BAML Survey Addresses "Trojan Lehman"

As professional fund managers are holding the highest level of cash since the 2008 Lehman bankruptcy, a Bank of America Merrill Lynch survey points to a “Trojan Lehman,” indicating the high cash levels could be a contrarian buy signal and the current economic situation is “a complete contrast to 2008.”

BAML: Gold has reached “under-valuation” as Fed moves down risk concern list

As the bank’s Risk & Liquidity indicator falls to three years lows, gold has reached its first “under-valuation” reading since August of 2009 and investors having shifted out of commodities and into bank stocks.

BAML 7 20 macro

In the firm’s Global Fund Manager Survey, the bank’s report indicates the eurozone currently carries the most significant tail risk. The declaration comes as French President Francois Hollande essentially said the problem is not the eurozone itself but that there is not enough of it. He proposed that the 19 countries in the eurozone form their own government and, much like the U.S., have a budget and parliament – a much tighter relationship than currently exists under a monetary union.

Is China a problem? Both Greece and China may have reached the point of capitulation, the report noted, as investors maintained long exposure to banks, discretionary, technology, Japan and the Eurozone amid a six month low in commodities and emerging markets. The survey showed investors overweight small cap relative to large cap to the tune of the 9th highest level since 2006.

BAML 7 20 risks

BAML: China defaulting on debt gains as a concern while Eurozone breakdown tops list

The previously mentioned banks, discretionary, Japan and Eurozone trades are all among the most over-owned while energy, emerging markets, materials, commodities and staples remain the most under-owned segments.

In regards to biggest tail risk, while Eurozone breakdown leads by a long shot in July, overtaking June’s primary concern of a geopolitical crisis, China defaulting on its debt has also pulled up in second place while concerns the U.S. Federal Reserve falling “behind the curve” dips. Equity bubbles remain at the low end of concerns.  This comes as expectations for a Fed rate hike, according to the survey, shift from the third quarter of 2015 to the fourth quarter.

Concerns regarding various issues have led to an upsurge in hedging, as the highest net percentage of investors have taken out “protection” against an equity price drop in the next three months than has taken place since February of 2008, which preceded the last market crash.

BAML 7 20 currency


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