Month: March 2024

The United States continues to restrict China’s capabilities in obtaining and manufacturing advanced semiconductor technologies, presenting significant challenges for Chinese firms and American semiconductor manufacturers that export chips to the world’s second-largest economy.

A new Bloomberg report states Advanced Micro Devices Inc. is the latest company caught in the crossfire of a broadening trade war between the superpowers. Sources said US government officials have told AMD that its artificial intelligence chips for the Chinese market are too advanced to sell without a license from the Commerce Department. This presents a major hurdle for the chipmaker trying to navigate Washington’s crackdown on exports of advanced technologies. 

According to the report, AMD designed the chip for lower performance to comply with US export restrictions. However, Bloomberg declined to authorize the chip’s sale in China, deeming it still too advanced. The report added that the chip must obtain a license from the department’s Bureau of Industry and Security. 

There is no word from the sources on whether AMD will apply for the license. But what’s evident is that news is impacting the company’s shares on Tuesday morning. 

Shares of AMD are lower in premarket trading in New York, down nearly 2% around 0815 ET. Notice the daily bearish candle that printed on Monday. 

The US has been racing to limit Chinese access to advanced semiconductors since the Biden administration placed export controls in 2022 and strengthened them in late 2023. Nvidia’s A800 and H800 chips were recently barred from the Chinese market. 

In June, Nvidia’s chief financial officer, Colette Kress, warned that export curbs on its chips to China would risk a “permanent loss” for US semiconductor firms in one of the world’s largest markets. 

Meanwhile, China is countering the trade restrictions by ramping up domestic investments in advanced chip-making companies to reduce reliance on US firms. 

Trade restrictions will undermine US semiconductor firms’ competitiveness in overseas markets. But don’t tell the market that. 

And the trade war continues to rage on. 

Extending their run of the last few days, spot gold prices just exceeded their all-time highs, topping $2140 for the first time in history…

Source: Bloomberg

Source: Bloomberg

What is gold pricing in about future Fed action? Real rates dramatically negative?

Source: Bloomberg

Paging Benoit?

As Egon von Greyerz details in his latest note, “we have liftoff”, expect more to come…

All Empires die without fail, so do all Fiat currencies. But gold has been shining for 5000 years and as I explain in this article, Gold is likely to outshine virtually all assets in the next 5-10 years. 

In early 2002 we made major investments in physical gold for our investors and ourselves. At the time gold was around $300. Our primary objective was wealth preservation. The Nasdaq had already crashed 67% but before the bottom was reached, it lost another 50%. The total loss was 80% with many companies going bankrupt. 

In 2006, just over 4 years later, the Great Financial Crisis started. In 2008, the financial system was minutes from imploding. Banks like JP Morgan, Morgan Stanley and many others were bankrupt – BANCA ROTTA – (see my article First Gradually then Suddenly, The Everything Collapse) 

Virtually unlimited money printing postponed the collapse and since 2008 US total debt has almost doubled to $100 trillion. 

Gold backing of a currency doesn’t always solve a debt problem but it certainly makes it more difficult for the government to cook the books which they do without fail.

BONFIRE OF THE US BUDGET BOOKS

So tricky Dick (Nixon) couldn’t make ends meet in the late 1960s – early 70s partly due to the Vietnam war. 

Thus in 1971 Nixon, by closing the Gold window, started the most spectacular bonfire of the US government budget books. How wonderful, no more accountability, no more shackles and no more gold deliveries to de Gaulle in France who was clever to ask for gold instead of dollars in debt settlement from the US. 

So from August 1971, the US embarked on a money printing and credit expansion bonanza never seen before in history. 

Total US debt went from $2 trillion in 1971 to $200 trillion today – up 100X!

Since most major currencies were linked to the dollar under the Bretton Woods system, the closing of the gold window started a global free for all with the printing press (including bank credit) replacing REAL MONEY i.e. GOLD. 

The consequences of this “temporary” move by Nixon is that all Fiat or paper money has declined by 97-99% since 1971. 

The price of assets have obviously inflated correspondingly. In 1971 total US financial assets were $2 trillion. Today they are $130 trillion, up 65X. 

And if we include off balance sheet assets including the shadow banking system and derivatives, we are looking at assets (which will become liabilities) in excess of $2 quadrillion. 

I forecast the derivative bubble and demise of Credit Suisse in this article (Archegos & Credit Suisse – Tip of the Iceberg) and also in this one (The $2.3 Quadrillion Global Debt Time Bomb).

HEADS, GOLD WINS – TAILS, GOLD WINS

Luke Gromen in his Tree Rings report puts forward two options for the world economy which can be summarised as follows:

1. Dedollarisation continues, the Petrodollar dies and gold gradually replaces the dollar as a global commodity trading currency especially in the commodity rich BRICS countries. This would allow commodity prices to stay low as gold rises and drives a virtuous circle of global trade.  

If the above option sounds too good to be true especially bearing in mind the bankrupt status of the global financial system, Luke puts forward a much less pleasant outcome. 

And in my view, Luke’s alternative outcome is sadly more likely, namely:

2. “China, the US Treasury market, and the global economy implode spectacularly, sending the world into a new Great Depression, political instability, and possibly WW3…in which case, gold probably rises spectacularly all the same, as bonds and then equities scramble for one of the only assets with no counterparty risk – gold.   (BTC is another.)”

Yes, Bitcoin couldgo to $1 million as I have often said but it could also go to Zero if it is banned. Too binary for me and not a good wealth preservation risk in any case.

As Gromen says, there is a virtuous case and there is a vicious case for the world economy. 

But above both cases shines GOLD!

So why hold the worthless paper money or bubble assets when you can protect yourself with Gold!

FOR THE CBO BAD TIMES DON’T EXIST

The US Central Budget Office – CBO – has recently made a 10 year forecast.

Obviously, the CBO assumes no depression or even a little recession in the next 10 years!

Isn’t it wonderful to be a government employee and have a mandate to only forecast GOOD NEWS!  

And although the CBO forecasts a debt increase of $21 trillion by 2034 to a total of $55 trillion, they expect inflation to stay around 2%!

As I have stated in many articles, the US Federal debt has doubled every 8 years on average since Reagan became President in 1981!

I see no reason to deviate from that long term trend although there can be short term deviations. So based on that simple but historically accurate extrapolation, I could forecast the increase from $10 trillion to $20 trillion debt in 2009 when Obama took over from Bush Jr.

Extrapolating this trend, the US Federal Debt will reach $100 trillion in 2036. 

With debts and deficits increasing exponentially, it is not unlikely that as inflation catches fire again, $100 trillion Federal Debt will be reached earlier than 2036.

Just think about a big number of bank failures, which is guaranteed, plus major defaults in the $2+ quadrillion derivative market. Against such dire background, it would be surprising if US debt doesn’t go far beyond $100 trillion by the mid 2030s!

 STOCK MARKET BUBBLE & LEADERSHIP SWAPS

Investors and many analysts are still bullish about the stock market. As we know, markets will move higher until all investors, especially retail, are sucked in and until most of the shorts have liquidated their positions.

It has been a remarkable bull market based on unlimited debt creation. Nobody worries about the fact that 7 stocks are creating this mania. These stocks are well known to most investors: Alphabet (Google), Amazon, Apple, Meta (Facebook), Microsoft, Nvidia and Tesla. 

These Magnificent 7 have a total market cap of $13 trillion. That is the same as the combined GDP of Germany, Japan, India and the UK! Only the US and China are bigger. 

When 7 companies are greater than 4 of the biggest industrial economies in the world, it is time to fire the management of these countries and maybe do a swap.

