Credit Suisse: We Have Never Had So Many Traders Saying "We Are Totally Lost"

Tyler Durden's picture

In his latest Global Equity Strategy update piece, Credit Suisse strategist Andrew Garthwaite takes a random walk across Wall Street's trading desks, and confirms what many know: namely, that nobody actually knows anything.

Garthwaite writes that "his team has come across almost no one who seems to have outperformed or made decent returns this year." He cites data from Morningstar according to which in the year to July 1st, just 29 out of 242 funds in the Investment Association UK All Companies sector beat the performance of the FTSE All Share. Moreover, the Dow Jones Credit Suisse Long/Short equity index, which tracks hedge fund performance, fell by 5% year-to-date.

As a result, the reaction by active managers to outperform the broader market, or even their benchmark, in a time of surging redemptions, has led to what may be best described as performance paralysis, or better yet panic:

"we have never had so many client meetings starting with statements such as 'we are totally lost'."

What makes things worse, is that even as central banks push stocks to record highs and beyond, the "fundamental analyst" in every investor is screaming that prices are just too damn high. As Credit Suisse puts it, "clients are close to being as bearish on equities as we can remember. Clients do not find equity valuations attractive enough to compensate for the macro, political, earnings and business model risks."

And yet, the Fed keeps forcing every investor starved for yield, into risky assets, which are now trading at multiples exorbitant that even Goldman has repeatedly warned, most recently this weekend, will lead to a very unfortunate outcome.

Why are traders so gloomy?

"Clients do not find equity valuations attractive enough to compensate for the macro, political, earnings and business model risks." They also see "structural disinflation, China and a US economy that is late cycle causing US yields to fall further." Specifically, clients cite worries about the lack of rebalancing in China and ongoing weakness of the RMB; they are concerned about the lack of policy weapons if there is a shock to growth (into a recession, real rates have fallen by c.5%, on average) requiring, of course, fiscal QE.

In what is emerging rapidly as the biggest stumbling block to investor optimism everywhere, clients cite abnormally high political risk reflecting itself in increased protectionism, a desire to reduce immigration, and a boost to minimum wages to rebalance the economic rewards towards labor and away from corporates;

Finally, clients cite significant business model risk as a major risk factor. "Some clients thought that the single biggest risk was disruptive technology shortening asset lives, creating price visibility, lowering barriers to entry and driving down demand (via the sharing economy). In addition, corporates are facing a growing competitive threat from China exporting its excess capacity on the wrong cost of capital (SOEs have an RoE of 3% but account for 55% of investment, against just 22% of GDP)."

In retrospect one can see why with so many concerns, over and above merely underperformance worries, most investors "are totally lost."

* * *

More details from the report breaking down how investors view various asset classes.


In general, CS found that their clients were as bearish on equities as they could remember with clients concerned that equity valuations were not attractive enough to compensate for the macro, political, earnings and business model risks.  We think that clients are too pessimistic. The ERP is marginally cheap (on our model) while bonds, credit and real estate look abnormally expensive. Liquidity and positioning are also supportive of equities.

  • US corporate earnings appear to have peaked, with labour increasingly gaining bargaining power (relative to nominal GDP of just 3.3%);
  • Equities are not cheap in absolute terms. The trailing P/E ratio of the S&P 500 is c.28% above its 50-year average, while the Shiller P/E is about 33% above its 50 year average;
  • Some mixed readings on US growth (with a number of clients citing the Fed's change in labour market conditions index having fallen to its most negative since 2009, although admittedly in the last month it has turned up);
  • The lack of rebalancing in China and ongoing weakness of the RMB (which is down c.2.6% YTD versus the USD);
  • The lack of policy weapons left if there is a shock to growth (into a recession, real rates have fallen by c.5%, on average) requiring, of course, fiscal QE;
  • Abnormally high political risk reflecting itself in increased protectionism, a desire to reduce immigration, and a boost to minimum wages to rebalance the economic rewards towards labour and away from corporates;




Clients are warming up to emerging markets. This is a region we have been overweight since December. The key driver is high real bond yields in local currency terms, while currencies (ex the RMB) are still very cheap.  We would highlight indirect plays such as SGS, Vodafone, Endesa.

