With so many new economic crosscurrents to consider, it’s good to know where the big dogs– hedge funds–are hunting these days. Do they think the European Union can pull a rabbit from the hat and save Greece? Do they think the U.S. economic reports (a hundred visions and revisions) are credible? Are they worried about inflation, or something worse?
An update today on hedge fund activity from Merrill Lynch is reassuring in most respects, though perhaps not so for the leaders of the European Union. The report notes that major hedgies continue shorting the Euro in big numbers (“crowded shorts” is how Merrill characterizes it) and buying U.S. Treasuries and gold. The report from Merrill’s chief technical analyst, Mary Ann Bartels, pulls the data from various sources and it’s pretty fresh–for example, the hedge fund Euro activity is from last week. That’s before Greece struck a deal with the EU and the IMF that calls for massive aid as well as draconian cuts in Greek spending. Even so, Monday’s market action suggests the hedge funds were unimpressed by the deal—the Euro kept falling against the dollar. Bartels sees the Euro headed down further to a range of 1.30 to 1.25. That’s tough news for U.S. companies selling into Europe and good news for American tourists booking European vacations.
What’s interesting about the domestic activity from hedge funds is that they seem to be reluctant bulls, with an uncharacteristically low exposure to U.S. stocks. Bartel’s tabulations also show that so-called Long-Short hedge funds (i.e., they can bet for or against markets) are moving more heavily into large cap stocks and favoring growth stocks over value stocks, two moves that suggest these managers are not fully sold on the sustainability of the economic recovery. So what do you do you buy when you’re not convinced? Gold, platinum, silver and other precious goodies—and that’s just what they are doing. But one metal they are beginning to pull back on is copper which, as the Wall Street Journal notes today, speaks volumes about the economy’s course.