Apparently, SocGen’s Albert Edwards nearly died on an unspecified date when, by his own account as detailed in his latest strategy note, he was involved in a reciprocal road-rage incident with another driver.
The problem – or at least as far as I can tell – is that Albert was on a motorcycle and his combatant was driving a car, which put everyone’s favorite bear at a decisive disadvantage. I’ll let him tell you about it:
I have had a few motorcycle accidents, including one where my whole life flashed in front of my eyes (yes it really does happen). The most frightening experience though, was the time I encountered ‘Tank Slap’. This is where the front wheel wobbles violently out of control from side to side, with the handlebars hitting both sides of the petrol tank. Also known as a ‘death wobble’, a rider is very lucky if they are not thrown from the bike – usually at high speed. In my own case, this situation was caused by a car driver with whom I had been having an altercation, winding down his window and trying to push me off the bike as I drove past at high speed.
Does that have any connection to cross-asset strategy? No. Or actually, yes. Maybe.
The reason he regales readers with that harrowing story (which, had it ended poorly for Albert, would have deprived market participants of decades worth of highly engaging macro commentary), is that he likens the Chinese economy to a highly unbalanced motorcycle or ship, and asks if “President Trump’s tariffs against [Beijing] amount to a similar unbalancing shove as China drives past the US to become the largest economy in the world.”
It’s actually an apt metaphor and it’s infinitely easier to conceptualize than our laborious attempts to explain how China is engaged in a years-long effort to effectively re-leverage and de-leverage simultaneously by way of an absurdly delicate balancing act that involves mashing the gas on fiscal policy and hitting the brakes on monetary policy or vice versa, depending (quite literally) on the month and the prevailing circumstances.
We don’t have a lot of special insight beyond what’s already been said in these pages on too many occasions to count, so we’ll just walk through some highlights from Albert’s Wednesday note while we wait to see if Theresa May will be summarily ousted (because that’s all there is to do on Wednesday afternoon).
“November’s Chinese PMI data confirmed that the rapid slowdown in the manufacturing sector seen in the previous couple of months was not an anomaly”, Edwards writes, adding that “more disturbingly, the export PMI sub-component has also slumped to August 2015 levels, suggesting an export decline will soon be seen in the real economy data.”
Here’s a chart that illustrates the first point:
And here’s Albert’s second point, visualized:
As a reminder, China’s latest trade data was less than inspiring. Specifically, export and import growth posted pretty egregious misses for November.
Edwards goes on to remind you that “if Chinese exports are indeed set to slump, this comes at a time when manufacturing and services sector employment is already declining at a similar pace to that which triggered the August 2015 devaluation [and] falling employment is becoming a big issue for policymakers.”
The bottom line here from where Albert is sitting/driving/dueling-with-other-motorists, is that China is everywhere and always walking a tightrope and while they may well be able to ease their way out of this most recent destabilizing exogenous shock (thus frustrating China naysayers for the umpteenth time), it’s not a sure thing.
“Accelerating out of ‘Tank Slap’ caused by Trump’s unfriendly tariff shove might work, but experienced motorcyclists will tell you there are no guarantees”, Edwards says, in closing.
One thing’s for sure, Trump is indeed the type that would reach out and try to shove somebody off the road…