Submitted by Bill Blain of Mint Partners
Is global macro alignment turning divergent? And what does that mean for markets…
“Our two weapons are fear and surprise, and ruthless efficiency… Our three main weapons are fear and surprise and ruthless efficiency, and an almost fanatical devotion …..”
“Stock markets soar because Chinese Premier doesn’t call Trump lickspittle capitalist running dog”, isn’t a headline on the WSJ this morning, but it could be. Markets rose because they have concluded Xi was being conciliatory. Maybe he was, or maybe he was just playing the game. The problem for markets is watching two very different playing styles of the Trade War game: Trump’s direct approach is laid out in the Art of the Deal (a “business” (US Readers – Sarcasm Alert) book written for the US equivalent of Sun readers), and the Chinese, who have spent the last 2500 years beta-testing Sun Tzu’s Art of War….
Bottom line: whatever the pundits and analysts say, the game is not over, and its unlikely to be a simple Trump win. I suspect the more likely outcome is Trump thinking he’s won, and volubly telling us and his electorate so, when he loses. Simples. And I didn’t even mention the Peloponnesian Wars. Will it matter? Probably not, happy Trump will rejoice in soaring stock markets and the Chinese will climb a few notches higher.
Top of our reasons to be cheerful this morning is Mark Zuckerberg not making a complete fool of himself in Washington. He’d been well prepared, briefed, dressed and had his teeth shined. Played a blinder – just the right side of “sorry, but”. Saying the right things in the right tone helped reassure stock markets on the future of data-tech and FB stock soared. Hoo-ray. Still lots of questions to be asked – including can he keep a straight face today? I am somewhat concerned so many of the big tech companies are becoming plays on personalities.. is that a bad or a bad thing?
Meanwhile, we’re wondering what next on Russia. What will Macron and Trump (and, oh yes, Theresa May) do about Syrian chemical attacks? Blame Russia. The imposition of stock cratering sanctions caused many red faces in London as Russia traders found themselves confronted by Internal MiFID controls saying “Don’t trade the Stock” or Bloomberg saying: “Security is subject to US and/or EU and or UN Sanctions.” But, let’s not worry about the wisdom of US investment banks that launched the last round of Russian Mobster Oligarch deals.
And then there is Yoorp where the German speaking block are calling for higher rates, the periphery are playing catch up, while Macron is juggling half-a-dozen internal issues while simultaneously preparing European Monetary, Fiscal and Political Union and a new name for the union: “Big France” being the current working title. But, take a close look how European bonds are already anticipating the end of QE – Bunds are rising… begging the question what happens when the QE unlimited market liquidity spigot is turned off? Clue – pain. Lots of it.
And we could probably go through just about every piece of news this morning and put it into the same context: destabilisation. We are in the middle of a Short-Term period of enormous risk-change. While the Global Financial Crisis that began in 2007 feels over, now we are into the normalisation phase, and it’s difficult to define exactly where the pennies will drop. To get us “here” took a serious alignment of global interests – and that was our theme last year: Global Aligned Synchronous Growth. Everything was pointing in the same direction.
It happened, it worked, but now trends would seem to be diverging. That is the natural order of things. New imperatives and forces are emerging as politics, growth and markets inter-react. So the current themes of Protectionism, Populism, Geopolitical Positioning, Rising Interest Rates, Questions about new business drivers, the Regulation of Tech, etc are coming to the fore. These are divergent and disruptive – and not in the positive way the Tech industry tries to spin the word.
Meanwhile, we also have the unintended consequences of 10-years of extraordinary monetary policy to account for. I’ve been pleasantly surprised by how little QE Financial Asset price inflation has destabilised markets – but maybe its just not corrected yet?
Not wishing to ruin anyone’s Wednesday but my stock picking guru, Steve Previs, is very concerned by the charts – he’s a believer in Elliot Waves, (I can ask him to explain if you want to know more), and he reckons there is a risk we’re on the verge of a very powerful Down Third Wave.
He warns “Third Waves are the most powerful on the upside and most devastating on the downside.” Steve’s base case remains we’re more likely to see a further correction before strong earnings, global recovery and central banks fearing to stifle growth, drive markets higher again. But he is concerned that since stock markets are discounting where they expect things to be in 9 months or so, then maybe… . well dare we say it, but perhaps a major stock market crash would herald a massive expectations correction?
Steve concludes: “when most everything we see, hear, and read is bullish, we start to get nervous. When everyone is on the same page, we run the other direction. And that’s what we are trying to do today, caution on what might happen.” Because no expects is… that’s a reason why it might..
Shocks and surprises are all part of the constant tidal ebb and flow of markets.
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