The Merrill Lynch subsidiary of Bank of America has produced a monthly survey of portfolio manager positioning and sentiment for many years. My attitude when I was working was that I would like to see the results but I wasn’t too keen to yield any competitive advantage I might have by taking part. On the other hand, to a knowledgeable reader my portfolio spoke for itself.

According to a Reuters article, the latest of these, with data reportedly at most two weeks old, “screams capitulation,” as Merrill strategist Michael Harnett put it in the survey report. I’ve only seen reporting, not the survey itself, so I’ve got to be aware that I’m seeing data that has already been filtered. Still, a few things jump out to me:

–cash levels are the highest in over 20 years–lower than in the aftermath of the dotcom crash in 2000, but more than during the banking/world trade collapse of 2007-08. That’s really saying something, but whether about the world or manager risk preferences isn’t clear

–multi asset funds are overweight cash and underweight equities. For managers in general, equity industry positioning is defensive, with Utilities and Staples the largest overweights

–PMs think we haven’t reached the ultimate market bottom yet.

My thoughts:

–I read the report as saying there’s no percentage in becoming more bearish, since it seems everyone understands the world economy is currently in bad shape and, more importantly, has already (long ago, most likely) acted on this

–a corollary: there’s no percentage any longer in having an overweight in Utilities or Staples. A non sequitur–same for Oil, I think, mostly because the price is going sideways at a time, both seasonally and because of OPEC cutbacks, it should be rising. Base metals may be a better place to be, but this is a real specialist area. Is it worth the time?

–if the lows are 10% below where we are now, and they are followed by a 10% rally, then the index ends up being lower than we are now after both happen. If on the other hand, we’re 5% above the lows and the following rally is +15%, then there’s no sense is remaining in a bearish posture

My guess is the second is more likely than the first, but this is not something I’m going to bet the farm on

tomorrow: where I think we should be looking

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