Macro Dragon: Snowflake Powell, +$2T US Taxpayers Flushed Dollars & Exit Afghanistan, HK Equities, US Duration, Gold

Top of Mind…

• In case you missed the wk ahead piece Macro Dragon WK # 36: Post Jackson Hole, US NFP Fri, Final PMIs Month-End, Afghanistan-End?
• So its month end as we get into the afternoon session out here in the Asia Pacific – KVP’s concerns around the price action in China Hong Kong Equities continue. I.e. we are still just a string of bad back to back session to retesting the lows, we have not hit escape velocity & a lot of the price action continues to scream “bear market” with harsh brutal rallies, followed by more consistent lower lows…

  

• With that said, as we get into the end of Aug (caveat there), price action has turned around & we are well of the lows of the morning session. Now likely we are getting some classic month & quarter end window dressing, rebalancing & overall noise that the calendar brings.
• So the true test will really be how we close for the wk & given that its NFP Fri, could be really a case of next wk (remember US also out on Mon on Labor day wkd
• We are clearly oversold with some names like JD Health International (6618 HK) & Alibaba Health (241 HK) down c. 50% YTD alone,  whilst the household names like Alibaba(9988 HK, BABA) & Tencent (700 HK) are down anything from -31% to -16%.
• And yes, KVP’s “favourite” obsession… the lone bull in the China bear market, Weibo (WB $49.01 +0.68%) is still up c. +20% – granted they blew out the water with some stellar quarterly figures (after also a good 1Q) but c’mon man +20% YTD vs. Alibaba -31%, that’s a +50% relative outperformance that is not likely to last  – it has been closing since we flagged this ‘anomaly’, most recent piece was Weibo Erns due pre-mkt Wed, we chk-in with ‘the lone bull’ in a China Tech Bear Mkt. WB $50.76 -3.6% o/n +24 YTD  

  

• Lastly just because we are “clearly oversold” does not a floor make. Worth checking out Garnry’s note on China tech below.
• From KVP’s side he’s looking for price confirmation that takes things above their Aug high, to suggest that we are trying to make a bottom. For instance Tencent 475.20 +2% getting back above $500.

  

• The HSI 25,767 +0.89% clearing above 27,000. Alibaba 163.20 +3.2% above 173.

  

• And investors likely need continued regulatory clarity (which we’ve been getting more of), more policy support at some point (Hence KVP like China govies based on the simple yet very high probability thesis that the PBOC is not going to hike), as well as some sectors or even companies being given the good to go.
• And yes, there is a trillion dollar opportunity to the group of people that can create a regulatory clean & compliant index of China names. At the end of the day, China is 1.4B people, 2^nd largest economy on the way to being the first, 2^nd largest equity & bond markets on the way to being the first. There is not question that it warrants a place in a long term portfolio – but the timing for going aggressively in, is still suspect.  

 US Afghanistan Exit: Waste +$2T of Taxpayers money over 20yrs, Kudos to Biden for stopping the Mad Circus

• Afghanistan Exit – So looks like the US are out ahead of schedule getting the last US citizens that wanted to leave at least. Yet likely still thousands of Afghani allies who could not make it to the airport, or let alone onto the plan.
• We’ll do a Macro Reflections think piece on this tmr, as a warm-up to what is going to be an excellent webinar tomorrow (Sep 1 Wed, 2000 SGT / 1400 CET / 0800 ET) featuring the former US Ambassador to Afghanistan, our CIO & Chief Strategist plus our Head of Great China Wealth Management.  
• One thing is for sure, if KVP was a US military top brass – especially in the ‘boots’ on the ground side for things… your budget is going to be massacred for years to come. The skeleton closet that is +$2T of squandered US tax payer money is going to be play for months if not years in the American voter’s mind – think documentaries, series, movies, etc. \
• And this is post the Rolling Stone’s expose “The Pentagon’s Bottomless Money Pit” that detailed how completely unaccountable US military spending is. This is an amazing piece. What is likely even more amazing will be the stories coming from Afghanistan… i.e. 10 hummers (+USD 2.2m) get to the country yet only 2 end up making it to their intended destination.   
• The Global Militarization theme (long ITA etf ex. Boeing anybody?) that actually came about from Trump’s Nationalism & America withdrawing from the rest of the world, is likely to get some jet fuel from all this. Stay tuned to see what our Equity Strategist Peter Garnry & CIO Steen Jakobsen are cooking up on this.  

Fed’s Dovish Gambit – Will NFP come in at above +1M, or sub 400K on the 750K expectations?

• Snowflake Powell – KVP was chatting to one of the most experienced & profitable currency traders out there earlier on today (lets call him/her Redemption). So Redemption says (paraphrasing here), Powell is shuffling around like he’s walking on egg shells. And this is just around the damn taper (taking out QE that was put in from a black swan shock, that is no longer in place), it’s not even about a +25bp hike. The guy has the backbone & foundation of a Snowflake. And you know what, Redemption is not wrong.
• Jun 5^th saw an obviously very dovish Powell, forced to acknowledge that inflation was an issue as the Fed shifted slightly to the hawkish side – i.e. he did not wait for jobs data to come in higher, rising inflation in the US forced his hand.
• This time around, it looks like he is once again banking on the time decay saving him, i.e. signs of inflation reversing. It’s a dangerous gambit – especially if we get NFP numbers coming in at +900K or even +1m & ISMs holding up. We may end up getting a reversal of the risk-on ripple that cascaded from Friday’s Jackson Hole.

Time to be shorting US Duration?… as Gold ignores collapsing Real Yields

• KVP wants to be short duration all across the US curve… where is the sweet spot?
• Hmmm… 5s could be getting set-up for the break to 1.5% from these 0.76% lvls for a more tactical move, naturally for a strategic horizon got to be 10s… if they ain’t buying, they are adding to supply baby… & that synthetic pull on QE, should be a synthetic push on QT

  
  

• Lastly on gold 1816 +0.31%, despite real yields crashing by c. 10bp to -1.84% post JH, the yellow stuff is struggling to break out higher.  

Recent Works to Keep In Heavy Rotation

• Peter Garnry, Equity Strategy: Is it time to buy Chinese technology stocks?

  “Our Chinese Consumer & Technology basket is the worst performing basket this year due to the ongoing technology crackdown in China. Many investors are asking us whether it is time to buy Chinese technology stocks? The short answer is no. Chinese technology stocks are currently trading at a discount to US technology stocks for good reasons and as long as this discount persists we think investors should focus on Chinese consumer stocks and get exposure to technology in the US. Finally, we take a look at Facebook and Tencent as both companies are pivotal for technology sentiment in the US and China.”

• KVP weighs in on a potential Asia investor skew into Europe, looking at the UK as a spin-off from the conglomerate & less effective EU. As well as highlighting China Tech’s underperformance in the 1H21,  vs their Global Counterparts especially in ‘Merica.

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Start<>End = Gratitude + Integrity + Vision + Tenacity | Process > Outcome | Sizing > Position.

This is The Way

Namaste,
KVP

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