EDITOR NOTE: You know the saying that Wall Street is the largest casino in the world. Well, Wall Street just raised its bets to “all in” according to a recent Bank of America survey. Hardly any fund manager is holding cash. The stakes are at their most elevated levels as risk appetite spiked to a 20-year high. All of this, of course, spells BUBBLE, something we’ve been saying for quite some time. But as the cliche goes, “a market can remain irrational longer than you can remain solvent.” A warning to market short-sellers, there’s no need to take such a route when you can diversify into assets like non-CUSIP gold and silver that will rise when all else fails. Let’s get our bearings for a moment. We’re facing a parabolic market top, amid a pandemic, in the midst of a recession, with one of the worst unemployment levels historically seen in America, and the Fed is taking a pro-inflationary stance that may quickly spin out of control and usher in a hyperinflationary environment. The odds don’t look so favorable. Hedge your bets now or be willing to lose your entire stake.
About 20% of respondents in Bank of America’s latest global fund manager survey out Wednesday said they were taking higher than normal risk. Not only does that continue the upward march in risk appetite started in 2020 (despite the bruising COVID-19 pandemic), it represents a 20-year high (see chart below).
All in, the survey showed cash levels among fund managers at an eight-year low and a view that bitcoin is one of the most crowded trades in the market right now.
“Overall, the survey is a minor cause for worry,” said researchers at SunDial Capital Partners in a client note after the survey hit. “There are plentiful signs of speculation in stocks right now, the setup for a coming fall. We're just not yet seeing the kinds of internal deterioration within indexes or high-yield bonds, or a turn in risk appetite, that typically act as imminent warning signs.”
Such increased risky behavior by investors could be spotted throughout the markets.
The three major stock averages have been on fire in the past six months, led by a 24% gain in the Nasdaq Composite. The S&P 500 and Dow Jones Industrial Average are up 18% and 17%, respectively, during that stretch. Tesla shares are up 180% in six months, while Netflix (an already incredibly expensive stock valuation wise) exploded today after its latest earnings report.
Bitcoin prices have more than tripled in the last three months.
The fierce buying activity — fueled by hopes for further fiscal stimulus from the government and sustained low rates from the Federal Reserve — has some power players on Wall Street now growing concerned about bubbles and them popping soon.
“Bubbles can persist longer and take markets further than you can possible imagine. And so short-selling a bubble is very dangerous. The old cliche is that a market can remain irrational longer than you can remain solvent. I could speculate on possible causes of today’s bubbles bursting. But the simple fact is it will happen. Bubbles burst. And so the question is do you want to be picking up nickels in front of a steamroller, or do you want to invest?,” said Research Affiliates founder Rob Arnott on Yahoo Finance Live.
Originally posted on Yahoo! Finance