Okay folks, so we need to talk violently about what the big money is doing, why and the implications. The latest Bank of America Global Fund Manager survey just came out and it showed average fund manager cash balance at the highest levels that we've seen in more than two decades since 9 11. to be specific. And you think about the mindset of fund managers back on 9 11.

they had just been beat over the head the last couple of years because of the dot-com bust, the drawing up of capital throughout the entire market. As nobody wanted to invest in anything anymore, the economy had slowed down dramatically, you were in a recession, and unemployment numbers were picking up. Not a lot to be excited about, a bad bad time, and then all of a sudden you have this terrible tragedy happen. not just in the financial capital of the Us and really the world, but also just like two blocks away from Wall Street.

Over the last 20 years, especially, the financial sector has become a lot more decentralized. Wall Street is still the top dog, but it's become a lot more decentralized. You no longer need to go to New York to operate a big financing deal. Nowadays, you can get away with being headquartered and having your capital offices, your capital raising offices located in places like San Francisco, Silicon Valley, Atlanta, Denver.

Back then, though, 20 years ago, Wall Street was the center of the entire investment universe. You did something big. It went through there. Now the reason I mention this is because imagine if you're a fund manager about 20 years ago, you're going through all these macro factors that are just terrible.

There's not much reason to be excited. and then all of a sudden you have these terrible attacks. You're thinking the world is fallen apart. And it really was.

It was a terrible, terrible time. So what do you do while you shore up cash? And that's what we saw back then. And the reason that I mention this is because we are now within spitting distance of being back to those levels today. at the highest point.

Since then, even in 2008, you didn't see that level of cash showing up. People are rushing for safety. And why is that? Well, look here. The survey asked what the biggest tail risks are, and hawkish central banks jumped from number two, just behind global recession to now number one.

Prior to the survey, there was this more present hypothesis that supply chain constraints and consumer price inflation would cause industries to be naturally bludgeoned on their own, and that central banks would just accelerate that recession or economic push back. But now, fund managers and markets overall are back to expecting the Fed and the central banks globally to be the cause of a recession, not just the exaggerator of one. This survey indicates that central banks are now the number one fear of fund managers. With a huge jump month over month, global recession fears are up overall.

even though they got pushed down to number two as the biggest concern, they're still increasing in worry. Inflation worries are down as funding managers are starting to bet that central banks will eventually win the fight against inflation. But they're betting hey, inflation is going to be hit so hard by central banks that everything else is going to go down with inflation. The Russia, Ukraine conflict worries have gone down dramatically.

This could change very, very quickly, although you've seen a little bit of stabilization over there, and I think that the headline shock in the beginning of a crisis tends to cause people to fear it more. and all of a sudden, when people are used to the idea that they're being invaded, the war and anxiety kind of goes down unless you get a new round of escalation. and it seems like Ukraine has kind of fought off the Russians to a large extent and there's going to be some sort of compromise down the road obviously horrible, horrible situation over there. But when you look at it from the market's perspective, it tends to get shocked when new events come into the picture and then over time it starts assessing it and usually the threat assessment goes down.

But you've also seen the rise of two new categories: categoricals: number one, a systemic credit event and number two in Asia Fx or Foreign Currency war. Let's talk about the systemic credit risk event first. Why is this now the number fourth. Fear After not being on here at all the previous months and in the previous reports, how does this come out of the woodworks? All of a sudden? Well, you know I love to overuse analogies And the way that I look at this is when you drain a lake, you start revealing a lot of the crud that was underneath the surface, and if you drain it enough, the ground starts cracking.

Krakito, The Fed is embarking on unprecedented draining of this overall liquidity lake. And as much as we could say, oh, there's nothing we're going to find that's weird underneath the lake surface. You don't know for sure until you start pulling it back. There's this famous saying that says you don't really know who is swimming naked until the tide flows away.

When the water levels dip, you start seeing hey, that guy, that guy doesn't have any swim trunks on right now. There's ample liquidity in the overall financial system, but it's starting to tighten on both its own and on direct order from the Fed. Some of the markets in the shallower parts of the lake, some of the more speculative markets like the crypto sector. you're already starting to see some of the byproduct of that lake getting siphoned off.

