BofA Is A "Seller Of Risk" As Everyone Is Long The Dollar, US Stocks Never More Overvalued

There is exactly 1 month until the Fed's December announcement at which at least practically every single economist (or 92% of them) are convinced the Fed will hike rates by 25 bps (keep in mind that over 90% of economists predicted in January that the Fed would hike by September at the latest).

What happens if they are right? Well, perhaps nothing - after all the entire Fed move and then some, is already priced in.

According to the latest Fund Manager Survey (FMS) by BofA, it may not be 92%, but at least 81% of active money managers expect the Fed to hike in December. ...up from 47% last month as growth expectations bounce (in China to 15-month highs) and perceptions of market liquidity rise from 3-year lows.

What that means is that everyone is also long the dollar, and that even the smallest disappointment by Yellen will result in an epic dump in the USD. Here is how BofA puts it:

The Big November FMS takeaway is that the most vulnerable tactical trade heading into Dec Fed hike is "long dollar", and associated positioning, i.e. long discretionary, Eurozone, banks, Japan, and short EM, resources, commodities.

Exhibit 2 shows that “long USD” is the most crowded trade by far (32%), followed by the related trades of “short commodity stocks” (15%) and “short EM equities” (15%)

It's not just the US Dollar. According to the FMS, the other biggest consensus trade right now is long US stocks vs the rest of the world. In fact, according to BofA, we now have the "largest ever US equity "overvaluation" versus RoW (Eurozone/UK/Japan/EM). Current differential is 96ppt."

And yet, there are those who are only paid if they allocate (other people's) cash into US stocks. So here is the latest breakdown of the most overowned and underowned sectors. If the Fed does indeed surprise the market, not only will it slam the USD, not only will it send US equities (vs all other markets) reeling, but within the US market, the consensus trades will be promptly unwound. Which means the Contrarian play is to go long EM, energy materials, commodities & utilities, while shorting discretionary, banks and real estate and the Eurozone.

Finally, here is how BofA' Michael Hartnett, easily one of the handful of people worth listening to at the bailed out bank, summarized it:

We are sellers of risk SPX 2050-2100, DXY>100. Terror/geopolitics can keep ZIRP for longer, but bullish FMS indicates big EPS needed for sustained new risk highs.

That, or just pray to Saint Janet that this time there will be no surprises.

Comments

[arbwhore]

The long-dollar trade has been crowded for a long time. Could get even more crowded.

[ghostzapper]

Agreed.

But am leaning towards siding with this guy indirectly or by extension in some other ways.  Some low volume pumps between now and the end of the week might be draw me in net short the financials.  TA for the scumnancials presenting some legit risk/reward to at least consider.  

[arbwhore]

We may get a reaction bounce if the narrow index hits 100. I could see lots of small specs bailing there and making room from an even bigger leg to 120.

[ghostzapper]

108/120 coming.  But those may indeed take multiple weeks if not months.  Lotta other potential trades in between. 

[HoserF16]

I heard Papa Bush Bailed-Out BoA with 13 Billion of his 5 Trillion Narcotics War Chest back in 2010. Weird...

[hobopants]

But what they really meant to say is keep calm and BTFD...

"Analysis and reality are the refuge of pussies, there is only BTFD"

-Yellen

"There is only one God, and BTFD is his messenger"

-High priest Yellen

[Rainman]

When 92% of anybodys goes one way, I go the other.....i.e. 92% of the gambling sheep picked the Bungles to win last night ...EZ money.

[yogibear]

Everyone expecting a nice stock Santa rally. 

[slaughterer]

Sell Santa.  Santa will suck this year.  

[inhibi]

Didnt you get the memo?

Santa Industries Inc. , due to an inventory glut and #elflivesmatter strike, liquidated 80% of its holdings to Yellen & Co.

The rest were restructured under Reindeer Industries, run by Rudolf, after he appeared on Atlantic with the title "The Next Steve Jobs?"

[Herdee]

Looks like terror will be used to delay any interest rate increase.There's always a way out.

[Arthur Schopenhauer]

Sly and the Family Stone - I Want to Take You Higher

[Fiat agnostic]

Remember the senior aide interviewed by Kyle Bass - 'We'll kill the dollar.'