Hedge funds are chopped and flat. Real money managers are more worried about getting caught out in a downdraft than missing an upside breakout. Risk positioning is light. The decline is bond yields is more about bad positioning and a shortage of AAA assets than it is about the bond market “knowing something”.
But the vulnerabilities are also there: markets have had a big run, economic fundamentals are still tepid and falling on the short side of expectations. Implied volatilities are low. Market internals are bad. Bottom line: It will take a growth breakout into escape velocity or something like it to get a resumption of the rally, or, more serious disappointment to get the washout that so many are already expecting. Unsatisfactory though this is, the right move is to be patient. The bull market is not over, but it’s not a smart time to press your bets. The longer we twist in this limbo, the more attractive the upside will become. Time heals. Keep your strategic positions and hedge out market beta as best you can. Sometimes you have to keep your bat on your shoulder—something guys collecting two percent management fees have a hard time doing.
Happy Mother’s Day.
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