The best investment of 2018 has been cash according to analysts at Bank of America Merrill Lynch which say in a report that cash has outperformed stocks and bonds for the first time since 1992.
The recent oil sell-off and cryptos sell-off has increased the risks of a “flash crash,” they say, with the bank calling stocks’ performance this year a baby bear market.
They expect this to continue into the first half of 2019, with the usually pessimistic analyst predicting a V shaped recovery in the second half.
“We are bearish stocks, bearish bonds, bullish commodities, bullish cash and bearish the US dollar; we expect to turn tactically risk-on in late-spring but start 2019 with bearish asset allocation of 50% equities, 25% bonds and 25% cash; coming years nonetheless less asset-friendly than past decade.”
They’re blaming the central bank as “asset prices & central bank liquidity growth both peaked in Q1… and following a historical period of abnormally strong bond and equity returns, prices in both asset classes have been falling together since Q1.”
In other words, central banks have pumped stocks and have now stopped doing so in a scheme that if it was done by other actors would be called a pump and dump.
“1,881 global stocks out of a total of 2,767 experienced bear markets,” according to the report, but they remain somewhat bullish on the economy, expecting global GDP to grow by 3.6%, slightly less than this year’s 3.8%.
That economic growth, however, has not gone to assets, with there being a clear detachment this year as the new Fed maestro raises interest rates with some speed.