JPM, Citi, UBS, and now one of the Wall Street strategists whose perspective we respect the most, BofA’s Michael Harnett, who quite clearly disagrees with the official BofA “straight to CNBC” mouthpiece Savita Subramanian, is out with a note in which he is telling reders to get out of stocks, go into cash expecting a short sharp pullbacks in risk assets (e.g. SPX to 1850-1900), and be long volatility.
From his report:
Investors should be long cash & volatility, and be prepared for a short sharp pullback in risk assets (e.g. SPX to 1850-1900), at least until one of the following conditions is met:
- PMI’s back over 50 in China & US
- 2-way risk emerges in CNY & oil inducing value buyers of HY & EM debt
- A spike in volatility and/or an asset price reset induces Fed to pause
Why the unexpectedly bearish stance? According to Hartnett, “cash is king” and defensives are to be bid because of the 3Ps: Positioning, Profits and Policy.
This is what he thinks:
3P’s say Cash is King
Ever since the end of QE3 in late-2014, leadership across asset markets has shifted sharply away from stocks & bonds, to the US dollar, volatility & cash. In 2015, cash outperformed both stocks (down 2%) & fixed income (down 3%), for the first time since 199