“Thank you. I’ve completely solved the problem.”
- Albert Einstein

On this day in 1905, Einstein published a paper that led to what you all know today as the mass-energy equivalence formula, E = mc². He was 26 years old. God bless his irreverent, creative, and anti-establishment Independent Research #process.

The aforementioned quote comes from a great book I just finished titled Einstein’s War: How Relativity Triumphed Amid The Vicious Nationalism of World War I.

How is your hard earned net wealth going to triumph amid the relentless and politicized tweets about what “deal” can allegedly trump things like economic gravity, deceleration, and relativity?

Cautious & Confused? - zcat7

Back to the Global Macro Grind…

Contra to what Kudlow will probably try to have you believe (again) on another Friday into his beloved US stock market close, there is no deal to speak of at this phase of people making things up.

If you only have the attention span for CNBC’s interpretation of what’s going on, carry on and chase the futures again this morning. Mine is that the Chinese are not only mad about he Hong Kong Democracy Bill that just passed 417-1 in the House…

But they are “cautious but confused” about the “deal” and now asking the Americans to fly to Beijing for “more talks.”

Not that anyone needs to keep track anymore of what anyone said when they said it (just chase the next tweet with other people’s money), but there was a time in October that this #BeanDeal was going to be announced from a farm in Iowa!

Larry, get on a plane to Communist China for your “Strong Dollar Free Market” American Thanksgiving, and like it.

Where do I stand? I’m not cautious or confused about what’s happening with:

A) The Chinese economic data … or
B) The US economic data

Both continue to #slow towards their lows of their respective cycles.

China’s is a secular (long-term) slow-down in Secondary Industries (heavy construction, partly empty cities, etc.). Both Doctors (Copper and KOSPI down another -0.8% and -1.4%, respectively, this AM) know that as well as we do.

USA’s slow-down is a renewed Industrial & Manufacturing #Recession (see OCT negative year-over-year data for details) combined with a garden variety late-cycle slow-down in consumption and profit growth.

There is no #BeanDeal or made up progress that is going to change the direction of either of those 2 big things (the ROC of consumption and profits) here in Q4. It’s the end of November. There should be no caution or confusion about that.

But the Old Wall, in all of its forecasting glory, is confused on that front, very confused:

A) As you can see in the Chart of The Day, Old Wall Consensus estimates imply EPS ramps to +4-5% in 1H of 2020
B) I’m assuming that’s because they’re assuming the current guide downs on Q4 to -2% y/y is the “bottom”

Remember last time China and the USA kept slowing at the same time?

A) That was into the back half of 2015… and
B) SP500 year-over-year earnings #slowed to -8.0% by Q1 of 2016

It wouldn’t surprise me to see down -5-8% year-over-year SP500 earnings growth by the time this US Profit Cycle can attempt to “bottom.” It’s not only within what I’d call the probable band of outcomes, but way off-side from where the Old Wall is hoping.

Embedded in that Old Wall estimate of +4-5% EPS growth is SALES growth re-accelerating to +4-5% in 1H 2020. Do you know what SP500 SALES growth #slowed to in Q4 of 2015? A: down -4.0% year-over-year for SP500 companies in the aggregate.

I will confuse none of this classic establishment confusion with how I risk manage (i.e. trade) my personal accounts into year-end. My Risk Range #process knows when to cover shorts and ride the wave of year-end compensation hopes.

But when the calendar year turns… wow, can people who think The Cycle #slowing problem has been “solved” have some major problems with both their gross and net positioning.

Our immediate-term Global Macro Risk Ranges (with immediate-term TREND signals in brackets) are now:

UST 10yr Yield 1.72-1.93% (bearish)
SPX 3067-3130 (bullish)
RUT 1 (bearish)
REITS (VNQ) 90.21-93.99 (bullish)
Energy (XLE) 58.11-61.01 (bullish)
Shanghai Comp 2 (bearish)
DAX 125 (bullish)
VIX 11.90-14.81 (bearish)
USD 97.38-98.46 (bullish)
Oil (WTI) 55.07-58.21 (bullish)
Copper 2.60-2.70 (bearish) 

Best of luck out there today,

KM

Keith R. McCullough
Chief Executive Officer

Cautious & Confused? - Chart of the Day