The only reason to be bearish is there’s no reason to be bearish, Bank of America says

  • The bank’s Global Fund Manager Survey, one of the longest-running polls of Wall Street investors, found that a majority of investors agree an economic recovery is at play.
  • A record percentage of money managers also believes that global growth is at an all-time high.
  • However, Bank of America noted that this high level of optimism should raise eyebrows among contrarians looking for signs of a turning point in the market.

Investors are so optimistic about the market that they are dumping cash to take part in the latest run to record levels, a widely watched Bank of America survey showed.

The bank’s Global Fund Manager Survey, one of the longest-running polls of Wall Street investors, found that a majority of investors agrees that an economic recovery is at play. A record percentage of money managers also believes that global growth is at an all-time high.

However, Bank of America noted that this high level of optimism should raise eyebrows among contrarians looking for signs of a turning point in the market.

“The only reason to be bearish is … there is no reason to be bearish,” Bank of America Chief Investment Strategist Michael Hartnett wrote in a note to clients.

Bank of America surveyed 225 mutual fund, hedge fund and pension fund managers with $645 billion under management. The bank has been conducting the survey since 1998.

Here are some of the key findings:

  • More than 90% of investors believe the economy will be stronger in 2021 than last year, with a consensus that a V-shape recovery is taking place. For the first time since January 2020, chief investment officers want to increase capital spending rather than improve balance sheets.
  • Fund managers’ allocation to cash is down to 3.8%, the lowest since March 2013, just before the “taper tantrum” era under former Federal Reserve Chairman Ben Bernanke. Allocations to stocks and commodities are the highest since February 2011.
  • The survey shows managers’ preference for cyclical stocks, high exposure to commodities, emerging markets, industrials and banks is at a high level relative to the past 10 years.
  • Investors say risks include the coronavirus vaccine rollout, inflation, crowded trades in tech, long bitcoin trades and shorting the dollar trades.
  • Only 13% of respondents said stocks are in a bubble.

Stocks are hovering around all-time highs as investors bet on a successful rollout of the Covid-19 vaccine, the economy reopening and lawmakers passing more fiscal stimulus.

The Cboe Volatility Index, widely viewed as Wall Street’s best fear gauge, closed below 20 on Friday, marking the first significant breach of the threshold since the pandemic-induced sell-off began in February 2020.The dip below 20 is viewed by some on Wall Street as a big “risk-on” signal.

By Maggie Fitzgerald at CNBC

Photo Source: Carlo Allegri | Reuters

 

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‘This is not inflation’: Economist says expectations are unanchored from reality

  • Market expectations for U.S. inflation rates have reached their highest levels in a decade, driven by prospects of a large fiscal package, progress on vaccine rollouts and pent-up consumer demand.
  • The yield on the benchmark U.S. 10-year Treasury note climbed above 1.3% for the first time since February 2020, while the 30-year bond also hit its highest level for a year.

Inflation expectations are detaching themselves from reality, meaning markets might be overplaying the rise in U.S. Treasury yields, according to Carl Weinberg, chief economist at High Frequency Economics.

Global markets have been rattled in the last 24 hours after the yield on the benchmark U.S. 10-year Treasury note climbed above 1.3% for the first time since February 2020, while the 30-year bond also hit its highest level for a year. Yields move inversely to bond prices.

Yields tend to rise with inflation expectations as bond investors start to believe central banks will take their foot off the gas and reduce their asset purchases. Higher yields can also mean more debt servicing for major firms, which tends to knock stock markets as traders reassess the environment for investing.

Market expectations for U.S. inflation rates have reached their highest levels in a decade, driven by increased prospects of a large fiscal package, progress on vaccine rollouts and pent-up consumer demand.

However, Weinberg suggested that the anticipated rise in inflation expectations was something of a red herring when faced with the economic realities.

