Confusion is very high. People are trying to understand what is the regime shift we’re dealing with.
That's from Michael Purves, chief global strategist at Weeden & Co., who spoke to Bloomberg for a piece out Wednesday called "As Most Crowded Trades Turn Sour, Fund Managers Brace for Pain."
Of course Purves is late on that assessment - and woefully so. Indeed, the cross-asset strategist with the most Twitter followers on the planet delivered that exact same assessment some three weeks ago and he did it on national television, no less. Here, look:
So that's David Dennison, global head of FX and commodities strategy for, well, for the globe, and he's got a decisive advantage over the rest of the analyst community when it comes to predicting imminent "confusion" - namely that most of the "confusion" and "insanity" emanates from him, so you know, he's in a helluva good position to make prescient market calls.
The Bloomberg article linked above cites declines in the FAANG-BAT complex as an example of how the most crowded trades are getting squeezed of late. Specifically, they've seen something like $200 billion shaved off their market cap since last week. That's unfortunate for a lot of folks because according to BofAML's Global Fund Manager Survey (which has garnered quite the track record this year when it comes to flagging risks after the Seth Golden crowd blew up just weeks after "short volatility" was identified as being the most lopsided trade), "Long FAANG-BAT" has been the most crowded trade several months in a row:
And don't forget that thanks to persistent fears of underperforming benchmarks that, by virtue of a self-feeding loop perpetuated by passive flows, only rose in 2017, the 2 and 20 crowd is increasingly obliged to pile into the same trades lest they should end up like David Einhorn, having to explain why exactly it is that they're not riding the wave:
(Goldman, positions as of December 31)
Generally speaking, turnover in those names by hedge funds was seemingly low during the February rout underscoring the notion that these tech high fliers are perversely being seen as "safe havens", despite the inherent risks in their underlying business models. Those risks have been exposed recently, amid Facebook's ongoing trials and tribulations, jitters about demand for the iPhone X, a slump in semis more broadly, and on and on.
Meanwhile, the short dollar trade (the second most crowded trade in the most recent edition of BofAML's survey) is getting squeezed "bigly". Recall what positioning looks like there:
Thanks in no small part to rising yields, that trade is going horribly awry:
So yeah, the herd mentality isn't working out so well all of the sudden, which isn't surprising because after all, implicit in the whole idea of "herding" is the notion that it works right up until it doesn't.
What happens now? Well, as noted by the above-mentioned Michael Purves (and as communicated rather succinctly earlier this month by David Dennison, CFA, over at #MAGA Asset Management & Co.), it's hard to say because "nobody understands what's going on."