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Julien Bittel, CFA

@BittelJulien

4 Dec 20

According to the latest BofA FMS, EM equities are projected to be the best performing asset class in ‘21.

Building a bear case:

-Overbought sentiment
-Crowded reflation positioning
-US fin. conditions at record lows
-Econ. surprises at record highs

Let’s look at some charts.

While there’s still room for a further rise in EM PMIs into year-end, the % of EM OECD countries with rising lead indicators MoM is down to 67%, from 100% in July.

There is a 6M lead which means we should peak out by early next year.

Something to keep an eye on.

Also, as previously discussed, EM is essentially the inverse correlation of US financial conditions, & today US fin. conditions are at record lows.

Extremely loose financial conditions usually preceded major mkt tops.

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Julien Bittel, CFA

@BittelJulien

20 Nov 20

Just a couple of interesting US bond market observations from your friendly neighbourhood bond bull to close out the week.

1) Long duration bonds (TLT) are still looking like they’re setting up for their next big move higher.

2) A close below long-term support would be a clear negative, but for the time being we continue to hold.

3) Speculators remain near record short as a % of total open interest.

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Julien Bittel, CFA

@BittelJulien

9 Nov 20

ISM Manufacturing New Orders rose to 67.9 in October, their highest lvl since Jan ‘04.

While quite a few US macro indicators continue to track an ‘01 analog (NFIB, consumer conf., heavy truck sales, etc.), it’s interesting to see how closely ISM NOs are mirroring the early 80’s.

Even the magnitude of the move is identical: a 40pt rise over 6M.

Back then, this marked the peak & what followed was a 12M decline in new orders from Nov ‘80-Nov ‘81.

Equities officially bottomed in Aug ‘82, which was the true cycle low & an 8Y bull mkt in equities started.

Additionally, the only other period in the last 50Y where we had a similar bounce in economic activity with my US macro composite still in the 50th percentile, was the early 80’s.

Bull markets with legs usually occur with a cross <20%. Think of this as a macro valuation score.

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Julien Bittel, CFA

@BittelJulien

7 Apr 20

A rise in the US UR of >0.5% off 24M rolling lows has been the 100% threshold for recession. This has historically corresponded w/ deep equity bear mkts. In ‘01/‘08, equities went on to fall another 35%/50% after the signal. Strategic buying opportunity for equities? Not yet imo.

Here is the long-term chart of the US unemployment rate deviation from 24M rolling lows. A monthly close above 0.5% has a 100% track record over 70Y at signalling a recession.

Meanwhile, my US cycle risk index is currently at 68% & suggests that the US unemployment rate will rise ~3.5% above 24M rolling lows. My guess is this lead index will soon be nearer 100%.

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