It’s August

Posted on August 8, 2018 by macromon

Gone Fishin'

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China’s Raises “The Other Nuclear Option”

Posted on August 7, 2018 by macromon

We are on our way out to go fishing for the next few weeks but couldn’t let this pass without one last post.

The current headline at the Drudge Report linking to a CNBC piece citing the People’s Daily (Chinese government press) that Apple could become a target in the trade wars.

Apple_China

China is by far the most important overseas market for the US-based Apple, leaving it exposed if Chinese people make it a target of anger and nationalist sentiment. China doesn’t want to close its doors to Apple despite the trade conflict, but if the US company wants to earn good money in China, its needs to share its development dividends with the Chinese people.

..,Apple’s contribution to job creation in China is notable, but the company enjoys most of the profits created from its Chinese business. It is impractical and unreasonable to kick the company out of China, but if Apple wants to continue raking in enormous profits from the Chinese markets amid trade tensions, the company needs to do more to share the economic cake with local Chinese people.

The trade conflict initiated by Trump administration reminds China to re-examine China-US trade. It seems US companies doing business in China are the biggest winners from China-US trade. The Chinese market is vital for many top US brands, giving Beijing more leeway to play hardball in the trade conflict.  – China’s People’s Daily,  August 7th

Sound Familiar?

Recall our post,  China’s Other Nuclear Option, way back in March warning that Apple would become a target if a trade war broke out between the U.S. and China,

Target Apple

What more efficient way to take the U.S stock market down than to hit its largest stock by threatening market access to the Chinese consumer?   Apple’s market cap is over $800 billion, the world’s largest, and such a scenario would certainly take the overall market down.

The following chart illustrates Apple derives around $50 billion of its annual revenues from greater China, which is about 20-25 percent of its total revenues.

Mar25_Apple's China Revenues

Furthermore, Apple assembles most of its iPhones and gadgets in China.  A disruption to Apple’s supply chain would further disrupt the stock. — Global Macro Monitor, March 25th 

Major Pushback

We were knocked down, kicked around, and laughed out of the ballpark over that post, folks.

That is why we still draw inspiration, and miss one of the great intellects of our time, the Hitch,

https://twitter.com/Hitch_Slapping/status/1026750425482055680

Stay tuned to the Global Macro Monitor.    More good, unconventional,  anti-lemming  provocative research and market commentary to come.

By the way, that piece we promised on the bond market is still a work in progress.   Late next week.

 

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China’s FX Reserves Increase

Posted on August 7, 2018 by macromon

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Commodity Correlation

Posted on August 7, 2018 by macromon

 

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Beijing police shut down P2P lending demonstration

Posted on August 6, 2018 by macromon

China has been at the center of the rise of FinTech firms since the Great Financial Crisis (GFC).  Some of these firms have become huge.

Watch this space.

In the United States, the majority of lenders rely on FICO scores to determine a borrower’s creditworthiness. An individual’s FICO score is based on his or her credit history, which includes factors like credit utilization, on-time payments, and average age of accounts. By contrast, Sesame Credit and Tencent Credit draw on the two tech giants’ massive pool of user data to assign credit scores, incorporating criteria like a borrower’s social network, online shopping history, educational background, income level, and profession.  – Brookings

 

FinTech_China

Source: Brookings

Chinese police shut down a planned protest by groups of investors angry at government inaction over their losses from the peer to peer lending crisis ► Subscribe to FT.com here: http://bit.ly/2GakujT

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Investors Beware Of “XX-Rated” Result In Ohio’s 12th

Posted on August 6, 2018 by macromon

We suspect a flip of Ohio 12th congressional district to the Democrats, with Danny O’Connor defeating Republican, Troy Balderson,  could  be the grain of sand generating the avalanche in the framework of  structured criticality.  It may be the impetus for the political shock to the markets we anticipate is coming.   Or it may not.

Ohio12th

Structured criticality is a property of complex systems in which small events may trigger larger events due to subtle interdependencies between elements. This often gives rise to a form of stratified chaos where the general behavior of the system can be modeled on one scale while smaller- and larger-scale behaviors remain unpredictable.

For example:

Consider a pile of sand. If you drop one grain of sand on top of this pile every second, the pile will continue to grow in the shape of a cone. The general shape, size, and growth of this cone is fairly easy to model as a function of the rate at which new sand grains are added, the size and shape of the grains, and the number of grains in the pile.

The pile retains its shape because occasionally a new grain of sand will trigger an avalanche which causes some number of grains to slide down the side of the cone into new positions.

