Any way you look at it, a new survey of global money managers by Merrill Lynch is flashing ominous implications both for the economy and the stock market.

As every investor knows, when it comes to the economy, you’re on cloud nine if you focus solely on American GDP. Given the rapid, if not explosive economic growth in some countries, the economic turmoil in others, and their ensuing impact on the tempo of American business activity, you can’t afford not to factor in – which many investors don’t – what’s happening with economies around the world.

Likewise, as global economic expectations go, so go a lot of Wall Street’s earnings estimates. So the latest global word from Merrill Lynch, which follows, is not only distressing for investors, but strongly merits your consideration.

For starters, the Merrill survey has turned up the most negative growth expectations since 2001, with the institutional fraternity a lot gloomier than it was two months ago about the prospects for economic growth, corporate profits, and margins. Further, a majority of the managers polled (52%) now believe we have entered the late phase of the global business cycle.

Merrill’s chief investment strategist, David Bowers, dishes out the unhappy findings from an obviously growing number of worried managers. He notes that the net balance of managers positive on economic growth has swung from plus 11% in March to minus 32% in May, while the prospects for corporate profits have shifted from plus 4% in March to minus 34% in May. Moreover, the net balance expecting corporate margins to decline has shot up from 18% in March to 40% in May. Further, a fifth of the managers expect zero or negative global earnings per-share growth over the coming year.

As concerns about profit margins have intensified, anxiety about inflation has diminished, which, Mr. Bowers observes, is a major change. In the past two months, the net balance among managers worried about acceleration in core inflation has fallen from 73% to 45%. Here are some other significant findings:

* A net 12% think that commodity prices (as measured by the CRB index) will be lower a year from now.

* Given their views of inflation, a net 30% still believe monetary policy is too stimulative (down from 41% in March).

* Meanwhile, the net balance expecting global short interest rates to be higher a year from now has fallen from 94% in March to 80% in May.

* Managers are sticking to their belief that the Federal Funds rate (now 2%) has to rise to 3.75% to be consistent with the Fed’s neutral policy stance. (That’s also about where most pros see short rates at year-end, with the consensus projecting another hike at one of the next two Federal Open Market Committee meetings on June 30 and August 9).

* Only 25% of the surveyed managers believe bonds are fairly valued or undervalued – the comparable number for equities is 83%.

* A net 71% think government bonds will outperform corporate bonds over the coming year. That may reflect the perception that companies are still underleveraged and that the buyout window is still open.

Interestingly, the survey clearly showed that while most global managers talk positively about the stock market’s prospects, they’re speaking with a forked tongue. Indicative of this, a growing number of managers, according to the Merrill survey, are overweight in cash (net balance of 23% last month, versus 17% in March), but the overall cash reserve actually fell slightly to 4.1%. The last time that liquidity was high enough to trigger a liquidity-driven rally was August 2004, when the net balance of overweight cash stood at 30% and the average cash reserve was 4.8%. In terms of individual stock groups, pharmaceuticals are the most loved global sector, while discretionary stocks and banks are the least liked.