While we in the West get used to writing “2016” on our documents, China is getting ready for its own Lunar New Year. Their calendar kicks off the “Year of the Monkey” next month. At the rate they are going, though, Chinese markets look more like that hapless rock band that can’t quite reach the main stage.
China isn’t the only reason markets got off to a terrible start this month, but it is definitely a big factor (at least psychologically). Between impractical circuit breakers, weaker economic data, stronger capital controls, and renewed currency confusion, China has investors everywhere scratching their heads.
When we focused on China back in August (see “When China Stopped Acting Chinese”), my best sources said the Chinese economy was on a much better footing than its stock market, which was in utter chaos. While the manufacturing sector was clearly in a slump, the services sector was pulling more than its fair share of the GDP load. Those same sources have new data now, which leads them to quite different conclusions. If you have exposure to China – which you do if you own just about any stock listed anywhere – you’ll want to read this issue carefully.
Let me remind you, before we delve into China, that the early-bird pricing for my annual Strategic Investment Conference ends next Sunday at midnight. I will admit to taking no small amount of pride in the fact that almost everyone who talks to me about the conference says it’s the best investment conference they have ever attended. I carefully craft a blend of speakers each year to speak to the particular dynamic environment we find ourselves operating in. Attendees who have been to most of the conferences tell me that the experience gets better every year, and I have worked hard to continue that positive trend.
This year the theme of the conference is Decade of Disruption. We will convene special panels on what the Federal Reserve will do to try to prevent or to respond to the next recession. More QE? Negative rates? I am not looking for mere predictions – those are cheap. I want to discuss – wargame, if you will – the nitty-gritty implications of what will ensue if the world’s reserve currency goes to negative rates. (I will introduce you to the man who has figured out how to do hundred-to-one leveraged bets on whether there will be negative rates in the US. For some portfolios and companies, that could be a lifesaver.) How would the other major central banks respond? I believe we are getting ready to enter a new and far more intense round of currency wars.
There will also be multiple panels on ways to find income in a low-interest-rate environment. I’m inviting some of my favorite biotech companies for a breakout panel presentation. And for the first time we will be doing a practical panel on portfolio construction and design, with some of the most famous and successful portfolio strategists giving you their thoughts about investing in what will be a transforming world as we enter the Decade of Disruption. Of course we will look at the European, Chinese, and emerging markets, too.
We have just announced that Niall Ferguson and Jim Grant will be speaking this year, in addition to David Rosenberg, Gary Shilling, Lacy Hunt, and David Zervos. As a special treat, we have all three founders of GaveKal – father and son team Charles and Louis Gave and Anatole Kaletsky. (It’s a rare event for them to gather from around the world. It’s always fireworks when they’re together.) Neil Howe, one of the world’s foremost experts on demographics and generational trends, will be making a special first-time presentation at my conference. His speech will be entitled “The First Turning,” a preview of the book he is writing, which is a follow-up to one of the most prescient books ever written, The Fourth Turning (back in 1997).
Of course George Friedman will be there, as well as my friend Pippa Malmgren, to talk over geopolitical dynamics. Thursday night will be a special treat as we move the entire conference one mile down the road to a very large country and western bar, where we will have barbecue, longnecks, and some politics. Michael Barone, Steve Moore, and Juan Williams will show up to hash over the coming elections. (And who knows, maybe a few particularly well-known politicians will grace our presence.) You don’t want to miss Mark Yusko’s first presentation at my conference, either. There will be at least a dozen other speakers and panel members. And we are still negotiating with a few significant “power names” that will only enhance your experience.
We will be making available special software that will let you know who else is in attendance and to schedule networking meetings with those you want to meet. Frankly, the most impressive thing about the conference, beyond the speakers, is the caliber of the attendees. I guarantee you will meet people this year who will make your business or investment portfolio better just by your knowing them.
The Strategic Investment Conference will be held in Dallas May 24–27, ending at noon on Friday, so there will be plenty of time to get back to wherever you need to be from the very convenient DFW airport. Don’t procrastinate. Sign up now. And now let’s turn to China and the rest of the world.
Don’t You Make My Beige Book Blue
On Tuesday Beijing released its quarterly economic growth update. China’s GDP growth has been hovering near 7% for years. That number – if it were even correct – would be a dream come true for most of the world.
We learned this week that China’s growth declined all the way to 6.9% last year (horrors!). That’s still wonderful by any other country’s standard, but the fact that China showed any decline at all made some people think the sky was falling.
Now, it may well be the case that China’s economy is faltering, but its GDP data is not the best evidence. As we have discussed (see “Weapons of Economic Misdirection”), GDP numbers don’t tell us much even if all the data inputs are correct – and in China they are most certainly not correct, for reasons I’ve written about before. Nor are other numbers that emanate from the Chinese government reliable.
To whom can we turn for reliable data? My go-to source is Leland Miller and company at the China Beige Book. Full disclosure: I have been a long-time advisor to CBB, and they have been very generous in sharing their time and information. What makes them different is that they have rather large teams collecting on-the-ground reports from local observers and companies all over China and compiling the information they collect into a massive quarterly review. If I remember right, they amass over 2,000 different data points each quarter, which makes their work as useful as the Fed’s Beige Book, which is similarly sourced from all over the country. I’m not aware of anything else like it. China Beige Book consistently flags important changes months before anyone else does.
CBB’s Leland Miller was on CNBC right after the China GDP number came out. Watch the video below, and you’ll see he was not impressed.
Leland and I caught up on the phone a few hours after that TV appearance. He bent my ear with more detail on the Chinese economy, some of which I can share with you. The changes in China are stark when you step back from this month’s fireworks and consider them in a longer-term context.