“Can anybody tell me what’s wrong with Japan?”
-Bill Clinton
There’s a great chapter in Asia’s Reckoning titled “Asian Values” which reminds us why Westerners often don’t think of China and Japan like the Chinese and Japanese do. Especially as Japan’s #SecularSlowing began in the 1990s, many had that wrong too.
Simple relationship: as #GrowthSlows, relationships sour. It’s a secret to the universe (calculus) thing that turns into a political thing. When everything is #accelerating in ROC (rate of change) terms, it’s all good.
As former US Ambassador to Japan, Mike Mansfield, described the US/Japan relationship in the 1990s, it was “like a glacier breaking apart, with pieces drifting off in different directions” (pg 139). Do you think Fed cuts and Trump tweets can stop economic gravity?
Back to the Global Macro Grind…
I obviously don’t think cuts and tweets can stop HIGH BETA “stocks” from going down (and Treasuries, Utes, and Gold from going up), or I wouldn’t have reiterated the #Quad4 in Q3 call at the end of July.
What I “think” isn’t a “feeling” or anything visceral like that. It’s purely a data-dependent conclusion. Next to the USA, China, and Japan, the world’s 4th largest economy is Germany. It printed a recessionary Q2 GDP report of -0.1% this morning.
But that’s Old Wall “news” now. We started making the #EuropeSlowing call in Q4 of 2017.
You didn’t have to get a Chinese recession, or German one for that matter, to get their respective “stocks” (and Sovereign Bond) markets right. You simply had to get the rates of change of their respective economic cycles right.
So stop with the “feelings” already. Stop with the emotional reactions to the tweets. Just stop. And start being an apolitical and data-driven bean counter in the modern era of macro. You’ll crush your Macro Tourist competition.
What’s new ROC news this morning?
- US Capex just entered a recession
- UST Yield Curve inverted (again) on 10s/2s
- No follow through from the US rally in “stocks” in any other asset class
- 5 of the top 11 S&P Sectors are in an #EarningsRecession
To be fair, this isn’t completely new. Everything new in macro fits as a new dot on a sine curve. That sine curve is called a time-series. It rarely gets disintermediated, cyclically, by cuts and tweets.
To review pertinent details of aforementioned newness this morning (ABCD):
- CAPEX – came in a -0.5% year-over-year (i.e. NEGATIVE) growth yesterday – that’s the worst print since NOV 2016
- UST 10s/2s Spread is NEGATIVE 1 this morning (after briefly bouncing back to positive alongside “stocks” early last wk)
- Hang Seng, EM Asia, London, Greece, Russia, etc. “stocks” were all down when I got up this morning
- Materials, Tech, Energy, Consumer Discretionary, and Consumer Staples ALL have DOWN y/y Earnings in Q2 of 2019
I know, what could possibly go wrong for people who chased “stocks” into yesterday’s close? Even one of the few US Equity Sector Styles I still like on the LONG side (Utilities) isn’t in a spot where I’d buy more this morning:
- Utilities (XLU) led part of yesterday’s SPY bounce to lower-highs, with XLU up another +1.2% on the day… but
- It’s now close to the top-end of my @Hedgeye Risk Range for XLU and …
- XLU has a complacent implied volatility DISCOUNT of -23% vs. 30-day realized
That’s all new information too. That’s right. Market prices, volumes, and volatility readings are brand spanking new, every single day. And, every day, you have an opportunity to improve your gross and net positioning alongside the newness of it all.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND signals in brackets) are now:
UST 10yr Yield 1.47-1.64% (bearish)
SPX 2 (bearish)
RUT 1 (bearish)
NASDAQ 7 (bearish)
Utilities (XLU) 60.32-62.81 (bullish)
Shanghai Comp 2 (bearish)
DAX 113 (bearish)
VIX 16.24-23.68 (bullish)
USD 97.40-98.48 (bullish)
Oil (WTI) 52.43-54.42 (bearish)
Gold 1 (bullish)
Copper 2.50-2.62 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
