Market Thoughts : Bear Crimes And Bull Guilt
6 years on and it has become an unofficial crime to be bearish.
Conversations will freeze in the company of friends and suspicious gazes whenever your view was asked and you said you were bearish. Sometimes I even sense that my non market friends think I am holding out on them when I say things will head south which, of course, I have been more often wrong than right about and would have earned myself another accusatory glare when we met again.
Golden tips taken from the BofAML investment strategy report (not for retail clients).
1. Global Breadth Rule: MSCI AC World gained 11% in the three months after 96% of equity markets were trading below their 50 & 200-day moving averages. The recent market rally has moved us further away from a “buy” signal; watch the price action of European markets, as the majority are barely trading above their 50-dma.
Verdict : Contrarian BUY
2. Bull & Bear Index: S&P 500 gained 9.2% from the B&B trough on July 3rd to peak on November 5th. The B&B Index is currently at 4.2; look for it to break through 2.0 before adding significant exposure to risk assets.
Verdict : Contrarian BUY
3. EM Flow Trading Rule: Two days after EM equities troughed on June 24th, our EM flow trading rule gave a soft “buy” signal. EM equities gained 11% over the subsequent three months. $7-8bn EM equity inflows this week would trigger another “buy” signal.
Verdict : Contrarian BUY
4. Global Flow Trading Rule: Last week equity markets bottomed as we experienced the largest outflows ($28bn) from global equities in the history of our data (in absolute terms).
Verdict : Neutral
5. Global FMS Cash Rule: In 2013, Fund Manager Survey cash levels first breached the 4.5% “buy” threshold in July. Global Equities were up 10% from the beginning of August through the end of the year. Watch the Feb’14 FMS
next Tuesday (2/18) for contrarian trade ideas.
Verdict : Still BUY
The mass verdict is CONTRARIAN BUY. Why is it contrarian to buy ?
Because everyone is a guilty bull ?
Only the private banks are coming up with glowing reports on markets. Delectable recommendations as I wasted a dollar on the rare purchase of the Weekend Business Times papers. Under Wealth Matters, New Perspective On Emerging Markets, an academic study of correlations concluded that emerging markets are too important to ignore and they are in better shape and less risky today. Thus, a necessary buy.
I bet none of the Business Times readers have come across the recent article from the NY Times about how Academics Who Defend Wall Street Reap Reward, notwithstanding that the article gave the example of commodities research.
The only folks who manage to empathise with me are my fellow trading compatriots and financial market friends who manage to read a little more than the standard business times.
For things are not as rosy as they seem and the public is starting to perk up to the term shadow banking these days and everyone knows about the taper, even if they do not know how it will impact their lives and gladly assuming that market problems are best left to the bankers.
If anything, the pessimism is sprouting from the bankers and market folk who are highly skeptical of the employment situation and page 14 of the Weekend Business Times tells us why. There are not enough high quality jobs created, even in Singapore. Younger friends lament the lack of opportunities in the financial sector for front office people who do not want to be private banking RMs or client advisors.
Back to markets and some stuff you probably are not aware of for the week. (source : Citibank)
1. It is the third consecutive week of significant outflows in local currency EM funds.
2. Significant because if the rate of outflows persist, Feb 2014 may be the largest historical monthly outflow on record.
3. For the 6 weeks of 2014, the quantum of outflow has exceeded the total for 2013 and erased inflows dating back to 2012.
4. The switch has been into global high yield bonds.
5. The sellers are mainly institutions and buying led by retail investors. We know that institutions do not typically change their minds overnight.
The long standing market joke is to sell when the moms and pops start buying or when the last bear capitulates, like Rosenberg just did. http://www.bloomberg.com/news/2014-02-14/rosenberg-sees-inflation-after-calling-housing-bust-in-recession.html
I do not think its a debt story anymore. Rather it is the ability to find those US dollars to cover current account gaps for Turkey, India, Indonesia and gang. And we have Venezuela rioting over the weekend. http://edition.cnn.com/2014/02/14/world/americas/venezuela-protests/index.html
For developed markets, demand is still lackadaisical with the economies buoyed by supply side constraints such as a shrinking labour force in the US.
As long as structural problems are not addressed, there is little to cheer for except for the short term windfalls from market bounces. http://www.project-syndicate.org/commentary/sri-mulyani-indrawati-considers-the-reforms-that-emerging-economies-must-undertake-to-succeed-in-the-post-qe-era
Yet, I know more than a few people who are itching to find something to buy with no shortfall of money and comfortable with 2 or 3 mortgages. There is an anxiety, almost, and the fear of losing out because every bearish rebellion has been quashed in the past years.
That is surely comforting for us to know and keep those bearish instincts under wraps. To become a covert bear wearing the mask of a guilty bull next week.