You look at Terra Luna a little bit over a month ago. What was it trading at? In terms of market cap? it was trading at 40 billion dollars plus what did it hit? a couple days ago? something like 100 million dollars in total market cap. People got destroyed on this and it's like at the end of the day and especially in this case scenario. It's not just liquidity drying up that causes these problems, but it's a very, very big factor.

When you look at the overall context when the world is no longer throwing easy money at everything and covering up problem after problem, you can't get away with much and people become a lot more skeptical, They become a lot more antsy and willing to sell out of everything in a moment's notice, and new buyers are much much more risk averse. All these things contribute to a sentiment where you have a loss of trust, which creates a lot of structural issues at the same time, where you have liquidity draining out of everything, and in the broader financial system, we're going to see if something similar to that happens in areas that we never would have seen coming. The crypto market is very, very young and there's a lot of things that you learn in each different bull and bear cycle over there. But the overall financial system and the traditional parts of that that have been around for 100 plus years have gone through their own cycles where you have these huge bull rallies and then these huge bare busts where all of a sudden people start realizing, wait, those policies didn't actually work.

Wait, that systematic risk that we were trying to mitigate that didn't actually work. Wait, those measures and regulations that we had in the system didn't actually work to protect people. Or oh, this way of doing things doesn't really work because in bad times, everything just collapses and sometimes you have to have a very, very bearish cycle to clean out the crud to allow for Darwin's rule of Survival of the Fittest so that capital is better allocated in the future. And so, it makes sense that this is an increasing threat that people are worried about and fund managers see on the horizon.

And then you have the Asian Currency War. What is this? Well, let's look at the Chinese Wan versus the Us Dollar. One U.s dollar today buys you a lot more Chinese won today than it did just a month ago. and there are two reasons for this: Number one, the Us Dollar has been strengthening quite a lot relative to other currencies.

That's because of the rhetoric and actions of the Fed promising to tighten up our monetary policy. and that's because the Us Dollar is also seen as a safe haven asset in a reserve currency, the number one reserve currency in times of turmoil. But number two, and most notably, because the Chinese economy is in hot hot water with relentless covert controls and just draconian lockdowns. Global companies that are doing business with China that then go and convert into the Chinese one no longer have that same sort of demand because a lot of their industries are just getting shut down again and again.

And a lot of U.s companies and a lot of overall international companies are like. You know what? We don't want to do business in China right now. It's just it's too unpredictable. It's just not worth it.

They can just shut us down in a moment's notice. for three cases somebody sneezes and all of a sudden our entire Asian market is just closed. Supply chains and supply chain transactions via China are just shut down and obliterated on a rolling scale. It's like we're deep deep in 2020 again in a big part of the world, and the second largest economy in the world.

Seems kind of counterintuitive, but if you think about it, policymakers in China probably aren't too worried about the collapse of their currency, as long as it doesn't go too far. They've done, in my view, the bare minimum to stabilize the currency. just enough to show the international community that they're serious about stabilizing it, but not enough to have real impacts. And the reason is because as China's currency becomes cheaper, as the rest of the world tries to strengthen their own currencies, China's exports will become a ton, a ton more competitive.

Everywhere else in the world, you look at Russia, a more obvious example of government manipulation in terms of supply and demand for a currency you had people dumping the Ruble as the attack started, and then with extreme currency control measures, the Usd now buys less Ruble than it did pre-invasion Russian currency is now stronger than it was before. Now, of course, in terms of effectiveness, it's not. Stronger Sanctions have made it very, very difficult to trade with the Ruble, which is part of the reason why they've been able to strengthen it so much with domestic controls. Meanwhile, you also have a weakening Japanese currency compared to even the Chinese one, which is freaking policymakers out over there that actually want to strengthen it.

And there's worries that there's going to be a lot more aggressive action taking which could fuel a war, a currency war between Japan and China and then South Korea and some of the other players in that region. If you look at this from a world view and how currency flows from country to country and in every different market, it's like, hey, you could definitely see how this is a big threat to the global financial system, the different manipulations from government, the different decisions all around the world, and specifically the warring in that Asian market. You put all this together. It's like, well, it makes sense that an Asian foreign currency war, if not a global foreign currency war, is starting to appear on the threat radar of fund managers.

