Diary of a Hedgehog: Biggs' Final Words on the Markets

Stevie Cohen Tells a Good Story

Early February 2011

According to the latest Bank of America Merrill Lynch Fund Managers Survey, economic growth, inflation, and central bank rate hike expectations are “creeping” higher. Equities and commodities are the assets of preference, and both are at record over-weights. Even more interesting, 5% of fund managers admit to being over-weight emerging market equities as compared with 56% just four months ago. On the other hand, U.S. equities are the most over-weight macro call, at 34%, and European equities have risen from minus 9% to plus 11% over-weight.

As you would expect with this backdrop, the respondents have become negative on and are selling fixed income. As for sectors, according to the survey, tech is very hot, and banks are recovering. The tech underweight has risen from −21% to −7%, with an even bigger swing in European banks from −56% to −16%. Defensive sectors like pharma, utilities, and the consumer staples are unpopular. I’ve followed this survey for years, and it’s good, systematic stuff. However, you can’t be a crazed Pavlov dog type of contrarian because, as I’ve mentioned, sentiment works much better at bottoms than at tops. Sometimes you even have to be a contra-contrarian. As I wrote last week, I’m a believer that emerging markets are due for a big bounce.

Today I went to the ISI conference in New York and listened raptly to Paul Tudor Jones interview the legendary Stevie Cohen of SAC. Jones, another icon, could also be ...