In the next 2-4 weeks I would not be surprised to see the S&P500 hit 1400/1450. In the ensuing 4 months (i.e. by the end of November), however, I expect global equity markets will fall by 20-25% from current levels and to trade at or below the lows of 2011! That would bring the S&P500 down to 1100/1000. That’s not all. In December I expect the Fed will introduce a $1 Trillion QE. Words: 921
So says Bob Janjuah, the current Nomura Fixed Income Contributing Strategist, in a post* at www.zerohedge.com entitled Bob Janjuah: “You Have Been Warned” posted by Tyler Durden.
Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!) and www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) has edited the article below for length and clarity – see Editor’s Note at the bottom of the page. This paragraph must be included in any article re-posting to avoid copyright infringement.
Janjuah goes on to say, in part:
Herein I provide an update:
1 – The global growth picture is…weak and deteriorating – in the U.S., in the eurozone and in the emerging markets/BRICs.
- The growth weakness is driven by a shortfall in true end global demand. We think the consensus is most off-target in its still too bullish growth expectations for the U.S. and the EM/BRICs complex.
- The softness in the manufacturing/industrials and basic materials/oil and gas sectors is the most worrisome trend as Western service sectors are already seeing either very weak, or close to zero, trend growth.
2 – We…also think the market consensus is far too optimistic on policy expectations both in terms of the likelihood of seeing more (timely) fiscal and/or monetary policy assistance (globally), and in terms of any meaningful and/or lasting success of any such policy moves.
In particular, we think that the period August through to November (inclusive) represents a major global policy and political vacuum.
- In the eurozone the political ‘impasse’ and the restrictions on (and lack of credibility of) policy are well known and central to the problem.
- In the U.S., the election cycle means no major policy initiative is likely from either Washington or the Fed until later in November, at best.
- In China, the leadership changes suggest only very minor policy inputs/assistance, most likely until the very back-end of 2012 or possibly not until March 2013.
3 – Jackson Hole may bring a bit of MBS buying by the Fed, but this will, we think, have a minimal positive impact on the real economy or on markets.
- In fact, if it were to happen, we would view it as a very weak move by the Fed and a true representation of how toothless the Fed is – and will continue to be – until after the presidential elections.
- Furthermore, before the Fed does it’s next major round of QE (I expect $1Trillion in December)…the market will be forced, in my view, to price IN the fiscal cliff into its 2013 growth and earnings forecasts. This is unlikely to be pleasant, and I would say be very wary of any messages that say that the fiscal cliff is either not important or is already priced in. The fiscal cliff issue is a substantial downside risk and is NOT currently priced in, according to our metrics.
4 – In the eurozone, full fiscal and political union is the only credible answer, but this is unlikely to happen smoothly or anytime soon. We may be talking years, but certainly many quarters.
- The only likely credible ‘interim’ holding event, which I think would likely meaningfully alter the asymmetry of risk in the eurozone is full, unlimited, explicit QE by the ECB….but NOT UNTIL the eurozone inflation data are deeply and meaningfully and consistently deflationary.
- When deflation comes the ECB will use its ‘price stability’ mandate to justify outright QE even while the politicians are arguing. HOWEVER, I think the data will not provide the ECB with the necessary air-cover until Q1 2013 at the earliest….
- In my view, the ECB will also have to deal with the likelihood that sovereign PSIs/defaults/debt restructurings are going to be seen in Portugal, Greece (again!), Spain and maybe Italy….
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5 – The very significant parabolic push higher in the price of soft commodities… is likely to hamper both global growth AND the willingness and ability of policymakers to further debase, pump prime and print substantial amounts of money.
- I think that core CPI will deflate, especially in the eurozone, but that headline (food) CPI will easily offset any relief from lower gasoline/crude prices and will make central bankers very nervous about further distorting the price and supply of money, for concerns about setting off a substantial stagflationary spiral….
6 – In the next 2-4 weeks I would not be surprised to see the S&P500 hit 1400/1450.
- I now think the correct thing to do…is to prepare for a serious risk-off phase between August and November (inclusive).
7 – I expect over the next 4 months (i.e. by the end of November) to see global equity markets fall by 20-25% from current levels and to trade at or below the lows of 2011! That would bring the S&P500 down to 1100/1000!
- US equity markets, along with parts of the EM spectrum, will underperform eurozone equity markets, where already very little hope resides. NOTE however that investment grade cash corporate (non-financial) bonds remain a core (relative!) safe-haven.