And then, how are fund managers really reacting to these fears besides showing up cash? Well, most notably, and you won't be surprised they switched from 14 years of being overweight tech to underweighting it. Obviously, fund managers that are trying to get alpha on the market will try to overweight sectors that are accounting for more growth in the overall economy than other sectors of the market. If your analysis is that Tech is going to account for eight times the Gdp growth of the utility sector, then it makes sense to overweight tech versus the utility sector if you're trying to aggressively grow your portfolio in your client's portfolio. But right now on this liquidity crunch, you're seeing the opposite.

Tech allocation plunged 23 percentage points to 12 underweight, which marks only the second time since back here around that 2008 2009 area, and the most since August of 2006 when people started cutting back as the economy showed signs of weakness. So when does historically the big money in the market start deciding? we've bottomed and start rebuying. Well, it would be simplistic, but somewhat accurate. Really to say, Right when the Fed decides to reverse course, which is usually mid-recession that they just cost.

But Oppenheimer put out this market bottom checklist which should help give a deeper context and some things to think about. They gave 10 criteria that they feel the market needs to hit in order to be considered a bottom. They said number one: When the S P 500 has a peak to trough decline of at least negative 21, which we haven't had yet, we've only floored it on the edge. a little flirty, Mcflurry.

Number two, when we've had a peak to trough duration of at least seven months, which we also haven't had yet, it's been only four when the Nyse has negative 1 000 net new 52-week highs, we haven't had that yet, only negative 560. net. New 52-week highs is simply the number of new 52-week highs minus the number of new 52-week lows. And right now, the number of companies hitting new lows is far outpacing the number of companies hitting new highs, but not to the extent that they want it to.

The next they want is the percentage of Nyse stocks above 200-day moving averages. They want less than 20, and so far it's slightly over that at 22. They want small cap 200-day deviations at at least negative 20, which we've already hit already because small caps have just been obliterated. Then you go down to sentiment and credit.

You want Opco Bullish composite at under 20. This is their gauge of four popular investor surveys. It's still not low enough to suggest that bulls are completely missing from the market. According to them, you have investors intelligence bull slash bear where the ratio switches towards bears overweighting.

and that has happened. The vixe vix, of course, implied volatility, and really, I like to look at it as the demand on the options chain. the demand for hedging in uncertain times that is higher than where they suggest it needs to be in order to bottom. And we are also missing the overweighting of puts and calls on a 10-day average, and the Barclays corporate bonds minus 10-year treasury yields hitting over five percent.

Hasn't happened yet either, but you look at this list in totality, only three have been satisfied, but you could easily see this one, this one, this one, this one, and probably this one hit in the next few weeks, if not few months. But then you have this duration metric, which obviously there's nothing that the market can do to hit this faster. it just has to take time. Now, obviously I'm not somebody that has a static view.

Oh, if you hit this criteria, that means you're going to get a reversal. If you hit this criteria, it means you're going to go up or down or whatever sideways. But I think that when you look at all different data and how people make decisions historically, it does help a lot to understand the full context and to actually break down what people are thinking. To be completely honest, the financial system has gone through a huge a huge experiment.

It was a little dirty guinea pig. A dirty one. We don't know what the impact of insane, insane monetary policy expansion and fiscal policy expansion is going to do to the system in the long run, and we don't know What taking back a lot of that monetary policy, stimulus and easy money rates is going to do either. So it's not like the market has to play by the normal rules here, but at the end of the day, the more uncertain and the more fear and the more sketchiness in the overall market, the more that people have no faith in the future, the better it's going to be in terms of deals that you can get and the more extreme trading opportunities you could have on both sides of the move.

Anyways, to cap off this video with a positive note, I would look at the stock market as a roller coaster. It has its ups and downs. It has its massive massive fun rallies. to the upside, and it's massive massive drops.

To the downside, quite frankly, buff can be fun as long as you don't get nauseous. So take your damn pepto and let's get to work that caps off today's video. Make sure to hit that ravishing like button and subscribe. If you're looking to learn how to trade, we do have coupon code charlie Fever for zip trader you down below and that will get you lifetime access to everything we offer.

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