‘This Screams Fed Tightening & Late Cycle’

BofAML has a message for you and that message is this:

It’s the Fed stupid.

If you’re following along, you know that this has been a tough year for bonds, cash is back (TINA is dead) and lots of “people” (including Goldman, Jeff Gundlach, and Jeff Gundlach’s joker costume) are pretty sure late-cycle dynamics are going to translate into more gains for commodities going forward.

If you’re BofAML’s Michael Hartnett, this isn’t complicated.

“2018 returns scream Fed tightening & late cycle,” he writes in his latest piece, before delivering the following lay of the land:

• commodities 12%
• US dollar 2%
• stocks 2%
• cash 1%
• bonds -2%

He continues by noting what’s outlined at length in the linked posts above. “Annualized commodities [are] on course for [their] best year since 2002,” he writes, adding that losses on 10-year USTs are the worst since 1931 (at -12.6%) while the decline in AAA IG (-11%) is the worst on record.

Other highlights include the following on credit inflows likely having peaked:

Inflows to credit complex peaking. $300 billion in 2017 versus flat past 4 months as Argentina, Turkey, Italy, Tesla tremors sparked by 3% yields.

He also flags a record weekly redemption from Italy-only funds (around 6% of AUM, by BofAML’s calculations):

And perhaps the only chart you really need:

It’s a not-so-brave new world.