 GATES, COOKE, MUSK TAKING OVER GERMANY, UK & FRANCE

What about Germany’s Chancellor Scholz running Amazon. Or Rishi Sunak in the UK being in charge of Microsoft? How long would it take them to destroy these companies? Not many years in my view. They would quickly double the benefits for workers and increase debts to unsustainable levels.  

But Germany and the UK would most certainly benefit from Bill Gates of Microsoft taking on Germany and Tim Cooke of Apple running the UK. They would of course need dictatorial powers in order to take the draconian measures required. Only then could they slash inefficiencies, halve benefits and reduce taxes by at least 50%.

If the entrepreneurs just got a very small percentage of the improvement in the countries’ finances as remuneration, they would make much more money than they are currently.  

Even more fascinating would be to see Elon Musk as French President. He would fire at least 80% of state employees and by doing that he might even get the militant French unions on his side and get the country back on its feet. 

An interesting thought experiment that of course will never happen.

WHY IS EVERYONE WAITING FOR NEW GOLD HIGHS IN ORDER TO BUY???

For almost 25 years I have been standing on a soapbox to inform investors of the importance of wealth preservation.

Still only just over 0.5% of global financial assets have been invested in gold. In 1960 it was 5% in gold and in 1980 when gold peaked at $850, it was 2.7%.

For a quarter of a century, gold has gone up 7- 8X in most Western currencies and exponentially more in weak currencies like the Argentine Pesos or Venezuelan Bolivar. 

In spite of gold outperforming most asset classes in this century, it remains at less than 1% of Global Financial Assets – GFA. Currently at $2,100 gold is at 0.6% of GFA.  

WE HAVE LIFTOFF! 

So gold has now broken out and very few investors are participating. 

This stealth move that gold has made has left virtually every investor behind as this table shows: 

The clever buyers are of course the BRICS central banks. Almost all of their purchases are off market so in the short term it has only a marginal effect on the gold price. 

But now the squeeze has started as my good friend Alasdair Macleod explains so well on King World News. The Comex was never meant for physical deliveries but only for cash settlements. But now buyers are standing for physical delivery. We have also seen last month major exports of gold from the US to Switzerland. These are either Comex 400 ounce bars or US government bars sold/leased and sent to the Swiss refiners and broken down to 1 kg bars for onwards export to the BRICS. These bars will never return again even if they are only leased and not sold. 

The above process will one day bring panic to the gold market as there will be nowhere near enough physical gold for all the paper claims. 

So for any gold investors who don’t hold physical gold in a safe jurisdiction (NOT USA), I suggest that they quickly move their gold to a private vault where they have personal access, preferably in Switzerland or Singapore.

So NO FRACTIONAL GOLD OWNERSHIP, NO GOLD ETFs or FUNDS and NO GOLD IN BANKS!

At least not if you want to be sure to get hold of your gold as the gold squeeze starts. 

GOLD IS ON THE CUSP OF A MAJOR MOVE 

Having just broken out, gold is now on its way to much, much higher levels. 

As I keep on saying, forecasting the gold price is a mug’s game. 

What is the purpose of predicting a price level when the unit you measure gold in (USD, EUR, GBP etc) is continually debasing and worth less every month. 

All investors need to know is that every single currency in history has without fail gone to ZERO as Voltaire said already in 1727. 

Since the early 1700s, over 500 currencies have become extinct, most of them due to hyperinflation. 

Only since 1971 all major currencies have lost 97-99% of their purchasing power measured in gold. In the next 5-10 years they will lose the remaining 1-3% which of course is 100% from here. 

But gold will not only continue to maintain purchasing power, it will do substantially better.  This is due to the coming collapse of all bubble assets – Stocks, Bonds, Property etc. The world will not be able to avoid the Everything Collapse or First Gradually then Suddenly – The Everything Collapse  as I wrote about in two articles in 2023. 

YES, GOLD IS ON THE CUSP OF A MAJOR MOVE AS:

• Wars continue to ravage the world.

• Inflation rises strongly due to ever increasing debts and deficits.

• Currency continues their journey to ZERO.

• The world flees from stocks, bonds, and the US dollar. 

• The BRICS countries continue to buy ever bigger amounts of gold.

• Central Banks buy major amounts of gold as currency reserves instead of US dollars.

• Investors rush into gold at any price to preserve their wealth. 

GOLD AS CHEAP AS IN 1971 OR 2000

The chart below indicates that gold in early 2020 at $1700 was as cheap as in 1971at $35 and in 2000 at $1700 in relation to money supply.

At this point we do not have an updated chart but it is our estimate that the monetary base has probably kept pace with the gold price meaning that the level in 2024 is similar to 2020. 

So let me repeat my mantra:

Please jump on the Gold Wagon while there is still time to preserve your wealth. 

The coming surge in gold demand cannot be met by more gold because more than the current 3000 tonnes of gold per annum cannot be mined. 

Authored by Lance Roberts via RealInvestmentAdvice.com,

Valuation metrics have little to do with what the market will do over the next few days or months. However, they are essential to future outcomes and shouldn’t be dismissed during the surge in bullish sentiment. Just recently, Bank of America noted that the market is expensive based on 20 of the 25 valuation metrics they track. As BofA’s Chief Equity Strategist stated:

“The S&P 500 is egregiously expensive vs. history. It’s hard to be bullish based on valuation“

Since 2009, repeated monetary interventions and zero interest rate policies have led many investors to dismiss any measure of “valuation.” Therefore, investors reason the indicator is wrong since there was no immediate correlation.

The problem is that valuation models are not, and were never meant to be, “market timing indicators.” The vast majority of analysts assume that if a measure of valuation (P/E, P/S, P/B, etc.) reaches some specific level, it means that:

1. The market is about to crash, and;

2. Investors should be in 100% cash.

Such is incorrect. Valuation metrics are just that – a measure of current valuation. More importantly, when valuation metrics are excessive, it is a better measure of “investor psychology” and the manifestation of the “greater fool theory.” As shown, there is a high correlation between our composite consumer confidence index and trailing 1-year S&P 500 valuations.

What valuations do provide is a reasonable estimate of long-term investment returns. It is logical that if you overpay for a stream of future cash flows today, your future return will be low.

 I previously quoted Cliff Asness on this issue in particular:

“Ten-year forward average returns fall nearly monotonically as starting Shiller P/E’s increase. Also, as starting Shiller P/E’s go up, worst cases get worse and best cases get weaker.

If today’s Shiller P/E is 22.2, and your long-term plan calls for a 10% nominal (or with today’s inflation about 7-8% real) return on the stock market, you are basically rooting for the absolute best case in history to play out again, and rooting for something drastically above the average case from these valuations.”

We can prove that by looking at forward 10-year total returns versus various levels of PE ratios historically.

Asness continues:

“It [Shiller’s CAPE] has very limited use for market timing (certainly on its own) and there is still great variability around its predictions over even decades. But, if you don’t lower your expectations when Shiller P/E’s are high without a good reason — and in my view, the critics have not provided a good reason this time around — I think you are making a mistake.”

Which brings me to Warren Buffett.

Market Cap To GDP

In our most recent newsletter, I discussed Warren Buffet’s dilemma with his $160 billion cash pile.

The problem with capital investments is that they take time to generate a profitable return that accretes to the business’s bottom line. The same goes for acquisitions. More importantly, concerning acquisitions, they must both be accretive to the company and reasonably priced. Such is Berkshire’s current dilemma.

“There remain only a handful of companies in this country capable of truly moving the needle at Berkshire, and they have been endlessly picked over by us and by others. Some we can value; some we can’t. And, if we can, they have to be attractively priced.”

