David Bowers and Ian Harnett have been talking to clients for some months about the risks, not of QT , but QD, “quantitative destruction” .

Today’s leader in the Times reiterates our concerns…

Rob Armstrong notes “the types of financial wreckage that have forced rate pivots before have been extremely bloody….” citing the ASR chart which plots major crises next to the fed funds rate.

China’s official statistics are often suspected of flattering the economy. But ASR’s Adam Wolfe considers “the balance-of-payments figures may actually understate the size of the country’s pandemic-era export boom”. 

Simon Nixon was in discussion with David regarding implications of the US Senior Loan Officer Survey, showing demand for credit has collapsed and that lending standards have tightened. David notes, that has “typically foreshadowed a rise in credit risks within a year…”

Noting ASR’s “detailed work on the ERP”, calculating nine different ERP methodologies and taking the median output… Wu and Armstrong would agree with ASR that “a decade-low ERP seems a mighty modest premium for a very precarious investing environment”

With Beijing pivoting on key policies, a cyclical recovery appears to be underway. But structural issues – such as the heavy debt load of local governments — haven’t gone away.

Simon Nixon in the Times notes that “There are no shortages of candidates for future sources of financial instability”.

What we are witnessing is what (ASR) have dubbed “quantitative destruction.”

The FT’s Leo Lewis cites David Bowers, who notes that “Strong wage growth is seen as the ultimate ‘amulet’ against Japan slipping back into disinflation…” 

John Authers cites an ASR chart (with numbers as of Oct. 31 - before the central bank meetings) suggesting that “it’s scarcely tenable to hold stocks rather than bonds…"

Robert Armstrong notes in his column that “banks, for example, look as cheap as anything in the market right now. But consider a rather chilling chart from Ian Harnett of ASR …"

Simon Nixon notes that these risks should “hardly come as a surprise. As Ian Harnett and David Bowers of ASR have long been warning, every US interest rate tightening cycle in the past 50 years has ended in a financial crisis.”  

In conversation with Refinitiv’s Robert Hogg, ASR’s EM and China Economist Adam Wolfe commented, "I think increasingly defaulting is going to look like the least worst option for several EMs”… 

Absolute Strategy Research is pleased to announce the appointment of Nick Nelson as Head of Global Equity Strategy.

BBG’s  Yujing Liu - in discussion with ASR’s EM Economist Adam Wolfe – notes that Chinese companies are curbing their dollar borrowings at a record pace this year...

A very big ‘Thank You’ to all our clients around the world who voted to recognise the quality of our research and the exceptional service our team provides.  

ASR’s Adam Wolfe - in discussion with Bloomberg – anticipating a trade off from the PBOC : Adam commented that the PBOC “should be preventing leveraged positions in the bond market from building up…”

Bloomberg’s Ye Xie  and ASR’s Adam Wolfe discussed the unusual discrepancy that has showed up in two sets of trade data in China…

“ Bear markets don’t end until the Fed has cut rates” – Ian Harnett 

"Lots of people think that the capitulation that matters most is Federal Reserve capitulation…

In “Xi’s $220 Billion Stimulus Is Less Than Meets Eye”, Adam notes that pulling forward next year’s budget means China faces a fiscal cliff in 2023. “This is more can-kicking than real stimulus”

ASR’s latest survey of international money managers shows that “TINA,” the idea that There Is No Alternative to stocks, is more or less at an end.