A risk of transitory disinflation

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...

Time to revisit the question: How investable is China?

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...

Three questions investors need to ask in 2023

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...

Who’s swimming naked as the tide goes out?

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...

A pending major market bottom? It sounds too easy!

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.  ...

How the Fed is acting like a bull in the china shop

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...

China blinked, but can it save the world again?

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 seven reasons why this cycle is different

One of the key risks to the stock market is earnings expectations. As recession risk rises, it has been unusual to see forward 12-month EPS estimates continue to rise. The latest update finally shows that earnings expectations are beginning to stall. S&P 500 estimates are flat for the week, up a miniscule 0.01, while small-cap...

Profit opportunities in the coming global recession

Welcome to the coming global recession. We can debate all day about the global growth outlook, but consider this: Global Manufacturing PMI has fallen to 48.5, indicating contraction. It's the first negative reading since the COVID Crash of 2020.     The signs of deceleration have been confirmed by the G10 Economic Surprise Index, which...

China gets rich AND old, but…

China has a well-known demographic problem: its working population is aging quickly. For years, many analysts have rhetorically asked whether China can get rich before it gets old.      We have the answer. A recent McKinsey study found that China has beaten the US to become the richest nation. McKinsey found that China’s wealth rose...

Commodity weakness = Global slowdown?

My Trend Asset Allocation Model has performed well by beating a 60/40 benchmark on an out-of-sample basis in the last few years. The early version of the Trend Model relied exclusively on commodity prices for signals of global reflation and deflation. While the inputs have changed to include global equity prices, this nevertheless raises some...

Time for a mid-cycle swoon?

The S&P 500 fell as much -4% from its all-time high in Evergrande panic pullback last week. Is the recent weakness just typical seasonal weakness or something more serious? The intermediate-term breadth looks disconcerting. The percentage of S&P 500 stocks above their 200-day moving average (dma) had been at the 90% level which indicates a...

How US equity investors should trade the Evergrande panic

Global markets have taken a decided risk-off tone today. The spark is the China Evergrande implosion. Fears are rising that Evergrande is turning from a liquidity crisis in which the company doesn't have enough cash to pay its obligations, to a solvency crisis in which the company's assets are less than its liabilities if it...

What China decoupling looks like

When Trump began his trade war with China, the Street's narrative was "decoupling". It took a few years, but it's finally happened. As China's economic outlook and market deteriorated, it did not drag down the economies of Europe and North America.   To be sure, the news out of China is grim. A series of...

What you should and shouldn’t worry about

The S&P 500 took fright last Monday and skidded -1.6% after falling -0.8% the previous Friday. Talking heads attributed the decline to worries about the rising incidence of the Delta variant around the world.     Fears over the Delta variant slowing economic growth are overblown. However, there are two other key risks that equity...