These avalanches are chaotic. It is nearly impossible to predict if the next grain of sand will cause an avalanche, where that avalanche will occur on the pile, how many grains of sand will be involved in the event, and so on.  – Wikipedia

The polls have the candidates in a statistical tie, with the latest from Emerson College having O’Connor up by 1 percent.   Stunning given the Republicans took the district by almost 30 points in the November 2016 general.

Female Vote Key

By XX-rated, we mean the female vote (double X chromosome),  our Lavender Wave thesis.

 

Ohio12th_XX

 

Independents are breaking 56% to 28% for O’Connor, and the Clinton voter seem more loyal to their party candidates in this election that those who voted for Trump. Clinton voters are breaking for O’Connor 95% to 3%, while Trump voters are breaking for Balderson 89% to 7%.

A gender divide has emerged as well in the race. Males back Balderson 53%-42%, while females break for O’Connor 51%-40%.  – Emerson College, August 6th

“Already Lost”

The conservative-leaning Washington Examiner has already labeled the race a loss for Republicans,

Though voters don’t head to the polls until Tuesday, Republicans already lost the special election in Ohio’s 12th Congressional District. That will remain true even if their candidate actually wins the race and is elected to office.

Why? As in other, high-profile special election battles over the past year or so — think Georgia’s 6th District, or Pennsylvania’s 18th — the GOP has been forced to pour an exorbitant amount of resources into defending a seat that should be safe. “The Republican National Committee has opened two offices in the district, launched a $500,000-plus get-out-the-vote effort, and dispatched one of its top officials, Bob Paduchik, who ran Trump’s 2016 Ohio campaign,” Politico reported on Sunday. “And outside conservative groups, led by a super PAC aligned with House Speaker Paul Ryan, have dumped more than $3.5 million onto the TV airwaves, far outpacing Democrats.”

Don’t forget President Trump held a last-minute campaign rally in the district as well.

All this for a seat Republicans have held for 35 years, in a district Trump won with 53 percent of the vote to Hillary Clinton’s 42 percent less than two years ago. Recent polling has the two candidates in a close race  – Washington Examiner,  August 6th

The Republican’s “Jackie Moon” Moment?

Unless a “deep fake” surfaces in the next 24 hours and the Dems take the Ohio 12th,  the Republicans are headed for their Jackie Moon moment.

Everybody panic!… There will be no refunds.   Your refunds will be escaping this death trap with your life. – Jackie Moon, Semi-Pro

As you have realized by reading us over the years,  the Global Macro Monitor is all about questioning the conventional market wisdom, challenging investor complacency, and living in the fat tails, always on the lookout for big potential moves and events that blindside and are not priced by the markets.

The special election in Ohio 12th’s  is not on investors’ radar.   It should be.

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Just Another Manic Monday

Posted on August 6, 2018 by macromon

Love the Bengles!

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The Blowback Begins: Ohio Farmer Vents On Trade War

Posted on August 5, 2018 by macromon

Hope you all take the time to read this piece by an Ohio soybean farmer caught up in Trump’s trade wars.

Tariffs hurt the many and help the few.  The “tyranny of the minority,” if you will, and that is before taking into account the casualties of tit-for-tat retaliation.

Let me tell you a riddle. “I slept with a billionaire because he said he loved me. I expected to make love, but in the morning I realized I was getting screwed. When I went to tell the world, I was offered cash to keep my mouth shut.” Who am I? No, I’m not a model or someone named Stormy. I’m the American farmer.

In the mid-1980s we were awash with over production in the corn and soybean sectors. Agriculture got busy, boarded planes, trains and automobiles and started building markets around the world, one handshake and one relationship at a time. We used our own funds through our check off dollars and trade associations to build markets in Mexico, Canada, Latin America and the Pacific Rim. And we didn’t stop there. In partnership with the U.S. taxpayers, we built an ethanol industry to ensure another renewable energy source for U.S. consumers.  –  Christopher Gibbs, Sidney Daily News

Hat Tip:  @Noahpinion

Politics

Big special election in Ohio’s 12th Congressional District on Tuesday.   President Trump was stumping today for the Republican candidate.   The seat has been held by Republicans since 1920, except for an eight-year stretch in the 1930s and a two-year term in 1980.  It’s tight, folks

A Monmouth University poll released this week shows a tight race, with Balderson receiving 44% support to O’Connor’s 43%, with 11% of respondents saying they are undecided.  – CNN

Stunning given the Republican beat the Democrat in the 2016 general for this seat,  66.6 percent to 39.8 percent,  a whopping spread of 26.8 percent.

