News items of conflicting interest
Managers most negative on stocks in a decade, survey says – MarketWatch
UCLA economists stick to no recession forecast – SacBee.com
Today’s news readings are bringing up some interesting predictions and forecasts. I have linked to a couple of these articles above and I have a few comments.
First, the UCLA economists article. They repeated their forecast that, although the U.S. and California economies are slowing, they do see an actual recession. For California, they stated the slow down had not spread beyond the housing sector. The tone of the article really gave the impression of the UCLA economist starting to hedge their bets. The article ends with this quote from UCLA’s Edward Leamer, direcctor of the forecast:
“I am holding on to what is now a shaky view: no recession this year,” Leamer wrote.
The MarketWatch article gives us a chance to decide how contrarian we really are. The survey of fund managers from Merrill Lynch first had me asking: What kind of fund managers? So I dug up this from the ML website:
The Global Fund Manager Survey is a monthly report that canvasses the views of 300+ institutional, retail, and hedge fund managers around the world.
Now I at least have an idea of where these “fund” manager come from. Next I am very impressed on how much there beliefs can change in the period of a single month. Here are a few figures from the MarketWatch article:
61% of fund managers believe that the global economy will weaken over the next year, up from 39% taking this view in May.
36% now expect higher short-term interest rates. This view contrasts with May, when a net 4% of managers believed that short-term interest rates would fall.
42% of managers are now overweight cash, compared to a net 31% holding this view last month.
The point of the report is that these fund managers are the most bearish they have been in a decade. Going back to June 1998, the S&P 500 ended that month at 1134, dropped to about 940 in Sept. 1998 and was at 1464, end of June 2000. If it has been an exact 10 years, their bearishness may be justified, but it looks like we will bottom this summer this time and start upwards. I know, know, the past does not the future predict, but I thought the numbers were interesting.
Remember, at least in mutual funds, less than half the of the managers manage to beat the market, so are these 300 in the top half, bottom half or evenly spread? With the large changes in their beliefs quoted above, I tend to believe they have capitulated (late) to current market beliefs and the turn towards the plus side is near.
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