Thread by @TihoBrkan

1/ The following is a THREAD on the more important business cycle indicators which correlate to the stock market.

Is the market disconnected from reality, or is the economy lagging markets advance?

Everyone has been discussing & debating it — but I want to know your opinions.

2/ US Chemical Activity Barometer remains at 104.67 points from its peak in Jan 2020 at 124.26.

Contraction is -14.41% year over year. Meanwhile, S&P was recently above 3,200 points.

3/ One of the most important charts for me right now is the corporate debt bubble, which the Fed not only continues to encourage but also helped to create.

Corproate debt as a % of US GDP is now at 48.72%. While the economy is sinking, corporation are continuing to lever up...

4/ ...causing the ratio to spike vertically. Q2 update could be even worse, indicating the leverage in the corporate sector in very unhealthy & extremely risky.

For the students of history, Treasury yields peaked in September 1981 at which point the corporate gearing started.

5/ Observing the chart again, we have witnessed three credit bubbles since rates started their decline.

The first was during the 80s, fueled by the Japanese economic miracle. Second during the flying 90s tech bubble & third during the early 2000s subprime & commodities boom.

6/ Japan is an export powerhouse, so a global collapse in demand is easily noticed during its export slump. Clearly, they are experiencing one during the Covid-19 downturn.

Nevertheless, the market is moving in a completely opposite direction. Note this has happened before, too.

7/ The export slump is clearly affecting the overall Asian economic activity — which this year has a large share of global GDP relative to the rest of the world.

Emerging Asia equities are flying higher, while key export regions of Japan, Korea & Taiwan are in a major downturn.

8/ Manufacturing sentiment, measured by the Purchase Managers Index (PMI), is in a deep downturn...

Especially the New Orders Index, which has collapsed in similar fashion seen during the depths of the Global Financial Crisis in 2008.

9/ The slowdown in the manufacturing sector is also clearly confirmed by the Philadelphia Fed Manufacturing Survey.

Has the market run ahead of itself? How much of the upcoming economic recovery has already been discounted? What is the potential for future positive surprises?

10/ During the last 3 crises, Consumer Confidence dropped to an average reading of 44.

• 47.3 in 1992
• 61.4 in 2003
• 23.2 in 2009

All of those were great buying signals!

Today, the sentiment stands at 86.6, higher than any of the previous 3 downturns (by a double).

11/ Across the pond, in Europe consumer sentiment became completely bombed out — which is usually a great buy signal.

While sentiment could, in theory, become slightly worse... it seems the vast majority of the bad news is clearly priced in here.

12/ Furthermore, unlike their US counterparts, European equities are far cheaper.

A great by Goldman Sachs shows EU stocks (and rest of the world) underperformed the US in a sideways consolidation for 13 years now (since the peak in 2007) due to a lack of technology exposure.

13/ Would love to finish off with a poll to see what you guys & girls think.

Is the market disconnected from reality, or is the economy lagging markets advance which is pretty much justified?

Do you see more upside ahead, or are valuations extreme?