Algebris: In Davos, “It’s Impossible To Be A Contrarian Any More”

Algebris Investments’ CEO/CIO Davide Serra reflected pointedly on ‘Davos Man’ and their generally herd-like behavior:

“I’ve been coming here for 10 years and the current Davos attendees are the most into momentum trading I’ve ever seen.

“If the share prices are down they’re bearish; if markets are up, they’re all bullish. They’re trend followers.”

Talking to Bloomberg TV’s Erik Schatzker, Serra explained the reason for their short-sightedness…

“Trying to forecast the future for [the average Davos Man] is too hard and so they simply say ‘where are we today'” and that informs their worldview.

Serra uses the example that three years ago, everyone at Davos was mournfully wondering around declaring the disintegration of the euro – and now look where Europe is.

Critically, Serra notes of Davos and the world – “it’s almost impossible to find a contrarian” today.

Serra is confirming much of what we noted yesterday as the big bank CEOs sang the praises of the world economy and stocks to whichever TV audience they could get in front of, while explaining how terrified they were of the complacency when they are behind closed doors.

“There is a numbness out there, there is an ambivalence out there that’s concerning,”

“When the next turn comes — and it will come — it’s likely to be more violent than it would otherwise be if we let some pressure off along the way.”

So why does Serra go to Davos? Simple…

“You need to take the pulse, check the consensus and be ready, most of the time, to do the opposite,” and…

“that’s why we’re trying to get as many hedges as we can on what has been the overall market consensus.”

The Algebris CEO notes that markets are “euphoric” because central banks have pumped a cumulative $5t into the system, adding that when money-printing stops, inflation will rise and bonds will crash:

“a crash in the bond market, which is three times the equity market, will feel more painful to the average investor” than a stocks correction.

Banks will be the biggest beneficiaries from an inflation pick-up.

“Today their own margins are being crushed by basically the zero-rate policy around the world”

“It’s very hard for a bank to lend when a corporation can borrow at almost negative rates”

Algebris would short all assets manipulated by central banks, including rates, on an inflation pick-up.

Finally, Serra noted that U.S. Treasury Secretary Mnuchin  “is adding fuel on the fire by saying he likes a weak dollar because that’s going to fuel inflation even faster”

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