As I was cleaning up the office before heading out to the island (that includes email), I came across a note from Citi's FX guys. In short, their measure of correlation between the S&P 500 and the returns of macro hedge funds is tremendously negative - in fact the most negative since late 2008/early 2009. So basically the big guys are either long the long bond futures or they are short stocks (which is essentially the same of late).
I argued with a friend earlier today that this market cannot get more bearish than it is and he responded by saying that people can get "more bearish." Perhaps but if there are no bulls and many bears, where are the marginal bears to short or sell some more stock? This report just reinforces that bearish sentiment is way over the top and this market is setup for the monster of all rallies - that is if these macro guys cover and buy! Just to see the bears perspective, there is a risk that a vacuum could ensue of the buyers remained sidelined...I am not thinking such happens but it is on the table for the bears - in other words, if they show up and buy, look out shorts.
Well, that is my last post for August. I am heading out for some R&R. Haven't checked the weather but hoping things are nice. Talk to you in September.
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