If the Dems take this one, the Republicans and the president are in deep-deep trouble. Even if it comes anywhere near to as close as the polls suggest, it still spells doom for the White House.

We are becoming more confident of our Lavender Wave prediction for the November midterms.

Massive Lavender Wave Coming In November

We believe there will be a massive “lavender wave,” in the November midterms.  Lavender is the color combination of pink and blue.

In a recent poll, the president’s approval rating among men is 54 percent positive and 45 percent negative. Among women, it’s 32 percent positive and 65 percent negative.   There are many more women registered voters than men.

In elections, women are also more likely to vote in higher numbers and have done so for decades.  Women have cast between four and seven million more votes than men in recent elections.

Moreover, the revulsion toward the president among women has not only made them more likely to vote but has turned them into activists.  Women are running for office this year in record numbers.

Recall it was the African-American women who put Doug Jones over the top in Alabama’s special U.S. Senate election against Roy Moore last year.  Exit polls showed that 98 percent of black women supported Jones.

Do the math, folks.  Listen to the water cooler talk, read the cartoons.

The Dems will control the House, and probably Senate come next January.   PredictIt gives the Dems a 68 percent probability of taking back the House but only a 30 percent chance of taking the Senate.   We will take that bet, however, a 3,600 percent compounded annual return if Chuck becomes the next Majority Leader.

A Lavender Wave is not even remotely priced by the markets.

We suspect panic will begin to seep in when everyone returns from the beach in September.  Not a political statement just our observations and inferences based on the data.

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Contrarian Crush & Why LT Rates Are Going Much Higher

Posted on August 5, 2018 by macromon

This Bloomberg  piece was published before Facebook blew up but still you get the drift.  Betting against the crowd has been a disaster recently.   It always is until it isn’t.

In the past year, a contrarian portfolio that invests in the stocks that are least loved by fund managers and bets against their biggest holdings lost nearly 23 percent of its value. That’s the worst annual performance in more than five years for a strategy that until recently had produced consistent gains, according to a research note out this week from Bank of America Merrill Lynch. It has also been down four quarters in a row, a first. Two years ago, the same strategy would have been up nearly 17 percent, and more than 20 percent the year before that.  – Bloomberg,  July 5th

Only MoMo Market

Big Bets Against The Bond

By the way,  one of the most crowded trades in the market is to be short 10-year bond futures.    Wouldn’t bet against that crowd as many are.   The big short has been on for almost a year now and many events should, and would have in the past,  squeezed the bears hard but hasn’t, such as the stock market crash in early February.

There must be a spectre haunting the bond market.

We expect longer-term rates to move much higher sometime very soon (x/ some Black Swan flight-to-quality event), and the shorts will be paid handsomely.

Sometimes the crowd is right. and the many are smarter than the few.

The latest data from U.S. futures exchanges show that hedge funds and speculators last week accumulated a record short position in five-year, 10-year, and 30-year Treasuries futures, and also expanded their short position in two-year notes.

Commodity Futures Trading Commission figures show they now hold a record net short position of 715,965 contracts in five-year Treasury futures, 509,498 contracts in 10-year futures, and 212,674 contracts in 30-year futures.  – Reuters, July 30th

Hope to be out with a comprehensive piece with lots of data on our bond market view on Monday.

Here is a little teaser.

SOMA_Auctions_1

Feedback on the chart, please.

Stay tuned.

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Week In Review – August 3

Posted on August 5, 2018 by macromon

Summary

  • Turkey still getting hammered across the board, and now in a pissing match with the U.S. over the detention of Pastor Andrew Brunson
  • The Italian Treasury was in supporting its bond market after a sharp sell-off over budget fears
  • The dollar is showing strength with the Dixie closing above 95. Having a tough time cracking 95.5 but we expect a breakout coming soon
  • Chinese stocks took a hammering with Shanghai now down over 17 percent YTD.  Prevailing meme China losing trade war.  Laughable
  • FAANG bounced on Apple’s market cap  surpassing 1012 dollars
  • The VIX closing in on a ten handle during the Dog Days of Augie
  • Timber again for Lumber

Commentary:  None.  Keeping it tight, don’t like it, and going to the beach.  Political risk is rising and not priced.  Rome is burning, again, with one of the fires caused by a flat tire.

 

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Week_Chart_1

Week_2018_ETFs

 

Week_Table

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