“Silver had been the main Chinese currency for at least a thousand years though almost none of the white metal was produced domestically.”
- William Silber
I am long of Silver (SLV) and short of China (in FXI terms). With Silver correcting -1% this morning, I’ll have to stave off some panic attacks we get about whatever is down on the day in the Macro Show Queue!
It’s really ok. I signed up for this. When I founded Hedgeye in 2008, the “eye” in Hedgeye was to let The People (not just Wall Street) see a hedge fund manager’s #process, daily, with transparency and accountability on every #timestamp.
Today, we’ve expanded the transparency-as-a-service offering to listening in on both The Call @Hedgeye (our research team’s morning meeting) and The Macro Show where anyone can ask any question they’d like in a LIVE Q&A.
Back to the Global Macro Grind…
I also give transparency into what I am reading (1 book every 10 days). In doing so, I try to contextualize big things like my #process and #history. Only through a consistent education can I attempt to contextualize today’s Cycle with the past.
The aforementioned quote helps contextualize the long history of China and its currency. “The yuan, a standardized Silver coin, was first introduced into China in May of 1910 and became the official monetary unit in 1933…”
“The government’s effort to unify the currency and to stabilize the economy came too late. China’s currency is still called the yuan, but the Silver content disappeared in 1935 when China was forced off the Silver Standard.”
-The Story of Silver, pages 60-61
Today’s mainstream “news” story about America colliding with China is not a new one. It’s an ongoing one. Through the lens of our #process, it will only get more interesting from here in both Quad & Currency terms.
So let’s just start with why I remain short of China via FXI:
A) China was the 1st major economy to enter what we call #Quad3 Stagflation
B) China’s (FXI) Risk Range™ Signal continues to signal what we call a Bearish @Hedgeye TREND
Chinese Stocks (Shanghai Composite Index) were down another -0.9% overnight and continue to make a series of lower-highs from their recent #Quad1 Cycle Peak.
As you can see on our proprietary Quad Map (slide 20 of the current Hedgeye Macro deck):
A) #Quad1 in Q1 of 2021 was The Cycle Peak for the Chinese economy… and
B) It was the 4th straight quarter of #Quad1 after being the 1st major economy to accelerate out of COVID
Why did they #accelerate out of COVID Cycle Lows first? A simple answer would be that they got COVID first, then they gave it to the rest of the world.
A more well-rounded, Full Cycle Investing, answer would include that the Chinese economy last peaked into the end of 2017 and was slowing throughout 2018 and 2019, PRE-COVID.
Why? While the “why” matters a lot less to me than the WHEN on cyclical and secular #accelerations and #decelerations, two of the biggest reasons for Secular Slowing in China have been:
A) Demographic slowing of real-consumption growth (specifically their 35-54 year old population)
B) Post WTO entry, China saw its Industrial Cycle peak and has been making a series of lower-highs, cyclically, since
Why would one be short of Silver if the Chinese no longer need to consume it as part of their currency?
A) Silver is long when America is in #Quad2 … primarily because
B) The US Dollar is a short in #Quad2
Yes, we can tell ourselves stories about supply and demand that seem to be quite bullish right now. We are going to “electrify” everything, don’t forget. But I’m more of a Risk Range™ Signal & Quads guy, so I’ll stick with that.
As you can see at the bottom of today’s EL (and every day in our Risk Range™ Signal product), Silver’s Risk Range is currently 27.43-28.41 and is signaling bullish on both my proprietary TRADE and TREND durations.
If the singularity of my signaling process wasn’t signaling Buy on Commodities like Silver and Sell on USD, I wouldn’t keep saying its #Quad2 on The Call and The Macro Show. I’ll be the first to let you know when that (or China) changes.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 1.44-1.68% (bullish)
SPX 4195-4269 (bullish)
RUT 2 (bullish)
NASDAQ 13,765-14,236 (bullish)
Financials (XLF) 36.81-38.88 (bullish)
Shanghai Comp 3 (bearish)
VIX 14.96-18.45 (bearish)
USD 89.54-90.67 (bearish)
EUR/USD 1.209-1.224 (bullish)
Oil (WTI) 68.15-71.63 (bullish)
Gold 1 (bearish)
Copper 4.31-4.70 (bullish)
Silver 27.43-28.41 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
