China’s leadership was caught off-guard in 2016 because few people expected Trump to win the election. This time, Beijing has had plenty of warning, and it is far better prepared for Trade War 2.0. The key difference is the divergence in the path of economic growth, as signaled by the bond market. Chinese 10-year...
It’s becoming harder and harder to avoid the cold hard facts. China is slowing. The PBOC unexpectedly cut interest rates last week. The central bank began by cutting the benchmark lending rate on overnight, 7-day and 1-month standing lending facility (SLF). The move was followed by another surprising 0.20% cut in its 1-year policy rate,...
Remember that equity investors tend to enjoy strong returns in the absence of recession, which dents returns, or war and revolution, which can result in a permanent loss of capital. With those caveats in mind, the market gods are presenting patient investors with three gifts from the three economic blocs in the world: the U.S.,...
How would you feel about a star value manager with the track record shown in the chart below. While he beat the market in the wake of the dot-com bubble, he has only matched the performance of the S&P 500 since 2011. To be sure, he did beat his style benchmark (second panel). The...
About a year ago, when China emerged out of its zero-COVID lockdowns, I rhetorically asked, “How investable is China?”. I concluded, “Long-term investors in China are likely to face subpar returns coupled with high volatility”. Now that China’s troubles have returned, it’s time to revisit the China investability question. The accompanying chart shows that...
The problems keep piling up in China. Weakening demographics, as her population shrank for a second consecutive year. Weak consumer spending. A record property downturn. Rising trade tensions. The drip-drip-drip of these glitches culminated in a massive stock market wipeout as over US$6 trillion has been wiped from the combined capitalization of the Chinese...
Gold bulls became very excited when gold prices tested overhead resistance at the 2000–2100 level. In the past, such tests had been met with selling pressure, but technical analysts would interpret a definitive breakout at these levels as opening the door to significant upside. Moreover, the bottom panel of the accompanying chart shows that...
The markets took a risk-on tone in the wake of a softer-than-expected CPI report, followed by a tame PPI report and strong retail sales print. Even before these reports, Mohamed El-Erian issued a warning about the goldilocks scenario of lower oil prices and falling bond yields. Is market psychology in a “bad news...
Periodically, the market is rattled by a “China is slowing” narrative. As the accuracy of official Chinese statistics can be doubtful, the real-time market reaction indicates nervousness, but no panic. The performance of the equity markets of China and her major trading partners relative to MSCI All-Country World Index (ACWI) shows that their trends are...
Two weeks ago I highlighted how history shows that the stock market only bottomed after recessions have begun (see How to spot the stock market bottom) and a recession is likely on the way in H2 2023. If that is the case, U.S. equities should bottom at some point this year and a recovery should...
Preface: Explaining our market timing models We maintain several market timing models, each with differing time horizons. The "Ultimate Market Timing Model" is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade. The Trend...
The main event last week for US investors was the FOMC decision. As expected, the Fed raised rates by a quarter-point and underlined that "ongoing increases in the target range will be appropriate". Powell went on to clarify that "ongoing increases" translated to a "couple" of rate hikes, which would put the terminal rate at...
The stock market began 2023 with a rally based on the "green shoots" narrative of a Fed pivot and optimism about the effects of China reopening its economy. Since then, the S&P 500 rose to test resistance as defined by its falling trend line and pulled back. Similarly, the equal-weighted S&P 500, the mid-cap S&P...
There were some questions raised about the investability of China last year as regulatory uncertainty rose amidst some market turmoil. Fast forward to today, The MSCI Asia Pacific Index rose 20% from its October low and technically entered a new bull market. Enthusiasm is rising on the prospect of China's abandonment of its zero COVID policy...
IMF Managing Director Kristalina Georgieva recently said in a CBS Face the Nation interview that the IMF expects "one third of the world economy to be in recession". She went on to outline the differing outlooks for the three major trading blocs in the world, the US, EU, and China, plus emerging market economies. For most...
The Chinese authorities were stuck between a rock and a hard place. On one hand, COVID caseloads were skyrocketing; on the other hand, after two years of a series of on-again-off-again of lockdowns, it was unsurprising that Chinese citizens, many of them young, got a case of cabin fever and protested the government's COVID policies...
Warren Buffett famously said that when the tide goes out, you find out who has been swimming naked. Now that the Fed is tightening financial conditions and the tide is going out, I undertake an analysis to find out what countries and sectors have been swimming naked, and who has been opportunistically swimming with the...
Is the universe unfolding as it should? Most technical and sentiment indicators argue for a near-term double bottom in the S&P 500. The June bottom was the initial capitulation bottom. The market rallied and it is poised to weaken and re-test the old lows in the near future. That's when the new bull begins. ...
The returns of my Trend Asset Allocation Model have been strong. Based on an "out of sample" record of signals from 2013 and a simulated portfolio that varies up to +/- 20% from a 60/40 benchmark, the model portfolio has managed to achieve equity-like returns with 60/40-like risk. Performance has also been consistently positive in...
The June CPI and PPI reports both came in higher than expectations. The good news is core CPI is decelerating. The bad news is both core sticky price CPI and Owners' Equivalent Rent, which is about one-third of core CPI, are rising rapidly. These readings confirm the market's expectations that the Fed will continue...
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