Few Comprehend How Bad It Can Get

ZH: Despite Plunging Economic Sentiment, Hedge Funds Are Not Positioning For A Recession... In Fact, Just The Opposite

It's not just the risk of a recession that is being ignored by funds: as Subramanian also notes, while inflation has remained higher-for-longer (and is expected to hi double digits in a few months), active managers remain unprepared for it, as well. To wit, "Long Onlies" are 11% underweight BofA's Pro-Inflation basket (stocks historically benefitting most from inflation), while remaining 4% o/w anti-inflation stocks.

And while BofA warns that "this stance might hurt active in 2022" we disagree: now that even the market has finally grasped that a recession is coming, the reason why stocks aren't selling off is because traders are willing to ignore the next 6-9 months and fast forward to the moment when the Fed admits that it has to start easing to offset the recession. As such, what we are now seeing is a frontrunning of the next QE!

Except they are preparing for a certain kind of QE: deflationary impulse. They are investing for the collapse in commodities and coming wave of QE that will, like the prior times, launch Nasdaq and ARKK trash to the Moon.

The game ends the moment that oil, wheat, gold, copper or some other commodity lead the rebound out of QE. You think exiting from QE is bad after 2 years, wait until the Fed has to exit from QE in 2 months. It's not yet entirely clear if another round of QE will follow. If inflation doesn't reverse, we might already be in the endgame with a bond market panic on tap, followed by mass bankruptcies, fund blow ups and so much damage on Wall Street that NYC bankruptcy is back on the table.