One Report Says It's Time To Be Bullish; Another Raises Concerns. Who's Right? Both, Actually
Ever since the recession in 2008 and 2009, distrust of banks in America has been at or near record high levels. The banks themselves have tried to counter this, spending billions on televsion ads featuring smiling, helpful people, but they are fighting an uphill battle for several reasons. The experience of that recession is still fresh in people’s minds and every story showing that Wall Street is once again bundling debt, sometimes in very innovative ways, and then selling it to investors, reinforces the belief that they learned nothing from their mistakes.
That might even be forgivable if there were a feeling that the big, Wall Street banks were experts, who knew what they were doing. It would mean that the collapse was unfortunate but unforeseeable, and that we could trust them to avoid a repetition. The problem is that trust is impossible when we see things like we did this morning.
Within the space of one hour, two separate stories appeared on CNBC, each about a report from a major bank.
The first was on Bank of America Merrill Lynch’s survey of global fund managers. That regularly-taken survey had shown that, in the words of the report’s authors, "The bulls are back…global recession concerns vanish and 'Fear of Missing Out' prompts wave of optimism and jump in exposure to equities..." The survey also showed that cash levels had posted their largest decline since the last election, dropping from 5% to 4.2%.
Then, less than an hour later, came this, a report on a UBS survey that found that 55% of the world’s richest investors see a big drop in stocks coming next year. The authors there said, "Investors see reasons to be cautious in the new year." It also said that cash positions among those surveyed were holding an average of 25% of their assets in cash.
So, which is it? Is the big money rushing into stocks or holding back and piling into cash? I guess it depends who you ask.
The BofA Merrill survey was of fund managers, people who invest other people's money, while the UBS report was about ultra-high net worth individuals, who invest their own money. Anybody who has, as I have, ever worked trading OPM (other people’s money) will find that to be completely unsurprising. It is a lot easier to take risks OPM than with your own hard-earned cash.
The problem for those of us who aren’t multi-millionaire investors, however, is that we tend to hand our money to the risk-takers to invest. In doing so, we move many of them up into the ultra-high net worth bracket personally, but we end up with more risk than they would take with their own money.
There is another way, though. We live in an age when information, analysis and opinion are all readily and cheaply available. It takes some effort and intelligence, but self-directed investment and trading are more possible now than ever. Of course, if you are already in that camp, the important question is which of the two reports do you believe?
The answer is both. Which you prioritize right now depends on your time horizon.
The fund managers surveyed by BofA are judged by their quarterly, or maybe annual, results. They get paid big bonuses to outperform the indices on a short-term basis. The richest individuals in the world, on the other hand, are concerned about preserving and increasing their wealth, keeping it available for generations to come.
There are, then, reasons that the two reports give opposite views, but that will be lost on most people. What they will see is two very similar surveys coming to polar opposite conclusions. Their own conclusion then will be that the banks concerned are simply saying what suits their own interests. True or not, that perception makes it harder than ever for investors to trust and believe Wall Street.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.