This was an essential statement. Here is one of the most intelligent investors in history, suggesting that he cannot deploy Berkshire’s massive cash hoard in meaningful size due to an inability to find acquisition targets that are reasonably priced. With a $160 war chest, there are plenty of companies that Berkshire could either acquire outright, use a stock/cash offering, or acquire a controlling stake in. However, given the rampant increase in stock prices and valuations over the last decade, they are not reasonably priced.

One of Warren Buffett’s favorite valuation measures is the market capitalization to GDP ratio. I have modified it slightly to use inflation-adjusted numbers. The simplicity of this measure is that stocks should not trade above the value of the economy. This is because economic activity provides revenues and earnings to businesses.

The “Buffett Indicator” confirms Mr. Asness’ point. The chart below uses the S&P 500 market capitalization versus GDP and is calculated on quarterly data.

Not surprisingly, like every other valuation measure, forward return expectations are substantially lower over the next ten years than in the past.

None of this should be surprising. Logics suggests that overpaying for any asset in the present inherently will generate lower future expected returns versus buying assets at a discount. Or, as Warren Buffett stated:

“Price is what you pay. Value is what you get.”

F.O.M.O. Trumps Fundamentals

In the “heat of the moment,” fundamentals don’t matter. In a market where momentum drives participants due to the “Fear Of Missing Out (F.O.M.O.),” fundamentals are displaced by emotional biases. Such is the nature of market cycles and one of the primary ingredients necessary to create the proper environment for an eventual reversion.

Notice, I said eventually.

As David Einhorn once stated:

“The bulls explain that traditional valuation metrics no longer apply to certain stocks. The longs are confident that everyone else who holds these stocks understands the dynamic and won’t sell either. With holders reluctant to sell, the stocks can only go up – seemingly to infinity and beyond. We have seen this before.

There was no catalyst that we know of that burst the dot-com bubble in March 2000, and we don’t have a particular catalyst in mind here. That said, the top will be the top, and it’s hard to predict when it will happen.”

Furthermore, as James Montier previously stated:

“Current arguments as to why this time is different are cloaked in the economics of secular stagnation and standard finance workhorses like the equity risk premium model. Whilst these may lend a veneer of respectability to those dangerous words, taking arguments at face value without considering the evidence seems to me, at least, to be a common link with previous bubbles.“

As BofA noted in its analysis, stocks are far from cheap. Based on Buffett’s preferred valuation model and historical data, return expectations for the next ten years are as likely to be close to zero or negative. Such was the case for ten years following the late ’90s.

Investors would do well to remember the words of the then-chairman of the SEC, Arthur Levitt. In a 1998 speech entitled “The Numbers Game,” he stated:

“While the temptations are great, and the pressures strong, illusions in numbers are only that—ephemeral, and ultimately self-destructive.”

Regardless, there is a straightforward truth.

“The stock market is NOT the economy. But the economy is a reflection of the very thing that supports higher asset prices: earnings.”

The economy is slowing down following the pandemic-related spending spree. It is also doubtful the Government can continue spending at the same clip over the next decade as it did in the last.

While current valuations are expensive, it does NOT mean the markets will crash tomorrow, next quarter, or even next year.

However, there is a more than reasonable expectation of disappointment in future market returns.

That is probably something investors need to come to grips with sooner rather than later.

Super Tuesday, the biggest primary day of the political year, is here. 

Trailing her Republican rival by hundreds of delegates, former South Carolina Gov. Nikki Haley has ignored calls for her to drop out and kept fighting on.

With Haley winning one ‘district’ (can you spot the odd one out)…

But, as The Epoch Times breaks down in detail below, today, presidential primary voters across 15 states and one U.S. territory – including Alabama, Alaska, Arkansas, California, Colorado, Maine, Massachusetts, Minnesota, North Carolina, Oklahoma, Tennessee, Texas, Utah, Vermont, and Virginia, and the territory of American Samoa – will sound off on their preferred presidential candidates, and Haley’s projected to lose most, if not all of them, to former President Donald Trump.

Ms. Haley, for her part, has only pledged to stay on until Super Tuesday, prompting questions about when she will call it quits.

“This is not about my political future, or I would have been out a long time ago. The reason I’m doing this is for my kids, your kids, and the younger generation.”

 

Currently, former President Donald Trump is viewed as the presumptive nominee by most after a series of double-digit wins in contests held so far, with challenger Nikki Haley failing to gain ground.

All eyes will be on whether Haley drops out after tonight, given that she has only vowed to stay on up until March 5. 

With nearly 900 delegates of the 1,215 needed to become the nominee up for grabs, polls show that Trump is well-positioned to come close to locking down his party’s nomination tonight. 

But these primaries will have other national implications as well. 

With the Republican House majority hanging by a thread, there are dozens of key congressional races this year that could upset the balance of power in Washington, several of which will hold their primaries on Super Tuesday.

California, especially, will be crucial to who holds the House next year. Democrats are targeting seven Republican-held seats in the state for potential gains. Republicans, on the other hand, are homing in on the seats of Democratic Reps. Josh Harder and Mike Levin, as well as the open seat of Democratic Rep. Katie Porter, who is running for Senate.

Porter will also be facing off against Rep. Adam Schiff (D-Calif.) and former Dodgers all-stay player Steve Garvey, a Republican, who are also vying to replace the late Sen. Dianne Feinstein (D-Calif.). 

Another key state is Texas, where Republican Rep. Tony Gonzales will need to receive a majority of the votes to fend off multiple primary challengers and avoid a runoff. Meanwhile, Democratic Rep. Sheila Jackson Lee, fresh off her December loss in the Houston mayoral race, faces a tough challenge from former Houston City Councilwoman Amanda Edwards.

North Carolina’s elections later this year could also shift the balance of power in Washington, as five congressmen in the state have chosen not to seek reelection this year—leading both parties to hope for flips. North Carolinians will also vote for the Republican and Democratic nominees for governor. 

And while he’s seen as a shoo-in for the Democratic nomination, President Joe Biden will also face a test on Super Tuesday as activists in Minnesota have called on Democrats to vote “uncommitted” in protest of Biden’s attitude toward the war in Gaza. 

Iowa Democrats will also learn the results of their unprecedented vote-by-mail caucus.

Results are expected to arrive starting at 7 p.m. ET tonight. Here’s a breakdown of the schedule: 

• 6 p.m. ET: Democratic results expected in Iowa.

• 7 p.m. ET: Polls close in Vermont and Virginia. Republican caucuses convene in Alaska.

• 7:30 p.m. ET: Polls close in North Carolina.

• 8 p.m. ET: Polls close in Alabama, Maine, Massachusetts, Oklahoma, and Tennessee. Most polls close in Texas.

• 8:30 p.m. ET: Polls close in Arkansas.

• 9 p.m. ET: Polls close in Colorado and Minnesota. Last polls close in Texas. Republican caucuses convene in Utah.

• 11 p.m. ET Polls close in California. 

• 12 a.m. ET Polls close in Alaska.

TRUMP WINS AT SCOTUS

A unanimous judgment by the Supreme Court overturned a Colorado court’s ruling that Trump was disqualified from appearing on the state’s ballot. Yesterday’s decision is likely a relief for Trump’s campaign, which is already wrestling with multiple court cases ahead of the 2024 presidential election.

Justice Amy Coney Barrett and the three liberal justices issued concurring opinions in which they agreed that states lacked authority to disqualify federal candidates but thought their colleagues went too far with other aspects of the opinion. 

