Sweden's Largest Fund Manager Is Quietly Dumping Stocks Before The "Herd" Is Caught In A Selling Vortex

Tyler Durden's picture

In a time of constant handwaving, hair-tearing and op-eds discussing the perils of the collapse in market liquidity due to central planning even as investing experts double down every single time there is a 1-2% "plunge" in the markets because, well, if you don't BTFD your HFT competitor will, one firm has decided to put its money where everyone else's mouth is. Actually, "pull."

According to Bloomberg, Sweden's largest fund manager, Swedbank Robur which oversees $138 billion in assets, has slashed its equity exposure in half at some funds "to avoid being caught on the wrong side of markets once the herd realizes stocks are over-valued."

In the funds with the broadest equity mandates, Sweden’s biggest fund manager reduced its equity exposure to about 30 percent in April from 80 to 85 percent in the second half of last year, Head of Multi Asset Per Storfaelt said in a June 11 interview in Stockholm, as reported originally by Bloomberg.

The reason for the stealthy liquidation: a diametrically opposing view to the prevailing conventional wisdom, according to which a "Grexit is contained", and certainly in complete disagreement with what Norway's Finance Minister Sigbjoern Johnsen who said in 2010 the reason why Norway's SWF invests in Greek debt is because it is “investing for infinity” namely that there is massive future risk threatening to drive losses in Europe as a result of the ongoing Greek drama, according to Robur.

"In April, the majority of the market participants assumed that the drama in Greece was going to be solved in the end," Storfaelt said. “How did we play it? We took down risk more than we would otherwise have done. We still judge it will play out worse than the market expects."

It's not just the underpriced risks from a Greek contagion: according to Storfaelt the current environment has a far bigger inherent risk: a dumb "herd" of complacent bulls, who will one day realize just how massive the disconnect between fundamentals and valuations is, and run in the opposite direction. However, with zero liquidity on the other side of the market, there will be no escape.

Storfaelt says going with the flow is starting to look risky. "There are clear advantages to going against the herd at the moment,” he said.“You get more return taking less risk by not joining a herd that goes for an asset without fundamental backing.” Ultimately, investors are aware of the disconnect between fundamentals and valuations, so they’re “trigger-happy.” That means they’re ready to “reverse as soon as things shake a little,” he said.

Storfaelt says central bank stimulus in Europe has propped up markets and encouraged investors to expect a helping hand even though stocks are over-valued. But the question is whether the disbelief that ought to be kicking in can continue to be suspended.

The punchline, and a conclusion we absolutely agree with since it is something we have said since 2009: "he says the shortage of liquidity is a sign people are starting to doubt the sustainability of the current price environment."

Well, people have been doubting it for about 5 years, but with central banks always on the other side of the trade, and with Fear Of Missing Out, or FOMO, equivalent to career risk, nobody had a choice. The problem is that if one takes out the central banks from the backstop equation, the market has never been more one-sided and once the selling begins, there will be nobody to step in with the bid of first or last resort (the natural buyers in liquidations, the shorts, have long since been eviscerated). In fact, the only option will be to simply halt the market indefinitely. Just see Hanergy or CYNK as a case study of what is coming.

But back to Robur, which has made money on its contrarian stance in the past. In mid-2011, the fund bought up European equities, even though “everyone believed Europe was finished,” Storfaelt said. We “took a clear stance and aggressively increased the equity weight.” The deal ultimately paid off. Since the end of June 2011, the Stoxx Europe 600 index has gained more than 40 percent. “It is kind of the same situation now, but the reverse,” he said.

Storfaelt said Swedbank Robur sees a higher probability of a Greek default than the rest of the market. The risk “that it ends badly is higher than 50 percent,” he said. Pressure on Greece grew on Thursday as International Monetary Fund chief Christine Lagarde said the country won’t be given a grace period if it fails to make a payment at the end of the month.

“Market participants often make the mistake of assuming that everybody else -- for instance when it comes to Greece -- is driven by economic considerations,” Storfaelt said.“In Greece, the end-game will be much more driven by ideological beliefs and the question is where this will lead.”

Events today showed he was absolutely correct. For the sake of the bulls who looked at the market - which was being pushed up solely due to central bank intervention from the first moment of trading to crush any Greek negotiating leverage a red close may bring - and assumed that there is nothing at all that can dent the artificial, illiquid "bull market" now in its 6th year, let's hope that that is all Storfaelt is correct about, because otherwise the countdown to the next massive market crash, not to mention the next, and probably final global QE involving all central banks, has already begun.

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Bank_sters's picture

It took the stock market until 1953 to claw back the losses from 1929.

Keep calm and continue pumping money in your 401k.

EscapingProgress's picture

Where did they move all of the money? Real estate? Sovereign debt? It's all a bubble. There's nowhere to hide...

junction's picture

Now in a stock market setting, we have the hoi polloi referred to as the "herd."  A few months ago, when the shills for Big Pharma were active pushing autism-causing flu vaccine, the dimwit supporters of the vaccine talked about protecting the "herd."  In real herds, most of the cattle end up getting slaughtered.  I think the world has run out of new money but no one wants to admit it, lest it cause a stampede.   

EscapingProgress's picture

"Keep calm and continue pumping money in your 401k."

So that Uncle Sam can take it when he needs it. :))

Btw, we haven't hit 1929 yet. 2008-2009 was 1920-1921. Your 401k won't save you. 401ks are a scam designed to funnel more money into the jaws of the Wall Street sharks.

FreeShitter's picture

When.........trillion dollar question. Right now every motherfuckin day is cocaine and hookers.

