Recap 2014-10-14: BAML FMS Takeaways


The most recent survey was taken from October 3rd to the 9th, i.e. while the S&P was between 1967 to 1929.

Average Cash balances increased, but not by a lot. Cash balances were actually higher a couple months ago:

Growth expectations have fallen to 18 month lows:

Equities allocations have fallen to the lowest level in 2 years.

But exposure to Japanese equities are worryingly high:

And the buy Europe risk trade is broadly over:

It appears that the move out of Equities has mostly gone to Fixed Income, rather than cash. Bond allocation is at the highest level in 7 months, and at the high end of the range that has prevailed since mid 2013, after the ‘Taper Tantrum:’

Long USD has jumped to become perceived to be the most crowded trade

The data points to the hypothesis that global investors are switching from equities to fixed income on the back of falling, but still positive growth expectations. It is ironic that many survey participants had worried about valuations in equity space over the past few months, but are now buying 10y US treasuries at 2.2%, the lowest level since last June, and 30y US treasuries at below 3%, the lowest level since last May. In aggregate, given that equities are sporting an earnings yield of 5.8%, the move does not appear to be driven by valuation concerns unless people are actually expecting earnings growth to be negative. (which may be positive but is not at all evident in the data)

One major headwind for equities is that the High Yield market has not been able to bounce. Though it is now near 2013 lows, we may well need to see long term buyers step into the market here. However, oil prices are still falling, which is impacting the energy names in the HY index. Given that the weight of the index is ~13% and the fall is ~5%, after adjusting for recovery value it is arguable that current oil prices are already discounted in the price. But with oil still on the move, obviously that comparison is in flux.

A couple of centrist FOMC members also made dovish noises. Vice Chair Fischer noted that “If foreign growth is weaker than anticipated, the consequences for the U.S. economy could lead the Fed to remove accommodation more slowly than otherwise.” Williams said that QE may be needed if economy falters.

In any case, I saw several reports over the long weekend noting that breadth is now at levels that have historically been coincident with lows. The always good Quantifiable Edges has a proprietary breadth term that has hit levels that have historically lead to bounces over the next 4 weeks. @ukarlewitz noted that the percent of S&P 500 members above their 200 day moving average fell to 41% on Friday, a level that marked lows in the last bull market. And though it did not mark the outright lows in 2010 and 2011, the first print at or below 41% marked the beginning of the consolidation period.

Here’s another way to look at it.


  • German ZEW declined to -3.6 vs 0 exp and 6.9 prev. This is the lowest print since 2012
  • US NFIB Survey declined to 95.3 vs 95.8 exp and 96.1 prev
  • Kuwait joined Saudi Arabia and said they will not immediately reduce oil production to offset tumbling prices, a signal OPEC is unlikely to move forward with Venezuelan calls for an emergency meeting. The IEA thinks crude will need to fall below $80 to limit US shale production. h/t Jordan
  • Bloomberg noted that foreign sales last year accounted for 46.3 percent of revenues for S&P 500 companies, although US exports represent just 13.5% of GDP.
  • China Trade Balance declined to 30.1Bn in Sept vs 41Bn, exp, although base effect adjustments meant that both exports and imports rose 15.3% and 7.0% respectively, both stronger than expected.
  • France CPI declined to 0.4% YoY as exp vs 0.5% prev
  • UK CPI dropped to 1.2% vs 1.4% exp and 1.5% prev. The Core measure was the driver, falling to 1.5% vs 1.8% exp and 1.9% prev. The core figure was the lowest since April 2009
  • Australia Business Confidence declined to 5 vs 8 prev
  • New Zealand House Sales improved to -12% YoY vs -16.3% YoY
  • Ireland will announce a plan to phase out the “double Irish” tax structure today. All Irish registered firms will over time automatically be deemed to be a tax resident, bringing the law inline with US and British rules. h/t Jordan


  • Wed: Draghi Speaks, UK Employment, US Retail Sales, PPI, New Zealand PMI, Consumer Confidence, RBA FX Transactions
  • Thu: EU CPI, US Jobless Claims, US Philly Fed, NAHB Survey
  • Fri: Triple Witching, Yellen Speaks, Canada CPI, US Housing Starts, U Michigan Confidence
  • Mon: German PPI, RBA Minutes, China Retail Sales, IP
  • Tue: US Existing home Sales, Japan Trade Balance, Australia CPI