Justices Sonia Sotomayor, Elena Kagan, and Ketanji Brown Jackson indicated that federal courts should be able to rule on the issue and accused their colleagues of attempting “to insulate all alleged insurrectionists from future challenges to their holding federal office.”

State vs. federal power was the main theme of the opinion, a concern that tracked with the overall direction of oral argument in February. The per curiam, or unsigned opinion, argued that Section 5 of the 14th Amendment gave enforcement power to Congress.

A messy patchwork of state ballot disqualifications seems unlikely or impossible after the March 4 decision. 

Reserving the issue for Congress bypassed the question of whether Trump was the type of “officer” who could be disqualified under Section 3 of the 14th Amendment. It laid out somewhat broad guidelines for future legislation but it’s unclear how Congress will act, if at all before the 2025 inauguration.

Democrats could create controversy by attempting to pass legislation disqualifying Trump or interfering with the certification of election results. Another “civil war” would result from the first avenue, Public Interest Legal Foundation President J. Christian Adams told The Epoch Times. “Turn the national temperature down” was Justice Barrett’s advice in her concurring opinion. Apparently displeased with aspects of the per curiam opinion, she said “this is not the time to amplify disagreement with stridency.”

WHAT’S HAPPENING

1. Trump will deliver a Super Tuesday speech from Mar-a-Lago, Florida.

2. The first results on Super Tuesday will arrive from Iowa at 6 p.m. ET. The polls will close in California at 11 p.m. ET  and in Alaska at midnight ET.

Finally, in case you are still wondering after all this, why ‘they’ are still running Nikki Haley, here’s your answer.

Authored by Simon White, Bloomberg macro strategist,

The tech sector continues to drive returns in US stocks. Multiples are high, but still not quite as high as they reached on the eve of the dot-com bust, while most sectors’ earnings yield is not yet as unattractive as it was versus 10-year yields in early 2000.

Number Go Up is a recent book by Bloomberg’s Zeke Faux about crypto. The title probably originated in a 2017 post on X, formally known as Twitter, about how asinine bitcoin investing had become: “NUMBER GO UP, ME COULD HAVE HAD BIG NUMBER, GOON BAD.”

Maybe we’re not quite there in stocks, but burgeoning FOMO-ness is pushing investors to override their prefrontal cortices and engage in ever more risky behavior.

The epicenter of market froth is the tech sector. P/E multiples are the biggest driver of S&P returns currently, but not out of keeping with several periods over the past 25 years. It’s a different story with the tech sector, though, where P/Es are driving tech returns by more than they have since the run-up to the 2000 tech bust, apart from a brief period in the pandemic and in the bear markets of 2001 and 2008.

Multiples were driving the majority of the sector’s returns in the late 1990s, which were running at 50%-60% on an annual basis. That’s a bit lower than today’s ~40%, but not by much.

More overvaluation could also be seen in equity risk premia (ERPs) before we get near Dotcom-mania levels.

Tech sectors such as hardware and software services have among the most expensive ERPs, but those sectors remain well above the nadirs they reached in 2000. Indeed, almost all sectors, other than autos and transportation, are higher than they were back then.

Historically, therefore, we could see things in the tech sector and broader market get even wilder before we see any major correction in prices. Fortunately, repressed volatility is making portfolio hedges more and more attractive, with a 5000 put on the S&P expiring at the end of the year costing a little more than 3%.

Bull markets are treacherous – or at least they should be. If you as investor are blithely long, then you’re missing something. There are several emerging parallels (broad over-valuation, high household allocation, etc) with today’s market and the Dotcom period investors should be aware of. Nonetheless, number may keep going up for now.

And just like that the momentum-driven buying frenzy is over: S&P 500 futures are down 0.3%, and Nasdaq 100 futures slide 0.6%, jeopardizing the ridiculous stock market rally which is up 16 of the pat 18 weeks, as Apple shares tumbled more than 2% in premarket trading after reporting 24% drop in iPhone sales in China over first six weeks of year. Large-cap technology companies were also pressured by the selling in Apple, while sentiment was also dented by the lukewarm response to China’s new growth target which for the 2nd year in a row was “around 5%”; finally the mood turned more dour after hawkish comments on Monday by Atlanta Fed president Bostic who said he sees a Q3 cut and then a pause and then one more for the year. Bond yields are down 2bps across the curve, taking the 10Y to 4.18% while the USD is flat and bitcoin continues to trade just shy of its all time high of $68,888.99. Commodities are mixed with Ags/Energy lower and metals higher, while gold is also making a new ATH. Today’s macro data focus will be on ISM-Srvcs and Durable/Cap Goods, plus we get some Consumer-sector earnings including Target. 

In premarket trading, Apple fell more than 2%, set to extend losses for a fifth consecutive session as Counterpoint Research says iPhone sales in China declined by 24% over the first six weeks of this year. The divergence between AAPL and the Nasdaq is getting rather glaring.

Also in premarket trading, AMD slipped more than 2.5%, after Bloomberg reported it has hit a US government roadblock in its plan to sell an artificial intelligence chip tailored for China. Tesla fell 2.2%, set to extend losses after dropping 7.2% on Monday following disappointing China vehicle shipment figures. Additionally, Tesla halted production at its factory near Berlin and sent workers home after a fire – which appears to have been the result of industrial sabotage – at a high-voltage pylon caused power failures throughout the region. Here are the other notable premarket movers:

• AeroVironment (AVAV US) rose 19% after the defense contractor reported adjusted earnings per share that beat the average analyst estimate.
• Gitlab (GTLB US) shares sink 24% after the application software company gave a full-year forecast that is weaker than expected. Analysts noted that the tepid outlook overshadowed otherwise strong 4Q results.
• MicroStrategy (MSTR US) leads cryptocurrency-linked stocks lower in premarket trading on Tuesday as Bitcoin’s blinding rally takes a breather. The largest corporate holder of Bitcoin also proposed to sell $600 million in convertible senior notes to buy more of the largest cryptocurrency.
• Paymentus (PAY US) shares climbed 16% after the provider of cloud-based bill payment technology issued stronger-than-expected adjusted Ebitda forecasts for the current quarter and full year. The company’s fourth-quarter revenue and adjusted Ebitda also topped the average analyst estimates.
• Stitch Fix (SFIX US) shares slumped 14% after the online personal styling service cut its full-year net revenue from continued operations guidance, which missed analyst estimates. Additionally, the company reported a heavier-than-expected loss per share from continuing operations for the second quarter.

Investors are also jittery ahead of Congressional testimony from Fed Chair Jerome Powell on Wednesday and Thursday. That will be followed on Friday by monthly payrolls data. Powell is expected to double down on the message that the Fed will be patient in cutting rates. That’s especially so after Atlanta Fed President Raphael Bostic said Monday he expects the first cut — which he has penciled in for the third quarter — to be followed by a pause. A string of strong economic data has already forced markets to push back the first rate cut to at least mid-year and trim the number of reductions this year to three.

“If Bostic wants one cut then a pause, you can’t help but wonder if the Fed is wavering on three cuts,” said Societe Generale strategist Kenneth Broux. “The data is doing the talking and it’s really not screaming for the Fed to cut rates. We have taken out three Fed cuts in the past two months, so now the question is: do we need to take out more?”

In Europe, the Stoxx 600 index slipped 0.2%, with automotive and mining shares the hardest hit as China’s latest market-support measures, announced Tuesday, failed to reassure investors. Among individual stocks, defense firm Thales SA jumped after forecast-beating results and Spirent Communications Plc soared after Viavi Solutions Inc. agreed to buy the electronic solutions provider.