Philo Beddoe's picture

Best Sweedish money manager ever. 

Can cook the books with the best of them. 

https://www.youtube.com/watch?v=mbs64GvGgPU

DOGGONE's picture

Show these VERY instructive histories.

"Stop whoring for Wall Street"
http://www.showrealhist.com/yTRIAL.html
http://patrick.net/?p=1223928

i_call_you_my_base's picture

He reduced equity exposure from 85% to 80% and he's talking about grexit? That's his play?

If he really believed in grexit he wouldn't be 80% equities.

mijev's picture

I read it diferently: "Sweden’s biggest fund manager reduced its equity exposure to about 30 percent in April from 80 to 85 percent in the second half of last year"

 

reduced exposure to 30% ... from 80-85% last year.

Scooby Dooby Doo's picture

Didn't Icahn do this like 4 years ago?

One And Only's picture

“Market participants often make the mistake of assuming that everybody else -- for instance when it comes to Greece -- is driven by economic considerations,” Storfaelt said.“In Greece, the end-game will be much more driven by ideological beliefs and the question is where this will lead.”

This guy is confused. The stock market has nothing to do with ideology or economics. The stock market is a function of money and credit which central banks have a monopoly over, and in particular, the Federal Reserve (because the dollar is the worlds reserve currency).

That's it. That's all the stock market is. Sorry Storfaelt you're wrong.

i_call_you_my_base's picture

"driven by ideological beliefs"

Not to mention that that line is pseudo-intellectual horseshit. Totally meaningless. It's all economics. Period.

One And Only's picture

The stock market is not economics. Period.

MonetaryApostate's picture

No, the heart of the economy lays within money flow & consumerism, both of which are what?  That's right stagnant, as in moving like pond water bitches! :D  https://youtu.be/wHo43B6nu60

jeff montanye's picture

in the short run the stock market is like a voting machine, in the long run like a weighing machine.

deimosaffair's picture

get your braingoo working and read it again

market participant != market

everyone else = general population

so, translating:  any guy that works with markets makes the mistake of thinking that everybody(else) makes decisions based on economy(ic sonsiderations). in Greece, the final decisions (decided by non-market guys/gals, so persons of the gen-pop) will not be economic based, will be ideology based. 

 

which is how we humans usually decide stuff: based on our bias,convictions, beliefs and ideas. in that order.

buzzsaw99's picture

dude, watch out for nail guns

q99x2's picture

US markets are FED software applications and if you think they are going to go back to free markets...it ain't happening. BTFD

hibou-Owl's picture

They smarter than me! I've been in cash for a year after the previous divergences. Current situation is like a massive compressed spring, will the trigger go off.
The lack of liquidity stated In the article, indicates there's going to be plenty of gaps, limit down days. There will be no exits, if your exposed get your protection in now.

When we finally have the dump out, the smart cash will have some bargains. But wait, Cash isn't earning at the moment, and so that pain needs to be Endured. That cash Position isn't likely to be Placed BTFD until real returns exist.

Don't expect a vee bottom bounce until all the leverage has evaporated.

Uber Vandal's picture

Here is an oldie but goodie from the prior depression:

http://xroads.virginia.edu/~HYPER/ALLEN/ch13.html

Before the first hour of trading was over, it was already apparent that they were going down with an altogether unprecedented and amazing violence. In brokers' offices all over the Country, tape-watchers looked at one another in astonishment and perplexity. Where on earth was this torrent of selling orders coming from?

The exact answer to this question will probably never be known. But it seems probable that the principal cause of the break in prices during that first hour on October 24th was not fear. Nor was it short selling. It was forced selling. it was the dumping on the market of hundreds of thousands of shares of stock held in the name of miserable traders whose margins were exhausted or about to be exhausted. The gigantic edifice of prices was honeycombed with speculative credit and was now breaking under its own weight.

On that black Tuesday, somebody--a clever messenger boy for the Exchange, it was rumored--had the bright idea of putting in an order to buy at 1--and in the temporarily complete absence of other bids he actually got his stock for a dollar a share!

 

 

 

 

Batman11's picture

A shortage of liquidity indicates a shortage of bigger fools.

Do you want to find you were the biggest fool?

 

tenpanhandle's picture

I already found that out.

kchrisc's picture

Better to be dropping knives than trying to catch them.

Liberty is a demand. Tyranny is submission.

22winmag's picture

The sword of Damocles is one hell of a knife.

SmokinMonkey's picture

Now here is one for the Tylers.  Don't focus on the plunging stocks and the shitty economy, lets take a course on Beyonce instead. 

Waterloo Region Record

By Jenna Braun

WATERLOO REGION — A sexy new university course focused entirely on the workings of none other than Beyoncé Knowles is generating some negative heat.

University of Waterloo is to begin the course "Gender and Performance" this fall, taught by professor Naila Keleta-Mae.

Reader comments regarding the new course on various media outlets include "Another indication of the coming apocalypse" and "I'm holding out until I can major in kanyenomics."

"Why do some people immediately dismiss the idea?" asked Keleta-Mae. She suggests people may believe "the work of a pop-artist" such as Beyoncé isn't worth teaching in intellectual studies.

The drama and speech communication class will focus primarily on race theories, gender studies and performance while looking deeply into Beyoncé's messages and influences throughout her stardom.

http://www.therecord.com/news-story/5684857-professor-defends-uw-beyonc-...

Colonel Klink's picture

Never to full retard.  And this lady is as retarded as they come.

Texas Fold-em's picture

The original pic of the single deer in the headlights is better.