Global Currencies


Bonds: 'lower for longer' is becoming 'lower for ever''

Clients see 'lower for longer' now being 'lower forever'. Net speculative positions on Treasury futures are now close to a 3 year high. Clients see structural disinflation, China and a US economy that is late cycle causing US yields to fall further. We see signs of a rebound in lead indicators, core inflation stabilising (with signs of US wage growth accelerating) and, above all, a move away from NIRP to looser fiscal policy placing upward pressure on yields. Consumer staples are now 2 standard deviations expensive.

US Bonds

Equities and Rising Yields

In Europe, CS clients are capitulating. "Many US clients believed Brexit meant the end of the euro (with Italian constitutional referendum being the next key event).  Outflows are close to record highs, valuations are back to Greek crisis lows on P/E relatives yet earnings and economic momentum are showing signs of relative stability. Focus on European domestic demand plays."

Euro Outflows


Oil: upside risk. CS clients see a risk of a spike in the oil price to $60-70pb despite the 3 year forward being $56pb. The Swoss bank however, sees oil as capped closer to $50. For now, however, the real pain has reemerged, and it is not higher.

Oil Speculation

Japan – close to record foreign selling. This is despite valuations (relative to the US) being back to pre-Abe levels and clear corporate change (with buybacks up very strongly). Credit Suisse contends that policy has to become more stimulative. We will get the answer tonight.

Japan Equities

Japan Equity Valuation


* * *

Finally, and curiously, Credit Suisse said that China is "largely off the radar screen." It adds that this is unwise when housing lead indicators have peaked and state investment growth is already at a 6 year high.  We agree, and since China has merely papered over its problems stemming from record debt levels with even more debt, it is only a matter of time, before China returns to its rightful place, front and center of the "radar screen."

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Last of the Middle Class's picture

The other side of the coin is the the government only lets select anointed ones know which direction the market is going tomorrow. Circle of friends boys, circle of friends.

Stainless Steel Rat's picture
Stainless Steel Rat (not verified) Last of the Middle Class Jul 28, 2016 11:52 AM

Up 45% this year. :->

nathan1234's picture

The Bummer's circle of friends with enlarged A holes. Guess a small price to pay.

Yen Cross's picture

  Because central banks are manipulating almost every bond and asset class, and destorting price discovery and risk.

TradingIsLifeBrah's picture
TradingIsLifeBrah (not verified) Yen Cross Jul 28, 2016 11:08 AM

Citi just told us there is no risk...

pods's picture

haha fuckers.

"Welcome to the desert of the real."


More Ammo's picture

And how real that desert is....

SubjectivObject's picture

Rhetorical question: If there's crashes, who wins?

Maybe the who of has been winning lately can give a hint of who will win in a cathartic/terminal transfer of wealth.

rosiescenario's picture

You can layer on top of your points that the market even in "normal" periods is very bad at really identifying risk....Taleb has addressed it very accurately....Collecting nickels in front of a steam roller"

The Ram's picture

No shit.  You are lost because you think there is a 'market'.  Oh, silly me.

P Rankmug's picture

It's pretty simple.  Global central banks act in concert to manipulate the price of interest lower.  The market front runs the manipulation.  This will continue to work until it doesn't.  Then everything falls apart.  The eventual denouement wil be unprecedented.

Vlad the Inhaler's picture

That's half of it.   The second half is that since there is no market, all you have to do is BTFD and make free money. 

BurningFuld's picture

Would appear that the FED bet the Farm and lost.

RawPawg's picture

you can't fight Skynet/Algo's

wait till ya see what's up their's gonna be a Doozy

More Ammo's picture

You can't fight the matrix either...

oddjob's picture

This is funny cuz I had the best 6 months in 9 years.

oddjob's picture

Biggest names by weight are Red Eagle, RoxGold, GoldRock and Terrax. If you hate PM's look at little Co. called Memex.

bluskyes's picture

Shop floor connectivity based in Burlington, On?

oddjob's picture


I suppose I framed that the wrong way, Memex has nothing to do with PM's, it just one of the few non PM equities I would own.

Memex has a partnership with Cisco and Mazak, Insiders own over 50% of the O/S, and the average IRR for a MERLIN install is 300%.


liquid150's picture

The writer of this article is an idiot. Traders are not doing poorly. Investors are.

rosiescenario's picture

Me too...DB puts kicked into high gear and my silver miners all were up 70% +.

Jtrillian's picture

Sounds like capitulation to me.

Between latency arb HFT's and central banks propping up the market, it's no surprise that technicals/fundamentals no longer matter.  It all comes down to who knows what at the central banks or how fast your connection is to the exchanges. 

