“My North Star is every event in the world affects some security and I try to imagine the world as it is today and then try and see if there’s some kind of seismic change going on and how the world might look in 18 months. And if it does look that way, what are the securities that would be priced very differently than they are now? I think a lot of investors live in the present, which is a disaster long term – it might work short term.” ~ Stanley Druckenmiller (h/t @CundillCapital)
Good morning!
In this week’s Dirty Dozen [CHART PACK] we discuss the latest — very bearish — BofA Global Fund Manager Survey, we then talk about record global economic pessimism, a MAJOR Bull & Bear Buy Signal, a market pricing in a recession, why a recession won’t happen, improving Chinese mobility, pitch the bull case for a beaten-down former HF hotel, and talk about incoming reversion in EURUSD, plus more…
- Here’s the summary of the latest BofA Global Fund Manager Survey with highlights by me (takeaway: everyone is bearish and holding lots of cash).
- The “Charts of the Month” from the BofA FMS. Note, fund managers are the most underweight tech stocks they’ve been since Aug 06’.
- And global growth optimism hit new record lows…
- While concerns about financial market stability are at extremes last seen at the COVID bear market lows and right before the bottom of the GFC.
- BofA’s Bull & Bear Indicator triggered an official Buy Signal last week. Need the tape to confirm but we’ve got what looks like a double bottom on the major US indices that should be good enough for at least a pop, if not a more enduring low.
- DB points out that this selloff is already well into pricing a recession…
- And it’s lasted a lot longer than your average correction, which is again, another sign the market is pricing in a recession.
- HF manager @GavinSBaker made an interesting point on the twitters the other day, noting the stark difference in TTM EPS between now and the 2000 tech bubble.
- A good majority of our problems such as supply chain issues and inflation are being exacerbated by the rolling lockdowns in China due to the continued reinforcement of their COVID-Zero policies.
This has resulted in cities accounting for approximately 14% of GDP under “restricted” mobility, and another 52% of GDP under “limited” mobility according to DB. The good news though is that the worst of it looks to be over for now and if this continues it should lift tailwinds on inflation.
- Initial claims are putting in consecutive new highs which indicates that the labor market is flattening out. This will ease up pressure on the Fed in the coming months as they won’t have to be as concerned with an overheating labor market putting pressure on wages. We are of the belief that the Narrative Pendulum has swung to “Peak Hawkishness / Peak Inflation” concerns and we’re going to see it revert back over the next 12-months.
- Sea Ltd. (SE) has fallen 85% from its 21’ all-time high. But it recently reversed (chart is a weekly) off of major support and it looks as though a temporary bottom might be in. The stock is the cheapest it’s ever been while its business has never been stronger. We’re still digging into this one since the last time we gave it a proper look was back in Nov 19’ when it was trading for 20-something a share (link here). Here’s a good overview of the company and the bull case for the stock (link here).
- We’ve been long the DXY this past month but recently started taking profits as momentum waned. Now we’re looking at maybe flipping and going short. Here’s some charts that are worth a look.
The first one is a quarterly showing EURUSD at major 40-year support. Its monthly chart is also reversing off major support and deeply oversold with the May bar completely below its lower Bollinger Band. It has also put in 4 consecutive monthly bear bars, which is unusual. Our backtester shows there have only been 6 other instances. And each time led to an extended period of strong mean reversion over the following months.
Lastly, EURUSD is putting in an inverted H&S bottom on the daily. Look for a break of the neckline. Not a bad spot to get long.
Thanks for reading.
Stay frosty and keep your head on a swivel.
