One Bear Is ‘So Tempted’ To Turn Contrarian Bull. Alas…
It's "so tempting to be a contrarian bull," BofA's Michael Hartnett said.
After all, bonds have crashed. And I mean really (really) crashed. According to an index from Global Financial Data, which appends historical records to more conventional series, world government bonds are on track for their fourth-worst year since 1700. And US equities, while not necessarily a "bargain," are trading near 15x on a forward multiple.
"Everyone is bearish," Hartnett wrote, in the latest installment of his p
Bank of America says hard landing- I would propose that there is going to be a hard landing in certain sectors but not others. No crystal ball here at RIA but you can bet the typical cyclical sectors are going to take a further hit within the next 6 months. I am thinking banking and finance, real estate, tech (yes tech is cyclical), energy and consumer durables(including autos). These will probably be the sectors a rotational player reinvests in when you think the economy is going to turn (except perhaps for energy which is late cycle usually).
I’m an equity bull when 1) estimates are hit hard, 2) CPI is clearly easing, 3) FF is in sight of >4%, 4) SP500 < 3400. That may not mark exact bottom but I think will be close enough. Until then I’m picking at individual names that are very undervalued (there are lots) and adding to energy overweight. I’m expecting to be a bond bull before I’m an equity bull. That said, I think a 4Q rally is quite possible.
I’m actually qute excited about bonds. At some point, that is getting closer and closer, it will be possible to “lock in” 4% to 6% yields at zero to tolerable credit risk and quite low duration risk. That will meet a lot of portfolio needs.
Many IG muni opportunities at 5%+. In my bracket those are roughly 7% pretax equivalent. Most of what I’m buying are insured, have sinking funds or both, as well as ten year call protection. At 78, all I need.
Equity bull scenario talked about this week is 1) very big financial system breakage, 2) not fixable short of abandoning tightening. Not sure that is really bullish, unless consder 1970s a bull market. At best an unhealthy, mishapen bull – don’t expect a comfortable or long ride.
Supporting the bond bear thesis is that, while the sell off in bonds is historically huge, it started from historically high levels. Relative to historical valuations, current bond prices aren’t an outlier by any metric. Historical.
My most contrarian bullish potential activity at present involves reducing my short hedges on S&P 500 and Russell and redeploying into another tranche of long term treasury funds to add to my underweight position…that’s about it at this juncture…