“We can synthesize by taking various sometimes unrelated components and putting them together to form a new whole.”
- John Boyd
The latest (we get new economic and market data every day) or new whole picture in Global Macro markets is not unlike the prior one. Either someone is lying to you about it in US “stocks” terms or we’re about to see more about the ongoing truth.
The aforementioned quote about multi-factor synthesis (i.e. what we do) vs. Old Wall macro “analysis” is from one of my favorite strategy and #process books, Boyd: The Fighter Pilot Who Changed The Art of War.
“He talked of paralysis by analysis and said Washington was a city of ten thousand analysts and no synthesizers. ‘They know more and more about less and less until eventually they know everything about nothing’ is how he put it.” (pg 324)
Back to the Global Macro Grind…
What’s the whole truth about what the market is “pricing in” today vs. tomorrow? First, instead of being silly one-dimensional “stocks” people on CNBC, let’s start with defining the “market” as the entire Global Macro market.
Even if you are only a Global Equity person, you’ll see massive divergences that continue to develop not only between Chinese and US equities but between a broad measure of US “stocks” (Russell 2000 down -8.7% since The Cycle peaked) and the SPY.
If you’re paying for this, you’re obviously a person who looks at the global market’s signals through the lens of FX, Fixed Income, Commodities, Equity Volatility, etc. and The Quads.
Here’s the broad ABC (i.e. trending) macro market update on that according to my notebook this morning:
A) FX – US Dollar strength remains pervasive as the Fed is not yet Dovish Enough (listen to PE Powell again today)
B) RATES – US, European, and Asian 10yr Yields all just failed @Hedgeye TREND resistance, again
C) COMMODITIES – Oil & Gas continue to reflate this morning perpetuating out #InflationAccelerating Q4 Theme
Why? As opposed to the hopes, FOMOs, and prayers you heard about “China PMI bottoming” in OCT/NOV, here’s the latest update from the Chinese themselves per Darius’ Data Dump this AM:
A) Remember that bogus OCT Caixin Manufacturing PMI survey that consensus got all horned up about two weeks ago? Allegedly China’s National Bureau of Statistics did as well, as the core monthly high-frequency data out of mainland China left much to be desired in the direction of a “bottom” in global growth…
B) China’s Industrial Production growth #decelerated -110bps to 4.7% YoY in OCT – the second slowest RoC of the past 17yrs behind the 4.4% rate recorded in AUG
C) The all-time slow growth rate of Fixed Assets Investment of 5.2% YoY makes the “2011 China = 1989 Japan” view look incrementally relevant on the margin
But no worries. As you know, everyone on TV who neither called The Cycle peaking in China (1H of 2017) nor the USA (#PeakCycle Q3 of 2018) knows everything about nothing on these matters until Trump’s next #BeanDeal tweet.
Since we already know the cyclical truth about the Chinese economic data and market signals:
A) Hang Seng continued to #crash down another -0.9% overnight and -20.6% since our #ChinaSlowing call in Q1 of 2018
B) Chinese economic data #slowed to cycle lows against EASING compares (base effects) in OCT
What is the whole truth about China’s secular (long-term) story of Industrial demand?
What if 2020 and beyond in China is like 1990 and beyond was for Japan? For those of you who know people on TV who know less and less until they eventually remember nothing about 1990s Japan:
“Mid 1993 marked the end of the LDP party’s uninterrupted 38 year rule. From that point until 1996, the stability provided by the old system crumbled. There were 3 changes of government in Tokyo, 5 Prime Ministers, and 11 different parties sharing power.” -Asia’s Reckoning, pg 139
The truth about economic stagnation and stagflation (#Quad3) is that it perpetuates political problems. There is no #BeanDeal that Xi can do by December that is going to trump his secular slow-downs in Secondary Industries and/or Industrial Production.
But what about “stocks”? Don’t we just buy everything hoping for a Chinese and/or “bounce in the ISMs” anyway?
A) Cisco (CSCO) is a $206B market cap company that everyone in Tech was looking to for guidance last night – the stock is down -5% pre-market after failing @Hedgeye TREND resistance and guiding to down -3-5% revenue (vs. +2-3% expected)
B) Amazon (AMZN) is a $869B market cap company (that mostly every Long Only and Hedge Fund holds as a long) that continued to break bad within its Bearish @Hedgeye TREND yesterday
C) Together they represent almost $1 Trillion (not a typo) of “stocks” that have most certainly helped the market cap weighted indexes crush a basket of many more stocks in the Russell 2000 since The Cycle peaked in Q3 of 2018
Some people hate it when I do this, but I tell them we’re short AMZN because it’s a Software Company with tough comps. Amazon Web Services (AWS) #slowed -260 basis points (revenues) last quarter and Aggregate Software Comps only get tougher in Q4.
No that doesn’t imply the same revenue slow-down Cisco (CSCO) just guided to for their coming quarter. But it’s still not what any AMZN bull was thinking when both the stock and the Sector Styles (Software and Consumer Discretionary) peaked in July of 2019.
Yes, I am synthesizing what are “unrelated” components (to the rabbit hole analyst) to conclude why I’d stay short both of these “stocks.” They, alongside many factors like Copper, Global Yields, etc. help form an updated truth about China/USA in #Quad3.
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND signals in brackets) are now:
UST 10yr Yield 1.68-1.96% (bearish)
SPX 3039-3102 (bullish)
RUT 1 (bearish)
Energy (XLE) 59.02-61.89 (bullish)
Shanghai Comp 2 (bearish)
VIX 12.05-15.29 (bearish)
USD 97.02-98.70 (bullish)
Oil (WTI) 54.85-58.02 (bullish)
Gold 1 (bullish)
Copper 2.60-2.71 (bearish)
AMZN 1 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
