Global Macro Outlook for 2019, prepared 12/29/2018

1. Global Macro Outlook Q1 2019
The Genie is out of the bottle
Dec 29, 2018
9 5

2. 9 5
Trade war drags on: Huawei
Synchronized global slowdown continues
Global Quantitative Tightening (QT) finally arrives in 2019
The volatility genie is out of the bottle: quant/parity/CTA/option-seller to de-risk
Powell Put? Be careful what you wish for
China determined to de-lever for her own good
Savior USA really fatigued
EM taking over the growth baton, needing no China or US?
2019 Ahead…

3. 9 5
December 2, 2018
US and China agree to a temporary truce
during G20 meeting in Argentina
December 14, 2018
China to temporarily lower tariffs on US autos;
resumes buying US soybean exports
Dec 26, 2018
U.S.-China Trade Talks to Take Place in
Beijing in Early Jan.
Trade war: truce after Argentina G20?

4. 9 5
While signing a temporary truce, top Huawei executive
arrested on U.S. request
A strategic rivalry runs deep:
- Huawei case handled by Department of Justice unless
Trump intervenes
- Congress: ZTE bailout no more
And then there is Huawei incident

5. 9 5
Dec 17, 2018 Xi celebrated 40th anniversary of reform
- “no one is in the position to dictate to the Chinese
people what should and should not be done.”
- reaffirmed China’s pursuit of “indigenous
innovation” in “core technologies.”
‘No One’, including Trump
Defiant Xi says no one can dictate reforms to China

6. 9 52019: Synchronized slowdown gathering pace
Global economy slowing down rapidly as
trade war progresses
And more coming…

7. 9 5Global QT coming to a theater near you…
Global QE has peaked in early 2018
Global Quantitative Tightening (QT) is
finally arriving starting Jan 2019

8. 9 5From QE to QT: genie out of the bottle
Depressed volatilities
normalizing…
QE = bubble building
QT = ?

9. 9 5Powell Put?
FOMC Dec Meeting
- Expecting 2 hikes down from 3 in Sep
meeting
- Market disagrees, expecting less than one
hike, desperate for Powell Put
Unlike professor-predecessors
Greenspan/Bernanke/Yellen, ex-lawyer
Powell is looking beyond CPI inflation…
“Whatever the cause, in the run-up to the
past two recessions, destabilizing excesses
appeared mainly in financial markets rather
than in inflation. Thus, risk management
suggests looking beyond inflation for signs of
excesses.”
August 24, 2018
Chairman Jerome H. Powell
Monetary Policy in a Changing Economy

10. 9 5China: flood-like stimulus no more
Nov 13, 2018 Chinese Premier rejects
economic stimulus option as latest data shows
more weakness
Dec 28, 2018 PBOC pushed back against
interpretations of its recent moves as signaling
significantly looser policy, emphasizing that
monetary policy remains prudent -- though it
will be more targeted and flexible.
Still paying for past excesses:
- Home vacancy rose to 22.4% esp. a problem
in lower tier cities
- Record home prices are forcing
consumption downgrade
Japan lesson: better deflate now

11. 9 5US fatigued? record buyback overwhelmed in Q4

12. 9 5Trump’s new deal to last? investments fading

13. 9 5Consumer boost one-time shot?

14. 9 5US housing under pressure

15. 9 5Big firms highly levered

16. 9 5Small firms struggled to repay

17. 9 5Falling angels: BBB ‘look more like junk than high grade’

18. 9 5Exuberance ending? leveraged loans turning

19. 9 5
Market shifting hope onto EM:
- A Fed pause
Still wise to bet on Powell Put?
- A weaker dollar thanks to Fed pause
Even if Fed pauses, the reason matters. A
recession? A market meltdown?
- Lower oil
What if a result from lower demand?
- Higher growth
Realistic if China slows to 6.5% and G10
downshifts?
- Cheaper valuation
QE-driven debt buildup is global.
Cheapness an illusion if EPS depressed
under QT?
EM taking over the baton, needing no China or US?