The regular global fund manager survey published by Merrill Lynch has found that the bullish consensus among fund managers is the highest ever recorded in the survey's entire history. This is tempered a bit by the fact that the survey is a mere ten years old, so let's call it a ten year high in the bullish consensus. Here are some of the phrases from the survey that jumped out at us: 'Raging Bulls' - 'Cash is Trash' - 'Equities and Commodities Rule' - 'Record Optimism on Tech' - you get the picture. The themes of Merrill's survey are reflected in other indicators we are watching as well. For instance, only for the fourth time in its entire history, the NAAIM fund manager survey had not a single manager reporting a net short position. The most bearish manager was positioned 'neutral' - note here that the range of positioning replies is from '200% short' to '200% long'. Not even a modest small short was left...
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The level of complacency in markets is also evident in the extremely low VIX reading (showing absolutely no fear of a market fall). This is reinforced by the put/call ratio which is at such a extreme level that traders see virtually no risk to the downside. It's also reflected with fund managers now holding the lowest percentage of cash since 2007. Various measures of trader, investor and advisor sentiment are now exceeding the bullish extremes of 2007 - yet markets are still substantially lower than the all-time highs of late 2007. It's like the GFC never happened!
Bond yields for Portugal blew out to record levels overnight. An emergency bailout for Portugal is imminent. But no one seemed to notice or even care because the herd has become so bullish. But whenever the trade becomes this one-sided, you want to position on the other side. As the market euphoria subsides, the focus will quickly return to European debt concerns and wake the herd from their complacency.
