In the latest Target2 monthly update, Bank of Italy's liabilities toward other eurozone nation soared by €35 billion in August, just shy of the biggest monthly increase on record, and reached an all time high of €327 billion, surpassing the previous records set in 2012, just prior to Draghi's infamous "whatever it takes" speech.
"Net speculative position on the CME as far as SPX contracts are concerned have ballooned nearly 70% since mid-July to 38,083 net longs, a bullish bet we have not seen since June 2013, and this is one vivid sign of just how complacent the masses are." - David Rosenberg
“Put simply, most apparent “opportunities” to obtain investment returns above zero in conventional assets over the coming decade are based on a misunderstanding of valuations, total returns, and historical yield relationships. At current valuations, virtually everything is priced for a decade of zero. The unwinding of these speculative extremes is likely to be chaotic, and will likely occur over a shorter horizon than investors imagine."
It has been one of the greater paradoxes of the record S&P rally from the February lows: how has the market continued to rise even with unprecedented outflows? In other words, "Who's buying equities?" Overnight, Barclay's chief equity strategist Keith Parker asks that very question, and gives the following answer.
If oil were to drop back under $40, not only would it precipitate even more selling of oil as momentum strategies flip, but it would catalyze a liquidation by those SWFs who thought they were done selling equities, leading to a return of the same sellers that pushed the S&P back to the low 1,900s a short 6 months ago. So for all those curious where stocks are going next, the simple answer is: keep an eye on what oil does next.
Over the next year, the BoJ is scheduled to purchase ¥6t ($58b) in ETFs, and $116b over the next two years. By June of 2018, BoJ is likely to hold ¥20.5t ($200b) in ETFs. Putting this in context, this new stimulus can be viewed as equivalent of the Fed purchasing $580 billion in ETFs over the next two years, and the Fed holding $1 trillion in ETFs.
"The current P/E expansion cycle is now one of the largest in history. Since September 2011, S&P 500 forward P/E has grown by 75% (from 10x to 18x). This expansion has only been surpassed twice since 1976, when the multiple rose by 111% from 1984-1987 (ending with the 22% Black Monday collapse) and by 115% from 1994-1999 (ending with the Tech Bubble pop)." - Goldman Sachs
Whether it is due to the recent speculation that Japan may usher in helicopter money, or ongoing concerns about what Brexit may do to the future of European asset returns, there has been a dramatic shift in fund allocation and as Bank of America reports, investors are rushing to vote with their wallets. They have done so in the latest week by continuing to plow money into EM stocks, allocating a record amount of cash to Emerging Markets, while yanking a similarly record amount of cash from Europe.
Bank of America's Michael Hartnett (who has been bearish throughout the recent central-bank inspired rally, as have been most professional investors), looks at the latest EPFR fund flows data,and concludes that Monday is when the bears finally capitulated.
"I don't think we should be at new [stock] highs... We are seeing investors worldwide pausing, we are seeing quite a large sum of money being pulled out of equities over the last year. And yet we are at record highs. That's just a sign of how much money is being taken out by central banks in their bond purchases, and stock repurchases from companies."