Market "Ominously Hints Recession Imminent" BofA Warns Unless "Unambiguous Pessimism" Leads To Stock Rally

Tyler Durden's picture

The tone from investors in the latest Bank of America survey is clear: as Michael Harnett summarizes it, the one prevailing theme is "unambiguous pessimism."

Some examples: "Asset allocators cut stocks & commodities (to 2008 levels) to seek the alternatives of bonds (highest allocation since May'13) with cash rising to 5.5%, equal to the 2008 highs."

Nobody wants to take on risk: Net % of investors taking higher-than-normal risk levels drops to 3-year lows (-29%)

... hedge fund lead the brigade with the lowest gross asset exposure since Jun'12 (@ 1.22x)

... as hatred of energy hits all time high... or low.

BofA notes: "Unambiguous flight-to-quality", big increase in weighting to cash, staples and bonds and a b"ig reduction in weighting to equities, Japan and the UK"

The pessimism continues: "Investors have more conviction in market “shorts” than market “longs.” Based on current positions "Contrarians would go long energy/ materials, EM/ commodities & the UK; Contrarians would short discretionary, banks, Eurozone & tech"

 

More flight out of risk and into cash: Cash levels back up to 5.5% (post-Lehman highs), from 5.2% last month

In practice, this means that the allocation to cash jumps to net 35% OW, highest since Jun’12.

 

Worse, investors no longer want to be in a market in which they say liquidity conditions are "poor" or "very poor"

 

What does this mean for the economy? According to the following chart, the market pessimism has spread to the global real economy, which is now perceived in the worst shape since July 2012.

Bottom line: either markets soar, or something bad is about to happen: to wit:

"Unambiguous pessimism means risk assets riper for a rally (note investors don’t want a Fed hike this week). If no rally, then markets ominously hinting “recession” and/or “default” imminent."

Good luck with that rate hike, Janet.

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lehmen_sisters's picture

"This is bullish" --JPMorgan. 

XAU XAG's picture

Cash levels back up to 5.5% (post-Lehman highs)

 

 

Says it all!

mtl4's picture

This flight to safety should align nicely to topple the bond markets on queue..........get ready for stocks to race after that happens.

pods's picture

So if the real economy stays in the shitter and stocks rally it means all is well?

I need a crazy scorecard to figure out what is what anymore.

pods

Hype Alert's picture

It's the exact same thing we've seen since March of 2009.  Bad news is good news for stock prices as the Fed prints green pieces of paper faster than companies print stock certificates.

 

One is a claim on nothing or at best other green pieces of paper and the other is a claim on a real asset.  Which would you rather own?

mtl4's picture

The issue isn't if the US economy is doing well or not, it's more like a giant world-wide game of economic whack-a-mole with everyone running for cover when the mallet comes down again.

 

Hype Alert's picture

Right, it's not about the economy.  At one time the stock market was an indicator of economic activity, but the FED manipulating prices changed it into a tool to fake economic activity.  You can't break the dial, reach in and turn the indicator and pretend all is well.  Why anybody thinks that will work is insane.

Kaervek's picture

Anybody thinking this would work is truly insane, but most economic "advisors" are just paid shills spreading nothing but lies and misinformation. It's a bit like religion, there's science and then there are those who want to make me believe god created mankind and evolution is a lie.

Yes, they are PAID to LIE to your face. It's a scam. To call those sellouts economists is an insult to any real scientist. Rand called it in 1957 and today 59 years later we are none the smarter, letting petty lobbies dictate rules and regulations.

Of course you can pretend all is well, that's what they are doing right now. The question is only for how long?

The Merovingian's picture

Ah come on, Pods. Unambiguous pessimism and irrational exuberance are just two sides of the FED's fake coins .... which reminds me I need to stop into the coin shop for some more Eagles.

LawsofPhysics's picture

Don't overthink this Pods, henceforth, the "official" meme will be that everything is okay, "officially" prices will look great...

