Tweeting the October Global FMS
#bottomline: Oct FMS shows investor sentiment bearish despite credit & equity rally; if trade war and BREXIT fears unrealized in Q4 then macro can beat expectations validating our contrarian bullish view.
#up-in-cash: FMS cash levels up to 5.0% from 4.7%, leaving BofAML Bull & Bear Indicator at an “extreme bear” level of 1.3.
#bearishmacro: FMS global growth expectations fall to -37%, i.e. low vs -60 to 80 range of past 25 years; record 9/10 say its “late-cycle”, record say “fiscal policy too restrictive”.
#greenshoots: 1-year high in FMS respondents saying companies should use cash to “increase capex”; and rising expectations for EPS, yield curve steepening and value outperforming growth; investor sentiment showing a few “green shoots”.
#tailrisks: 40% say trade war biggest tail risk vs 13% for monetary policy impotence and bond market bubble; 75% say “ending trade war” is most bullish catalyst for stocks in next 6 months, followed by German fiscal stimulus.
#crowdedtrades: FMS most crowded trade is “long US treasuries” (41%), then “long US tech/growth stocks” (24%); FMS says European govt bonds most overvalued asset class.
#longs&shorts: FMS investors (Chart 1) are long cash, REITs, staples, US, pharma (deflation plays), and short energy, UK, industrials, equities, sterling (inflation plays).
#extremes: FMS investors most overweight consumer staples since May’13, most UW materials since Feb’16, highlighting huge skew toward deflation not inflation plays.
#2020s: which equity market outperforms in next decade…FMS investors say EM 30%, US 22%, China 17%, EU 15%, Japan 6%, UK 3%; clear EM over EAFE preference.
#contrariantrades: Q4 rise in rates or growth is unanticipated…long stocks-short cash, long UK energy-short US REITs, short pharma-long industrials.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
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