South Korea / Spreads / China / Insider Selling / Peter Lynch

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South Korea

Well, it’s not every week a country in the G20 declares martial law, but this week it did briefly. There was a pretty sharp reaction to it, but by the end of the week its impact had been negligible.

Looking at the KOSPI Index as a proxy, we can see that on a net basis the damage was just over a 1% move. The ETF version of this Index, EWY, traded in the US during different hours, responded a bit aggressively, initially down 7% but then closing the week down a bit over 3%.

Got us wondering, at what trailing P/E level or Fwd. P/E do investors historically like to step into the KOSPI?
It appears we are getting pretty close to both.

Trailing P/E

Looks like 10X is the level, last being 11.51.

On a Forward basis it appears 8X is the ultimate level, but once again not too far away.

Spreads

For the those looking for signs of the apocalypse, they will not be found in Corporate spreads.

At or near lows while the Fed Multiple on the SPX hovers near highs….

China

China in 3 charts:

Yield of the 10yr TSY, GDP, and CPI

Residential Property Prices:

Mortgage Rates

We are no experts, but the direction of the 3 charts above does not suggest a change in fortune for the Chinese economy.

Insider Selling

We have shown this chart before, we continue to see it popping up, its just simply hard to ignore.

US executives are selling stock at extreme levels: The ratio of insider sellers to buyers hit nearly 6x, the most in at least two decades. This is DOUBLE the average seen over the last 3 years. This also exceeds the previous record of 5x seen in 2021 before the bear market began. After the historic market run, corporate insiders are taking profits on their own stocks.

Peter Lynch

Many reading this note may have no clue who Peter Lynch is, he was a pretty renown PM at Fidelity a few decades ago who ran the Fidelity Magellan Fund.

We saw this posted, and thought it was worth highlighting. Apologies for the formatting, but the value is in the content.

Have a great weekend!

Best,

Meraki Trading Team

About Meraki Global Advisors

Meraki Global Advisors is a leading outsourced trading firm that eliminates investment managers’ implicit and explicit deadweight loss resulting from inefficient trading desk architectures. With locations in Park City, UT and Hong Kong, Meraki’s best-in-class traders provide conflict-free 24×6 global trading in every asset class, region, and country to hedge funds and asset managers of all sizes. Meraki Global Advisors LLC is a FINRA member and SEC Registered and Meraki Global Advisors (HK) Ltd is licensed and regulated by the Securities & Futures Commission of Hong Kong.

For more information, visit the Meraki Global Advisors website and LinkedIn page
Contact:
Mary McAvey
VP of Business Development

US Treasuries/Chinese Fishing Boat/India Fund Flows/Bitcoin

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Treasuries

Has the US Treasury market withstood the onslaught of Foreign selling pressure?

Japan and China are dumping US Treasuries: In Q3 2024, Japan sold a net $61.9 billion of Treasuries, the most on record. This was the second consecutive quarter of selling after $40.5 billion in Q2. At the same time, China dumped $51.3 billion, the second largest amount ever recorded. China has now sold Treasuries in 6 out of the last 7 quarters and its total holdings fell below $800 billion for the first time in 16 years. 2 of the world’s biggest foreign holders of US government debt are selling like never before.

If we take a look at Foreign holdings of Treasuries as %, we can see they are down from 55% in 2008 to just under 31% presently. Might it be safe to assume the bulk of selling is over?

Top Panel is % of Foreign Ownership, middle panel is net purchases of China mainland, and bottom panel is net purchases of Japan.

If that selling pressure has abated, might that be one less pressure point on rates?

Chinese Fishing Boat and the Kattegatt Sea

A post that caught our eye this week, mostly because we have not seen any other exposure on this event.

https://www.linkedin.com/posts/matthewsnkibble_update-the-yi-peng-is-trapped-the-cargo-activity-7267508974030147584-Y6Iy?utm_source=share&utm_medium=member_desktop

India and Fund Flows

We mention because it appears around this P/E level, is where the NIFTY index has bounced 4 previous times since then.

Bitcoin

No call here on price, but simply pointing out that Open Interest on Bitcoin futures contracts is, not surprisingly, at an all-time high. More institutional focus expressed through the futures market ?

