Thursday, May 21, 2009
Macro Man's a bit tied up this morning, so it's another edition of quick hits:
* Orgy of optimism? The latest BofA/ML Global Fund Manager Survey showed the highest degree of optimism over the economy and profit growth since 2004. The survey also showed a massive re-allocation into EM equities, which has taken positioning there from underweight to euphorically overweight in a matter of three months. It seems quite clear that managers are hitching their wagon to China, and are looking for more of a "check mark" recovery than a V. From Macro Man's perch, these guys are looking at green shoots and mistaking it for a redwood forest. Regular readers will know that he harbours a suspicion that this will end badly.
* Speaking of ending badly, no sooner does Macro Man pooh-pooh the market's renascent dollar bearishness than EUR/USD breaks through its recent highs around 1.3740 and accelerates above 1.38. The move was belatedly helped, of course, by the Fed, which was sufficiently worried about the economic outlook that it contemplated bumping up the size of QE three weeks ago.
* Proof that everything has its limits: The UK is linked arm-in-arm with the US, strolling down the yellow brick road of huge deficits and central bank monetization. You can almost hear Merv, Ben, Alistair, and Timmy singing "lions and tigers and bears! Oh my!" Sadly, they forgot to look out for ratings agencies, as S&P has downgraded the UK's outlook to negative. This really shouldn't come as a total shock, but the timing (an hour before a Gilt auction, and just after sterling had broken through ressitance against both the $ and the €) was unfortunate, to say the least. Is the US next? Inquiring minds want to know....