(New York)

Bank of America has just published an important piece of data. The bank has put out the results of its sentiment survey of investors and has found that US investors are the most bearish they have been since the Financial Crisis. The survey was of fund managers, so is an indication of institutional investment sentiment. Allocations to equities among those polled hit their lowest level since March 2009, the month the stock market bottomed. “FMS investors have not been this bearish since the global financial crisis, with pessimism driven by trade war and recession concerns”, said BAML’s chief investment strategist.

FINSUM: It is hard to know how seriously to take this. It is certainly a pertinent piece of information, but is it a bearish indicator or a bullish contrarian indicator?

(Chicago)

Small caps are an interesting consideration right now. Ever since Trump’s election, they have had a general stimulus behind them from the widespread ethos of protectionism. Now, though, that push looks bigger than ever because of the trade war, meaning small caps might have smooth sailing. The problem is that it is hard to find the best small caps because of a lack of coverage by analysts and a weak online presence by many of them. With that in mind, Barron’s has some suggestions for how find good investments in the area, including joining online small cap communities (like Equity.guru and Small Cap Discoveries) and leveraging online discovery tools, like TMX Matrix, CEO.ca, and VRify.

FINSUM: A lot of alpha can be found in small caps simply through hard work and research. It is one of the areas of the equity markets where EMH theory is truly crap and knowledge advantages predominate.

(New York)

Whether investors like it or not, a recession is coming. One of the key indicators is for a yield curve inversion to last 90 days or more. If it does so, a recession is highly likely in the next 12-18 months. Well, the first point of inversion began in March and we just crossed the 90-day threshold, which means that the strongest indicator of recession has just been triggered. Here are some tips to prepare: clear out garbage holdings from your portfolio (e.g. the stock tip from your brother in law six months ago), set aside cash and come up with a plan to buy stocks when certain thresholds are hit (e.g. a 25% decline in key indexes), pay down debt (it might not be this easy to do so again for awhile).

FINSUM: For all the talk we have heard over the last year about “this time is different”, the reality is that the strongest recession indicator known has just been triggered.

(New York)

The muni bond market is in a difficult place for investors. Demand is far outstripping supply, which means prices are high and yields low, leaving investors few opportunities to find value. However, few does not mean none, so here are some places to find good value municipal bonds. Airport muni bonds can be a good choice, as they tend to fair well in recessions and have very defensible funding sources (e.g. state and local governments). Toll-road bonds are another good choice, as they have very strong credit characteristics (only two have defaulted since 1970). Toll roads in San Francisco, New York, Oklahoma, and Maine are particularly good bets as there are few options for drivers to avoid them.

FINSUM: These seem like well-thought out and defensible choices.

(Los Angeles)

Tesla has been in a very rough patch recently, with shares dropping swiftly and deeply. However, where are things headed next? Well, an important “insider” indicator just flashed that you need to know about. Two Tesla directors have been heavily selling stock this year, showing that those close to the company are not bullish. Directors Buss and Gracias have sold nearly $47m of stock in 2019, and total sales by insiders are around $68m, almost 5x the total selling of last year.

FINSUM: We think this is quite a troubling sign and does not give us any conviction about a rebound.