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digital
daily

digital daily: 2023 Surprise

2023 Surprise: The wisdom of the crowd is its diversity. The collective brings stronger thinking than any individual. But the absence of diversity leads crowds to lose their wisdom, taking a dangerous herd mentality. A clustering of opinions is a bad sign. And clustering is exactly what surveys currently show. The December BofA Global Fund Manager Survey covers hundreds of participants and nearly one trillion dollars of managed assets. Its long history provides terrific guidance on huddled masses at a time when investors are carefully contemplating surprises for 2023. There is little diversity right now. The consensus is negative and bearish on risk assets. Global growth expectations are near the lowest since the survey started in 1994, most expect a recession within the next year, and cash holdings are the highest since 2001. Investors are taking refuge in an old friend – government bonds, which are expected to be the strongest-performing asset class next year. The most crowded trade is long the US dollar – the opposite of the crowd is the most likely surprise. Fed tightening and a rush to cash-defined markets in the past year, especially the rapid downturn in digital. A weaker US dollar is a tailwind at a time when sentiment in digital asset markets remains extremely bearish. Volatility markets skew to puts, forward markets trade at a discount, closed-end funds are at record discounts, and bitcoin hasn’t been in survey radars since last Fall. Macro tailwinds aren’t enough to define a bottom, but it’s a start. 

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