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    Enzio von Pfeil

    The Economic Clock® Blog

Dr. Enzio von Pfeil

A seasoned global economist. Enzio von Pfeil’s skill lies in understanding macro-economics, the business cycle and business operations. Hong Kong-based Enzio von Pfeil has an international education which culminated in studying inter alia under Prof. Friedrich von Hayek. He has a distinguished 34+ year career (US, Germany, UK and Hong Kong) in macro-investment economics.

His understanding of currency, commodity, bond and equity movements as they relate to socio-political developments across the global economy, underscores the authority and integrity of his Economic Clock® Blog.

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Author of five books, and with a 30-year global career as an investment economist in the USA, Germany, UK and Hong Kong, Enzio von Pfeil is a professional speaker and commentator on Reuters, Bloomberg and ChannelNews Asia on economic impacts on markets, industry sectors and corporations.

Strategic Asset Allocation

Sunday ALERT: ECB's stress tests released

Friday, October 24, 2014

  1.  Aberration. Our readers know that I work on about a six-month time horizon, so today's note is an aberration in that we are discussing something that will happen this Sunday in Europe: the European Central Bank (ECB) presents the results of its year-long review and stress testing of 130 banks' balance sheets.
  2. Financial Times (FT) op ed.  I took my cue from Ralph Atkins' good op ed on p, 22 of today's Asian FT, "Bank stress tests will determine Eurozone investors' next moves".  I have lifted and quoted liberally.  Go and read this useful op ed for yourself!
  3. Why this alert?. Often, we are caught by things which we are simply unaware of .  Hence this alert.    The ECB's "comprehensive assessment"  has gone pretty un-noticed;  and, where it has garnered attention, this has  bordered on indifference.
  4.  Fog. What this seeming "indifference" belies  is that skittish markets are unsure whether the 130 stress test results will be interpreted positively or negatively.  
  5. "Positive" news. We may read on Sunday that the ECB has identified over 10 banks that have failed the stress tests. "But since the tests are based on 2013 numbers, 'failed' banks may already have made good their weaknesses, with much of the additional capital needed already raised. If such results are priced in to markets, the reaction could be modest, or amount to a 'relief' rally."
  6. "Negative news".  One possibility:  "...there is' too much consensus' around a relatively harmless outcome. If so, a tougher than expected ECB could trigger a Eurozone sell-off.  Additional capital raising by poorly performing banks would further depress Eurozone bank shares." Another option triggering a sell-off of especially of European bank shares: ":Rather than boosting confidence, a seemingly positive report card for Eurozone banks could raise questions about whether the EB tests were sufficiently thorough. 'There are some investors who think there are very big hidden problems' ..."
  7. Investment implication.  Better to be  safe than sorry. Position yourselves so that you are neutral to short of Eurozone bank shares this week end. There are so many good opportunities out there (America, China and India), so why waste your time praying about Eurozone bank shares? Remember our old economics 101 friend, "opportunity cost"?
  8.  Read more