Last week, when looking at the latest fund flow data, we noted an unexpected finding: as BofA itself said, “clients don’t believe the rally, continue to sell US stocks” and added that the “smart money” has now sold stocks in the face of this bear market rally for a near record seven consecutive weeks.”
We also explained who were the offsetting buyers: the answer, as BofA explained, was that as smart money sold for a near-record 7 consecutive weeks “buybacks by corporate clients accelerated last week to their highest level since August, and are tracking above levels we saw this time last year, though below levels we observed in 2014.”
As it turns out it was not just Bank of America clients.
In an article this morning in which Bloomberg seeks to explain the substantial rebound in stocks following Jamie Dimon’s very fortuitous purchase of JPM stock just one month before the JPM board (of which Jamie is a member) authorized a $1.9 billion stock buyback…
…. it writes that “for all the positive signals being sent by stocks, buyers aren’t storming back. In fact, going by one measure of U.S. outflows, investors just yanked more money from American equities that any time since September. Enthusiasm remains bridled as a logjam of investor concerns, from China growth to ineffective central-bank policy and weakening profits, shows no signs of dissipating.”
“The question everyone should be asking is what has really changed in the last three months?” said John Canally, chief economic strategist at LPL Financial in Boston, which oversees about $460 billion. “Global concerns, while slightly less, are still there.”
Well, of course they are, but to central banks all that matters is price action – the only thing left that they can manipulate – and the hope that upward price action can offset the lack of faith in the economy (and central banks) resulting from downward price action. This also explains why over the past month, we have seen every single major central bank unleash the most unprecedented easing wave, one which even forced the Fed to lose its last shred of credibility in its attempt to push stocks higher.
Here Bloomberg piggybacks on what we already reported last week, namely the BofA client flows and the collapsing earnings:
Investors of virtually all types have sold more stock than they’ve purchased, according to Bank of America Corp. In the week ended March 11, the bank’s hedge fund, institutional and private clients sold $3.7 billion, the most since September and the seventh consecutive week of withdrawals, the company said in a note last week. Net sales by institutions were the second-biggest since the bank began recording the data.
The other issue is earnings. As economists lowered projections for this year’s global growth to 3 percent from 3.6 percent in August, analysts cut profit estimates. They now expect a 2.9 percent increase in net income for U.S. companies in 2016, down from 7.1 percent in December, and profit declines in Europe. Worldwide, there have never been as many earnings downgrades versus upgrades as there are now, according to the annual averages of a Citigroup Inc. index tracking the changes.
This has led to an unsustainable surge in P/E multiples: “supported by a price-earnings ratio that touched 13.7 in February, the lowest since 2014, the MSCI gauge has climbed more than 10 percent in a month, on Friday capping its first five-week rally in two years. Gains exceeding 16 percent have lifted what had been the market’s most beaten-down industries: commodity companies, banks and energy producers.” Absent a major jump in commodity prices to sustain a matched rebound in earnings, the rebound is guaranteed an unhappy ending.
It gets worse if one looks at GAAP earnings: as we first reported and as Factset subsequently confirmed, GAAP PE is now above 22x – somewhere in the 99.5% percentile of highest earning multiples in history. Basically, the market has never been more expensive as both Goldman and JPM admitted recently.
All of this may be lost on algos, but for some of the last few carbon-based traders, alarm bells are going off:
Last week, Shankar Char, a senior vice president at Antique Stock Broking Ltd. in Mumbai, stood on his office chair to tell everyone that his prediction for a 9 percent turnaround in the NSE Nifty 50 Index had just come true. But while he enjoyed squawking over a prescient call, Char wasn’t sounding an all-clear for global markets.
“Large parts of the developed world continue to suffer anemic growth despite aggressive monetary stimulus,” he said. “Where’s the big incremental demand for commodities going to come from? Oil and metals are witnessing a technical rebound. This reality will sink in sooner than later and could be the point where this risk-on trade begins to come unstuck.”
The punchline, however, which most succinctly summarizes everything we have said, comes from Michael Woischneck, an equities fund manager who oversees the equivalent of $166 million at Lampe Asset Management in Dusseldorf, Germany. This is what he said: “I’m not buying anything; I’m sitting on my hands and waiting,” said “I would definitely sell this rally because it’s totally central-bank driven and has nothing or very little to do with fundamentals.“
Which is ironic because one can say precisely the same thing about the entire so-called bear market since 2008 which has been unleashed only thanks to $14 trillion in DM central bank liquidity (and government debt) and over $20 trillion in Chinese new debt. The result: an all time high in global stock markets, and of course, in global debt. What happens next nobody knows, which is also why nobody actually has any faith in this latest contrived, centrally-planned bounce in stocks.
Запись Bloomberg Explains Why “Nobody Believes This Rally” впервые появилась crude-oil.top.