Tchir: “It Is Almost Shocking That We Are In This Situation”

Authored by Peter Tchir via AcademySecurities.com,

A Few Quick Things

As we all wait to see what happens as Speaker Pelosi is expected to fly to Taiwan/Taipei shortly.

Generals (ret.) Kearney and Marks commented on the situation in yesterday’s SITREP.

“The Chinese have stated that they would attempt to deter her flight using Chinese aircraft creating a threatening situation which could escalate. I seriously doubt they would shoot it down as also threatened. I suspect the Taiwanese would be threatened as well with provocative demonstrations of air and naval actions. I don’t believe these are just threats. I believe some action will occur with the potential for unintended consequences.”

– General Frank Kearney

“China will be diplomatically aggressive…tough talk, little likelihood China will militarily interfere with Pelosi’s visit should she get the green light from President Biden to go. China, not unlike the Russians and Iranians in the Persian Gulf, may threaten Pelosi’s aircraft or possibly US naval ships which are underway in the vicinity. The risks are too high for the Chinese to interfere and not expect (and wargame) the worse possible outcome.”

– General Spider Marks

Regardless of what happens, it is almost shocking that we are in this situation. It highlights just how strained the relationship is becoming between China and the U.S.  Given the uncertainty around person, albeit a very senior person, visiting, it makes one wonder what we would do if China was more provocative towards Taiwan/Taipei (I realize I shouldn’t write Taipei, but that is certainly how China refers to it, along with many international bodies, many of whom need to appease China).

We could see in the next 48 hours, Who Needs Who, from a China perspective. I remain concerned that our perspective of who actually needs who is not reflective of the current environment (which is tilting to global competition for commodities and raw resources).

On markets side yesterday we saw significant outflows from TQQQ and ARKK. That is the 3rd day in a row for TQQQ, despite the impressive returns. Ethereum, which we mentioned in this weekend’s I Don’t Care, I Love It! Is down an almost cool 10% since the highs this weekend. Maybe TINA and FOMO just paid a quick visit rather than moving in?

We will get some clarity on the jobs data this week, with JOLTS later this morning and NFP on Friday (I say some clarity, because the data collection process leaves a lot to be desired, which is why these numbers are subject to relatively large revisions).

Bottom Line

Recession risk is worse than inflation for markets.

I’m not sure the Fed has done enough to avoid a recession (inventories keep popping up as a major warning sing).

I doubt the Fed messaging is going to help much this week, as they seem to want to beat down on the idea that they’ve made a dovish shift.

We should get some relief if the Pelosi visit goes without incident, but I find it difficult to believe China won’t respond in the coming days, if not with a show of force, but economically.