The Economic Time™ and Tide™ Wait for No Man

Asian economies are in technical recession. Investors have discounted this mess for the past six months Thus, I am making no major change to my investment strategy/asset allocation.

Investment themes up to the first half 2009: The next bubbles that have to burst are long-dated bonds, on account of the rising US and other budget deficits and the dollar itself.

We like no markets as the global Economic Time™ is virtually the same everywhere: the chickens of irresponsibility are coming home to roost. If one must be in markets, then be in “vital” sectors like consumer staples, food or healthcare. At least, they won’t get hurt as much because people still have to have these products and services.

As to current earnings, the outlooks is down even more. The Economic Clock™ is clanging. There is excess demand for money, and an excess supply of goods. Under such a scenario, it is impossible for corporate earnings to improve. Indeed, layoffs” news has just reached our shores in Hong Kong. This implies that neither turnover nor margins can rise

Other highlights:

President-elect Barack Obama’s influence on China and vice versa: It appears as though Obama will have to go protectionist, as many of his voters expect this. Meanwhile, Chinese officials will start taking their wrath out on the local operations of U.S. multinationals – something which my most recent book, Trade Myths: Globalization and the Trade Balance Fallacy, warns of.

A bond blowout. Seems like markets are not quite aware of the extent of public debt that is being created now that the chickens of irresponsibility have come home to roost.

Cost-push stagflation. We have been bleating on about this since the spring 2006, so at some point this will occur. This will hit particularly those countries or areas whose currencies have fallen the most against the US dollar, e.g. Euroland (rapidly morphing into Neuroland)

Formerly chief regional economist for leading London-based investment banks in Hong Kong, Enzio von Pfeil is now an independent investment adviser and a regular contributor to Bloomberg Television UK, Bloomberg Television Deutschland, and to CNBC Asia. This is adapted from his website