The latest BofA Fund Managers Survey has left the report authors stumped: on one hand fund managers have the highest cash levels since Lehman at 5.5% (most since December 2008 and prior to that November 2001), which combined with a capitulation in risk appetite due to ongoing stress in Greece and China would suggest a screaming buy signal... but there is one problem: the same fund managers refuse to actually capitulate and sell, and as a result not only are bank longs at record highs, but equities remains solidly overowned but the group, offset by "protection" levels which are the highest since February 2008. In short, the current positioning is a "complete contrast to 2008."
Confusion indeed.
More details from BofA:
Lehman II: risk capitulation…
Cash levels soar to 5.5%, highest level since Dec'08, and prior to that Nov'01...
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and yet: ... highest level of “protection” since Feb’08.
- Highest net % of investors since Feb’08 have taken out “protection” against equity fall next 3 months
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The catalyst: Greece & China capitulation…
Eurozone breakdown = biggest “tail risk”; FMS 12-month EUR forecast = 1.04; China growth expectations 2nd lowest since Dec'08; FMS 12-month China GDP forecast = 6.5%; by 2018 <23% think China grows >6%...biggest July FMS allocation cuts in commodities, telco, Eurozone, energy.
So one would think that a broad rush from risk means selling of actual cash equities? One would be wrong because there is
… no macro capitulation
Fed rate hike expectations shift from Q3 to Q4 as growth expectations drop to 9- month lows (US GDP forecast = 2.4%); but profit & inflation expectations stable & investors stay stubbornly long stocks & cash, and short bonds.
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So what is going on here? It appears that "everyone" is concerned about Greek and Chinese risks as well as a global slowdown, "everyone" believes the Fed will hike in 2015 and thatt this may push risk lower, and yet "everyone" is "stubbornly long stocks and short bonds" still hoping that whatever hedges they have on will protect them.
In short: not only is everyone on the same side of the boat when it comes to underlying cash positioning, but this groupthink is doubled down as virtually everyone has all the same hedges. If nothing else, this explains why even on down days volume lately has been anemic (we know "up" volume barely exists): the smart money no longer sells at all but merely buy index puts.
