ANALYST: I Just Traveled Around The World, And Almost Every Investor Has The Same Bullish Thinking
So what are real investors thinking?
Nomura's interest rate strategist George Goncalves has a great weekend note out in which he relays some observations from professional money managers, after he and his colleagues did a big global tour to kick off 2013.
Uniformly, he found that the view was this: The Fed had its hand on the till, and there was almost no way for risk assets to go down in light of the Fed stimulus. Virtually everyone was bullish. Even the bond managers aren't worried about a great-rotation inspired selloff (they're not really that worried about a shift from bonds to equities) though it is in the back of their minds.
From his note:
Great Rotation or a Great Consternation?
Many of the bond fund manager (ex-hedge funds) that we spoke with were not convinced that a ?Great Rotation? was in the making and agreed with our view that there is enough cash on the sidelines to lift all asset classes on the margin so long as the Fed keeps QE alive. One account said, ?If the Fed is benefiting stocks, why would that be at the expense of bonds when they are using bonds to ease.? He went on to say, ?If the slightly less dovish FOMC minutes released in early January were enough to spook bond investors, if the Fed ever hinted that easing is going to stop, watch out below stocks.? The more I listened to their concerns and questions from a wide cross section of investors, the more I felt there is a great consternation about what keeps inflows coming into all types of investments funds.
At the end of the day it‘s all about AUM and the pie is only theoretically bigger because the Fed is retiring bonds, even if they don‘t stop perhaps there has been much ado about this great rotation and instead cash will be carefully deployed given how many markets are stretched in valuations (Stocks, TIPS, FX, etc.).
Looming Risks, Forget About It!
I travelled with Nomura‘s Jens Nordvig, Head of Americas FI Research and Global FX, Rob Subbaraman, Head of AeJ Research and Asia Economist, Lewis Alexander, Chief US Economist and Naka Matsuzawa, Chief Investment JGB Strategist – so net there was plenty of risk warning expressed by my peers on this trip. The reaction? Forget about it. As mentioned above, most investors are enamoured by easing in 2013 (pointing to the strong 5% up month on S&P as just a start, not the end, of the risk rally). In all fairness, that is not all completely true; we did find 2-3 major accounts that were worried about some of the near-term and medium-term risks that we outlined during the trip (see below), but most thought we were too cute or that markets will see through all risks due to QE.
So yeah, there may be some reasons to worry here and there (Italy, the sequester, etc.). But basically, everyone's pretty chill.