“The party is like the Swiss army knife of politics.”
As Richard McGregor goes on to argue Asia’s Reckoning, “the nature of the Chinese Communist Party is rarely factored in when calibrating the country’s diplomacy, but that is an oversight…”
“The sharpest blade combines a number of functions that cumulatively add up to what Xi Jinping has called The China Dream. The party cannot succeed at home unless it is seen to prevail overseas.” (pg 13)
Does Trump get this? If he did, would he care? Do you care? Most importantly, is your hard earned net wealth positioned for what is currently happening (economically) in China or for what you’d like to see happen?
Back to the Global Macro Grind…
I’m in California seeing Institutional Clients this week. The long plane ride to the West Coast always gets me thinking longer-term. That’s what reading books instead of tweets does for the mind. And I like it.
I don’t think there’s ever been a time when so many market participants have had to have a macro view (fully loaded with a precise measuring and mapping #process for both the Chinese and Global Economy) with so little quantitative edge.
Do you know anyone with a longstanding track record as an alpha generating Portfolio Manager who has driven 60-80% of his or her alpha making “calls” on political outcomes? Send me their digits. I’d love to have them on @HedgeyeTV!
Newsflash (not a tweet): economic and market outcomes perpetuate political realities and risks.
If I woke up every day on a boat with no WIFI, lit a cigar, and had my coffee with a book, I’d definitely avoid hiring myself from running my own money. The Machine doesn’t care how smart we think we are. We have to prove we can beat The Machine.
May Market Update: Global #GrowthSlowing (Quad3), China #Slowing (Quad 3), USA #Slowing (Quad 4 in Q3)
With zero political thought, you could have come up with that tangible (and probable) economic outlook by simply using:
- The Quads (global economic data is reported and bean counted, daily)
- The Signals (our TRADE/TREND/TAIL signals)
Again, if someone has a “guy” or a “gal” who is well “connected” in France or Argentina this morning, that’s cool. Instead, I’ll go with Argentine super market sales down -14.5% year-over-year vs. -12.1% y/y in the month. #NastyQuad3
In France, the CAC 40 (or “stocks) are taking the baton from Italy this morning and leading European Equity losers with a -1.8% loss, taking its 1-month draw-down to -6.5% (vs. Italy’s MIB Index down -8.5%). We also have France in #Quad4 in Q3.
Data, signals, data, signals, more data…
I’m effectively preaching #process (again!) this morning because I get a lot more feedback on our Quad 4 in Q4 call being a “great call” than I see Portfolio Manager returns that executed the #process during said economic conditions.
Today’s Market Update: Treasuries Ripping
Yep, that’s precisely what should be happening when both US and Global asset allocators are having a Quad 4 Scare. That’s easily the biggest asset allocation in my p.a. right now. It should be in yours too:
- UST 2yr Yield down to 2.08% this morning with immediate-term downside to 2.04%
- UST 5yr Yield down to 2.03% this morning with immediate-term downside to 1.99%
- UST 10yr Yield down to 2.23% this morning with immediate-term downside to 2.20%
In other words, The Curve on 5s/2s remains inverted and 10s/2s is +15 basis points wide and compressing. If you’re looking for a catalysts for a Fed Rate Cut:
- An inversion on 10s/2s will help that inasmuch as
- Widening of High Yield OAS (spread) towards +500 basis point over will do that, especially if
- SP500 drops another 5-6%
What if all 3 of those things happen before the next Macro Tourist China catalyst (Xi meeting with Trump)? A Fed Cut would be a much more material catalyst in our model than an alleged trade “deal” with the Chinese.
Why? That’s easy. A Fed Rate Cut = Catalyst for Reflation Expectations. A Quad 4 Scare = Deflationary Expectations.
Most people who missed making the #PeakCycle US INFLATION call when headline inflation (and market expectations for #accelerating INFLATION) peaked in Q3 expect lower INFLATION now. Thanks for coming out.
If Oil, the CRB Commodities Index, etc. continue to break-down (they’re getting Quad4’d again this morning), falling inflation expectations can only be countered by a Fed Rate Cut. Or at least that’s how Bernanke taught the Fed to think…
So, until then, its downward and onward for market expectations until you get your Fed Cut and/or Trump tweet.
The Cycle, meanwhile, is like a Swiss army knife too. You don’t want to stab yourself in the wrong Quad. In real life, they bleed.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND signals in brackets) are now:
UST 10yr Yield 2.20-2.43% (bearish)
UST 2yr Yield 2.04-2.24% (bearish)
SPX 2 (bearish)
RUT 1 (bearish)
NASDAQ 7 (bearish)
Utilities (XLU) 57.69-60.25 (bullish)
REITS (VNQ) 86.28-88.65 (bullish)
Financials (XLF) 25.42-27.03 (bearish)
Shanghai Comp 2 (bearish)
VIX 14.01-20.56 (bullish)
USD 97.10-98.33 (bullish)
EUR/USD 1.11-1.13 (bearish)
Oil (WTI) 57.06-61.65 (bearish)
Gold 1 (bullish)
Copper 2.62-2.75 (bearish)
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer