Loading ...The Top Three Contrarian Trades From Bank of America
3. The contrarian policy trade: LONG SILVER, long US banks, short US$, short EU bonds & credit…
- if Fed cuts 50bps + July payroll >300k…Fed dovish policy mistake which will provoke either disorderly rise in government bond yields (1994 analog) or melt-up in stocks; and…
- if Fed cuts + July payroll -150k…signals onset of recession & policy impotence… sparks disorderly rise in corporate bond spreads & decline in US dollar.
A more grandular look reveals frothy inflows to virtually every asset class, including government bond, IG, HY, and EM debt funds, all coinciding with…
- renewed global monetary ease (18 rate cuts past 6-mths & 720 cuts since Lehman);
- record $12.9tn of bonds in developed markets with negative yield (25% of total);
- record 26% of Euro IG corporate bonds with negative yield;
- record 56% share of global equity market cap from tech-heavy US stock market;
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extreme relative valuation of “growth” stocks versus “value” stocks, e.g. US growth & EAFE value have price-to-book ratios of 7.7x & 1.1x, and dividend yields of 0.9% & 4.8% respectively.