No Bulls on Bear Mountain
* FMS bottom line
Record high corporate bond and (US) stock prices…yet June FMS shows investors have a mountain of cash…negative summer “events” (e.g. BREXIT) could thus quickly become tradable buying opportunities.
* Bear mountain
June FMS big bear signals: cash level of 5.7% (up from 5.5%) = highest since Nov’01; BofAML Risk & Liquidity Index at four-year low; lowest global equity allocation vs. cash/bonds/commodities since Jul'12; most crowded FMS June trade = “long quality”.
* It ain’t the economy, stupid…
…FMS risk aversion consistent with recession yet global growth and profit expectations at six-month high, global inflation expectations at one-year high.
* BREXIT the biggest FMS “tail risk”…
…FMS shows large short in sterling and FTSE (Exhibit 1); contrarians note stubborn longs in Eurozone, banks, tech most vulnerable to “BREXIT”, while unloved UK assets, resources most upside to a “BREMAIN” vote.
* Wanted: policy panic
Potential combo of “summer of shocks” and “Quantitative Failure” = high cash; hopes for new radical policy stimulus low…record FMS reading for fiscal policy “too restrictive” and 62% say no “helicopter money” next 12 months.
* June FMS Contrarian Trades
Sustained risk upside unlikely without sustained EPS growth…but long GBP, long stocksshort cash, long US-short Eurozone, long discretionary-short healthcare, long resourcesshort REITs = trading opportunities should policy makers react to market volatility.