All in, apparently.
73% of investors who answered the “early-cycle” versus “recession” question in the latest edition of BofA’s Global Fund Manager survey said the global economy is in the early stages of an expansion. Just 9% said the world is in recession.
I suppose this goes without saying, but the numbers were quite different in the spring of 2020.
All vaccine optimism aside, that seems to represent something close to total buy-in when it comes to the notion that another synchronized global downturn due to, for example, new variants of COVID or logistical challenges related to inoculating everyone, is extremely unlikely.
And maybe that’s the correct view. Assuming no new mutation renders the vaccines ineffective, it’s hard to see how things don’t improve over the next 12 months.
Still, when you see charts like that (above), it’s hard not to point out the differences between now and the recovery from the financial crisis. Most obviously, the virus still has the upper-hand across virtually every major western economy. Science has prevailed in the lab and in trials, but total victory is months away, at best. In the meantime, many businesses still face the prospect of insolvency, as do workers in sectors hard-hit by containment protocols.
At the same time, there’s still nothing close to universal acceptance around the idea that the type of fiscal-monetary coordination seen in developed economies last spring is viable over the longer-run. That means the risk of a post-financial crisis redux where budget hawks succeed in, at the least, blunting the fiscal impulse, is high.
While monetary policy can perhaps keep financial asset prices afloat, it cannot shoulder the economic burden alone. If it’s asked to, the already yawning wealth gap will widen further as a result of central banks’ limited capacity to perform the functions of government.
In any case, the optimism is rampant throughout the January BofA survey. “A net 87% of FMS investors expect global profits to improve over the next 12 months, the best outlook on profits since February 2002,” the bank’s Michael Hartnett said, adding that a “record net 83% of investors expect [a] steeper yield curve.”
Cash levels dropped to 3.9% and FMS equity allocation hit the highest since the post-tax cut melt-up in January of 2018.
Hartnett’s broad takeaway is simple. “Investor sentiment [is] bullish, EPS/yields/inflation/EM readings are at record highs, cash is at an 8-year low, Bitcoin is the most crowded trade [and] the BofA Bull & Bear Indicator is at a bullish 7.1,” he wrote Tuesday. “Risk correction imminent.”
“Threat level midnight.”
Yeah, it’s looking like a real good time to take profit… a really really good time.
Lots of things different this time around but the part Hartnett is focused on is the part that will be the same….It is as always the waiting game and that can seem like forever…
Biden might be able to sign a SARS-Cov-2 stimulus bill, a large infrastructure bill, a social security reform bill and other bills that might enhance the economy. A market “crash” could occur tomorrow or in 8 years; one will appear someday but who knows when? To the thought “Yeah, it’s looking like a real good time to take profit… a really really good time” I can only say that it is good to take a profit and bad to take a loss (unless you need a loss for tax reasons). Take your profit now, walk away from the market and don’t look back (because you might see other investors making a bigger profit).
One of the biggest concerns to arise during the pandemic is a loan or mortgage. Business loans, car loans, rent and mortgage payments make up a large portion of a huge percentage of the population’s monetary obligations. If a person or business takes on a debt obligation and then through no fault of their own their life is put in limbo and their cash flow is taken away, there has to be a way to freeze the obligation. Specially when it effects a large portion of the population such as what happened with Covid-19. It would mean, for example, a young couple in the food industry get closed down. Their restaurant is forced to close. They don’t have deep pockets. They need the bank to freeze their debt. They need their landlord to freeze their rent for the business and their apartment. They need the rent on their vehicle frozen. They need their medical insurance kept up and not cancelled. They need supplemental cash to buy food. They need the utilities to keep them with heat and power. So, if the bank freezes their loan payments they need the government to guarantee that the bank remains solvent in the interim. The landlords may also need the banks to freeze a portion of their debt obligation. The medical insurance company will need some sort of guarantee from the government if they are to maintain people’s medical coverage. And on and on it goes. The car company needs help. The utilities need help, etc. All of this has to be worked out ahead of time so that when the next pandemic hits, the country and it’s citizens have a backup plan so that there is minimal disruption to the economy. Is this asking too much?
It is asking way, way too much. The chain of obligation is literally without end. You might as well look to arrange every grain of sand in the Sahara. And at the end of the day someone is going to be out of pocket. Who picks up the check?
The only possible way to address such a situation is to provide support at the start of the chain. Even then I suspect the complications and permutations would be near insurmountable.
The only way you could help is in a similar way to now. An imperfect approach that aims to address the broad issues, whilst accepting that many deserving cases will just be missed. The logistics of trying to give everyone what they ‘deserve’ is impossible, even if you could agree on who is ‘deserving’.
Agree with Bob. Other governments have already had central planning committees for everything. How’s that working out for them?
I tried to short he Russell last week and got stopped out. This thing just isn’t a sell until it is. Until the 5 MA crosses below the 10 MA. Or The 13 EMA below the 34 EMA. Whatever you use. Until then, it’s just wait and see. I’m still in, at only 5% cash. But, it’s time to watch market like a hawk.
I said this in a prior comment, months ago, but I’ll repeat it (succinctly).
A global pandemic that crashes the world’s economies is a once in a century event.
A global vaccine that rapidly ends a global pandemic – so goes the hope – is a first in history event.
Indicators that are calibrated to show “extremes” every one, five or ten years are naturally going to be at needle-breaking, glass-shattering, gauge-melting levels on a one a century event.
We all thought it made perfect sense when those indicators were blowing out the bottom on the way down.