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The latest Merrill Lynch Fund Managers Survey showed levels of optimism that have now become almost uniform across the investment world.   The changes from just two months ago are really pretty incredible with managers pouring into the bullish inflation trade.  Managers expecting inflation in the coming year has surged from 27% to 61% in just two months.  In the October report just 15% of respondents were expecting economic improvement in the coming year.  That has surged to 44% in November.   The bi-polar nature of this market becomes apparent when you read these sentiment surveys (via BofA):

NEW YORK AND LONDON – U.S. equities are the primary beneficiary of the continuing upswing in global investor sentiment, according to the BofA Merrill Lynch Survey of Fund Managers for December.

A net 44 percent of the respondents predict the world’s economy to strengthen in 2011, compared to 35 percent a month earlier. A net 51 percent anticipate corporate profits improving next year, up from 36 percent in November. At the same time, more investors believe that inflation is likely to rise with a net 61 percent of the panel forecasting higher core inflation in 2011.

With Europe’s sovereign debt crisis continuing, investors are turning to U.S. equities. A net 16 percent of asset allocators are overweight U.S. stocks up from a net 1 percent in November. A net 4 percent are underweight eurozone equities, compared with a net 15 percent overweight in November. Bullishness towards the U.S. dollar is evident with a sharp increase in the number of investors forecasting dollar appreciation. A net 36 percent expect the dollar to make gains in 2011, up from a net 14 percent in November. In the U.S. regional survey, the net percentage of U.S. investors expecting double-digit profit growth has doubled month-on-month to 40 percent.

“Despite rising confidence in global growth, the survey shows that Europe is losing investor support as political procrastination and banking concerns overshadow a strong corporate outlook,” said Gary Baker, head of European Equities strategy at BofA Merrill Lynch Global Research.

“The pending new tax deal in the U.S., combined with QE2, has restored confidence in the prospects of U.S. companies, at a time that Europe is out of favor and investors are questioning Chinese growth prospects,” said Michael Hartnett, chief Global Equity strategist at BofA Merrill Lynch Global Research.

Source: Bank of America

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