Is the latest China data credible?
I believe most of us who follow these things consider the ‘official’ economic data issued by the Chinese authorities as pure fiction- and the latest round this week is no exception. At one time a GDP growth of less than 10% was unthinkable as I am sure any economist working in the People’s Bank that arrived at a figure less than 10% would be strongly ‘encouraged’ to try again until he/she got the right answer.
But how times change – now the figure is in the 6% region and a ‘hit’ or a ‘miss’ of a minuscule 0.1%can send shares into a spin. On Wednesday, the Q1 GDP growth came in 0.1% above expectations and the knee-jerk initial reaction of the Dow was up, of course.
But right away, eagle-eyed commentators spotted several major discrepancies. For one thing, land sales have collapsed, imports are weak and electricity consumption (a proxy for GDP growth) has been falling. Hmm.
So are the Chinese authorities still telling porkies (British slang word rhyming with ‘pork pie’)? It appears so – and that conclusion is backed up by what they did next. They propose to massively juice consumption by subsidising car and electronics purchases.
So is this a much-needed tweak to the economy or is it a sign of desperation as the scale of the ongoing slowdown dawns on policy makers? Auto sales are crashing with little sign of a turn-around. Yet Chinese stocks remain on a tear.
Of course, this has implications for US interest rates. The consensus is that the Fed has ‘paused’ their rate hikes. But now may be forced to reverse that policy. Leaving aside the question of the incorrect notion that the Fed controls interest rates, the T-Bond market is showing how wrong this idea is. Rates have been rising sharply since late March. Remember, the majority are always wrong at major turns.
But what if Chines growth really does resume its upward trajectory in Q2? That will almost certainly send the bond bulls scurrying back to the drawing board. And there are plenty of them – DSI bull reading has been around the extreme 90% recently in a display of extreme herding.
So with the official GDP data over-stating the more realistic figure by 25%, that puts the Total Debt to GDP ratio at over 400% – the most staggering data point in the world today. We have long known that China is an accident waiting to happen (new cities where nobody lives and roads to nowhere) – the question is when?
This is just one brick in the Wall of Worry that seems to be getting taller by the day. But with the bulls still fully in charge, a raft of IPOs are waiting in the wings. Already, the first out of the blocks – Lyft – remains well below its first day of trading high – and even its IPO issue price. Not a good omen.
The latest launch – Pinterest – had a more favourable first day of trading (up 25% on IPO price), as did Zoom (up 70% on IPO price). The measure of extreme bullish enthusiasm in the market is right there on display – none of these companies (including Lyft and Uber – have any earnings! – and are not likely to have any soon. Hmm.
German economy crashing yet stocks climb
And one other measure of extreme investor bullishness is the action in the German DAX index. As really dreadful economic news flowed out of Germany last week, the DAX index continued on its merry way northwards.
This is the long term weekly chart and the rally off the Christmas lows has been stunning, despite the severe economic slowdown in Q1. Investors have been seduced by the belief that the ECB continues to have their back and the ever-reliable Sr Draghi will keep ‘doing whatever it takes’ to keep the balls in the air.
But with a seismic shift in European politics about to be unleashed next month, I believe we are reaching a tipping point in the markets. The rally has almost carried to the underside of my lower tramline and also to the Fibonacci 62% resistance and momentum is way overbought.
The Day of Reckoning approaches – and is only days/weeks away.
I am preparing a campaign for VIP Traders Club members to take full advantage of the coming mayhem. Get your Free Trial here.
Real estate is on the turn
I’m sure it’s not news to you that housing costs have been rising rapidly since the 2008 Credit Crunch Crash. At the top end, values have rocketed and flippers are back in action. But recently, reports of major cuts to asking (and receiving) prices are gushing forth.
The former hotspots of London, Vancouver and New York are suddenly not so hot. Here is one report of a former New York suburb hotspot – Greenwich in Connecticut home to many hedge fund manager types. One seller listed at almost $4 million and sold at auction for $2 million – a 50% haircut. Ouch!
The signs of a turn in the larger market are there. It always starts when sales volumes dry up, as they have. And price reductions start at the top end, as they have. Local authorities are piling on the pressure on foreign buyers (aka Chinese) in Vancouver with swingeing extra taxes a version of that exists in London).
With a huge percentage of Chinese houses/apartments carried as ‘investments’ and not occupied, will the authorities there dare to mimic those in the West?
Did you ride the Qualcomm rocket? We did
This week the almost unthinkable happened – Apple and Qualcomm kissed and made up. They had been waging an acrimonious legal dispute for two years which would have threatened Qualcomm’s business model of licensing their chip technology and selling chips at the same time.
Naturally, this ‘surprise’ announcement sent the shares gapping northwards to the $80 area as the shorts were caught with their pants down big-time. And for some, the thought of Tim Cook eating Apple/humble pie was pleasing indeed.
So how come I managed to get in well ahead of this gigantic move? This was the brief analysis I sent to Pro Shares members on February 11 (get a three week Free Trial here)o
This major US semiconductor and telecommunications company has had a bumpy ride of late with revenue not terribly exciting and ongoing litigation with Apple. But the chart looks compelling
It has descended to the three-year support line that has held every time it has been tested. Note the lovely triangle formation on the way down. These normally appear in the wave 4 position prior to the final thrust down before a stunning reversal emerges. I believe the shares are poised for this. First target is the $60 area where there is an open gap (a magnet!)
ACTION I advise going long (latest 51.00) with WL at 48.00
I noted the various clues from using my Tramline Trading methods of analysis as the shares had descended to the major support zone around the $50 area. And on that date in February, I also noted a very helpful momentum divergence going into the low.
With all of these clues, I was able to conclude that aLRHP ( low risk/high probability) trade was on the cards. This is the outcome:
My trade has reaped a tidy profit of $30 so far. So did I know this was the likely outcome back in February when I discovered my trade that went totally against consensus (that Qualcomm would likely lose the Apple case)? Of course not!
This was a classic LRHP setup – and that is what I offer to Pro Shares members on all my trades. My goal is to find setups that offer low risk compared with the potential gains.
Wishing my readers a Happy Easter!