However, taking delivery at the "official" price will be something else altogether...

 

XAU XAG's picture

@mtl4............................CONCUR

PlayMoney's picture

Retail sales, Empire, Industrial Production, Inventories all bad.....of course the market goes up 150 points. LOL Guess we are starting the no hike "free money" bad is good rally early.

Dr. Engali's picture

Ben Bernank; Everybody jump in to the markets the water is fine and I've got your back. Now that I'm gone here's Grandma Yellen to fuck you, and how can you be mad at this sweet old lady?

pods's picture

But Doc have you protected your portolio?

Put your money to work for you?

:)

pods

Dr. Engali's picture

I pay a monthly insurance premiums by making PM purchases. I seem to have the worst luck though when it comes to holding on to the sum bitchez. 

aliki's picture

at least 1 of the jefferies clowns the other day on CNBC finally came out with it and said what everyone here has known all along when he said "they should hike 25 bps because if they can't raise 25 bps without the world falling apart, it means theres something really, REALLY wrong with the world and i want to know about it ASAP!"

newsflash: the entire bull run the last 7 years has been built on ZIRP & the fed crushing volatility. people have no other fucking alternative than stocks (ie. pensions) which have been forced to go into high yield & dividend paying stocks.

amazing how these "strategists" don't get that the single most dangerous thing you can do in this game is mis-price risk. forcing people who want to be in bonds that yield a decent return into dividend paying stocks is the textbook definition of risk mispricing.

the world is littered in debt and if they do raise rates 25 bps with any inclination of going near stan fisher's 200 bp target within the next 2-3 years, they will flat-out break shit, specifically EM & the dow will be back around 10,000.

but hey, im all for it. lets start the unwind of all the nonsense & put the honous where it should be - back on the president & congress to balance the budget & chop the debt. stop enabling these clowns to make no hard choices.

Panafrican Funktron Robot's picture

Starting around mid November of 2012, the IG corporate bond index notably decoupled from the S&P broad index (BUSC vs. SPX).  There is now about a 50% delta between the two.  In a normal scenario, SPX roughly tracks BUSC.  I think this will eventually correct.

q99x2's picture

I don't see why the crooks don't raise rates and print at the same time. It's worthless fiat money. So who cares what the central banks do.

pods's picture

Well, since my employer pays me in those tickets I kind of care what the Fed does with the value of them.

I do understand your point though.  

pods

Bill of Rights's picture

Nothing says " raise rates " like a grand old recession ( Year 15 ) clowns.

Oldballplayer's picture

That ain't a rally.  That is the retail investor getting short squeezed.

cowdiddly's picture

It has been noted your not following the Party line. You do know we have reeducation camp Supercenters with vacancies?

Yahoo finance headline:

Low risk of recession reassures investors. But should it?
Housicker's picture

It's either way. Maybe a huge buying opportunity in some downbeat sectors or Armageddon is just around the corner.

Your pick!

nakki's picture

There are 3 scenarios that will happen here in the US. Default, Japanese style printing and deficits, or all debt will be paid back in state and federal land sales.

Not if_ But When's picture

Like so many others here I am out of this rigged and non-sensical market.  The stock market is NOT supposed to be driven so largely by bad economic news increasing the chances of continuing ZIRP.  The worse the reports on the economy are, the better it is for this market solely due to resultant expectations of no rate increase.  What the hell has happened so profoundly supplemented by the FED?  If things are ass-backwards it's better to be out.

Dsyno's picture

So if the market doesn't go up, it's gonna go down. I don't know why financial analysts get such a bad rap.

fromthinair's picture
fromthinair (not verified) Sep 15, 2015 10:07 AM

ZH, here is the general theory of inflation. Do you know the answer to the critical question?

http://just-a-thought-from-thinair.blogspot.com/

http://just-a-thought-from-thinair.blogspot.com/2015/09/the-general-theo...

Chuck Knoblauch's picture

I think retail investors will wait for the institutions to make their moves.