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Markets are down a hair today, but the theme of the morning is clear: Uber-bullishness. Everywhere.This is the most unanimously bullish moment we can recall since the crisis began.
Note that this comes as U.S. indices are all within a hair of multi-year highs, and the NASDAQ returns to levels not seen since late 2000.
Big macro hedge funds that have been famously flat-footed this year, are now positioned for a continued rally
BofA’s Mary Ann Bartels explains how they’re going long on the riskiest stuff:
Macros bought the NASDAQ 100 to a net long for the first time since June, continued to buy the S&P 500 and commodities, increased EM & EAFE exposures, sold USD and 10-year Treasuries. In addition, macros reduced large cap preference.
BTIG’s Dan Greenhaus wrote last night:
Being Right or Making Money is the title of Ned Davis’ book and the sentiment is as appropriate as ever now. Investors are arguing whether the Fed should or can do anything for unemployment, whether hyper inflation lay just around the corner or whether Ben Bernanke even “understands markets.” In reality, we believe all that matters is whether assets are likely to appreciate or depreciate in the immediate future as a result of the Fed’s actions. We believe “appreciate” is the correct answer.
JPM’s Jan Loeys explained that this rally could go on another 3-6 months:
On the back of weak gains in consumer and business spending at mid-year, global IP growth has come to a stand-still. And while things appear to have bottomed with some signals of improvement in consumer spending in July, the soft trajectory of both spending and production through June is expected to hold global GDP growth to another tepid quarter of just 2%. More important to us as positive drivers of risk markets are coming policy stimulus measures, price momentum, and the continuing but more medium-term forces of asset reflation and high risk premia.
In Nomura’s latest monthly Equity Strategy note, they write:
With the ECB pressing onward with direct monetization, and with our proprietary short-term global sentiment barometers now looking less stretched than 2-3 weeks ago, the need for a tactical equity consolidation that we flagged in our August 21 Quick Note is looking fairly satisfied – and we have turned our sights upward again.
In addition to the ECB‟s increasingly earnest backstop against euro-area „tail risks‟, critical to our cyclical-, reflation- and risk-positive core medium- term view is the expectation that demand-recovery drivers in the two largest global economies – the US and China – will be growing more visible in coming weeks. In the US, a housing market and construction recovery hold the most promise, while in China the lagged effect of June- July monetary loosening and a burst of fiscal spending hold the key.
Yet part of what has helped sustain markets‟ improved risk appetite since July has been more vocal reassurances from major central banks that they stand ready to initiate additional balance sheet expansion (read money- printing) to ward off deflationary dangers.
We’re all for erring on the side of inflation rather than its far more pernicious deflationary opposite, but QE is a medicine whose dosage must be carefully calibrated lest side-effects harm the patient in unexpected ways.
Steven Englander of Citi went to Germany and found a huge surge in optimism among investors there:
Meeting German investors before the ECB meeting, I was struck how optimistic they were with respect to the euro, even when they had been quite negative a few months ago. The game changer for them was the support of PM Merkel and FM Schaueble for the ECB program, and Draghi’s assertiveness, which had isolated the Bundesbank. They were similarly optimistic that the Constitutional Court would basically ok German ESM participation although possibly with some conditions.
Meanwhile sentiment in the Eurozone has risen for the first time since March.
Euro zone investor sentiment improved this month for the first time since March thanks to the European Central Bank’s plans to rescue the common currency, Sentix research group said on Monday.
Sentix said its monthly index tracking investor sentiment in the 17-nation currency bloc climbed to -23.2 in September, up from -30.3 in August, and well above a Reuters consensus forecast for a dip to -30.7.
And in more real-world sentiment indicators, Greek luxury real estate brokers say their phones are ringing off the hook.
In a short note titled “Drunken Kung-Fu,” SocGen’s Sebastien Galy has the best line to round it all up:
The market decided rose tinted glasses were not enough, put on its dark shades and hit the nightlife.
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