Just How Crowded Is The “Long Dollar” Trade? The Answer In One Chart
Until last night’s Trump statement that the US dollar is overvalued, it was smooth sailing for Wall Street’s momentum chasers, who happily piled into what until recently was Wall Street’s most crowded trade. How crowded?
For the latest answer, we go to the latest just released monthly Fund Managers Survey conducted by BofA’s Michael Hartnett who shows that according to Wall Streeters themselves, the dollar is the most crowded trade by orders of magnitude. In fact, in January the number of respondents who said the “Long USD” is the most crowded trade has risen from 35% in December to a whopping 47%, the highest response rate in the last few years of the survey. Far behind, in second and third place, are “short government bonds” and “long high quality/minimum vol” both at 11%.
What makes this observation paradoxical is how reflexive it is, because in the same report BofA writes that contrarians note “long US dollar seen as most crowded trade by a country mile”, and adds that the percentage of investors who think USD is overvalued is the highest in over a decade, or since Nov’06 (net 22%).
Still, they refuse to sell… until now. Because now that the president-elect has publicly taken the other side of the trade, we urge readers to take a second look at RCB’s warning that the “Pain Trade”, i.e. the inversion of Long-USD positions, has begun.