Let's Get a Few Things Straight...

Good morning:

The Dow Jones has now seen its most extended selloff since 2018.

Our signals remain negative (early signals went negative last Tuesday, confirmation on Friday)– despite some short-term optimism with rate CUTS in focus.

As I’ve said over the last week, China is in the driver’s seat. For all the chatter in the outlooks we’ve had in the previous week—it doesn’t matter who the bank is—there isn’t enough focus on China’s economic weakness.

That was the lesson of 2015, in the years after the Great Financial Crisis. China’s structural problems, reliance on the dollar, trade balance, and impact on cross-border capital flows will make or break markets.

This is the global economy's “tail wagging the dog,” and ongoing weakness remains a possibility. The core issue is that China’s government says it will achieve a 5% GDP boost next year.

But consumption doesn’t appear to reflect this.

Few believe this to be true.

Foreign CEOs in China are increasingly pessimistic.

To achieve that growth, the country will return to historical deficit levels, which are not sustainable in the long run.

The market is desperate for full-scale stimulus, but an accord could be reached weeks into Trump's presidency when he finally gets into office.

This may get worse before it gets better.