With Fund Managers Most Bearish On Global Economy Since Lehman – Some Quick Thoughts

Earlier Tuesday, we brought you some highlights from the latest edition of BofAML’s global fund manager survey, which this month shows that the “most crowded” trade on the planet is no longer “Long FAANG+BAT”.

Following the epic unwind in consensus Tech/Growth/Momentum longs in October and the dubious November followup that saw Apple plunge the most in a decade, the long FANG trade was knocked from its perch by “Long USD” which is still very crowded, despite the prospect of a Fed pivot and expectations for decelerating economic growth in the U.S.

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FAANG Dethroned As ‘Most Crowded Trade’, While ‘Trade War’ Remains Top Tail Risk: BofAML

But that wasn’t the only highlight from the survey. As you may or may not have heard by now, fund managers are now the most bearish on the global economic outlook since October 2008 or, more to the point, since the immediate aftermath of Lehman. Here’s the chart:

(BofAML)

That’s definitely notable, but it would be even more notable were it not for the fact that the chart looked almost exactly the same last month:

(BofAML)

The point is, it’s true that fund managers are even more bearish on the global economy now than they were last month (-53% vs -44%), but the headline “most bearish since the crisis) applied to November too. What’s really notable here is that this month’s survey was conducted from December 7 through December 13, which means the fledgling trade truce did exactly nothing to improve sentiment around the global economy. And indeed, why should it? After all, the data between last month’s survey and this month’s edition has generally disappointed, especially the data that’s emanated from Beijing.

We don’t have a ton to add here, but humor us for a couple of quick points.

First of all, this souring sentiment is doubtlessly contributing to the “sell the rip” mentality which usurped “buy the dip” in 2018, an epochal coup, brought to you in no small part by the regime shift from QE/easy money/carry —-> QT/tightening financial conditions/late-cycle. With that in mind, have a look at the following chart which shows G3 central bank balance sheets plotted with the global PMI:

(Bloomberg)

Now, here’s the MSCI World with G3 central bank balance sheets and the rate of change for the latter in the bottom pane:

(Bloomberg)

When you think about all of that in the context of the BofAML survey which also shows that “trade war” held onto the top slot on everyone’s “top tail risk” list for a seventh consecutive month, the message is clear. QT is conspiring with trade tensions to exacerbate fears about the future of global growth.

Again, none of those observations are exactly Fields Medal-worthy, but all of this bears repeating if only to explain why it is that everyone is suddenly so pessimistic about things.