Chemical Activity Signals More Economic Gains
The Chemical Activity Barometer(CAB) reported at 97.44 this morning with previous months revised higher as 3Q US GDP comes in at 5%. Those who remain pessimistic are surprised with reports of stronger economic activity than expected. The CAB vs. SP500 ($SPY) and vs. Establishment Survey(Non-Farm Employment) and Industrial Production are shown in chart form below.
Einhorn’s FOF Re-positions Portfolio, Makes New Seed Investment In Year Marked By “Speculative Exuberance”
It has not just been rough year for David Einhorn's own fund. Einhorn's Greenlight Masters fund of hedge funds was down 3% net for the first half of 2020, matching the S&P 500's return for those six months. In his August letter to investors, which was reviewed by ValueWalk, the Greenlight Masters team noted that Read More
Those who do not learn how to track the factual basis of economic activity, i.e. numbers of individuals employed, Industrial Production or the CAB, the only guidance they have is the emotional tenor of other investors and the direction of stock prices. Trying to discern what market psychology is telling us about the direction of tomorrow’s stock prices is an impossible task. It is far easier to track economic activity which does not change much month to month or even quarter to quarter and place capital in front of economic trends before market psychology has had the opportunity to turn positive. A long term perspective of economic trends vs. stock prices supports this approach as the only viable approach in volatile markets in my opinion. Once capital is positioned, one needs to have the patience to let history repeat.
Oil falling in recent months has resulted in multiple dour forecasts. But, supply/demand actually supports higher oil prices with consumption exceeding production in recent months. Market psychology has turned wildly pessimistic on oil prices even when logical analysis offers no support. Market psychology is infectious and often results in volatility which the facts do not justify. If you would like me to send you the most recent monthly Production/Consumption figures send me an email.
I continue to encourage additional equity commitment in portfolios. At our current economic pace we appear to have 5yrs+ still left in this economic/investment cycle. Historical guidance suggests that the SP500 could rise as high as $5,000 with a significant shift towards investor market optimism.
Best Wishes for the Holidays for All,
Note: Davidson is not making an “S&P 5000? call here. What he is saying is that based on the last two economic cycles the S&P could easily go 100% over its intrinsic value (as it did in 2000 and 2007) based on the historical patterns of investor behavior (fear/greed). “IF” it indeed does that again, that would put us near the 5000 mark…