“That is what I think is the big concern right now, the unanchoring of inflation expectations. An important element in inflation are wages and people getting higher wages during a time of still very high unemployment and still a lot of slack in the economy,” he told CNBC’s “Squawk Box Europe” on Wednesday.

“That would be a sign that an inflation process has begun, but we see no indication of that whatsoever. What we see is the perception of inflation being fueled by energy prices.”

Weinberg contended that members of the public experiencing higher fuel prices at the pump might begin to behave as though inflation is occurring, and noted a sharp rise in the price of Brent crude since November as a catalyst for this.

“We are going to see maybe as much as 2.75 percentage points added to headline increases in CPI (consumer price index inflation), headline inflation rates in the eyes of people. But increases in CPI are not inflation and this is not inflation,” he said, projecting that the base effect of rising energy costs and the increase in inflation expectations will “work out of the numbers” by year-end.

“We are getting back to normal from a depressed base, we are not in a realm anywhere close to where true inflation is in sight.”

The inflation increase ‘will not persist’

Weinberg’s skepticism was echoed by Mark Haefele, chief investment officer at UBS Global Wealth Management, who said in a note Wednesday that while a near-term rise in inflation is likely, there is no sign of the sustained upward price pressure that would force the U.S. Federal Reserve to withdraw its stimulus prematurely.

“Last year’s U.S. fiscal packages countered a collapse in private sector activity in an effort to bring the economy back to its pre-Covid-19 level. The new package will add stimulus to an economy still below potential, and the spending will be spread out over a couple of years,” Haefele said.

He suggested that much of the short-term inflation pressure is a result of unusual disparities in supply and demand brought about by the pandemic, which should evaporate as economic activity normalizes.

“Excess capacity in the economy is also likely to rein in the ability of companies to pass higher input prices through to consumers,” Haefele said.

“The fact that near-term market inflation expectations are higher than longer-term expectations is consistent with the view that the increase in inflation will not persist.”

By Elliot Smith at CNBC

Photo Source: The New York Stock Exchange

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Elon Musk says bitcoin seems high after surpassing $1 trillion market value

  • Tesla CEO Elon Musk said Saturday that bitcoin prices “seem high” after the cryptocurrency surged to another record high this week.
  • The price of bitcoin, the world’s most popular cryptocurrency, crossed a major milestone Friday after the market value reached more than $1 trillion, leaving some major backers surprised.
  • Bitcoin was trading at under $54,000 per coin Friday as it hit the new level, and rose above $55,000 later in the session, according to Coin Metrics.

Tesla CEO Elon Musk said Saturday that bitcoin prices “seem high” after the cryptocurrency surged to another record high this week.

The price of bitcoin, the world’s most popular cryptocurrency, crossed a major milestone Friday after the market value reached more than $1 trillion, leaving some major backers surprised. Ethereum, the second-largest cryptocurrency, also hit record highs.

“Money is just data that allows us to avoid the inconvenience of barter,” tweeted Musk, a major proponent of digital currencies. “That data, like all data, is subject to latency & error. The system will evolve to that which minimizes both.”

In a following post, Musk added, “that said, BTC & ETH do seem high lol,” in a response to a user who said gold was better than both bitcoin and cash.

Bitcoin was trading at under $54,000 per coin Friday as it hit the new level, and rose above $55,000 later in the session, according to Coin Metrics. The cryptocurrency was trading above $57,000 on Saturday. The price of bitcoin has gained roughly 350% during the past six months.

Ethereum also hit a record $2,040.62 for a weekly gain of roughly 12%. It was trading at $1,996 on Saturday.

The bitcoin surge was driven partly by increased adoption by major investors and companies. Bank of New York Mellon said this month that it was moving into the space.

Tesla also converted some of its balance sheet cash into bitcoin earlier this year and said it would begin accepting the digital currency as payment, a move that triggered even more interest in the currency.

— CNBC’s Jesse Pound contributed reporting

by Emma Newburger at CNBS

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