What caught our attention regarding the open interest chart ?

The chart from this post. https://x.com/crossbordercap/status/1861814218971812298

“Here we track our GLI metric (NOT M2!) advanced by 3 months vs the 6w change in Bitcoin back to 2015. May be another buying opportunity ahead?”

Have a great weekend!

Best,

Meraki Trading Team

About Meraki Global Advisors

Meraki Global Advisors is a leading outsourced trading firm that eliminates investment managers’ implicit and explicit deadweight loss resulting from inefficient trading desk architectures. With locations in Park City, UT and Hong Kong, Meraki’s best-in-class traders provide conflict-free 24×6 global trading in every asset class, region, and country to hedge funds and asset managers of all sizes. Meraki Global Advisors LLC is a FINRA member and SEC Registered and Meraki Global Advisors (HK) Ltd is licensed and regulated by the Securities & Futures Commission of Hong Kong.

For more information, visit the Meraki Global Advisors website and LinkedIn page
Contact:
Mary McAvey
VP of Business Development

XRT/ Nat Gas/ New Home Sales/ Random Chart Updates

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The XRT, S&P Retail ETF, is hitting a new 52-week high today, Friday November 22, so the Consumer must be a in great shape! We have addressed employment and the credit stress on the Consumer previously, but according to the action in the ETF, the outlook must be rosy.

So, we decided to look under the hood.

Top 25 Weightings:

Now, if we look at the best performers over the past 52 weeks, driving the performance, we see 3 of the top 5 names. A used car dealer, a supermarket, and a used clothing retailer.

We are by no means retail analysts, but thinking the health of the consumer is strong based on those 3 names might not be a safe assumption.

As a reminder, the University of Michigan Current Conditions survey was released today, this chart does not exactly jive with the XRT.

Why might the Current Conditions survey be hovering near rather depressing levels?

We came across a few charts that could help explain.

Professionals not feeling confident about their prospects according to below.

So, they are feeling stuck and unsatisfied, but they don’t seem to have other options or else the below chart would say otherwise.

Nat Gas

Could Nat Gas be headed for some rough sailing?

Technically approaching RSI, middle panel, and Stochastic levels, bottom panel, that historically suggest exhaustion.

Although the above may well be a subjective interpretation, the historical performance math is not. Nat gas is head for the worst 3-month performance period over the previous 10 years, beginning in December.

If we want to consider some familiar names in the space, with the exception of EQT at the bottom, all look to be exhausted as well. Just a thought.

New Home Sales

New Homes sales were released Tuesday November 19th. Considering the level of the national 30yr Fixed mortgage, and historical perspective, it’s surprising that the new unit levels are not lower.

If those Unit levels go lower, then estimates may follow, the EPS estimate for the underlying Index of XHB, Homebuilder ETF, is $806 which is now below initial estimates at the beginning of the year. And with the Index trading at close to 15X on a Fwd. P/E basis, an argument could be made that both estimates could head lower as well as the multiple compressing, unless we were to see a drastic change in mortgage rates.

Random Chart Updates

Didn’t see this one coming?

https://www.linkedin.com/posts/james-bianco-117619152_why-are-democrats-better-stock-pickers-activity-7264316935293542400-RBuM?utm_source=share&utm_medium=member_desktop

Insider Selling not exactly making investors feel warm and fuzzy.

Follow the smart guys works after all.

The most popular hedge fund long positions have outperformed in most sectors YTD as of November 15, 2024.

Have a great weekend!

Best,

Meraki Trading Team

About Meraki Global Advisors

Meraki Global Advisors is a leading outsourced trading firm that eliminates investment managers’ implicit and explicit deadweight loss resulting from inefficient trading desk architectures. With locations in Park City, UT and Hong Kong, Meraki’s best-in-class traders provide conflict-free 24×6 global trading in every asset class, region, and country to hedge funds and asset managers of all sizes. Meraki Global Advisors LLC is a FINRA member and SEC Registered and Meraki Global Advisors (HK) Ltd is licensed and regulated by the Securities & Futures Commission of Hong Kong.