Earlier in the session, Chinese equities were mixed and yuan little changed after China’s National People’s Congress delivered a slew of announcements on growth and inflation targets, as well as steps to shore up the economy and fiscal goals for 2024 which were very much as expected if somewhat on the disappointing side. The CSI 300 index close 0.7% and Shanghai Composite also eked out modest small gain, while Hong Kong tech shares pull Hang Seng 2.2% lower. Japanese equities grind higher; South Korean stocks were modestly weaker

“Overall, I would say it probably disappoints more based on announcements thus far,” said Xin-Yao Ng, an investment director at abrdn. “Investors still will like more forceful fiscal measures to boost the economy.”

In FX, the Bloomberg Dollar Spot Index is flat while the Aussie is the worst performer among the G-10’s, falling 0.3% versus the greenback. The yen modestly advanced after Tokyo price growth rising above the Bank of Japan’s target in February

In rates, treasury yields slipped after rising across the curve on Monday, when buyers shied away from US three-and six-month bill auctions amid uncertainty over Powell. Treasuries are richer by 2bp-3bp across the curve with 10-year around 4.185%, trailing gilts, which lead gains in European rates, by around 3.5bp in the sector. Curve spreads little changed. Core European rates likewise better on the day after French industrial production data were weaker than expected. IG credit issuance slate includes Israel multi-tranche $benchmark, continuing the YTD corporate borrowing binge. IG dollar issuance slate also includes EIB $4b 3Y and EBRD $1b 10Y; 14 issuers priced $21.5b across 29 tranches Monday, taking YTD volume past $400 billion. At least 1-2 borrowers stood down and intend to look again Tuesday

In commodities, oil prices are little changed, with WTI trading near $78.70. Spot gold rises 0.5%

Bitcoin takes a breather and holds just beneath its record high of $69k, while Ethereum (+3.6%) continues to advance higher.

Looking at the US economic calendar, data today includes February S&P Global services PMI (9:45am), January factory orders and February ISM services index (10am). Fed speakers scheduled include Barr at 12pm and 2:15pm. Today’s earnings releases include Target. And in US politics, it’s Super Tuesday, with lots of primaries taking place for both Republicans and Democrats

Market Snapshot

• S&P 500 futures down 0.3% to 5,124.25
• STOXX Europe 600 down 0.2% to 496.40
• MXAP down 0.4% to 173.99
• MXAPJ down 0.9% to 525.75
• Nikkei little changed at 40,097.63
• Topix up 0.5% to 2,719.93
• Hang Seng Index down 2.6% to 16,162.64
• Shanghai Composite up 0.3% to 3,047.79
• Sensex down 0.2% to 73,750.62
• Australia S&P/ASX 200 down 0.1% to 7,724.20
• Kospi down 0.9% to 2,649.40
• German 10Y yield little changed at 2.37%
• Brent Futures little changed at $82.81/bbl
• Gold spot up 0.5% to $2,124.82
• U.S. Dollar Index little changed at 103.85
• Euro little changed at $1.0855

Top Overnight News

• China’s 2024 economic objectives/targets were largely inline with expectations (no new incremental stimulus measures), including growth of “around 5%” and a fiscal deficit of ~3% (the country will issue CNY1T in special ultralong gov’t bonds, which aren’t counted in the deficit). WSJ
• China drops “peaceful reunification” language with regards to Taiwan as it pledges to boost defense spending by 7.2% this year. RTRS
• Apple Inc.’s iPhone sales in China fell by a surprising 24% over the first six weeks of this year, according to independent research that may stoke fears about worsening demand for the marquee but aging device. BBG
• Japan’s Tokyo CPI came in at +2.6% Y/Y on the headline (up from +1.8% in Jan, and firmer than the consensus forecast of +2.5%) while core (ex-food/energy) cooled to +3.1% (down from +3.3% in Jan and inline with the Street). BBG
• Gaza ceasefire talks end in Cairo without a breakthrough as pressure builds for a deal before the start of Ramadan on 3/10. RTRS
• Hawkish policymakers at the European Central Bank have been emboldened to resist calls for an imminent cut to interest rates at their meeting this week after inflation proved stickier than expected in February. FT
• Bitcoin ETFs are seeing assets rise at a record pace – total inflows have been nearly $50B since the approvals arrived on Jan 11 (BlackRock’s product became the fastest new ETF in history to hit $10B). WSJ
• TGT +6% pre market after reporting strong FQ4/Jan EPS upside, w/a ~60% Y/Y spike to 2.98 (vs. the Street’s 2.40 forecast). The EPS beat was driven primarily by margins while comps were inline (comps fell 4.4% vs. the Street -4.5%, with brick-and-mortar down 5.4% and digital down 0.7%). RTRS
• AMD fell after its plan to sell an AI chip tailored for the Chinese market hit a roadblock. US officials found the low-performance chip was still too powerful and AMD must obtain a license to sell it, people familiar said. BBG

A more detailed look at global markets courtesy of Newsquawk

APAC stocks traded mixed as the region digested China’s Work Report and Caixin Services PMI data. ASX 200 closed slightly lower as strength in mining and health care was offset by losses in the consumer sectors. Nikkei 225 initially retreated beneath the 40,000 level after the latest Tokyo CPI data showed an acceleration in price growth, but then gradually recovered its losses and returned to positive territory. Hang Seng and Shanghai Comp. were mixed with notable underperformance in the Hong Kong benchmark amid weakness in tech and health care, while the miss on Chinese Caixin Services PMI also provides a headwind for risk appetite. Conversely, the mainland just about remained afloat after the announcement of the government Work Report with the GDP growth target maintained at around 5%, as expected, although Premier Li noted the foundation of China’s economic recovery is not solid yet and domestic demand is not strong.

Top Asian News

• China unveiled the government work report with the 2024 GDP growth target set at around 5%, as expected, but noted achieving this year’s economic growth target will not be easy, while it will continue to implement proactive fiscal policy and prudent monetary policy, as well as noted that China should intensify cross-cyclical and counter-cyclical adjustments through macro policies. China will launch a year-long program to stimulate consumption and roll out a “worry-free consumption” initiative to improve the consumption environment and will make concerted efforts to defuse local government debt risks. Furthermore, China will take tough measures against illegal financial activities and will move faster to foster a new development model for real estate.
• Chinese Premier Li said the foundation of China’s economic recovery is not solid yet and China’s domestic demand is not strong with social expectations relatively weak. Li also commented that some small and medium-sized enterprises are facing operational difficulties but added that China will stabilise and expand private investment.
• China’s state planner said it will lift all foreign investment restrictions in the manufacturing sector and it will relax market access restrictions in service industries such as telecoms and medical services, according to Reuters.
• Japan Minister of State for Economic and Fiscal Policy Shindo said they are not thinking now of declaring anything when asked whether the government could call an end to deflation, while Finance Minister Suzuki also said there was no truth to the media report that government is considering announcing the end of deflation.
• Japan’s Top Currency Diplomat Kanda must brace for higher interest rates environment given assumed interest rates raised to 1.9% from 1.1%; must strive for responsible fiscal management by achieving primary budget balancing in FY25/26.

European bourses, Stoxx600 (-0.3%) began the session mostly in modest negative territory, and EZ Composite/Services PMIs (which were revised higher) did little to sway the indices. European sectors hold a strong negative tilt, with the typical Defensive sectors (Utilities/Healthcare) able to remain afloat. Autos is found at the foot of the pile, with sentiment hampered following poor Tesla Chinese shipments data yesterday, with a factory fire at the Co’s German plant also not helping. US Equity Futures (ES -0.4%, NQ -0.7%, RTY -0.4%) are entirely in the red, taking impetus from a downbeat sentiment in Europe. The NQ underperforms, hampered by losses in Tesla (-1.9%), after news that its plant in Germany was powerless, following a fire caused by “eco-activists”. Elsewhere, Apple (-1.5%) continues to sink lower, on reports that iPhone sales in China plunged.

