In today's video I Want to break down exactly what the big money is doing with its capital right now in this environment where we still have highly elevated inflation the FED coming out today and saying that despite some promising developments, we still have a long way to go and the economy set to fall off the literal cliff in 2023.. Well, you may be asking, how are institutional players handling this? what are they doing to prepare to make money or at least to protect their capital in today's video? I'm going to walk you through what one of the biggest firms Bank of America is doing, and honestly, I think that if you look across the industry, you're seeing a lot of similar trades being placed, so if you watch this video in its entirety, you're going to be much, much more informed on Market sentiment right now and what people are doing behind the scenes and it might set you up to get a little extra Alpha on the market. And if you appreciate all the work that goes into a video like this, make sure to hit that ravishing like button and also subscribe. Let's go ahead and start.

So Analyst Michael Hartnett and his team of strategists at B of A wrote a note to their clients on on what they were doing in 2023, and I use Seeking Alpha and Bloomberg and Wall Street Journal and a number of other sources across social media to compile a summary here. Number one: they are longing the 30-year U.S Treasury current yields on that are at about 3.8 percent. And why would Bank of America want to be longing it? Well, they expect the FED to cut rates in late 2023, and that means if they lock in higher rates now and in early 2023, those bonds are going to appreciate in value massively and they can offload them on the secondary. Market.

Remember, the demand for high yielding bonds is going to go up dramatically once the FED is no longer offering them at these rates. So if you think that the FED is going to cut in the end of 2023, which Bank of America seems to be thinking, and the rest of the market really seems to be thinking if you watch the other video we made the other day, Well, that means that loading up on the bonds now while rates are high and then offloading them when rates start going down is going to be a great great play. Although on the flip side, this could also go very, very wrong if the FED terminal rate does go substantially higher than the current expected terminal rate at around five percent. The inverse of this could also be true.

The bonds bot now could actually lose a ton of value if future bonds are paying higher yields, right? But of course, markets are expecting it's going to be the opposite. which is why Bank of America is saying hey, we're going to go ahead and we're going to load up now on these high yields and then offload them later at a premium. They're also buying yield curve steepeners. They set the U.S yield curve always steepens as a recession begins and markets anticipate fed.

flipping from hikes to Cuts. If you look at the current yield curve, it's down in the dumps and deeply inverted. If you're playing off at steepening, you're expecting a rebound. What does this actually mean as a position? Well, it means you are long short dated bonds and short long-dated bonds.

When does a steepening yield curve happen? Well, it happens when investors expect better market conditions to Prevail over the long term as compared to the short term, which widens the difference between short-term and long-term yields. And this is what their betting is going to happen in the foreseeable future. Number three, and this is actually the most powerful way that Bank of America is getting ready for 2023. and that is by getting their up to 15 free stocks with MooMoo using our link down below.

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Now back to the content next currency trade Shorting the US dollars. So the US dollar has had insane performance this year as people rush to exchange other currencies for greenbacks as are sent. Bank has tightened. However, Bank of America is positioning themselves for a reversal of this as they are expecting the FED to get closer and closer to cutting rates.

So they are going to short the US dollar along the Korean Won and long the Mexican peso. They are also going to be longing unspecified Emerging Market assets. Why the Korean Won Well, this is a play on China reopening and the trade relationship between South Korea and China reinvigorating, which means more demand for the South Korean Won which that relationship largely takes place in. and then for the Mexican peso.

Bank of America is expecting huge Global demand for tacos and burritos in 2023, which is going to cause everyone to pour out of the USD and into the peso. If you want to buy a taco in an economic apocalypse, the only Safe Haven asset is really a peso. Jokes Aside Their argument for the Mexican peso is based on this concept of near Shoring near Shoring is when companies go and relocate their manufacturing or other Workforce to nearby countries that are cheaper. A lot of companies during Covid brought their workers close to home because of all the logistical concerns and different trade restrictions.

Now they're back to looking for new ways to save money and so Bank of America is betting they'll relocate to Mexico and that will cause a boom for the Mexican peso. Next, they are also longing Chinese stocks. This is another play on the China reopening whenever that happens. The idea is that the coveted reopening in the U.S was very very bullish for U.S stocks because it came on the backs of huge pent-up demand and of course massively beat down stocks.

Two things that we are seeing in China right now in China they never fully got a reopening because of coveted zero policies and so the argument is that all the pent-op demand combined with what they say is a lot of excess savings. Well, that combined with How Deeply discounted Chinese stocks are and they are pretty deeply discounted. Well, that's creating an environment where they could be due to Rally pretty massively once China fully reopens. Next Six Longing Gold and Copper.

Why are they doing this well? Because they are again expecting the USD to Peak and capital flowing out of that and dollars losing value will inversely cause precious metals to go up in value. Gold is all also an inflation hedge that can be very, very useful if we're in an environment the next 10 years where inflation is highly elevated. Then you have copper, which is also a play on the China reopening and all the global manufacturing demand for all materials that that is going to create. copper is also a main component in clean energy.

