Alex here with your latest Friday Macro Musings…
As always, if you come across something cool during the week, shoot an email to firstname.lastname@example.org and we’ll share it with the group.
Latest Articles/Podcasts/Videos —
Your Monday Dirty Dozen [CHART PACK] — I look at the total returns ytd for the major asset classes, then we discuss why stocks performed as well as they did, followed by further talk on stretched sentiment, note some strange action in fund flows, and point out a few good looking chart setups in the gold mining and E&P space.
ValueHive: Contrarian Investing in Europe, Japan, & Cyclicals — Brandon shares some great stock writeups from value-minded fund managers, discusses a recent MIT paper on how they used machine learning to forecast company revenues more accurately than Wall St. analysts and more.
Articles I’m reading —
Bloomberg put together a great overview of all the 2020 market predictions from the major shops. It’s searchable by asset and theme (link here).
These predictions are only valuable in that they give us a sense of how the street is thinking. It’s a helpful thing to know what the consensus is because the consensus will almost certainly be wrong. This year… the herd is calling for no recession, a muddle-through low growth economy, and very meager but positive returns in the stock market. Here’s a snapshot of the piece.
The site Visual Capitalist also put together a post aggregating a summary of popular 2020 predictions after analyzing over “100 articles, whitepapers, and interviews.” Here’s the link.
Here’s a graphic they created showing Wall Street’s end of year predictions for the SPX. The average price target is for a gain of just 3.5% which makes it one of the smallest expected gains in 20-years according to Bloomberg. Yeah… I’ll take the over on this one.
Lastly, Jesse Stine (@InsiderBuySS) shared his 2020 outlook. I always enjoy reading Jesse’s take as he has one of the best reads on sentiment and positioning in the market out of anyone I know. Here’s the link.
Oh, and finally, Peter Lynch was interviewed in Barrons recently (link here – porous paywall). When asked what the major opportunities are in the market that he’s excited about, Peter responded with:
“I’m looking at industries that are doing badly; that for some reason will get better. Shipping. If you want to buy a ship, it’s a two- or three-year wait. People haven’t ordered ships for a long time, because by the time one comes in, prices may be down again.
Energy services is awful; that could have a major turn in the next year or two. Oil is interesting. Look, longer-term, solar, windmills really work. But you need natural gas and oil to bridge to this. Everybody’s assuming the world’s going to not use oil for the next 20 years, or next year. China might sell five million electric vehicles next year, but they might also sell 17 million internal combustion engines. They don’t have old cars to retire. There are no electric airplanes. Near term, liquid natural gas and liquid petroleum gas might replace diesel fuel for trucks. I’m buying companies that I don’t think will go bankrupt. They’ve got to be around the next 18 to 24 months, or I have no interest.”
I couldn’t agree more Pete.
Charts I’m looking at—
The market is going to be fighting some bad seasonality over the next few weeks. Just something to keep in mind (chart via @McClellanOsc).
Podcast I’m listening to —
Eric Weinstein’s latest chat with economist Tyler Cowen (of Marginal Revolution) is superb. It’s 2hrs of some of the smartest minds discussing everything from the difficulties in measuring inflation and productivity to why the Beatles are the most impressive collection of musical talent to date and everything in between.
Here’s something interesting I learned from the chat. Apparently, the CIA fostered and promoted American Abstract Expressionist painting in the 50s and 60s in their war of propaganda against Soviet Russia. Who’d have thunk… Here’s the link.
Book I’m reading —
I just finished reading Pierce Brown’s latest book in the Red Rising series titled “Dark Age”. Brown is bar-none the best science fiction writer out there at the moment. His books are page-turning gut-wrenching roller coasters that are almost exhausting to read because they are so engrossing. I’m actually glad to be done with them for a while so I can get back to reading some non-fiction.
Trade I’m looking at —
We’re either at that stage of the rally where everything is going up including the trash… or we’re seeing a major sea-change afoot. Take Deutsche Bank (DB) for example. It’s been the favorite whipping boy of the bears this cycle. Well, it just broke out of an 8-month coiling wedge.
On Monday I shared the chart of the Europe 600 Index showing that it just broke through major 20-year resistance — a level that had knocked it back four other times — and is now at new all-time highs (link here). That’s pretty interesting considering European equities have been one of the most under-owned assets these last few years.
Also, check out this chart showing the relative performance between the MSCI US and Europe financial indices (yellow line). Never before have US financials outperformed their European counterparts by anywhere close to this much.
Quote I’m pondering —
A man can be himself only so long as he is alone, and if he does not love solitude, he will not love freedom, for it is only when he is alone that he is really free. ~ Arthur Schopenhauer
That’s it for this week’s macro musings.
If you’re not already, be sure to follow me on Twitter: @MacroOps. I post my mindless drivel there daily.
Have a great weekend.