Why The Biggest Investors Are Praying For A Market Crash

Tyler Durden: One thing stands out in the latest Fund Managers Survey released this morning from BofA’s Michael Harnett: as he puts it, despite record high corporate bond and stock prices, respondents are the most bearish they have been in 4 years, and are sitting on a “mountain of cash.”

To wit: “June FMS big bear signals: cash level of 5.7% (up from 5.5%) = highest since Nov’01; BofAML Risk & Liquidity Index at four-year low; lowest global equity allocation vs. cash/bonds/commodities since Jul’12; most crowded FMS June trade = “long quality”.

Why this paradox? Because according to Harnett, what money managers want, and are holding out for, is a market crash, or as Harnett calls it, “Wanted: policy panic” which would unleash more QE and perhaps, the long-awaited helicopter money.

However, for them to get this long-awaited next installment of printed (or paradropped) money, they need a market crash first.

That may be difficult based on positioning, which has seen a broad revulsion toward equities.

As the following chart shows, “relative positioning of Equities vs Everything Else (bonds/cash/commodity/real estate) drops to four-year lows (net 1ppt OW).”

And another interesting observation: “The BofAML Risk & Liquidity Index has fallen to 32 from 34 last month. This is the lowest reading in four years. Current risk appetite is 1.6 stdev below average.”