While Macquarie Are Looking for a "W" Recovery We Lean More Toward Albert Edwards' Armenian "K"
Here at Esoteric Group we believe...
From today's Market's Now, Mr. Elder looks at analyst babble:
...Consumer habits are shifting
quickly, and this report examines this once-in-a-lifetime accelerator
of change – the COVID-19 catalyst.
Okay, that’s all bit much. What now for the up-and-down numbers tho? Let’s try Macquarie’s China desk:
We
expect a W-shaped recovery for 2020. The Chinese economy was hit
heavily by the Coronavirus this Jan and Feb. Given such a low base as
well as the pent-up demand, both year-on-year and sequential growth
rates started rebounding from March. In other words, the Chinese economy
is now in the left part of the W.
After the 1st round of virus
shock, the recovery could be fragile and short-lived. First, three
economic risks loom ahead, including exports, property and deflation.
Second, stimulus remains at Level-2, which is not enough to turn the
economy around.
GDP target, unemployment, SOE profits and local
government fiscal condition are the four consideration behind stimulus
escalation. Policymakers are still waiting and that’s why they haven’t
announced a new GDP target yet. We expect them to set one later as GDP
growth and employment are closely correlated with each other.
Facing
the 2nd round of economic shock, policymakers will likely escalate
stimulus. This time around, the focus of Level-3 stimulus should be
infrastructure spending, which will turn the economy around and finish
the right part of the W. Meanwhile, we don’t expect Beijing to ease
property measures as much as it did in 2015.
The equity market
might not truly bottom out unless the economy enters a new up-cycle. The
Chinese stock market plunged in 2008-09 and 2015-16. Each time, after
the initial liquidity shock, the market rebounded but corrected again
afterward. It only bottomed out when the economy entered a new up-cycle.
This time around, two things have to happen before the stock market
truly bottoms out. First, the Coronavirus is under control. Second,
stimulus goes to Level-3. It might be still months away from that.
While
Macquarie doesn’t say if the W’s in a font with a high middle peak like
Helvetica or if it’s a low one like Andale Mono, the general gist is
false dawn and sell the rally. Commerzbank’s saying the same of Germany...
All of which brings to mind a post by Paul Murphy who, when not being Mr. Elder's playmate in the mosh-pit that was Markets Live, did some solo scribing, including this post from June 4, 2009:
....For the record, and following Gillian Tett’s declaration
that the recovery might take the shape of the Pitman shorthand for
“bank” (something like a sickle), Edwards has been delving into his
ethnic past to find the possible shape of things to come – an Armenian
K:
And he’s at pains to stress that his beloved Coppock Indicator may be giving a premature buy signal.
But it’s here in pixalated black and white:
This is one of the most reliable technical indicators, suggesting we are in a new long-term bull market.
So now you know two things.
The terrifying possibility of a market that appears to be recovering almost vertically, only to collapse straight down.
And that Albert was bullish coming out of the GFC, a fact many would never believe if not captured and memorialized at FT Alphaville.
