"There is a stealth flight to safety going on. German bond yields are leading the way down. Gold is rising. Speculators remain massively short bonds and the market is going to squeeze them out... Stocks are out of synch with the stealth flight to safety."
Retail investors are dribing this year's equity rally, JPM calculates, and adds that "in contrast to retail investors, institutional investors appear to have overall reduced rather than increased their equity exposure YTD."
As Goldman reports in is quarterly hedge fund Trend Monitor report, six weeks into the year, the strong equity market has lifted the average hedge fund to just a 2% return YTD, once again underperforming the broader market YTD by more than 50%, while macro funds have generated a 0% return YTD
According to the latest weekly BofA client data, "smart money" investors have finally tempered their euphoric optimism, and last week during which the S&P 500 climbed to another new high, BofAML clients took advantage of the surge in "greater fools" and turned net sellers of US equities for the first time since the week prior to the US election in early November.
When BofA conducted its monthly Fund Managers' Survey, and asked what is the most likely bear market catalysts, the responses were as follows: "protectionism" = 34%, "higher rates" = 28%, "financial event" = 18%, "weaker EPS" = 15%. The "smart money" also said that the best protectionist investment is one: gold.
Given the multiplying and shrilling-squawking omens of hubris and overconfidence in today's hyper-extended markets -- a murder of complacencies, if you will -- we conclude we've reached the point in this storyline where the suspense has risen to its zenith, and the real violence then begins.
The spread between the "smart" and "dumb" money confidence is about as wide as it has ever been, and perhaps just as notable, the "Smart Money" is at or near the lowest level of "confidence" in recent history despite, or perhaps due to, the S&P just several days ago hitting new all time highs.
With the S&P500 ending January on the back foot, more pain may be in store for markets in February. This is the observation of BofA's chief technician Stephen Suttmeyer, who provides several danger signals why bulls may want to be particularly cautious ahead of the coming months.
"For over the last month watching our portfolio grind higher it feels like 10- to 20- some bps on the majority of days, which seems kinda sleepy... but when I look at the individual names I am seeing HUGE moves daily. Both books at times are riddled with many stocks seeing 2 and 3 standard deviation moves....it is CRAZY what is going on “under the hood,” when on the index level, it’s so optically calm."
“The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust ...”