Being prepared, on a few occasions in a lifetime, to act promptly in scale in doing some simple and logical thing will often dramatically improve the financial results of that lifetime. A few major opportunities, clearly recognizable as such, will usually come to one who continuously searches and waits, with a curious mind, loving diagnosis involving multiple variables. And then all that is required is a willingness to bet heavily when the odds are extremely favorable, using resources available as a result of prudence and patience in the Past. ~ Charlie Munger
Good morning!
In this week’s Dirty Dozen [CHART PACK] we look at the latest prints of some leading US economic indicators, then talk SPX technicals, some Democratic polling numbers, virus growth, and BofA Global Fund Manager Survey, plus more. Let’s dive in…
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- The US Conference Board Leading Economic Index (LEI), a composite index with a very good track record of predicting recessions, ticked up last month after skirting with negative territory (on a year-over-year basis). The index is now at a new cycle high — the LEI peaks on average 10.5m before a recession.
- The Philidelphia Fed’s Business Outlook Survey also came in strong with February seeing its strongest print in two years, beating estimates by more than 20 points. This indicator has a strong leading correlation to GDP.
- All is not gumdrops and roses though as both of the above data points come out with a bit of a lag, and therefore, do not reflect the growing impact and increasing concerns over nCov19. Markit’s US composite PMI, however, is a little more up to date and it contracted (sub-50) for the first time since October 2013.
- The SPX got rebuffed by the 3,400 level and its upper trading range trend line last week. The odds favor more downside ahead with the February and January lows as obvious next targets. It’s likely we’ll open up the week lower as nCov19 news over the weekend was troublesome. But we should expect choppy action since we’re now in a bull volatile regime and there’s still decent odds that this dip gets bought — it does really bother me how quickly everyone seems to have turned bearish! A close above the 3,400 range would suggest another leg up.
- Not only is the market going to have to contend with the nCov19 virus going forward but it’s now also going to have the face the increasing likelihood that Bernie Sanders, a socialist, will be the Democratic nominee. Sanders cleaned house in Nevada and his Real Clear Poll numbers now put him squarely as the favorite.
- The latest BofAML Global Fund Manager Survey came out last week. Below are the highlights from the report.
- Global fund managers are most crowded into emerging markets, the US, and global tech, while still very much hating on energy where allocations fell to a four year low. BofA notes that “allocation to global equities remains below levels consistent with prior tops (33% today vs. 50% during prior tops)” so there’s that.
- Cash levels fell again showing an increase in bullish sentiment amongst fund managers. Their allocation to cash is now the lowest its been since March of 2013 — remember, the BofA FMS should be read from a contrarian viewpoint so a falling cash balance is not a great sign (note their cash levels were at multi-year highs back in October, around the start of the current rally).
- And their allocation to global equities just hit a 20-month high (go figure).
- These graphs from Morgan Stanley show that while the growth of the virus in China has slowed — if you can trust the CCP’s numbers — it has accelerated elsewhere.
- Lv Changshun, an analyst at Beijing Zhonghe Yingtai Management Consultant Co., was quoted in Bloomberg the other day saying that “If China fails to contain the virus in the first quarter, I expect a vast number of small businesses would go under.” Here’s the link.
- Frontdoor (FTDR), a home services company that operates a tech platform connecting home warranty holders to home repair/service professionals, has formed a 9-month bull flag (chart is a weekly). We owned this stock previously and took profits on it last Fall. There’s a lot to like about this play and the company has a long runway if they continue to execute well on their growth strategy.
