By Tim Seymour
Just like the old game show "Family Feud" offered participants a chance to shout out their view of popular perceptions, views, and opinions on American culture, there are regular polls of the investment community that afford market participants a similar platform. Consequently, investors should take the results of these polls with a grain of salt. In many cases, the results are either skewed by some recent events and don't reflect longer-term outlook, are very quick to change, or do not provide a clear trading angle. In all cases, they are backward-looking views that don't necessarily tell the story tomorrow.
Having said all that, BAML compiles a very insightful Fund Manager Survey that gives useful perspectives on where the investment community sits on a number of issues. In my view, while some trends have been obvious -- for example, investors love U.S. equities, are cautious on gold (IAU), don't like emerging markets equities (EEM) -- there are some perspectives that are worth restating clearly because I think they are not going to change anytime soon. In some cases, I think they are structural long-term investment shifts that, until broken, will grow stronger. Here we go:
- Quantitative Easing has brought "peace" to the financial world; this policy is unlikely to end anytime soon.
- China (FXI) is guilty until proven innocent: Global growth views are high, but China is not considered a driver. China optimism has collapsed (from net 60% to net 14%) as did commodity exposure (from net 1% to net 11% UW).
- Thank you, Cyprus. You have reminded investors that the EU is the No. 1 tail risk.
- Brazil (EWZ) has been death and will remain so until President Dilma worries less about populism and more about economic growth.
- Deflation is here until proven otherwise. Growth trades are in vogue -- U.S. equities, real estate, discretionary -- and commodities are going lower. The world is full of deflation, and the Fed and other central banks, try as they might, are in an environment where fiscal policy is still deflationary. As Big Ben said the other day in the Fed Q&A session: "Monetary policy is a blunt instrument." Fiscal policy is much more important, and right now countries around the world are still contracting their spending while growing their balance sheets. You need real rates to move higher before you can generate real returns and real rates of growth.