‘I’m so bearish that I’m bullish?’
Investors cut equity allocations to lowest level since Lehman collapse
There is certainly no shortage of reasons for investors to feel gloomy at the moment: no end in sight to the war in Ukraine, high energy prices, soaring inflation, rising interest rates, lingering Covid . . .
The growing risk that all of this will drag leading economies into recession has spoked large institutional investors, writes Chris Flood in London. As a group, they have chopped their allocations to equities to the lowest level since the collapse of Lehman Brothers in September 2008, according to Bank of America’s widely followed monthly fund manager survey.
Pessimism has reached a “dire level,” says Michael Hartnett, BofA’s chief investment strategist. One indication of this: the survey, of 259 investment managers with combined assets of $722bn, found cash holdings last month had reached a 21-year high. And almost four in five of those polled expected corporate profits to deteriorate than at any point during the coronavirus pandemic or when Lehman collapsed.
Contrarians may see all the gloom and pessimism as a “buy” signal. But the “I’m so bearish that I’m bullish” argument doesn’t wash with Hartnett. He cautions that any bounce for stocks or bonds is unlikely to turn into a sustained rally until it is clear that the Federal Reserve has decided that it has tightened monetary policy sufficiently to control inflation.
Meanwhile Albert Edwards, global strategist at Société Générale, is true to his customarily bearish stance. He thinks that central banks’ role in fuelling rising prices and their misjudgement about the severity of the current increase in inflationary pressures could prevent them from stepping in again to provide support if financial markets continue to weaken. He asks:
“Has the arrogance and hubris of western central bankers now been curtailed? And if so, what will that mean for the future?”
It’s a big question and one that will haunt investors following a prolonged period of central bank largesse. This is unlikely to be repeated while inflation remains a problem in the eyes of policymakers.
Do you think it’s time to buy equities? Email me: harriet.agnew@ft.com
Why young investors aren’t ready to give up on risk
With $1,000 in savings and two US government stimulus checks, Chris Zettler began investing in 2020. First he bought companies he knew, he says, “but then I got bored with it”. He moved on to call options in companies with volatile share prices, riding the price swings, writes Madison Derbyshire in New York. He used a win to buy 100 shares in the meme stock AMC at $30 in May and sold at about $65 in June.
The 35-year-old finance major at the University of Alabama, Birmingham, had a TD Ameritrade account that allowed him to trade on margin and place nearly $8,000 in bets with his original $4,000 of capital. He turned that into $18,000.
Zettler saw his account balance rise to $50,000 before falling to $35,000 when a bet went sideways. He sold $20,000 of shares and paid his college tuition fees: “I got lucky as heck,” Zettler says.
Yet the risk was worth it, he adds. The possibility of making outsized returns outweighed the risk of loss: “If I did it again, would I have done it the responsible way and just sat on that $4,000? Shoot, no . . . You don’t have anything to lose so you might as well shoot your shot.”
Zettler is part of a generation of investors who came of age around the 2008 financial crisis and in its aftermath. Having struggled to accumulate wealth through traditional means over the past decade, many have turned to speculating in the riskier corners of financial markets.
Experts say the growing appetite for speculative assets such as cryptocurrencies, NFTs and “meme stocks” (whose value skyrocketed in early 2021, driven by retail traders and social media hype) is about more than just getting rich quick.
Stagnant wages, rock bottom interest rates, soaring house prices — and now, corrosive inflation — have cut away at the idea that the under-40s can follow the well-trodden path to financial security that their parents took. Younger investors report feeling like the game is rigged and that playing by the old rules is a losing strategy.
Read the full story here on how even amid a meltdown in crypto markets, there are few signs that “generation moonshot” is planning to retreat from the game.