“March 20th was bond capitulation day [with a] record $34.6 billion in redemptions from bond funds”, BofA’s Michael Hartnett writes, in this week’s edition of the popular “Flow Show” series.
For the week, IG funds saw a record $61.2 billion in redemptions. It was an across-the-board exodus, with EM debt funds losing $17.1 billion and muni bonds nearly $11 billion. Even government bonds saw $3.7 billion of outflows (the first week of outflows in nine).
“Like gold, Treasuries were dragged into the liquidation vortex [as] only the US dollar was a faithful safe haven”, BofA writes.
Over the past two weeks, bond outflows were $218 billion, a figure the bank calls “stunning”.
The bond bubble, Hartnett declares, has “popped”. Over the past four weeks, bond funds have hemorrhaged $257 billion, unwinding 44% of the “bubble inflows” ($583 billion) seen over the past year.
(BofA)
Have a look at the left pane in that set of charts. Not to be derisive (and regular readers know I have the utmost respect for Ray), but it was just two months ago when Dalio reprised his infamous “cash is trash” call from January 2018. It proved just as ill-fated this time as it did two years ago – and then some.
Here are two additional visuals illustrating the same dynamic:
(Nomura)
As you might imagine, Hartnett’s famous “Bull & Bear Indicator” has now fallen to 0.0. “Investor positioning is maximum bearish”, he writes, on the way to providing some historical context.
“[The indicator] hit zero in July 2008, but the rally was aborted by the Lehman bankruptcy”, he says, adding that the “big difference in this crash” is that the “policy panic” came prior to, rather than after a catastrophic credit event.
(BofA)
“If the Fed bazooka short-circuits a systemic bankruptcy, the combo of max bearish positioning plus max policy stimulus = a big rally in credit and stock markets”, Hartnett says.
I made a similar point on Thursday, but, to be clear, there are a lot of very big “ifs” in this equation.
In Ray’s defense, “Cash is Trash” was the headline, but he said in the interview to sell stocks and buy Gold, which is up since Davos.
I have a bit of cash I’ll lend Mr. Dalio at 12%.
Nobody gets my cash until I see valuations in equities reflect reality, everything is highly overvalued, but then again that may be old fashioned thinking. Is it different this time?
Thinking equities are overvalued assumes the US dollar is not. I guess we’ll find out.
doesn’t help their valuation much if their earnings are in dollars