Why The Biggest Investors Are Praying For A Market Crash

market correction bearTyler 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.”

Still, the fund managers may get the crash they want if what JPM’s “quant guru” Marko Kolanovic, warned about a month ago, transpires.

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