Bank of America: “The only thing we have to fear is the lack of fear itself!!!”

A series of reports, and surveys of the opinion of fund managers points to an almost extreme sense of optimism.

Article updated: 16 December 2020 1:00pm Author: Michael Baxter

They say that the time to sell is when all around others are buying. Or to put it another way, buy when all but the most bearish of investors have turned bullish. The most famous example of that maxim is when Joseph Kennedy, the father of the assassinated president, sold his shares in 1929 before the crash. A shoe sign boy had asked for his advice on what stocks to buy. Kennedy reasoned that everyone was looking at buying shares, that the world had gone bullish, so he sold

Writing for Bloomberg, John Authers surveyed the surveys and reports and opinion of fund managers, and other experts. And they appear to be brimming over with optimism.

He considers, for example, the survey of asset allocators by David Bowers of Absolute Strategy Research. It’s bullish to the core. Among the findings: the probability that global equities will be higher next year is at an all-time high. There are similarly optimistic findings on a host of measures, including expectations for earnings. Emerging market equities are expected to outperform developed market equities too.

John Authers quoted the Bank of America’s Securities’s chief technical equity strategist Stephen Suttmeier as saying: “The only thing we have to fear is the lack of fear itself.”

The thing is, I kind of agree. I have long been arguing here that post-Covid, the economy will be strong — after a time lag. I also think emerging markets are where the real opportunities are.

And that’s a problem — because I feel uneasy about being so aligned with the consensus.

The risks

So what is the downside? Mr Authers also showed findings from Deutsche Bank research looking at the most significant risks to financial markets in 2021. And here I diverge — at least sort of.

The biggest risk finds the research, relates to the fear that the virus will mutate, rendering vaccines ineffective. I would imagine that this risk worries us all, especially given comments from Matt Hancock that the virus has indeed mutated in Europe. Mr Hancock, the Health Secretary, did say he thinks it unlikely the new vaccines won’t work with this mutated virus, let’s hope he is right.

The second highest risk relates to the danger that serious side-effects to the virus emerge. I am dubious about that — I am not a fan of the anti-vaccine lobby, not in any shape or form.

Other major risks include a tech bubble bursting (I don’t think there is a tech bubble — tech is taking over the world) and central banks pulling back on stimulus too soon. In contradiction to that last concern, there are also fears that central bank stimulus will lead to runaway inflation — I disagree with that.

Now we get to my more serious divergence. Next on the big risks is that Democrats win Senate seats in Georgia, so there is no Republican majority in Senate. Thus Democrats plans to boost the economy with government spending are not reined-in. I strongly disagree with that. One of the reasons why I am optimistic about the global economy is because Covid has created a wartime like mentality to the idea of a Keynesian stimulus. 

But look further down the list of risks, and you see the issue that worries me even more — that US political polarisation leads to mass societal unrest. I only sort of disagree with the findings, because I do doubt that this will be a big issue next year, it is more of a long-term issue.

And society is divided in a way I find very disturbing. Technology changes will accentuate this divide — many, many people will lose out because of new technologies. This will create unrest. A continued backlash against globalisation, immigration and further moves to political extremism, encouraged by non-sensical conspiracy theories, exacerbated by echo chambers, while median wage growth continues to stagnate, will threaten to rip the heart out of society.

That is why I think massive government stimulus, building upon near record-low interest rates, is essential.

Without it, political discourse will grow, and political instability will be good for no one — including investors. 


These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees.

Michael Baxter portrait photo
Michael Baxter

Economics Commentator

Michael is an economics, investment and technology writer, known for his entertaining style. He has previously been a full-time investor, founder of a technology company which was floated on the NASDAQ, and a director of a PR company specialising in IT.

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