BUZZKILL

Last night’s 5% pullback in the Shanghai Composite was a jolt to the system of bubble watchers like myself who have been following the trajectory of a market that appears to have come too far too fast in recent weeks -driven by a cocktail of optimistic first-time investors, easy credit and raw momentum.  5% does not a correction make however, so the price action in the next two sessions will provide us with a critical signal.

Currently, the quantitative model that Keith uses as part of our portfolio process has identified a SSEC index TRADE resistance level at 3,488 and a TRADE support level at 3,123. On a longer duration, 2776 is setting up as a TREND support line.

BUZZKILL - abchina1

In the here and now, Chinese equities are not being driven by fundamentals and only two forces are poised to force a reckoning:

  1. The IPO Calendar: In the wake  of the 12 billion share State Construction initial offering there are a slew of additional companies lined up to begin trading now that the 9 month new issue moratorium  has ended. Presumably, even with the billions of dollars that Chinese households have in savings accounts, the impact of increased supply will be felt eventually.
  2. Credit: Last night saw a 57 basis point spike in 1 month repo rates to 2.23% on speculation of tightening by the central bank. The trend in short term rates in recent weeks has been pronounced as more stock and commodity speculators enter the short term money markets (see chart below).

BUZZKILL - abchina2

On this second point, Ken Fisher was quoted today saying that Chinese regulators have “zero incentive” to curb lending since the nation’s economy is “going gangbusters compared to the rest of the world, so why would they try to kick that”. Now I know that Ken has been doing this for longer than I have, but to my mind the decision by the central bank to keep the loosening policy in play doesn’t necessarily mean that they won’t try to curb speculative excess.  Beijing doesn’t want to have volatile stock market fluctuations create discord among the new retail investors flocking to the markets so, I think that it is entirely possible that they could take steps to reign in margin lending and proprietary speculation by banks ( a growing factor in the equity markets there –see chart below) without impacting the access to credit for consumer spending on durable goods and industrial expansion.

BUZZKILL - abchina3

Andrew Barber
Director


Did the US Economy Just “Collapse”? "Worst Personal Spending Since 2009"?

This is a brief note written by Hedgeye U.S. Macro analyst Christian Drake on 4/28 dispelling media reporting that “US GDP collapses to 0.7%, the lowest number in three years with the worst personal spending since 2009.”

read more

7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more