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    Enzio von Pfeil

    Strategic asset allocation

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 strategic asset allocation thinking. 

Media Presence

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

Steeper US Yield Curve: Investment Implications

Wednesday, August 13, 2014

  1. Weaker Euro.  We recently suggested that the dollar would rise relative to the Euro. One reason is that US rates will rise relative to the Euro's. This is particularly true of long rates in America: expect a steepening yield curve.
  2. Impervious cost - push inflation. Short rates get stuck in America for a variety of reasons.  We, for one, do not believe that there is much "demand-pull" inflation in America: wages are stagnant. Instead, there is some "cost-push" inflation account of the weather driving-up particularly soft (i.e. agricultural) commodity price.  But even Janet Yellen cannot influence sun spots and resultant El Nino patterns, can she?
  3. Sickly U.S. housing market.  Just in today's marvelous Financial Times, p. 5, Anjli Raval edifies us about the sickly state of the US housing market. It remains weak because people cannot afford to buy homes. And they cannot afford to do so because real wages are growing by 0.0 per cent. Thus, with bleak incomes expectations people are not in a house-buying mood.
  4. Stanley Fischer. This eminent economics professor is the Vice Chairman of the Fed. Just two days ago he said that "...a soft housing recovery was a factor in disappointing global growth and warned that it could be a long-term phenomenon." Well, if Prof. Fischer is warning of a sickly housing market, and we have mid-term elections looming, do you seriously believe that the Fed will raise short-term funds in the near future? Hardly so.
  5. Rising long rates. Meanwhile, long rates rise because the Fed stops its bond-buying programme this October. So less demand means that bond prices fall, ergo yields rise.  (I say "less" demand because in all probability, the Fed will do what the Bank of England has done since the Old Lady stopped buying bonds with fresh money: the BoE has kept buying bonds with the interest income it derives from current bond holdings.)
  6. Steeper yield curve = sluggish bank lending. The result? Sluggish wages depress short rates, and sluggish Fed purchases prod long rates. So the yield curve steepens.  Thus, banks can borrow short and buy long, making plenty of money - without opening the credit spigots...
  7. Forex  implication. Short the Euro and buy the dollar. 
  8.  Read more