Top European News

• Barclays said UK consumer spending in February rose 1.9% Y/Y and was dampened by wet weather, while it noted that consumer confidence about non-essential spending was the highest since November 2021, according to Reuters.
• ECB insider expects inflation forecasts to be cut this year and maybe next year, according to Econostream Media.
• UK Chancellor Hunt will cut national insurance by 2pp in the Spring Budget on Wednesday, according to Times’ Swinford.

FX

• Uneventful trade for the dollar with DXY consolidating on a 103 handle and respecting yesterday’s 103.72-96 range. Downside sees the 200DMA at 103.73. Upside focus is on reclaiming 104.
• EUR is steady vs. the USD and contained within a tight 1.0842-58 range and yesterday’s 1.0837-67 parameters. Final PMIs had little sway on the EUR with attention turning to Thursday’s ECB announcement.
• Contained trade for Cable with a range of 1.2672-94 which sits within yesterday’s 1.2650-1.2707 bounds. PMIs had little sway on the pound with traders more mindful of tomorrow’s budget and potential forthcoming tax cuts, latest via the Times seemingly cements a National Insurance cut.
• JPY a touch firmer vs. the USD following hot Tokyo inflation metrics overnight, which were followed up by comms from Japanese officials that markets must brace for higher rates. That being said, still remains above 150.50 and close to 150.88 YTD peak.
• Antipodeans are both softer vs. the USD with potential disappointment out of China weighing on sentiment. AUD/USD has lost 0.65 status and gone as low as 0.6478. If downside extends, YTD trough at 0.6442 could come into view.
• PBoC set USD/CNY mid-point at 7.1027 vs exp. 7.1961 (prev. 7.1020).

Fixed Income

• Bunds began the session on the front foot, extending to a 133.28 peak before stalling and as such remained shy of 133.30 & 133.37 from 21st & 23rd February. Thereafter, EZ Final PMIs spurred a gradual hawkish move across the regional and pan-EZ figures, a move which was sufficient to bring Bunds back to the 133.00 mark, though still remain firmer on the day.
• USTs are in-fitting with European peers and pulled back alongside EZ PMIs. Holds towards the upper end of a 110-23-111-00 range. A high point which resides just a tick shy of Monday’s best.
• Gilts initially moved in tandem with EGBs, awaiting its own PMI release, which saw a modest revision lower and as such lifted Gilts by a handful of ticks to just above 98.50 but shy of the earlier 98.61 peak.
• UK sells GBP 3.75bln 3.75% 2027 Gilt: b/c 3.01x (prev. 3.04x), average yield 4.314% (prev. 4.131%) & tail 0.5bps (prev. 0.5bps)
• Germany sells EUR 3.316bln vs exp. EUR 4bln 2.10% 2029 Bobl: b/c 2.50x (prev. 2.30x), average yield 2.40% (prev. 2.30%), and retention 17.10% (prev. 17.68%)

Commodities

• Crude futures are choppy after seeing little notable fallout from the China Two-Session and as geopolitical updates remain sparse, though crude prices clambered off lows as EZ PMIs saw upward revisions. Currently crude holds below USD 83/bbl.
• Precious metals see modest gains despite a flat Dollar and relatively light macro and geopolitical newsflow this morning, with prices seemingly continuing the momentum from yesterday; XAU rose above yesterday’s peak (2,119.97/oz) as it continues to hone in on the 2023 peak near USD 2,148/oz.
• A mixed session for base metals after some APAC weakness following the underwhelming China Two-Sessions which provided little in the way of policy details, particularly for the Real Estate sector; 3M LME copper briefly dipped under USD 8,500/t before finding support, currently printing a USD 8,496.00-8,541.50/t range.
• Alberta oil production fell by 380k BPD M/M to 3.81mbpd in January amid to cold weather, according to the Alberta energy regulator

Geopolitics: Middle East

• Hamas said in a message they will be flexible on the issue of the number of prisoners if Israel is flexible on the issue of returning Palestinians to northern Gaza, according to Axios’ Ravid on X.
• US Central Command said Yemen’s Houthis fired an anti-ship ballistic missile from Yemen into the southern Red Sea on March 4th although there were no reported damages or injuries to commercial or US Navy ships. Houthis also fired two anti-ship ballistic missiles into the Gulf of Aden at M/V MSC Sky II which is a Liberian-flagged, Swiss-owned container vessel, while one of the missiles impacted the vessel and caused damage but initial reports indicated no injuries. Furthermore, CENTCOM said its forces conducted strikes against two anti-ship cruise missiles that presented an ‘imminent threat’ to merchant vessels and US Navy ships in the region.
• Gaza ceasefire talks between Hamas and mediators broke up on Tuesday in Egypt with no breakthrough as the Ramadan deadline looms, according to Reuters

Geopolitics: Other

• China’s coastguard took control measures against Philippine vessels that ‘illegally’ intruded into waters adjacent to the Second Thomas Shoal, according to state media. Philippines coastguard spokesperson said vessels faced dangerous manoeuvres and blocking from China’s coastguard and maritime militia during a resupply mission, while the reckless and illegal actions led to a collision between the Philippines and Chinese coastguard vessels in which the Philippine vessel sustained minor structural damage.
• North Korea’s Defence Ministry said South Korean-US military drills are not defensive and should stop, while it added that South Korea and the US will face consequences for their wrong choice, according to KCNA.

US Event Calendar

• 09:45: Feb. S&P Global US Services PMI, est. 51.4, prior 51.3
  • Feb. S&P Global US Composite PMI, est. 51.4, prior 51.4
• 10:00: Jan. Durable Goods Orders, est. -6.1%, prior -6.1%
  • Jan. Durables-Less Transportation, est. -0.3%, prior -0.3%
  • Jan. Cap Goods Orders Nondef Ex Air, prior 0.1%
  • Jan. Cap Goods Ship Nondef Ex Air, prior 0.8%
• 10:00: Jan. Factory Orders Ex Trans, est. -0.1%, prior 0.4%
  • Jan. Factory Orders, est. -3.0%, prior 0.2%
• 10:00: Feb. ISM Services Index, est. 53.0, prior 53.4
  • Feb. ISM Services New Orders, prior 55.0
  • Feb. ISM Services Employment, prior 50.5
  • Feb. ISM Services Prices Paid, est. 62.0, prior 64.0

Central Bank Speakers

• 12:00: Fed’s Barr Speaks on Panel about CRA Modernization
• 14:15: Fed’s Barr Participates in Roundtable Listening Session

DB’s Jim Reid concludes the overnight wrap

After posting 16 weekly gains out of 18 for the first time since 1971, yesterday saw the S&P 500 (-0.12%) get the week off to a subdued start as we await several key events later this week, including appearances from Chair Powell, the US jobs report, and the ECB decision.

One of the clearest moves yesterday was the selloff among US Treasuries, which took place across the curve and reversed the bulk of Friday’s rally. That saw the 10yr yield rise +3.2bps to 4.21%, whilst the 2yr yield was up +7.2bps to 4.60%. Bear in mind that today also marks exactly 20 months ago since the 2s10s curve closed back in inversion territory (after a brief period as the Fed started hiking), where it’s remained continuously since. So we’re now just a couple of weeks from exceeding the lengthy 1978-80 inversion, which is the longest continuous inversion in available data back to 1940.

