EC The Only Reason To Be “Bearish” Is “No One Is Bearish”

I had to do a double-take recently when reading a CNBC headline that stated: “The only reason to be bearish is there’s no reason to be bearish.”

It is indeed hard to argue the point. As the article explained:

A majority of investors finally agree the V-shaped recovery is at play,” according to the Bank of America Global Fund Manager Survey. Plus, a record percentage of money managers believe that global growth is at an all-time high.”

Key Findings

  • More than 90% of investors believe the economy will be more robust in 2021, with a consensus it’s a V-shape recovery. For the first time since January 2020, chief investment officers want to increase capital spending rather than improve balance sheets.
  • Fund managers’ allocation to cash is down to 3.8%, the lowest since March 2013. Such was just before the “taper tantrum” era under former Federal Reserve Chairman Ben Bernanke.

No Reason Bearish, The Only Reason To Be “Bearish” Is “No One Is Bearish”

  • Allocations to stocks and commodities are the highest since February 2011.

No Reason Bearish, The Only Reason To Be “Bearish” Is “No One Is Bearish”

  • The survey shows a preference towards cyclical stocks, high exposure to commodities, emerging markets, industrials, and banks relative to the past 10-years.

No Reason Bearish, The Only Reason To Be “Bearish” Is “No One Is Bearish”

  • Only 13% of respondents said stocks are in a bubble.

As the survey notes:

“Stocks are hovering around all-time highs as investors bet on a successful rollout of the Covid-19 vaccine, economic reopening, and expectations for more fiscal stimulus.”

What could go wrong?

 

3-Risks In 2021

“According to [Hyman] Miskey, events leading up to a crisis start with a ‘displacement,’ some exogenous, outside shock to the macroeconomic system. The nature of this displacement varies from one speculative boom to another. An unanticipated change to monetary policy might constitute such a displacement. Some economists who think markets have it right and governments wrong, blame ‘policy switching for some financial instability.” – Charles Kindleberger

While it is clear that a “speculative mania” exists, such will remain the case until an “exogenous event” creates financial instability. As the survey noted, there are “risks” to the outlook.

“Investors say potential risks include the vaccine rollout, inflation, crowded trades in tech, long bitcoin trades, and shorting the dollar trades.”

Given ample evidence that “everyone is in the pool,” markets are vulnerable to 3-risks.

  1. More stimulus and direct checks into the economy lead to an inflationary spike that causes an anticipated monetary policy change.
  2. The current rise in interest rates continues with rising inflation until it impacts a debt-laden economy. Such would force the Fed to implement “yield curve control.” 
  3. The dollar, which has an enormous net-short position against it, reverses and moves higher, pulling in foreign reserves, causing a short-squeeze on the dollar. 
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