Chemical Activity Signals More Economic Growth [CHART]

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Chemical Activity Signals More Economic Growth [CHART]

Chemical Activity Signals More Economic Gains

“Davidson” submits:

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.

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Screenshot 2021 09 18 09.22.32Clint Carlson's Carlson Capital Double Black Diamond fund returned 3.34% in August net of fees. Following this performance, the fund is up 8.82% year-to-date net, according to a copy of the firm's August investor update, which ValueWalk has been able to review. On a gross basis, the Double Black Diamond fund added 4.55% in August Read More

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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…

 

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Todd Sullivan is a Massachusetts-based value investor and a General Partner in Rand Strategic Partners. He looks for investments he believes are selling for a discount to their intrinsic value given their current situation and future prospects. He holds them until that value is realized or the fundamentals change in a way that no longer support his thesis. His blog features his various ideas and commentary and he updates readers on their progress in a timely fashion. His commentary has been seen in the online versions of the Wall St. Journal, New York Times, CNN Money, Business Week, Crain’s NY, Kiplingers and other publications. He has also appeared on Fox Business News & Fox News and is a RealMoney.com contributor. His commentary on Starbucks during 2008 was recently quoted by its Founder Howard Schultz in his recent book “Onward”. In 2011 he was asked to present an investment idea at Bill Ackman’s “Harbor Investment Conference”.

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