“Never let the future disturb you. You will meet it, if you have to, with the same weapons of reasons which today arm you against the present.” -Marcus Aurelius
We are excited to host our 5th annual macro conference, Macrocosm, this Thursday October 17th at the Yale Club in NYC. The theme for this year’s event is "Crossroads." That seems apropos given the myriad crossroads we are facing as stock market operators heading into 2020 – political, policy, geopolitical, and economic. To the extent you’d like to attend and haven’t RSVPd yet, please email .
The use of the quote above from Marcus Aurelius is not without irony. He was the last of the rulers known as the "Five Good Emperors" and the last emperor of Pax Romana, a period of relative peace and stability in the Roman Emperor. But as our resident demographer Neil Howe often reminds us, generations occur in cycles and eventually the decline of Aurelius’ rule led to darker days for the Roman Empire.
Now we aren’t about to enter the dark days of what Neil would call a Fourth Turning, but we clearly are at a turning point and the more educated we can be . . . well so much the better. Some of the speakers we’ve invited to discuss these important topics include:
- Lt. Gen (Ret) Dan Christman – During his long military career, General Christman served on the National Security, was a member of the teams negotiating SALT and Middle East peace, served as the U.S. military advisor to NATO, and eventually became the superintendent of West Point. He is one of the world’s preeminent experts on geopolitical affairs and, as usual, will lead a riveting discussion on major geopolitical hot spots.
- David Wasserman – Wasserman is widely considered one of the leading non-partisan analysts on election outcomes and currently works with The Cook Report in Washington, DC. He will provide an in-depth look at the upcoming 2020 Congressional and Presidential elections. One question we are keenly focused on is the possibility of Elizabeth Warren becoming President and associated policy implications. (A recent Fox News poll had Warren up on President Trump by +10 points)
- Shakib Khalil – As the former energy minster for Algeria and eventual President of OPEC from 2001 – 2008, Khalil is at the forefront of understanding the political and geopolitical dynamics facing the global energy market. We’ve long been of the view that oil currently lacks an appropriate geopolitical risk premium, which was validated by the recent drone attack on Saudi Aramco processing facilities in eastern Saudi Arabia.
We’ve posted a full agenda of the event below. If you’d like to reserve a spot and, of course, join us for drinks after, please email .
Back to the Global Macro Grind...
The economic data out this morning hasn’t done much to change our view of slowing global growth. My colleague Darius Dale highlighted a few key points to us internally this morning:
- Consensus Macro will call the +10 bps acceleration to +12.5% this morning a “green shoot”, but New Loans – the leading indicator to track as it relates to Chinese economic activity – coming in at the second slowest growth rate since mid-2005 (right after the slowest growth rate was recorded in August) is not supportive of hopeful expectations for a near-term rebound in the mainland or global economies. Stabilization is the best anyone can hope for given the trend in these data.
- Fastest Headline CPI print out of China since October 2013, as pork prices ramped +69% YoY. Swine fever is an idiosyncratic factor we’d admit, but so is CNY devaluation. The yaun is down -2.8% over the past three months alone and the accelerated declines are fanning price pressures on the mainland, at the margins.
- “Green shoots” quickly gave way to “red shoots” in the Eurozone economy, with the German and Eurozone ZEW Expectation surveys both following the Sentix Investor Confidence survey lower in October. The lagging hard data still needs to broadly catch the leading soft data, which it inevitably will.
In the shorter term, the more ominous cloud on the horizon is Q3 earnings season which kicks off in full this week. We are currently projecting Q3 earnings to be down between 5 – 8% year-over-year which is below consensus. Routinely, we get asked what is driving this “projection” and simply put the comps. This quarter compares to close to cycle high in earnings growth from a year ago at +24.2%.
As it relates to the overall market, the issue with a decline in earnings it is makes the denominator on the much loved P/E ratio decline and, therefore, valuations go higher for the wrong reasons. As a case in point, in the YTD the forward P/E of the SP500 has increased 23.9%, meanwhile forward EPS estimates had declined -4.3%. An earnings recession doesn’t bode well for valuation support for equities.
But forget economic gravity, declining earnings, and a peaking cycle . . . we still have a trade deal with China! Needless to say, we will continue to sell the FOMO headlines of a trade deal.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND signals in brackets) are now:
UST 10yr Yield 1.45-1.76% (bearish)
SPX 2 (neutral)
RUT 1 (bearish)
NASDAQ 7 (bearish)
Utilities (XLU) 63.30-64.82 (bullish)
REITS (VNQ) 91.93-93.72 (bullish)
Energy (XLE) 55.52-58.45 (neutral)
Shanghai Comp 2 (bearish)
Nikkei 21194-22250 (neutral)
DAX 115 (neutral)
VIX 14.04-21.99 (neutral)
USD 97.89-99.14 (bullish)
Oil (WTI) 51.59-56.00 (neutral)
Nat Gas 2.16-2.38 (bearish)
Gold 1 (bullish)
Copper 2.51-2.64 (bearish)
Keep your head up and stick on the ice,
Daryl G. Jones
Director of Sales & Research
