Thirteen years of financial excesses won’t be undone by a 6-month bear market: BofA chief investment strategist
Daily digest of research and analysis by Globe and Mail market strategist Scott Barlow
BofA Securities chief investment strategist Michael Hartnett remains one of Wall Street’s most bearish pundits. His weekly flow show the research report was generally succinct (emphasis mine),
“Putin/China catalysts will be less bearish in H2, but bull run needs CPI spike, yield spikes, Fed realized by 23… unlikely without a big recession and/or big event (what the disconnect between banks and yields has implied – Chart 2); sell SPX 4200… The Big Flow: ‘everyone bearish but no one sold’ …for every $100 of inflows since Jan. 21, only $2 outflows from tech, $3 from stocks ($12 from REITs, $22 from resources, $58 from financials, $93 from credit IG/HY/ ME); note the contrast with GFC… 3P: among the 3Ps, we say Positioning closest to green light for higher risk appetite/trade, but Profits and Policy does not yet give green light for new uptrend; and don’t think wall st is unwinding the financial excesses of the past 13 years with a 6 month garden variety bear market.”
“Hartnett: ‘everyone is bearish but no one has sold'” – (research excerpt) Twitter
BMO economist Priscilla Thiagamoorthy detailed the sharp slowdown in US industrial activity,
“U.S. factory output has remained a bright spot through much of the pandemic, despite a host of headwinds including supply issues, hiring challenges and soaring prices. But now there are signs that the outlook could be darkening. The Philly Fed Current Business Conditions Index fell 9 points to -12.3 in July, marking the second consecutive negative print. And, the outlook for six months from now fell to the lowest level since 1979. On an ISM-adjusted basis, the gauge fell 4.6 points to 48.7, entering the contraction zone for the first time since May 2020. There have been false signals in the past where the index fell below 50 only for manufacturing growth to go forward, notably in 2016. However, with demand weakening rapidly against the backdrop of the Fed’s aggressive tightening path, all signs suggest that a slowdown in manufacturing output is likely. “
“Philly Slump (BMO)” – (research excerpt) Twitter
In a separate BofA research report, analyst Helen Qiao described events in China where a major pillar of the country’s growth is threatened by widespread mortgage payment boycotts,
“Media reports of the ‘mortgage strike’ have raised new concerns about the turmoil in China’s property market. Homebuyers in 80 cities have threatened to suspend mortgage payments for at least 230 pre-sold but stalled real estate projects. The main cause of the problem was the lack of liquidity of the struggling private developers and the insufficient funds remaining in the pre-sale escrow accounts to cover the completion of the project…we believe that the Chinese authorities will have to intervene quickly to avoid a downward spiral of the real estate market. Otherwise, such large-scale mortgage suspension incidents could harm confidence and send shockwaves to the demand and supply side, exacerbating the current downturn in the real estate market that has lasted since 2H21…Given fiscal tensions and concerns about moral hazard, key decision makers are unlikely to do so. deploy all top-down “bazooka” measures to resolve the issue. The most likely political outcome is that local governments, local government financing vehicles (LGFVs), and state-owned enterprises (SOEs) step in to complete unfinished projects batch by batch. This solution, if implemented successfully, has the potential to support the housing market and gradually restore confidence.”
I know from website traffic statistics that Report on Business readers tend to ignore articles about China. This is important, however, because housing construction in China is a major driver of commodity prices.
“BofA on China’s Mortgage Strike Crisis” – (research excerpt) Twitter
Derivation: “Do these heat waves mean that climate change is happening faster than expected? – MIT Technology Review
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