Fear Is Coming Into The Markets! The Stock Market Is Broadly Expensive While Hedge Funds And Small Investors Pouring Into Stocks – Highest Level Since 2007. And Risk Appetite Index Suddenly Taking A Dramatic Hit
Hedge Funds Haven’t Owned This Much Of The Stock Market Since Right Before The Crash In 2008
Two interesting stats on hedge fund exposure to the market via BofA Merrill Lynch analysts Stephen Suttmeier, Jue Xiong, and MacNeil Curry:
- In the first quarter of 2013, net exposure (the difference between long and short positions in stocks) rose to match the previous peak (made in the second quarter of 2007).
- The percentage of the stock market (specifically, the Russell 2000 float) owned by hedge funds is now the highest since the second quarter of 2008.
In their Hedge Fund Quarterly Report, the BAML analysts write:
Based on the quarterly 13F filings and estimated short positions of the equity holdings of 895 funds, we estimate that hedge funds reduced cash holdings to the 2Q07 trough of 4.3%, while raising net exposure to the 2Q07 peak of 59% in 1Q13. Meanwhile, dollar notional net exposure rose by 11% to $463bn notional in 1Q13 – setting a new record. The bullish positioning indicates that risk appetite is back to the peak set in 2007.
Highest level since September 2007.
We’re finally starting to see the small investor chase equity returns. And they’re just in time for it all after a 150% rally. According to the most recent AAII investor allocation survey individual investors allocated their portfolios towards the highest equity weighting since September 2007. Meanwhile, bond allocations are close to the post-crisis lows and well off the 2009 highs when fear peaked
The Stock Market Is Broadly Expensive According To This Uncommon Measure
A ratio you don’t see every day.
Dramatic decline in Risk Appetite took place of late!
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The Risk Appetite Index took a rather swift decline in the past couple of weeks, declining to the 18% level. Opinions in the stock, bond, currency and metals markets impacts this index. (Sentiment Trader)
The decline of less than 5% in stocks drove the VIX up nearly 50% in a two week window, another reflection of fear coming into the markets.
Sequestration – It’s Just Beginning
Evidence of the sequester remains elusive. The warning signs that we track closely – initial jobless claims, Richmond Fed, personal income and payrolls – do not show any material deterioration that we can attribute to the sequester. One mystery is why personal income of government workers has not contracted, as fewer hours worked should equal less pay. The answer, BofAML notes, is simple – it’s just beginning…
Close to a million federal employees have been told that they will be furloughed for several days this year, but the number that has actually started to take furlough days is quite low.
Price of Lunch with Warren Buffett Crashes
Are people getting sick of Buffett’s crony capitalist spiel?
Chinese Export Fall and Strong Yuan: Bad Times Ahead
Looks like the sun has gone behind the clouds in China for a bit! Not only are the solar panels creating friction between China and the EU, but now it turns out that last month saw Chinese export growth unexpectedly decrease. Imports into China were also in for a decrease as the dropped last month (by 0.3%) to a record low and you’d have to go back to the start of 2012 to get better figures. Although, some might argue that what with the faked trade-surplus figures revealed last month, it’s hardly surprising that figures actually fell last month.
Beijing released figures today that showed that there was a rise of 1% in overseas sales compared with May 2012 (General Administration of Customs). April had shown an increase of a staggering 14.7%. The figures for May are well below any analysts’ forecasts and it’s perhaps revealing that China is trying to get its house in order in the wake of criticism that they had faked their trade surplus. There is always a silver lining in a cloud some might say. The figure for May seems a little more realistic (and easier to swallow for the rest of the world’s economies). For once, we are seeing a true figure regarding Chinese exports. That picture shows the outlook as being pretty depressed. One man’s meat is another man’s poison? I think we can all take a strong Chinese export figure, but only if it is realistic and a true representation. Otherwise, we can lie too, can’t we? Can’t we just!
Unemployment Benefits Cut – Part of Deflation
This is how Deflation operates. The budget cuts are impacting the unemployment benefits which have been cut to the states and how they pass that on will vary. Nevertheless, when the economy turns down after 2015.75 (~Oct 1st 2015) and unemployment continues to rise thanks to cutting mainly state and local government jobs, we begin to create the same trend as we see in Europe. It just takes about a 4 year lag economically as well as in fashion. This is based on official numbers that are doctored. Nevertheless, it is the official number that we are watching that will rise in any event as projected back in 2009.
– – Martin Armstrong
Federal budget cuts are taking a big bite out of the unemployment checks for the long-term jobless.
Precisely how those cuts are being carried out varies by state. Most are enacting an across-the-board reduction for all federal unemployment insurance recipients, but some are ending the program early or slashing benefits only for new enrollees.
And in some states, recipients should brace for an upcoming shock. The places that took the longest to implement the cuts will need to compensate by slicing off a bigger chunk of recipients’ remaining checks.