00:00Just going through some of these numbers, these stats, stock allocation, eight-month highs, a record 60% say global stocks are overvalued.
00:07The number one tail risk is the bubble in AI.
00:11Elias, do you see those data points as enough to constrain this bull market?
00:18Look, John, clearly the overall FMS sentiment is nearing full bull territory.
00:23However, I would highlight that we're not quite at close your eyes and sell level because there are a few metrics that would temper the full bull sentiment,
00:33in particular the fact that there are still more FMS participants who think the global economy will weaken in the next 12 months rather than will strengthen.
00:42Also, when you look at the allocation to U.S. equities, that is the center of the AI story, the allocation today is neutral.
00:52Investors have trimmed their underweight on U.S. equities over the past few months.
00:57They are now neutral on the biggest stock market in the world.
01:02And that is why we continue to say that sentiment and positioning are less and less of a tailwind to global risk assets.
01:10But it's not yet the big headwind it was at the beginning of the year.
01:14Elias, could you say the same thing about gold?
01:16What's curious about this moment is that we've got all this to say on the equity market, valuations, extended, bubble territory,
01:22all of that, and then you've got gold as the most crowded trade.
01:25What's the relationship between the two?
01:30Look, clearly what's unique about 2025 is that you see several asset classes that are hitting all-time high at the same time.
01:37Gold, equities, credit spreads as of the end of September had hit historical lows,
01:43if you adjust for the balance sheet of U.S. corporates.
01:47And at the same time, Bitcoin as well had hit an all-time high earlier in the year.
01:51Clearly, what's happening today is that investors are trading long-term secular themes.
01:57They are trading AI.
01:58To do that, they are taking an exposure via the equity market.
02:02And that is why they keep buying despite the perception that global equity markets are overvalued,
02:07just hit a new record high this month.
02:09But at the same time, they are hedging the new themes on Fed independence,
02:15the new theme that inflation is just not going to go back to the target of 2% via gold.
02:23What's very bullish about gold, which we capture now with the FMS survey,
02:27is that gold allocation for institutional investors is very low.
02:31The weighted average gold allocation is 2.4%.
02:35It has not increased since September.
02:38It's stable since August.
02:40And that is why we think the gold rally has further to run.
02:44Although in the short term, the price velocity,
02:47the fact that gold is trading 25% above its 200-day moving average,
02:51means that there is a risk of a short-term consolidation.
02:54Which you would recommend that people buy,
02:55since you see gold going to $5,000 now and by the end of next year.
02:59I am curious whether we get the same kind of read-through from cash allocations that we have in the past,
03:04given the fact that there is this gold offset,
03:06that maybe cash doesn't serve as the same type of safety as it has in the past
03:11at a time of real questions around debasement of fiat currency.
03:16Absolutely. Look, it's a great point.
03:18I think what's very important to consider here is the relative allocation to cash,
03:24but also the outstanding cash holdings.
03:26If you look at the FMS survey,
03:28it does show that cash allocation have dipped below a very important threshold that is 4%.
03:34It's now at 3.8%.
03:35It's remained under 4% for the past few months.
03:38And yet, risk assets have rallied over the same period.
03:43On the other side, what we see in terms of global cash holdings,
03:47they are pretty much at record high.
03:48If you just look at the money market fund assets in the US,
03:52they've hit a record high of $7.3, $7.4 trillion.
03:56So, yes, exposure to cash is low.
04:00In fact, FMS investors say they are underweight cash by the most since December.
04:05But the holdings of cash remain quite high still.
04:08And that is giving investors enough confidence that they can continue to add
04:13in terms of their risk asset exposure.
04:15Which raises this question,
04:16if people really are this bullish,
04:18why are they so concerned about private credit and private equity?
04:21This, to me, stood out of the whole survey,
04:24the idea that 57% of respondents see private equity and private credit
04:28as the most likely source of a systemic credit event.
04:31It is completely different than even last month.
04:33What's triggering this?
04:35Do you see validity here?
04:38Yes, it's maybe the strikest reversal that we've seen in this month's survey.
04:43We've been asking this question on the most likely source
04:46of a global credit systemic event since 2022.
04:49And what was striking this month is that we recorded the biggest conviction
04:54on the unique source of a credit event in the sense that almost 60% said it was
05:01private equity and private credit.
05:03Look, the reason is very simple.
05:05The investors just look at the latest development in the auto consumer subprime market
05:10over the past few months, the default wave that have engulfed tricolor,
05:15first brands, and they also see the linkages between the private credit market
05:20and the financial system.
05:22You know, there have been a few news that several institutions were exposed
05:26to these default waves, and that is spooking investors.
05:31When they see that credit valuations are maybe just as exuberant as AI stocks are,
05:36and that is why they are now a bit more cautious on this side of the story.
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