With continued uncertainty in global markets, the notes below take a look Bob Doll, China, France, and the important gap…

But first, here is a quick note from Peter Boockvar about China’s reserves…

China’s FX reserves in February got its 3 handle back with a total of $3.005T, up from $2.998T in January and $36b higher than expected. Chinese authorities have been fighting tooth and nail via a variety of capital flows to stem the search for overseas homes (literally and figuratively). In particular on the acquisition front, I’ve seen an estimate that foreign deals year to date have fallen by 74% y/o/y. The Chinese continue to struggle with their desire to internationalize the yuan via eventual full convertability but at the same time they hate large fluctuations and now the persistent yuan weakness. A PBOC official today said that they “encourage companies to invest overseas” but these investments “need to be watched.” They don’t like to see construction companies buying soccer teams. The official said $3T in reserves is still “very high…but not inexhaustible.” The yuan response was mixed as the offshore yuan is higher while the onshore yuan traded lower. The Shanghai comp was higher by .3% and the H share index was up by .6% but…

China can’t help themselves when it comes to manipulating markets. The National People’s Congress doesn’t want to see stock market weakness in this important week of their get together. So, they are tapping the large mutual funds on the shoulder and saying ‘no net stock sales for you!’

Now for a look at what else is happening…

From Jeff Saut, Chief Investment Strategist at Raymond James:  “Mind the gap”. . . A phrase that is repeated at every stop on the British underground subway system

According to The Urban Dictionary, “Mind the gap – is a famous phrase that is said at the London Underground warning people who use the subway to be wary of the gap between the train and the platform. It has become synonymous with the London Underground and is repeated several times by American tourists who find the phrase fascinating and funny.” In this case, however, we are using “mind the gap” to highlight the “gap” created in the chart of the S&P 500…


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Said “gap” occurred last Wednesday when the major market indices spiked higher on DJT’s address the night before (see chart). Such gaps are usually filled within three sessions, but in yesterday’s trading that just didn’t happen. Of course in the “markets can do anything” vein, not all gaps are filled. There was a gap in the charts for the shares of Chrysler Motors at around $2.50 back in 1982. I remember a number of portfolio managers (PMs) were waiting for it to be filled, but it never was. And then there was this quip from Bob Doll yesterday:

• “Stock prices continue to rally as economic data improve and investors remain optimistic about the political backdrop.

• We think this optimism may be overdone and markets could be vulnerable to disappointments.

• Nevertheless, we have a constructive view toward equities and think a pro-growth investment stance is warranted.”

It is always been amazing to me how much Bob and I think alike, but I digress. There have been a lot of questions from PMs here at the conference about whether Value will outperform Growth, or vice versa. To that question my pal Frederick “Shad” Rowe (Greenbrier Partners) recently wrote:

“Given the changes we see taking place, we would suggest a new definition for a value stock: the company in question must offer real and growing value to the customer, rather than just being a statistically cheap stock. Our portfolio would seem to reflect this definition – the companies we own constantly drive to create true customer value. Despite the relative rarity of companies that fit this approach, we continue to search.”

The fact that the “gap” was not filled is actually bullish in the short-term, which could spark a rally leading to the potential for a double-top at the 2400 level basis the SPX. Consequently, we are still cautious on a trading basis. This morning the preopening S&P 500 futures are relatively flat (-4.00) at 5 a.m. as South Korea begins to deploy anti-missile systems after North Korea’s recent missile launch. There is increased worry in D.C. regarding North Korea. And don’t look now, but Juppe’s exit from the French election gives Le Pen the edge as the euro plunges with participants worrying about France leaving the EU.

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