The release of today’s latest FMS (in which BofA CIO Michael Hartnett polled 224 panelists managing $667BN between June 4 and 10th), was a case in point: the punchline of the report that the vast majority of Wall Street pros now siding with the Fed (and taking the other side of the trade to such luminaries as Paul Tudor Jones and Kyle Bass), as 72% said inflation is “transitory”, while less than a quarter, or 23% view inflation as permanent.
And just to cement their laughable view, a record 76% says that the US economy – with its $24 trillion in debt – is currently “early cycle”, i.e. a boom.
Hilariously, and a testament to just how little said “fund managers” believe their own BS, the biggest tail risk according to the same sample of respondents was… inflation.
But why, if it’ transitory? Actually, ignore that: such rhetorical questions that seek to maintain some intellectual consistency within the Fund Manager Survey – which just last month saw bitcoin as the “most crowded trade” even though virtually none of the respondents are actually allowed to trade it – are a total waste of time, as is trying to divine some predictive signal out of the survey which is impossible as it has devolved into a worthless snapshot of goupthink, and if anyone wants to get the right trade, our advice is just to do what the majority on Wall Street pretends to do or believe…. especially when said fake conviction is on the same side as the Fed.
So with that in mind, and with the clear understanding that the only way to use any of this data is to take the other side of the trade, here are some other findings from the latest FMS (which really should rename itself FBS):
63% expect Fed to signal taper Aug/Sept, with virtually nobody expecting the Fed to even so much as hint at tapering tomorrow or July. Translation: it will be a very boring summer.
One reason for the pullback in inflationary expectations is the pessimism that Biden can get any more stimmies done, and as the next chart shows, US infrastructure hopes dip to $1.7tn from $1.9tn…
… which has also pushed expectations for a steeper yield curve to the lowest since Aug’20 (i.e. the flattening is about to come back).
Meanwhile, the red-line in 10Y yields that will spark a stock selloff keeps rising: as BofA notes, “;Nobody believed that rates at 1.5% would cause an equity correction. But the move from 1.5% to 2% is critical as a large majority of investors now think rates >2% would be detrimental for stocks. ”
In addition to enjoying the safety of the herd and lack of original groupthink, the surveyed wall street pros also tend to be quite optimistic, and while few expect any economic turmoil any time soon, only 2% expect a bear market in the next 6 months: “Asked how big an equity correction will be likely in the next 6 months, FMS investors say “
Some other observations: the survey found that cash levels are down to 3.9% from 4.1% last month…
… while allocation to bonds fell to 3-year low at net -69%, and stocks allocation back up to YTD highs at 61%. This means that we are going to see another major bond short squeeze in the comings days.
And speaking of projecting, for the first time in BofA survey history, commodities is now the top most crowded trade, as it overtakes “long Bitcoin” as most “crowded trade.”
Meanwhile, since nobody can trade it and everyone has missed the move higher, 81% of jealous jaded investors still think Bitcoin is a bubble despite the price pullback. Well, good luck getting rich daytrading AMC.
Finally, some views on positioning: Hartnett says that based on survey responses, banks are now the biggest sector overweight at 30%, while “chunky” cyclical positioning persists on materials at 23%, industrials, U.K., euro area. Allocation to euro area stocks increased 6ppt MoM to net 41% overweight, highest since January 2018, while allocation to U.K. equities increased 2ppt to 4% overweight, highest since March 2014.
And while tech saw largest jump in exposure from 11% to 22% (after being massively shorted several weeks earlier), defensives exposure was cut again, with underweight in utilities largest since February 2017.
Tue, 06/15/2021 – 12:20
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Author: Tyler Durden