Over in Europe, it was the mirror image for long-end yields, with those on 10yr bunds (-2.2bps), OATs (-4.0bps) and BTPs (-8.0bps) all falling back. The main exception to that were UK gilts, where the 10yr yield was up +0.4bps ahead of tomorrow’s budget announcement. That said, one consistent theme on both sides of the Atlantic was a curve flattening, and front-end yields inched higher in Europe as investors continued to dial back the chance of an ECB rate cut in the near term. For instance, only 4bps of easing are now priced by April – that is a 17% chance of a 25bps cut – with investors increasingly focusing on the summer as the timing for a first cut. More than 40bps of cuts had been priced by April at the start of the year.

The quiet start to the week for US equities did see the Magnificent 7 (-0.85%) under-perform, with slightly more moderate losses for the NASDAQ (-0.41%). There were contrasting moves within the Magnificent 7, with Tesla down -7.16% amid new price cuts and discounts by EV maker, while Nvidia (+3.60%) overtook Saudi Aramco to become the third largest company in the world by market cap. On the other hand, the equal-weighted version of the S&P 500 was up +0.24% on the day, as utilities (+1.65%) and banks (+1.58%) outperformed. Back in Europe, the STOXX 600 (-0.03%) was flat on the day, but there was a noticeably underperformance from the FTSE 100 (-0.55%). That continued the FTSE 100’s trend of being the worst-performing major equity index in Europe so far this year, with a YTD performance of -1.20%, in contrast to the +3.85% gain for the STOXX 600, and a +5.76% gain for the German DAX.

Looking forward, today will be a pivotal one in the US election calendar as it’s Super Tuesday, which is the day when the single-biggest number of primaries take place. Indeed, for both the Republicans and Democrats, over a third of the total delegates are up for grabs. So depending how things pan out, it might be just a couple of weeks until one candidate has a delegate majority. On the Republican side there are 15 states voting, and the only two major candidates left are Donald Trump and Nikki Haley. But Trump has already built a substantial delegate lead in the early states, and now leads Nikki Haley by 273 delegates to 43. Haley did win the primary in Washington DC over the weekend, giving her all 19 delegates there, but she continues to lag far behind Trump in the national polls. And even though the precise rules vary by state, several have some sort of winner-takes-all format. So if Trump can get at least 50% of the vote in many of those states, he’ll get all the statewide delegates, offering him the potential to really widen his lead today. Maybe the most interesting thing today is whether he performs in line with polling as so far in the primaries he has perhaps slightly underperformed in what were mostly big victories still. In turn this may help shape how people interpret his national standings in the polls as the year progresses.

On the Democratic side, President Biden isn’t facing a serious challenge and currently has 206 delegates, with just 2 others uncommitted, and none for any other candidate.

Asian equity markets are mixed this morning as China’s National People’s Congress (NPC) is fully underway. In terms of specific moves, the Hang Seng Tech Index (-3.18%) is the biggest underperformer across the region with the Hang Seng (-1.95%) also trading sharply lower partly due to a new ban by the US government on AMD selling its AI chips to China. Elsewhere, the KOSPI (-0.64%) is also trading in the red while the Nikkei (+0.21%), the CSI (+0.50%) and the Shanghai Composite (+0.26%) are holding on to gains. S&P 500 (-0.18%) and Nasdaq (-0.35%) futures are ticking lower.

Coming back to China, the nation has set its GDP growth target at 5% for 2024. Premier Li Qiang pledged that China would remove restrictions for foreign investment in manufacturing while announcing the issuance of “ultra-long” special government bonds worth 1trillion yuan ($138.9 billion) for major projects. Other measures mentioned during the meeting included a 7.2% rise in defense spending, the biggest in five years. See our economist’s take on what’s been announced so far here. The market’s big question will be whether they can back up their growth target with enough stimulus.

Early morning data showed that inflation in Tokyo reaccelerated, advancing +2.6% y/y in February (v/s +2.5% expected) as against a revised rise of +1.8% the previous month. Core inflation rose from an upwardly revised +1.8% y/y to +2.5% y/y in February, in-line with the market consensus. Separately, Japan’s services PMI was finalised at 52.9 in February, edging down from 53.1 but staying in expansionary territory for the 18th month in a row. The composite PMI was finalised at 50.6, down from 51.5.

Otherwise yesterday, there was a fresh milestone for gold (+1.62%), which closed above $2,100 for the first time ever. That said, it’s worth noting that in real terms, gold is still some way beneath its other peaks, such as in 1980, 2011 and 2020. Elsewhere, we also saw Bitcoin again rally past the $65,000 level and has got within half a percent of its all-time intraday peak of $68,992 overnight, which was seen back in November 2021. However it’s back at $66,527 as I type.

In energy markets, oil prices retreated at the start of the week, with WTI down -1.54% to $78.74/bbl, after reaching a near-three-month high on Friday. This decline came even as Sunday’s (widely expected) extension of existing OPEC+ production cuts into Q2 was accompanied by Russia pledging additional output reduction of up to 471k barrels a day.

To the day ahead now, and data releases include the ISM services index for February in the US, as well as the global services and composite PMIs for February. Otherwise, there’s January data for US factory orders, Euro Area PPI, and French industrial production. From central banks, we’ll hear from Fed Vice Chair for Supervision Barr. Today’s earnings releases include Target. And in US politics, it’s Super Tuesday, with lots of primaries taking place for both Republicans and Democrats.

Authored by Will Johnson via RealClear Wire,

We’ve long been warned about robots taking our jobs, but now they’re coming for our opinions as well.

Caller ID, mobile phones, and cord-cutters have long since forced market researchers and pollsters to conduct surveys online rather than reaching people by telephone. Solving the supply problem, however, created a problem of quality, with fraudsters spamming surveys with fake replies.

On balance, it has been a fruitful move: Market research has become an $81 billion global industry. But the AI revolution has empowered bad actors, threatening the very quality of the research which undergirds global business strategy. While not insurmountable, this challenge is the latest reminder that market researchers must be ever-vigilant to shifting threats.

The move online created a new class of vendors, supplying pre-selected, pre-screened panels of people for polls. Pollsters can order up custom panels suited to the survey challenge at hand.

It also brought bots – virtual robots programmed to flood polls with responses. You’ve probably encountered crude examples of this if you’ve ever seen a high profile Twitter poll, but the same tactics can be leveraged against credible polls as well. Our own testing has found that while broad public opinion research (political horse-race surveys are the best example) remains largely unaffected with a 2-3% fraud rate, business-to-business market research has rates which can range from 30-50%.

Why? Some bad actors use bots to gain benefits from filling out surveys (when, for example, cash or other rewards are offered as incentives). Others have an interest in disrupting a business’s market research efforts or simply want to mess with a company – a public opinion denial-of-service attack. And some are just interested in chaos for its own sake.

A natural back-and-forth has played out as public opinion polling has migrated online, with pollsters developing ways to weed out bots and adversaries developing work-arounds. Open-ended questions – “Describe your favorite vacation,” for example – once ferreted out bots fairly consistently, but generative AI has rendered that approach ineffective. Or take the Completely Automated Public Turing [test to tell] Computers and Humans Apart, or CAPTCHA.

You know, those puzzles which sometimes pop up when you’re entering something on a website, where you have to identify which pictures have a bicycle or bridge in them? They worked for a while, but a University of California, Irvine study published last summer found that bots are actually now better than humans at solving them.

