Your Monday Dirty Dozen [CHART PACK] #22

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…


***click charts to enlarge***

  1. 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.


  1. 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.


  1. 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.


  1. 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.


  1. 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.


  1. The latest BofAML Global Fund Manager Survey came out last week. Below are the highlights from the report.


  1. 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.


  1. 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).


  1. And their allocation to global equities just hit a 20-month high (go figure).


  1. 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.


  1. 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.


  1. 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.



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Brandon Beylo

Value Investor

Brandon has been a professional investor focusing on value for over 13 years, spending his time in small to micro-cap companies, spin-offs, SPACs, and deep value liquidation situations. Over time, he’s developed a deeper understanding for what deep-value investing actually means, and refined his philosophy to include any business trading at a wild discount to what he thinks its worth in 3-5 years.

Brandon has a tenacious passion for investing, broad-based learning, and business. He previously worked for several leading investment firms before joining the team at Macro Ops. He lives by the famous Munger mantra of trying to get a little smarter each day.


Investing & Personal Finance

AK is the founder of Macro Ops and the host of Fallible.

He started out in corporate economics for a Fortune 50 company before moving to a long/short equity investment firm.

With Macro Ops focused primarily on institutional clients, AK moved to servicing new investors just starting their journey. He takes the professional research and education produced at Macro Ops and breaks it down for beginners. The goal is to help clients find the best solution for their investing needs through effective education.

Tyler Kling

Volatility & Options Trader

Former trade desk manager at $100+ million family office where he oversaw multiple traders and helped develop cutting edge quantitative strategies in the derivatives market.

He worked as a consultant to the family office’s in-house fund of funds in the areas of portfolio manager evaluation and capital allocation.

Certified in Quantitative Finance from the Fitch Learning Center in London, England where he studied under famous quants such as Paul Wilmott.

Alex Barrow

Macro Trader

Founder and head macro trader at Macro Ops. Alex joined the US Marine Corps on his 18th birthday just one month after the 9/11 terrorist attacks. He subsequently spent a decade in the military. Serving in various capacities from scout sniper to interrogator and counterintelligence specialist. Following his military service, he worked as a contract intelligence professional for a number of US agencies (from the DIA to FBI) with a focus on counterintelligence and terrorist financing. He also spent time consulting for a tech company that specialized in building analytic software for finance and intelligence analysis.

After leaving the field of intelligence he went to work at a global macro hedge fund. He’s been professionally involved in markets since 2005, has consulted with a number of the leading names in the hedge fund space, and now manages his own family office while running Macro Ops. He’s published over 300 white papers on complex financial and macroeconomic topics, writes regularly about investment/market trends, and frequently speaks at conferences on trading and investing.

Macro Ops is a market research firm geared toward professional and experienced retail traders and investors. Macro Ops’ research has been featured in Forbes, Marketwatch, Business Insider, and Real Vision as well as a number of other leading publications.

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