Transparently Slowing

“China is not doing this transparently.”

-Jim Rickards

While my friend, analyst, and author Jim Rickards could have obviously been talking about Chinese PMI and/or GDP data, in his latest book (The New Case For Gold), he was alluding to Chinese stockpiling of a precious currency that’s currently up over +22% YTD.

 

“China, Russia, Iran, and other countries’ central banks are stockpiling gold as quickly as they can. In July 2015, it updated its official gold reserves for the first time since 2009 to show 1,658 tons, up from the previous reserve of 1,054 tons… China’s figures are deceptively low because it holds huge reserves, perhaps 3,000 additional tons or more in an agency called the State Administration of Foreign Exchange, or SAFE.” (pg 92)

I don’t know about you, but I put my physical Gold in a safe. So, maybe these Chinese dudes deserve some “clever” points for hiding theirs in a place where only a macro moron wouldn’t consider searching for it.

Back to the Global Macro Grind…

You don’t have to search very far to see that Global #GrowthSlowing remains reality inasmuch as that intermediate-term macro TREND “bottoming” remains a hope.

The Australians cut rates another 25 basis points overnight and the European Commission cut their growth forecasts (again) this morning. Consensus still isn’t in the area code of our Street low 0.2% GDP estimate for the Eurozone in Q4 of 2016.

As Japan’s grand central-market-planning experiment blows up in their unaccountable face (and Japanese growth slows, again), both the American and Chinese macro data continues to TREND bearish as well:

1. China reported a made-up PMI of 49.4 for APR vs. 49.8 in MAR
2. USA reported an ISM for APR of 50.8 vs. 51.8 in MAR

I know. Lots of people have been calling for ISMs and PMIs to bottom this year. And in anchoring on that, they completely missed that the later cycle sectors of the US economy (Consumer, Financials, Healthcare, and Tech) #slowing.

The latest of #LateCycle economic indicators is obviously employment. That component of the USA’s ISM report remained < 50 (at 49.2) for the 5^th consecutive month. Not ironically, NFP (non-farm payrolls) peak, on average, 4-6 months AFTER #TheCycle (GDP) does.

But that US #EmploymentSlowing surprise is something you Long Bond (TLT), Utilities (XLU), and Gold (GLD) bulls can look forward to by the end of this week. In the meantime, we have this other big thing going on called Earnings Season.

 

For Q1 Earnings Season to-date, 315 of the 500 companies in the S&P 500 have reported results:

1. Aggregate SALES growth is down -2.6% year-over-year = worst level of the season so far
2. Aggregate EPS growth is down -8.9% year-over-year = worst level of the season so far
3. Industrials and Financials have EPS down -7.6% and -13.4% year-over-year, respectively

But if you back all of that out and just look at Energy, earnings for that sector are down -96.5% year-over-year. So, what you really want to do to in perma-bull storytelling on SPY is “Ex-Energy” earnings from the picture, but be overweight Energy (XLE) stocks.

The Top 3 Losing Sectors in the SP500 YTD are:

1. Healthcare (XLV) -2.6% YTD
2. Financials (XLF) -1.3% YTD
3. Technology (XLK) -0.9% YTD

You can probably get that Tech (XLK) component “up” YTD if you go Ex-AAPL. Heck, who has owned Apple or European stocks since #TheCycle peaked in Q2 of 2015 anyway? Probably no one, eh.

To be fair to those who deal with “relative” returns… German, Italian, and Spanish stocks are down -20%, -25%, and -25%, respectively, from their 2015 #Bubble highs, so “cheap” (getting cheaper) European stocks are still “outperforming” a you-gely cheap AAPL!

Admittedly, you can get lost in the mess that is the narrative on why the US stock market should be at all-time highs right now. Perversely that narrative should be grounded in the US economic data being so bad that the US Dollar gets torched to all-time lows.

But, for now, with last year’s biggest losers (Energy and Industrials) placing 2^nd and 3^rd in the Sector leaderboard to our Utilities (XLU +12.8% YTD), the storytelling is still trying to hang onto a hope that cyclical demand has “bottomed”, however transparently inaccurate that is.

Our immediate-term Global Macro Risk Ranges are now:

UST 10yr Yield 1.72-1.92%

SPX 2065-2090
RUT 1120-1156

NASDAQ 4

DAX 95
USD 92.03-94.57
EUR/USD 1.13-1.16
Oil (WTI) 41.96-46.37

Gold 1255--1302

Best of luck out there today,

KM

Keith R. McCullough
Chief Executive Officer