Around the Horn With TMM2: China, VIX, High Yield, SPX...even AAPL!

TMM2 doesn’t quite have the “Gone Fishin’” sign out for the balance of the month, but it is pretty close.  For lack of any persuasive ideas, I’ll roll through a few charts as well, and save the compelling stuff for later in the week.

Earlier this evening the monthly batch of economic data from China came out right on schedule, and right on lousy too. Industrial production and retail sales were notable misses. Certainly isn’t disastrous enough to portend an end to the world as we know it, but it is supportive of this graph, which is one of the favorites with our friends over at Zero Hedge.

Is the “credit impulse” theme starting to take shape? I think the jury is still out, but nothing that has happened domestically or in developed markets has done much to change my mind. I do agree it will be a bigger and bigger theme as we come into Q4. I don’t think global demand is poor enough to be a big setback for the Chinese machine--time will tell if the slowdown in credit growth turns into a driver for global macro.

That dovetails nicely into this chart from what can only be considered the opposite of Zero Hedge...Bloomberg. It is the typical bbg article that highlights a compelling graph and then struggles to connect the dots. Yeah--the local bond market has been suffering as the PBOC tightens both liquidity and lending standards. But these two graphs were trucking along in opposite directions for the entirety of 2014 and 2015. I don’t see much evidence to suggest why that can’t happen again.

A more interesting question might be why base metals are doing so well while there are signs of a slowdown in the Chinese industrial machine. First, on copper--I think supply is a factor there--earlier this month the Chinese government through some sand in the gears of copper scrap importers, which was probably supported front end futures--and second, production continues to struggle for any number of reasons from falling ore grades to higher input costs.

Yet there is little evidence that global industrial demand at large is waning--with Europe gaining (some) momentum, and the German export powerhouse continuing to steamroll all in its path, maybe the rise in metals isn’t so crazy. I’m still skeptical--I’d fade this (or as we have discussed elsewhere, short CLP) if anything.  

Turning back to the US--you can always tell when a market narrative is firmly entrenched when small moves cause big headlines. I spent most of Thursday and Friday either chasing my kids around or buried in a spreadsheet--but I read panicky headlines in my news feeds about “VIX up 50% this week.”

Well, ok...I guess we did come far closer to nuclear annihilation than we have since the days when my favorite pastime was playing baseball against myself in the backyard (back off...I was an only child living in the middle of nowhere).

Anyway, wake me up when high yield rolls over and takes out levels from, I dunno, 2016. I agree with LB and others that the lack of a significant selloff in stocks amid a jump in vol shows this is a pretty typical over-positioning/crowded trade/unwind type move. If you had to put a nickel on VIX 20 or VIX 10, which would you choose? I’ll take the under.

From the stocks are overvalued file...our brothers over at Wolf Street showed this chart--which I think can be summed up as “the growth of earnings has been greatly exaggerated.” I continue to believe that the rich valuations in stocks right now MUST be pricing in faster gdp or earnings growth, despite no compelling growth, fiscal policy or regulatory reason for doing so. And monetary policy? Is the Fed on hold => buy stocks? Not at these levels, Margaret.  

And just for fun, I can’t even remember where I grabbed this chart last week--but if I recall the underlying theme was that the SNB was a driver of higher stock prices earlier this year, especially in tech.  Maybe...but am I the only one that noticed that the SNB seems to show up to buy a ton of AAPL shares every New Years???

Oh, and I just have to mention that Trump said military action isn't out of the question in Venezuela. Because....we gotta bomb sumthin'? Because...sumthin' about commies? Because...sumthin' about oil? Can I change my vote to the hippocratic oath? First do no harm...

Shawn
TeamMacroMan2@gmail.com
@EMInflationista