Overall, the pile of “dry powder” parked in money market funds remains elevated, but a subset of fund managers polled by BofA are underweight cash for the first time in more than seven years.
That’s one of several notable observations from the December vintage of the bank’s closely-watch Global Fund Manager survey, out Tuesday.
The negative read on the net percentage reporting an Overweight cash position is “indicative of an early-stage recovery similar to recoveries after the GFC and the dot-com bubble,” the bank’s Michael Hartnett wrote, in the color accompanying the survey.
Concurrently, cash levels in the December survey dropped to 4%, which triggered the bank’s “FMS Cash Rule sell signal,” which, when backtested, shows a one-month SPX return of -3.2%.
This comes as the parallels and comparisons between now and various historical instances of euphoria pile up. Valuations are often likened to the dot-com bubble, while the general “feel” of things (“Feel the market!”, as Donald Trump might say) is akin to January 2018, when an epic melt-up following the Trump tax cuts presaged the implosion of the VIX ETP complex the following month.
While cash levels may be dropping among professional investors, the cash pile sitting idle in money market funds is still quite large, despite being depleted steadily since the worst days of the panic. Last week, $22.58 billion flowed back into government funds, ICI said. Netting a $1.41 billion outflow from prime funds left the total haul for money funds during the week ended December 9 at $22.9 billion.
The still elevated level of sideline cash is a tried-and-true rationale for those looking to justify further upside in risk assets.
Speaking of upside, the BofA survey showed optimism around equities and commodities (collectively “risk-on” assets) was the highest since February of 2011.
Is all this optimism warranted? Who knows. Nobody, that’s who.
It’s all just a casino, only thanks to the Fed, this one is rigged in favor of the gamblers. Of course, the same policies enrich the house too. Everybody’s a winner!
Well, I guess that depends on your definition of “everybody”…