With the launch of IEX, HFT may rapidly become a thing of the past (until they can find another exploit).  But central banks will keep on pumping the money press's until the train runs off the tracks. 


shushup's picture

One cannot expect people to be able to trade with or against against governments with trillions to spend as well as computer programs. Its impossible. But eventually the algos will turn on the complacency of the commercial big money guys. The algos go after the low hanging fruit and even they will beat the governments too. Finally there will be one lat algo standing that will have all of money. Then and only then will washington law dogs realize their error and outlaw algo trading.


liquid150's picture

Spoken like a true idiot who doesn't understand algo trading.

just the tip's picture

i think the tylers used the word "lost" because they didn't want to use the word "fucked", which is what they really said, in the title of a posting.

Claire Voyant's picture

With $180+BILLION of market assets being purchased every month by National Banks, Thomas Jefferson summed it all up in 1802:

"I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered."

redacted's picture

Yep, nothing much has changed since then except the scope.

Swamp Yankee's picture

One by one the 2x4 of reality is comming for their foreheads and it still won't be enought.   -SY

Spungo's picture

Traders are idiots. Here's spungo's foolproof way to make trading profits:
- buy something you actually want to own
- sell it if the price rises to an irrational level 

My biggest trading gains are on things that pay good dividends. Something paying 8% dividends has real intrinsic value. The price of it goes up because it's actually worth owning. If the price rises until the dividend is only 5%, that means it went up 60%. Not bad. Even when it's up 60%, it's still worth owning. 5% is still a great dividend in this modern era of ZIRP.

pebblewriter's picture

In a world of negative interest rates, I'd keep a close eye on anything paying an 8% dividend.  Chances are that dividend payment isn't all that secure.

Spungo's picture

I've looked into them and they are rock solid. One is the royalty holder for a national chain of restaurants, one is the royalty holder for a more regional chain of restaurants, 3 are real estate investment trusts, one is an electrical utility. Their free cash flow is more than enough to pay the dividends.

I woke up's picture

Just a few more months until the plug gets pulled...

mrdenis's picture

I'm going ALL IN ..............................the toilet bowl  

inosent's picture

Well, I have had a good year at least. +33%. But if I had to manage a big fund, like $500MMs to a few BBs, that would be impossible. I dont envy these fund manager/trader guys. And if they cant make money when the market just goes straight up, God help them when it begins to sell.

wisehiney's picture

It is like taking candy from a retarded baby.

Profits into silver and gold and Trump wine.

Grandad Grumps's picture

As I have said, they are moving up the food chain from the middle class public to those who used to believe they are elite insiders and now are finding that they were just usefull idiots.

Satan does not share power.

buzzsaw99's picture

They didn't btfd? Just BTFD assholes.

This isn't that complex... [/Principal, Napoleon Dynamite]

shamus001's picture

To EXTEND this paper ponzi game without inflation or hyperinflation:

"helicopter money" funds into households in redeemable amounts equal to home mortgage balances.  In this, homeowners will pay off the largess of  their debt, and free up discretional spending. (which will re-boom their borrowing capabilities, at lower terms & higher interest rates for smaller loans) 

Not only this, but no one becomes homeless, all homes get paid off, spurring new home loans/sales and freeing up more spending.

There's a reason countries of old had debt jubilees in place.  Everything needs refreshing once in a while. (like my laptop, due to memory loss) LOL

snakehead's picture

Fed is now 100% market driven.

Market is almost 100% Fed driven.

Fed: drive the market higher.

Market: WTF?


More Ammo's picture

Otherwise known as a circle jerk...

headfake's picture

Hasnt anyone told them to BTFD

Kprime's picture

my poker has improved a lot this past year

cpnscarlet's picture

Traders may be lost, but gold is always where you find it.


Gold has nothing to say, but tells no lies.


Gold has no yield, and that will never be negative.


Gold's value is not a function of another's promise.


You can not eat gold, and a 100 shrare of Lehman will not buy one crumb.


Call Gold. 5000 years of history can't be wrong.

NoWayJose's picture

Traders can trade based on experience and fundamentals. But those are obsolete in a world where the only thing that matters is whether a rumor of QE becomes fact.

The Prescient Minority's picture

Pssst. Understanding world capital flows on a daily, weekly and quarterly basis will up your game. But it's not easy. Especially understanding the reasons why capital is flowing the way it does. Money always chases yield.

trippy64's picture

Apperantly Clients do not find equity valuations attractive enough to compensate for the macro, political, earnings and business model risks