Open-ended questions and CAPTCHA were part of a series of tests pollsters deployed over the years to battle the bots. With no silver bullet, one of the first things we learned was that you need to simultaneously use a variety of quality control checks to ensure that you’re getting good data. The decline and fall of CAPTCHA and the growing ineffectiveness of open-ended questions only underscore the need to continually evolve and innovate. 

What will that look like? One new step involves incorporating images into the quality tests. AIs might now be able to find a specific item in a picture, but they still have trouble describing an image like a human being would. In our testing, this method unearthed more than twice as many poor-quality responses as simply using open-ended questions. In some cases, AIs tend to be more elaborate than real people would be; in others, their programming trips them up. In some cases where we included pictures of people, they responded that they could not assess the picture because, as an AI, they were not allowed to evaluate images with faces in it. 

We don’t have hard data about which images work best. It makes sense not to use ones which are themselves found online, where a bot could grab a caption or meta-description. Simple images also seem to work better, giving AIs less to be overly elaborate about.

This won’t work forever. Fraudsters thrust and opinion researchers parry, back and forth. “Remember,” ChatGPT told me when I asked it about this topic, “combating generative AI specifically requires staying updated with the latest advancements in AI detection and continuously adapting your strategies as AI evolves.”

The bot gets it. We need to make sure the humans do as well.

Will Johnson is CEO of The Harris Poll, one of the world’s leading public opinion, market research, and strategy firms. Follow him at LinkedIn.

Just days after Goldman removed Apple from its “Conviction List” and Evercore ISI dropped Apple from its “Tactical Outperform” list, which both banks cited mounting concerns about an iPhone sales slowdown, particularly as China’s economic troubles worsened. A new report shows Chinese iPhone sales have collapsed. 

New figures from Counterpoint Research, first cited by Bloomberg, show iPhone sales in mainland China plunged 24% over the first six weeks of the year. The report stokes concerns about waning iPhone demand across the world’s largest smartphone market. 

Counterpoint shows that China’s overall smartphone market shrank by 7% in the first six weeks of the year. Dongguan-based Vivo had the top share of phone sales. 

Last week, Bloomberg reported iPhone 15 Pro Max handsets were priced on Alibaba Group Holding Ltd.’s Tmall for around 1,300 yuan ($180) lower than the suggested retail price, indicating these phones were being heavily discounted to stimulate demand. 

The iPhone 15 has not been popular in China since Huawei Technologies Co. launched the Mate Pro 60 last August. 

Huawei has been a thorn in Apple’s side since the surprising debut of its homegrown Mate 60 Pro devices, which triggered a wave of patriotic buying and took share away from the US company. Huawei jumped to a 16.5% China market share in the first six weeks, up from 9.4%. The company that split from Huawei in 2020, Honor Device Co., was the only other major maker to show unit sales growth, at 2%. Apple fell below 16% market share, from 19% a year ago, according to the researchers. -Bloomberg

“Despite a decline in consumer confidence, Huawei’s enhancements in production enabled the company to meet demand for its popular Mate 60 series,” Counterpoint analyst Ivan Lam said. 

Lam continued: “The previous year period was already quite depressed, but as far as Apple is concerned, there is more wriggle room in the short term. The aggressive promotions before Women’s Day are just one example.”

In a separate note, IDC analyst Will Wong warned: “Apple is catching up with the ‘deflation’ trend in China, intending to boost the demand for iPhones.” 

The latest analyst warnings, discount pricing news, and increasing data that show an iPhone slowdown have materialized and sent shares even lower, down 2% in premarket trading in New York. 

Apple is the laggard of the Magnificent 7 stocks. 

Dear Apple: Moar stock buybacks, please! 

Authored by Simon White, Bloomberg macro strategist,

Global equity markets are not yet as overbought as they were through much of the 1990s on several measures.

US and many other stock markets continue in their seemingly inexorable ascent. Incessant rallies are often controversial – which is maybe one of the reasons they last longer than many expect as higher becomes the pain trade.

Regardless, if we look back at the 1990s at global markets we can see they are less stretched now than they were back then. Take the percentage of MSCI country indices (in USD terms) trading more than 2% above their trailing 12-month high. This was much more volatile in the 1990s (partly due to lots of new EM indices), and on average higher than it is today (and indeed for much of the past 10-15 years).

It’s similar if we look at the proportion of MSCI indices trading above their 200-day moving averages. This regularly touched 100% in the 1990s, but currently sits at just over 75% (on a one-month smoothed basis). The last time it hit 100% was in March 2021, within 7% of the MSCI ACWI’s high before the bear market hit in January 2022.

Also, how far indices’ 200-day moving averages were above their price on the eve of the dotcom top in March 2000 was higher than it is today. We can see the US, Europe and Canada’s indices were the most overbought on this measure, with their respective values today much lower.

There are plenty of good arguments why markets, especially in the US, are on borrowed time.

But stocks also have an annoying habit of not doing what many people think they should do. No one should take it as an affront when markets do not accord with their belief or view – it is what it is.

Still, global equities are not yet displaying some of the signs they were in the late 1990s that suggested a market top was imminent.

The Red Sea has transformed from one of the world’s most important maritime trade routes into a warzone. Iran-backed Houthi rebels have withstood dozens of bombing raids by US and UK fighter jets. The Biden administration’s Operation Prosperity Guardian continues to fail as yet another container ship was attacked on Tuesday. 

US Central Command posted on social media platform X that MSC Sky II, a container ship operated by MSC Mediterranean Shipping Co., was damaged in a missile attack about 90 miles southeast of the Yemeni city of Aden. 

On Mar. 4, at approximately 2:15 a.m. (Sanaa time), Iranian-backed Houthi terrorists fired an anti-ship ballistic missile from Yemen into the southern Red Sea. The missile impacted the water with no reported damage or injuries to commercial or US Navy ships.

Between the hours of 3:50 p.m. and 4:15 p.m. (Sanaa time), Iranian-backed Houthi terrorists fired two anti-ship ballistic missiles from Yemen into the Gulf of Aden at M/V MSC SKY II, a Liberian-flagged, Swiss-owned container vessel. One of the missiles impacted the vessel, causing damage. Initial reports indicate there were no injuries; the ship did not request assistance and continued on its way.

At 8 p.m. (Sanaa time), CENTCOM forces conducted self-defense strikes against two anti-ship cruise missiles that presented an imminent threat to merchant vessels and US Navy ships in the region. These actions are taken to protect freedom of navigation and make international waters safer and more secure for merchant and US Navy vessels.

March 4 Red Sea Update

On Mar. 4, at approximately 2:15a.m. (Sanaa time), Iranian-backed Houthi terrorists fired an anti-ship ballistic missile from Yemen into the southern Red Sea. The missile impacted the water with no reported damage or injuries to commercial or U.S. Navy… pic.twitter.com/mqigHoON4b

— U.S. Central Command (@CENTCOM) March 5, 2024

MSC confirmed to Bloomberg that the vessel was attacked while transiting near the Bab el-Mandeb strait from Singapore toward Djibouti.

“The missile caused a small fire that has been extinguished while no crew were injured,” the company said, adding, “She is currently continuing her journey to Djibouti and will arrive today for further assessment.”

The Bab el-Mandeb Strait is one of three maritime chokepoints in the Middle East. This slide is from MUFG Bank. 

In a note over the weekend, we cited David Asher, a senior fellow at Hudson Institute‘s report titled “Navigating the New World Disorder: Economic Faultlines, Fissures, Fractures, and Failures,” which pointed out – while the Red Sea crisis rages on – attention needs to turn to key oil facilities in Saudi Arabia of the next possible location Houthis will attack. 

Remember what happened in 2019? 

The world is one fire.