is pretty OK because it has a functioning monetary system and Singapore has done very well too. The only problem with Hong Kong is the high cost of doing business with the domination by cartels. Will RMB be the trigger of another crisis?

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Japan's Management of its forex reserves: my thoughts on the definitional demise of superpower currencies and on the "new" creation of choice:

Super power currencies always have to fall because they run out of money and they have to print more money. There's nothing "bad" about the Americans or the British or the Romans but when you have increased supply,prices goes down, currency included!

Global capital markets are creating more choices. Blackstone would not have been able to go into China 10 years ago,for example: relative to today, China was a closed shop.

Any central banks that do not participate in these new choices a la currency diversification and Blackstone thus will fall behind.

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China: is the RMB a one way bet?

  • I think not, and appear to be in good company.

  • For many months we have been asking clients: why does China not just open her capital accounts? Going by today's press stories, you would think that money will just fly in, so up goes the RMB.

  • We think the opposite, and venture to say that eminent Prof. Mundell has suggested a similar line of thought.

    • were China's capital account to be opened, the normal Chinese citizens would yank their money out of the banks asap - because they don't trust them. Look at why Macau's gambling is booming or why all Chinese tourist females dash for Hong Kong's gold shops when gracing our shores: they want at least 99% of their money back. as in: 99-proof gold

    • So my take is that much more money would exit China then ever enter it.

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