A lot of people don't think about this, but as we transition to more and more clean energy and the demand for things like electric vehicles go up dramatically, well, you need a lot of copper. Copper is a crucial component in solar, wind, and of course All Battery Technology Next they are barbelling credit. They are logging investment grade Tech bonds with a low yield but strong balance sheet and also really distressed high-risk Assets in Asia with a really high yield. The concept of this is that you go and you balance high risk high yield debt with low risk low yield debt and then you get a balanced position, but you also get moderately aggressive returns.

Next, they are shorting U.S tech. So while they are bullish on buying Tech debt, they also think the valuations are still too frothy for this new world that we are heading into. They side old leadership, them being over owned, still the previous era of quantitative easing over and globalization ending fast at the same time. They also cite the risk of new regulatory risks and and the problems associated with Peak penetration.

that a lot of major tech companies at the top of the ticket have been experiencing. There's a point in time where you've penetrated so much of the market that now you have all this new risk in terms of regulators going and targeting your company and you don't have a lot of growth opportunities. Next, they are shorting private Equity They expect private Equity Funds that injected their Capital into high risk subprime lender Banks to get destroyed, Combining that with a ton of other risky bets that private Equity Funds made especially in growth Tech that may be substantially less likely to pan out in this new economy that is being pushed off a cliff. Just look at all the private Equity funds that invested hundreds of millions and billions of dollars into different crypto firms.

A lot of the firms that they invested in are going to zero or have already gone to zero and the firms that invested in them are starting to collapse themselves. Bank of America thinks this is going to happen across a lot of different Industries not just crypto. Next, they are going to be longing Global Industrials and small caps as sort of a longer term play. Why? Well, they cite secular leadership shifts in the 2020s, the entire decade from deflation to inflation, assets driven by Globalization to localization, monetary to fiscal excess, inequality to inclusion and so on.

Just beginning. Capex set to be a new macro Bull story. so what does this mean? Well, it means they think we're moving into a completely new world and completely new economy. An economy where inflation assets like gold Commodities certain real estate are going to be predominant and deflation assets like investment grade bonds, cash, and dividend paying stocks are going to take a step back now.

Also, if you've been paying attention, there are also long bonds, right? So they aren't saying that deflation assets like investment grade bonds are going to get destroyed, but rather that they just simply aren't going to be the leaders in this next cycle like they are really right now. And they also expect that the monetary every access we had AKA Fed pumped capital is going to shift to fiscal excess AKA From Congress Monetary Policy Central Bank Fiscal Policy Congress Right during the pandemic, you had both and now we've been trying to get off of Monetary Stimulus for the last year plus and fiscal stimulus has dried up. but they are arguing that in the future fiscal stimulus is going to return, but Monetary Stimulus might not. They are expecting a ton more government spending to reduce inequality and include more of the population, and they think that's going to create a whole new world and a new bold story where everyone is spending and there's a lot more localized homegrown businesses growing.

And this is bullish for small caps and new companies growing up, but also increases a lot of the prices for crucial assets like basic Commodities and materials which people are going to be buying in Mass at a higher degree. and thus both overall Industrials and small caps are bullish to back up a second. I'm not really so sure that I associate government spending with reducing inequality, but in any case, that's what Bank of America is saying. But anyways, in totality, my take on this is they may be jumping the gun a bit too early on many of these different items.

A lot of the trades are based on this idea that the FED is going to Pivot in late 2023, And yes, again, the market overall expects that to be the truth, But if inflation doesn't actually start dipping dramatically and continue on the down trending path, all of these trades may not even pan out for another 12 18 24 months more than Bank of America is hoping for. If the entire trade is really based on what the FED is going to do and the FED decides to do something else or delays when their pivot is going to be, well, then what happens? Well, all of these trades get pushed farther farther out and banks are sitting even more on the red right Bank of America specifically on this, but a lot of different banks throughout the industry are mimicking these types of traits. For example, if inflation is still very, very hot into 2023 and the FED decides to go really high and the terminal rate goes even higher, then it would be a massive mistake to be short the US dollar and it would be a massive mistake to be long all these Emerging Market assets and currencies and stocks because those are just going to get destroyed like they did this year. While the US dollar is just going to keep going up to new highs, they are probably right over a three to four year period.

Almost undeniably right. But in a year period, no one really knows for sure what's going to happen because it's based on what the FED decides based on the data that we do not have yet. But nonetheless, I always do find a lot of value in looking to see what the big money is doing and seeing what takeaways I can take away from this. not necessarily copying what they're doing.

you can't always copy what they're doing in some cases, but not always copying what they're doing, but just taking some insight in and starting to question my own perspectives. right? And that's what I hope to do with these types of videos. Anyways, if you appreciated this video, make sure to hit that rap. If you like button and subscribe, let us know your thoughts.

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