Merrill Lynch's always informative monthly survey of 193 fund managers shows some real changes in the way money managers are thinking about the economy.
Basically, they now think the financial crisis may be morphing into an economic one, where formerly steady countries around the globe start to see more slowing.
From the survey:
This month's survey is certainly consistent with this hypothesis and reveals a major shift in macro expectations among investors. Almost one in four believe the global economy is already in recession, and almost half the respondents expect the world to experience recession in the coming 12 months. Evidence that the economic slowdown is spreading to economies like Japan and the eurozone has dashed any remaining hopes of economic decoupling. Fund managers remain highly skeptical of analysts' earnings projections which have yet to reflect a serious squeeze on margins. A net 83% of respondents believe estimates are "too high," while a net 29% describe them as "far too high."
Obviously, that's the bad news. But with the slowdown hitting emerging markets and Europe, managers were also more excited about U.S. assets than they've been in some time.
The net balance of asset allocators overweight U.S. equities stands at 12 percent, its highest level in more than six years. Supporting this view is the widely-held belief that the U.S. dollar is undervalued. A record net 58 percent say this month that the dollar is undervalued, while a net 71 percent say the euro is overvalued. Investors believe that the U.S. has a better corporate profit outlook and higher quality earnings than the eurozone.