“China is incrementally changing the status in Asia – it’s called salami slicing.”
-Brahma Chellaney
China is also incrementally changing the status of what became a Globally Synchronized #Slowdown in Q4 of 2018 – it’s called Quad 2. But how much of that critical (policy injected) economic pivot is priced in? How sustainable is it?
I personally struggle with answering those two questions more than any others that are staring me down from my notebook at the top of every risk management morning. Do you struggle with that? Where you at on China?
I can tell you where the Chinese are at on Brahma Chellaney. The Chinese “describe the former Harvard professor as a demented lunatic.” Whereas Tom Miller (author of China’s Asian Dream) says “Chellaney is worth listening to: he eloquently voices the negativity that many Indians feel towards China.” (pg 168)
Back to the Global Macro Grind…
When it comes to making macro market decisions, I don’t do the “feel” thing. When we measure and map the GROWTH, INFLATION, and PROFITS data, I really don’t feel anything at all.
In today’s Chart of The Day (slide 39 in the Q2 Macro Themes deck), I’m showing you what my teammates and I are looking at when we are trying to help you with the most probable Economic Quadrant a country is going to be in.
Looking backwards, what Quad a country was in isn’t a “feel” or opinion thing. It’s an economic fact.
When you ask me where I’m at on China, Brazil, Italy, etc., I’ll always start with contextualizing the “comps” (historical base effects), then I’ll give you:
A) The most recent real-time economic data … and
B) What my multi-factor, multi-duration market signal is telling me in kind
The 4 Quadrant colors aren’t static. They change as the economic data does. It’s only until the last few years that I’ve been able to communicate this part of my decision making process as my A/B Test.
What is A/B and multivariate testing?
Look it up and you’ll learn something. I learned how to incorporate this into my #process from Forrest Chang and Diego Scataglini. They’re the two Partners @Hedgeye who run our software and engineering team.
Do you have a software and engineering team?
You should either get one or have me help you understand how my “fundamental” and traditionally trained Wall Street analysts use mine. We employ what’s called an Agile Testing (software testing) #process and I love it.
Gone are the days where I’ll ever ask my analysts where they’re at on an answer that can be quantified using modern machines, predictive tracking algos, etc.
God willing, our Old Wall competition doesn’t get where we’re at on this for a very long time.
Back to what’s born out of my #process and all part of my China struggle this morning:
- Shanghai Composite Index closed down -2.4% overnight and has been down for 3 of 4 trading days this week
- Shanghai Composite snapped my immediate-term TRADE line of 3225 support this week
- Shanghai Composite remains above my intermediate-term TREND line of 2978 support
- South Korea’s KOSPI is down -1.4% in the last 2 trading days (despite NASDAQ closing at an all-time high)
- South Korea’s KOSPI also snapped my immediate-term TRADE line of 2228 in the past week
- South Korea’s KOSPI remains below my intermediate-term TREND line of 2279 resistance
- Copper is down -0.8% this morning slicing through it’s intermediate-term TREND line of support
- Copper continues to make a series of lower-long-term highs (as do Shanghai and the KOSPI)
- US Dollar Index is up another +0.2% vs. both the Euro and the British Pound this morning
- USD is now breaking out to a new 2019 high and is currently signaling Bullish TRADE and TREND
Again, the aforementioned 10 line items in my notebook come from a computer screen. They have no feelings whatsoever. I consider them facts because I’ve always considered last price the truth.
What is the truth on where I’m at on China as a result?
A) China is currently in Quad 2 for Q2
B) China’s immediate-term TRADE momentum just snapped but Bullish @Hedgeye TREND remains intact
That said, it’s also true that A) South Korea’s Q1 national account data is confirming of our #Quad4 forecast for that economy (GDP data #slowed again this morning) and B) the KOSPI is back to Bearish @Hedgeye TRADE and TREND.
And, while the truth continues to change, the other big time “Doctor” (next to Dr. KOSPI) in any multivariate macro #process, Dr. Copper, remains in a schizophrenic debate about the shape of China’s Quad 2 recovery.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND signals in brackets) are now:
UST 10yr Yield 2.47-2.62% (bearish)
SPX 2 (bullish)
NASDAQ 7 (bullish)
Shanghai Comp 3118-3291 (bullish)
VIX 11.60-15.38 (bearish)
USD 96.11-98.01 (bullish)
EUR/USD 1.11-1.13 (bearish)
GBP/USD 1.28-1.30 (bearish)
Oil (WTI) 62.40-66.66 (bullish)
Copper 2.86-2.96 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
