Potential US GDP Contraction Predicted In Late 2019

It’s amazing to review the Bank of America fund manager survey’s question on the most crowded trade because it would have been a money maker if the results would have come out earlier. As you can see from the chart below, it became even more of a consensus that the long US treasuries trade was very crowded.

This survey gave you a hint a big reversal was coming in August as over 30% of fund managers stated this was the most crowded trade. Right before the selloff in treasuries last week, the survey showed that percentage getting near 40.

Similarly, this survey was correct in saying long growth stocks was a crowded trade as there was a big pop in the ratio of value to growth stocks as the financials and energy stocks rallied in the first half of September. Obviously, it’s way easier to point out an overcrowded trade than it is to get in the trenches and bet against it because betting against a trend takes great timing. If you mistime the trade, you can lose money. It’s easier to do from the sidelines. That’s not to say there’s no value in avoiding overcrowded trades. Just staying out of the way can be a big win. Timing is less of an issue here.

Expecting A Trade Deal Is Non-Consensus

The latest news on trade appears to be positive as China and America will meet in mid-October. One potential negative not covered in the media is that China may have exempted tariffs on pork and soybeans because food prices are soaring not because of goodwill. It’s debatable if that’s good or bad because on the one hand, it means China isn’t changing its stance on trade. On the other hand, did we really expect China to change its perspective out of kindness? It’s all about economics.

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