Have I really been describing risk assets as oversold? I hope not, because if so, God Oh Mighty, have I been off.
Makes me feel like a Bull in the proverbial China Shop – stomping about, uncaring, and unawares, and breaking all the fragile, porcelain dainties within my vicinity.
Affairs have devolved so badly that the Gallant 500 spent most of Friday in full Bear configuration, before gathering itself in the last hour or so to escape – for now – this ignominy.
However, those looking for an extra portion of Humble Pie might wish to glance at the front page of Bloomberg’s Equity Index Dashboard (BBG Code WEI), which, to save you the trouble (along with the ~$2,500 Monthly Subscription Fee), I will offer here:
A review of the right-most column indicates that the two worst performing indices in the whole friggin’ ’22 configuration are the above-mentioned Gallant 500 and its pal: Captain Naz. Both of which are currently being crushed by spitball jurisdictions such as Mexico, Brazil, Spain, France and even Italy.
Though they don’t merit a front-page listing, I’m happy to report that we are running ahead of Sri Lanka, Poland (barely) and (yes) Russia, and, if you want additional positive karma, the Ukraine is kicking of our ass.
In general, though, don’t know when the last time was that American indexes were bringing up the rear of this race, but I suspect it’s been quite a while.
Even Tiger Woods is running ahead of us on the Leader Board, and he was forced to withdraw from the PGA tourney on Saturday.
But as matters stand, we have no alternative other than to wallow in our global shame, with the only offsetting news being that the ’22 contest ain’t yet over — yet. We might surge forward from the rear of the pack — like the (aptly named) Rich Strike did at the Derby — and grab an historic win. On the other hand, we could fade in the manner of Summer is Tomorrow, who actually came out hot and was leading for about 1/4th of a mile, before coming in dead last in the field of twenty.
Financial prognosticators are now in desperate competition to call the most wretched bottom they can muster, with some legit strategists even predicting another >25% down before the debacle ends.
Truth, of course, is that nobody knows. It was a lonely crowd that was predicting a collapse a few weeks back, but now, of course, they’s multiplying like hobgoblins.
And, in these sorts of environments, investors cast about for clues of any kind. After Wednesday’s somewhat historic rout, what passed for good news (and caused our markets to open strong on Friday – before collapsing and then recovering) was an announcement from the People’s Bank of China that it was reducing the rate on 5-year loans by a big fat 0.15%.
Well, OK, says some of us, “now we can play”. But then they thought better of it. China is still in 0.00-vid lockdown. It just announced a double-digit decline in April Retail Sales, a 2.9% drop in Industrial Production and an Unemployment Rate of 6.7% — nearly double that of the levels most recently registered in the United States.
In a Command-Control economy, where both activity and statistics are under the complete mastery of the Ruling Class, them’s pretty bad numbers.
And I’m kinda wondering if they’s sustainable. Because, you see, I have this theory. It’s not a particularly uplifting one, but I believe that two forces drive all socioeconomic matters on this here planet: military might and economics. As a corollary, I’m convinced that the latter controls the former. More specifically, finances rule the field, first and foremost, because they are the engine behind all matters martial.
So, why does this Xi character control China? Because he controls the Chinese Army. But behind the curtain are all those billionaires who fund the Army. Who I believe are the real playas here. Who are not likely to continue to roll over and get stiffed so that Xi doesn’t get blamed for more covid. They’s losing money by the bushel basket at the moment, and, I suspect, are not shy about expressing their displeasure in certain sections of Beijing.
Are they gonna bounce Xi? I doubt it. But I do suspect that they are placing enormous and increasing pressure on him to remove his boot-heel from the national economic throat.
And, if he has a change of heart, if he opens for business again (inevitably claiming full, historic victory over the virus), it might just be the catalyst to turn all those investment frowns I see upside down, to convert all those Wall Street Strategists’—currently outflanking each other in hysteria to call the lowest lows, from Bears into Bulls.
It would certainly do wonders for those Big Tech Dogs, which investors have followed, recently lemminglike, into whatever valuation fantasies prevail at any given point in time. It would also, presumably, offer aid and comfort to the most recent authors of our extended heartbreak: Walmart and Target. Which buy virtually all their wares from the People’s Republic.
If the Big Tech Dogs (to say nothing of WMT and TGT) do indeed recover, whither our misbegotten indices? You can decide for yourselves.
Something like this is bound to occur sooner or later, but who’s to say if it’s at SP3.8, SP4.0 or S.P3.0?
Meantime, though, it’s a tough point in the calendar to gin up much optimism. We’re headed straight into the Memorial Day holiday slowdown, and one doubts how much additional risk that investors will wish to absorb into that cycle. Data flows are traditionally slow this time of year. The mainstream news headlines, such as they are, are unilaterally depressing.
I still think risk assets are oversold and poised for at least a modest recovery, but I struggle in vain to identify plausible alternative catalysts.
Perhaps it’s this. Naz P/E’s have come crashing to earth, and are now, improbably hugging their two-decade averages:
I must state, though, that multiple contraction is not typically the stuff – at least on its own – of which sustained recovery rallies are made.
So, maybe you’ll join me in hoping for a China in a Bull Shop rally.
Because the alternatives are frightening to contemplate, boiling down to either China in a Bear Shop, Bear in a China Shop, or the time-honored:
Bull in a China Shop.
Of which (I’m sure you’ll agree), we’ve had far too much of late for anyone’s liking.
TIMSHEL