For more information, visit the Meraki Global Advisors website and LinkedIn page
Contact:
Mary McAvey
VP of Business Development

Stagflation, Should We Be Concerned?

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Definition of Stagflation:

Recent economic metrics show some concern we could be nearing a period similar to that of the 1970s. Both the CPI and PPI, Finished Goods less Food & Energy, ran up into 1974. The Unemployment rate, and EHUPUS Index followed and the QoQ GDP went negative for 3 quarters in a row, meeting the above definition.

There was a period of recovery, when CPI and PPI were both reduced by at least 50%, while unemployment pulled back from a rate of 8.87% to 5.7%, and there were 20 straight quarters of positive QoQ GDP.

Then Inflation reared its ugly head again and both CPI and PPI doubled, Unemployment almost doubled rising from 5.75 to 10.67%, and there were 2 instances of QoQ GDP being negative for 2 consecutive quarters.

Now, the unanswerable question is this: was the pandemic a one-off event or are we setting up for a similar pattern to be repeated?

When looking at the more recent CPI and PPI readings, its evident that there is subtle, but undeniable, upward trend.

CPI

PPI

Unemployment

Is there any evidence that unemployment is on the verge of turning higher, other than the thesis we are headed into a period of stagflation?

According to the St. Louis Fed, FRED, Temporary Help Services has peaked and begun to head lower.

Other employment metrics:

ISM Manufacturing Report on Business Employment

Job Openings

This last employment chart is exceptionally relevant considering the recent intentions of Elon and Vivek under the new administration.

As for “stagnant economic growth”, the Atlanta Fed has a different view: 2.5% is healthy and a long way from negative.

So, what should we be monitoring to help anticipate the possibility of Stagflation?

We thought taking a deeper look at those Inflation metrics, and what is really driving them. Is it different than the 1970s episode?

Of the 2.6% present CPI #, 2.86 of that Is Core Services, and of that #, Shelter is 1.74 and Transportation Services is .51.

As seen above, both have been moving steadily lower, but just recently had small upticks.

In the case of PPI, Services represent .179 of the .197 total number, or 91% . Finished Services less Trade Transportation and Warehousing represent more than 50% of the Gross number at .122.

Why get into the weeds here? Both inflation metrics have been on the glide path the Fed has been attempting to navigate since they began raising rates. Why can’t the market just shake the recent small upticks off as “noisy” numbers?

This is why:

Since the Fed began reducing rates in September, by 75bps, the yield on the 10yr TSY has increased 85bps. This is not exactly what the intended outcome was. So, Investors are asking questions, which brings us back to the weeds of what exactly is driving the very subtle uptick in the 2-inflation metrics.

With respect to the PPI for services less trade, transportation, and warehousing, the following are included: telecommunication services, medical care, insurance, and lodging.

When we see charts like the one below, its not hard to understand why the PPI is doing what it’s doing. The medical care inflation chart was simply too depressing to include as most of know all-too-well, already.

So, we narrowly focus on Shelter and Services contributions to the CPI and PPI to see if the subtle uptick turns into something more. But let’s not forget about the other side of the equation, unemployment. The November jobs number will be even more highly anticipated than usual. October was the weakest number since December of 2020.

December 6th the NFP will be released and should provide clarity on whether the recent 12k number was a fluke or the beginning of something few market participants would like to see: potential stagflation.

Have a great weekend!

Best

Meraki Trading Team

About Meraki Global Advisors

Meraki Global Advisors is a leading outsourced trading firm that eliminates investment managers’ implicit and explicit deadweight loss resulting from inefficient trading desk architectures. With locations in Park City, UT and Hong Kong, Meraki’s best-in-class traders provide conflict-free 24×6 global trading in every asset class, region, and country to hedge funds and asset managers of all sizes. Meraki Global Advisors LLC is a FINRA member and SEC Registered and Meraki Global Advisors (HK) Ltd is licensed and regulated by the Securities & Futures Commission of Hong Kong.

For more information, visit the Meraki Global Advisors website and LinkedIn page
Contact:
Mary McAvey
VP of Business Development