Can markets be saved an eighth time, a ninth time, a tenth time this year? How about next year?
Investors are dumping billions of dollars worth of gold, commodities and emerging market assets in a wave of "capitulation" selling, Bank of America Merrill Lynch said today as reported by Reuters.
"They are going to be toast. It will be one of our first levels of shorting the moment we start to see cracks, because it’s ripe with retail, emotional investors."
Moments ago we got the latest BofA client flow update in which we were expecting to find that the "smart money", flush with cash, and taking advantage of the Greek "deal" would jump in on last week's biggest weekly market surge since October 2014 when Bullard hinted at QE4 and unleashed a buying surge. To our surprise we find that not only did "smart" money continue selling, but they were joined by the "smartest" money of all, hedge funds. And who did they sell to? Why retail investors of course... and corporate buybacks but that should go without saying.
The latest BofA Fund Managers Survey has left the report authors stumped: on one hand fund managers have the highest cash levels since Lehman at 5.5% (most since December 2008 and prior to that November 2001), which combined with a capitulation in risk appetite due to ongoing stress in Greece and China would suggest a screaming buy signal... but there is one problem: the same fund managers refuse to actually capitulate and sell, and as a result not only are bank longs at record highs, but equities remains solidly overowned but the group, offset by "protection" levels which are the highest since February 2008. In short, the current positioning is a "complete contrast to 2008."
In short… the two biggest reasons for the markets to be rallying today (Greece and China) are simply temporary issues. They will resolve, very likely for the worse, in the coming weeks. Smart investors should be using this bounce to prepare for the next wave of the Crisis.
A shocking and uncharacteristic display of common sense
Despite the ups and down of the last few weeks, 'relative' stability in US equities has confirmed talking heads' bias that 'Greece is contained'. However, Bloomberg's Smart Money flow indicator suggests that the big money (that trades at the open and close) is anything but believing and has in fact been selling since Greferedum...
This weekend's reading list is a smattering of articles to enjoy between your favorite beverage, grilled meat and really fattening desert. Just remember to go back to the gym on Monday...
The "Smartest Money" Is Liquidating Stocks At A Record Pace: "Selling Everything That’s Not Bolted Down"Submitted by Tyler Durden on 07/02/2015 06:23 -0400
Buyout firms conducted 97 stock offerings in the second quarter, more than in any other three-month period. "It’s clear that we are currently in an environment of frothy valuations,” said Lise Buyer, founder of IPO advisory firm Class V Group. Her disturbing punchline: "The insiders - those with the most knowledge - are finding this a very good time to take some money off the table." In an echo of Leon Black, Frank Maturo, vice chairman of equity capital markets at UBS AG, said, “Private equity is selling everything that’s not bolted down."
Every quarter ConvergEx's Nick Colas reviews a raft of unusual and less examined datasets with an eye to refining and adding perspective to the more traditional macroeconomic analyses. This quarter’s assessment of everything from large pickup truck and firearms sales to Google search autofills for “I want to buy/sell” shows a U.S. economy that is reasonably strong but growing only very slowly. The chief areas of concern: Food Stamp participation is still very high at 45.6 million Americans (14% of the total population) and indicators like used car prices and large pickup sales are flat.
Despite the Greek stock market being closed there is an option for hedging the exposure that all the smart money has been building to Greece in the past few days - GREK - the US-trade Greek ETF. In the pre-open, GREK is trading down 17%. While the best efforts of the SNB are underway to protect the markets from unease, European banks are suffering the exact 'contagion' that we were told numerous times would be contained... led by limit down moves in Italy.
According to BofA's Jill Hall, "BofAML clients were big net sellers of US stocks in the amount of $4.1bn, following four weeks of net buying. Net sales were the largest since January 2008 and led by institutional clients—after three weeks of net buying, institutional clients’ net sales last week were the largest in our data history."
As we move toward the second half of 2015, signs of financial turmoil are appearing all over the globe. Slowly but surely, we are starting to see the smart money head for the exits. As one Swedish fund manager put it recently, everyone wants “to avoid being caught on the wrong side of markets once the herd realizes stocks are over-valued“.
There has been an odd trend of late in stock sentiment readings. Despite major averages that are near all-time highs, sentiment has dropped considerably across many of the measures we track. One such example comes from options trading on the VIX. The interesting thing about present conditions in VIX options is that the Put/Call Ratio (using a 21-day average) is at the lowest level since the summer of 2008. That means that there are more bets on a rising VIX versus bets on a falling VIX than we have seen in 7 years. And again, a rising VIX is associated with bad markets. Contrarians would say this is extremely bullish but history shows it is anything but...