China's new Long March

Preface: Explaining our market timing models
We maintain several market timing models, each with differing time horizons. The "Ultimate Market Timing Model" is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade.

The Trend Model is an asset allocation model which applies trend following principles based on the inputs of global stock and commodity price. This model has a shorter time horizon and tends to turn over about 4-6 times a year. In essence, it seeks to answer the question, "Is the trend in the global economy expansion (bullish) or contraction (bearish)?"

My inner trader uses a trading model, which is a blend of price momentum (is the Trend Model becoming more bullish, or bearish?) and overbought/oversold extremes (don't buy if the trend is overbought, and vice versa). Subscribers receive real-time alerts of model changes, and a hypothetical trading record of the those email alerts are updated weekly here. The hypothetical trading record of the trading model of the real-time alerts that began in March 2016 is shown below.

The latest signals of each model are as follows:

• Ultimate market timing model: Buy equities*
• Trend Model signal: Neutral*
• Trading model: Bullish*

* The performance chart and model readings have been delayed by a week out of respect to our paying subscribers.

Update schedule: I generally update model readings on my site on weekends and tweet mid-week observations at @humblestudent. Subscribers receive real-time alerts of trading model changes, and a hypothetical trading record of the those email alerts is shown here.



The new Long March
The belligerent tone of the rhetoric has been heating up on both sides of the Sino-American trade dispute. Simon Rabinovitch of The Economist recently documented the different phases and rising stridency of the Chinese response in state-controlled media.

Xi Jinping characterized the dispute as another Long March. For the uninitiated, the Long March is as important to the Chinese Communist Party's founding myth as the events at Lexington Green was to America's revolutionary founding myth. Here is the description from Wikipedia:

The Long March (October 1934 – October 1935) was a military retreat undertaken by the Red Army of the Communist Party of China, the forerunner of the People's Liberation Army, to evade the pursuit of the Kuomintang (KMT or Chinese Nationalist Party) army. There was not one Long March, but a series of marches, as various Communist armies in the south escaped to the north and west. The best known is the march from Jiangxi province which began in October 1934. The First Front Army of the Chinese Soviet Republic, led by an inexperienced military commission, was on the brink of annihilation by Generalissimo Chiang Kai-shek's troops in their stronghold in Jiangxi province. The Communists, under the eventual command of Mao Zedong and Zhou Enlai, escaped in a circling retreat to the west and north, which reportedly traversed over 9,000 kilometers (5600 miles) over 370 days.[1] The route passed through some of the most difficult terrain of western China by traveling west, then north, to Shaanxi.

The Long March began Mao Zedong's ascent to power, whose leadership during the retreat gained him the support of the members of the party. The bitter struggles of the Long March, which was completed by only about one-tenth of the force that left Jiangxi, would come to represent a significant episode in the history of the Communist Party of China, and would seal the personal prestige of Mao Zedong and his supporters as the new leaders of the party in the following decades.

The Wikipedia article went on to document that only about 8,000 of 100,000 soldiers survived the Long March to Yunan. Xi`s Long March imagery was a signal that Chins should be willing to endure enormous deprivations in its economic war with the US.

How is China performing on the new Long March? How much deprivation is it suffering, and what weapons do Beijing have to fight this new war?

The full post can be found here.