- This four-month coming major risk-off phase will also be very USD bullish (my expectation of a Fed $1 Trillion QE in December should eventually alter the bullish USD trend of course) and bullish core government bonds (USTs, Gilts, Bunds).
- By late 2012, based on my Fed December QE view, my tactical call will likely turn bullish/risk-on…
I still see a very clear path to 800 on the S&P500 at some point in 2013/2014, driven by market revulsion against pump-priming money printing central bankers….
You have been warned!
*http://www.zerohedge.com/news/bob-janjuah-you-have-been-warned (To access the above article please copy the URL and paste it into your browser.)
Editor’s Note: The above posts may have been edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.
If you are angry about LIBOR – angry that 18 banks can set one of the world’s most important interest rates in such a poorly supervised, ill-understood manner – you should be even angrier that just 12 people sitting in a room can set the world’s single most important interest rate to suit the needs of the stock market, all under the pretence of controlling inflation? Let me explain. Words: 810
The US Federal Reserve, which has been the life-support for the U.S. economy (for better or for worse), is finally discovering that its policies and theories don’t actually apply [in] the real world….This means that the primary prop underneath the U.S. stock market and financial system (namely Fed intervention) is slowly being removed. What follows will not be pretty and smart investors should be taking steps now to prepare in advance. Words: 350
Nouriel Roubini thinks things could get bad after the U.S. presidential elections in November, so bad that the Fed may not be able to prevent the next stock market plunge, and may even go so far as to buy stocks to keep things afloat at some point. Read on to find out what else Dr. Doom thinks might be in store for us.] Words: 310
The American Association of Individual Investors (AAII) released its latest sentiment readings yesterday…[which showed that] bullish sentiment dropped a full eight percentage points to 22.19%, the largest weekly decline since April 12….Now that virtually no one is optimistic about the stock market, that’s all the more reason we should be bullish. You see, during the current bull market, when bullish sentiment drops below 25%, stocks (almost) always rally over the next three and six months. Take a look. Words: 384
The Q Ratio is a popular method of estimating the fair value of the stock market developed by Nobel Laureate James Tobin. My latest estimates [suggest] that the broad stock market is about 33% above its arithmetic mean and 42% above its geometric mean……Periods of over- and under-valuation can last for many years at a time, however, so the Q Ratio is not a useful indicator for short-term investment timelines [and, as such,] is more appropriate for formulating expectations for long-term market performance. [Let me review the Q ratio with you, along with several graphs, so you can clearly understand what the Q ratio is, how it works and what it is currently conveying.] Words: 800
Goldman Sachs reports their Global Economic Indicators (GLI) show the world has re-entered a contraction and…is predicting a market crash worse than that of the early 90′s recession and one slightly less than the sell-off at the turn of the millennium. [Below are graphs to support their contentions.] Words: 250
Marc Faber has stated in an interview* on Bloomberg Television that “I think the market will have difficulties to move up strongly unless we have a massive QE3 (something Faber thinks would “definitely occur” if the S&P 500 dropped another 100 to 150 points. If it bounces back to 1,400, he said, the Fed will probably wait to see how the economy develops)….. If the market makes a new high, it will be with very few stocks pushing up and the majority of stocks having already rolled over….If it moves and makes a high above 1,422, the second half of the year could witness a crash, like in 1987.” Words: 708
Investors are being told that the worsening sovereign debt crisis in Europe will leave the U.S. economy unscathed….[because,] since we don’t make many things to export to Europe, our GDP won’t suffer a significant decline at all…. What [has been] conveniently overlooked, [however’] is the fact that 40% of S&P 500 earnings are derived from foreign economies and the seventeen countries that make up the Eurozone have collapsed into recession. [Let me explain what effect that will have on the performance of the S&P 500 this summer.] Words: 325
…[V]iewed objectively, the world currently stands at the precipice of an even greater crisis than the one in 2008-2009 but you wouldn’t know it by looking at US stock prices. The S&P 500 is down only about 10% from its peak levels in October 2007 compared to the leading indicator stock markets in Spain, Italy and China which…are all down by 60% or more since their peaks. It is folly to think that the S&P 500 index can long withstand simultaneous conflagrations in those countries because, as their economies go, so too will the entire global economy and [that is bound to adversely affect the U.S. as] close to 50% of all S&P 500 earnings are derived from outside the U.S.. Words: 840
We are continuing to see ongoing pessimism among individual investors about the short-term direction of stock prices [but if you are a contrarian you should bet on a continued rise in stocks despite the continued sense of unease. Let’s take a look at a few charts that tell the story.] Words: 510