Bank of America is out with its latest survey for fund managers and it shows a few worrisome spots. Here are some highlights:
1) It was the most-bullish fund manager survey in 2 years according to BofA
The purpose of the survey is to illuminate popular but also overcrowded trades. This one speaks for itself and it comes after a sensational 3-month rally for risk assets. Cash levels are down to 4.2% from 4.8% and everyone is in tech.
2) For the first time since April 2022, investors are not predicting a recession
This is one of those things that looks like a red flag but I don’t really think it is. I would be much more worried if it showed predictions of a sizzling economy. To me, this is more of a return to neutral. Asked about the path of the economy this year, two thirds say ‘soft landing,’ 1/5 say ‘no landing,’ 1/10 say ‘hard landing’. Given today’s CPI, the ‘no landing’ one is looking like the main problem, and the inflation that would come with it.
3) More on the inflation problem
Just 4% expect higher short rates, just 7% expect higher inflation and 85% say yield curve will steepen. That’s a true red flag and one of those scenarios where the world does the exact opposite of what everyone is thinking about and everyone is positioned wrong. This is a big warning for me to be careful about higher inflation because if the tide turns, there will be huge position shifts.
4) Long Magnificent 7′ most crowded trade since “long US$” in Oct’22
DXY daily
As you can see from the dollar, when a trade gets too crowded, the smart thing to do is to fade it, or at least get to the sidelines.
5) Short China stocks’ second-most crowded trade and 1/4 say structural underweight of China is right strategy
Being opposite a crowded short trade is usually an even-better trade than fading a crowded long. But you need some kind of catalyst on China and that means some help from Beijing. Otherwise, investors will continue to focus on the risk of getting “Russia’d” on a Taiwan invasion.
6) How BofA sees it
Their contrarian trades for a for hard landing are long cash and defensives while being short US/Japan and tech stocks;. For a ‘no landing’ scenario, the trade would be long commodities, energy, the US dollar and short bonds.