Wednesday, December 31, 2014

Expecting markets to tumble by mid-January

When I last wrote I highlighted how uncomfortable I was with the bounce in risk assets after the capitulation in mid-October. This concern only got bigger as risk assets rallied over November simply because the data flow, the news flow, and in particular the price action below the surface in equities was flashing warning signs. Some will dismiss this, but the Hindenburg Omens that US stock markets were giving off in very early December were a clear warning.

Since early December the S&P has dropped over 100 points (5%) and the 10yr Note has rallied over 30bp. Other equity markets around the world have generally fared even worse, and some other core bond markets have done even better. Where do we go from here?

A positive policy shock between now and mid-late January seems unlikely. And it is very difficult to understand what will happen next in Russia and/or what will happen next with respect to OPEC, Saudi Arabia and the oil price shock. Positive outcomes seem very unlikely. So for me the pressure that has weighed on markets over the last two weeks seems likely to continue.

Of course the facts can change, and even more certainly interim bounces can and do occur. But on balance I think the key level to focus on is unchanged from my notes of September and October – a weekly close at or below 1905 on the S&P. This is my first target in this current risk-off leg. It would also mean much weaker equity markets globally (the US markets are a relative safe haven), much stronger core bond markets globally (sub 2% 10yr Notes), the iTraxx XO index well above 400bp, and some reversal in the USD’s strength (the DXY index is already off by 1.5 points from its early December high of 89.5, with 86.5 my next target). And if we get a weekly close in the S&P below 1905, and in particular consecutive weekly closes below this key level, then the October lows (1820 on the S&P) would be the next target. This in turn would give me a target for 10yr Notes closer to 1.75%, the iTraxx XO index closer to 450-500bp, and a DXY index target of 85 or possibly even lower.

I realise that it is not normal to have a bearish risk view for December through to mid-January. Normally markets tend to ramp up in December and early January before selling off later in January. But this year I do think things are different. One look at the moves in core bond markets over 2014, when almost everyone I talked to had been bearish bonds, paints a stunning picture. I would entitle this picture ‘The Victory of Deflation’, or (as many folks now talk about (but still generally dismiss)) ‘The Japanification of the World’. 

I may end up eating my words in 2015 if the US consumer does come through, but if he or she does not, then we may well need QE4 from the Fed to battle the incredibly strong headwinds of deflation around the world. And I will revert on this subject, but to me the coming ECB QE and more BOJ QE are woefully inadequate substitutes for USD Fed QE.

Lastly, and in order to protect myself over the next few weeks against a meaningful bounce (driven by a change in the facts most likely) my stop-loss would be a weekly close in the S&P above 2020 (a key level as per my last note) on a consecutive basis.

Good luck and a Merry Christmas and Happy New Year to all.

Monday, December 29, 2014

More volatility next year 2015 says Bob Janjuah

I will write a 2015 outlook note in the new year. I am still thinking about the key issues, namely global growth weakness and the disinflationary and deflationary winds blowing through the global economy, and how these key twin factors will affect global policy and global markets. 

For now I continue to believe that four very strong deflationary factors are driving things – global indebtedness levels (which have gone UP since the financial crisis), demographics (rapidly ageing populations pretty much everywhere other than sub-Saharan Africa, the Middle East and, notably, India), technology (which is significantly disinflationary) and globalisation (whereby the average global worker has little or no pricing power).

As such, and with the above caveat that I will present my full views and thoughts early next year, as of now I see 2015 as more of 2014. Namely, a stronger USD versus the world, lower bond yields and flatter yield curves with long duration assets in core government bonds markets offering the most value, and much more volatility (I expect to see increased year-on-year volatility in 2015). 

This volatility should make equities an unattractive place to be particularly on a Sharpe Ratio basis (2014 has been bad enough, but 2015 will I think be even worse). And in credit markets it will mean being much more invested in the highest quality assets and much less invested in the riskiest parts of the credit markets – namely USD EM credit and the US high yield market owing to the significant concentration of issuers and issuance in the vulnerable energy and energy-related sectors.

Wednesday, October 22, 2014

Could end of QE3 send the markets down 20 percent ?

I want to remind readers of a message that may be buried in the past:

When QE1 ended the S&P 500 fell just under 20% in a roughly three-month period before the QE2 recovery. 

When the QE2 ended the S&P 500 fell about 20% in a three-month period before the next Fed-inspired bounce (aided by the ECB). 

QE3 is ending this month. The S&P 500 peaked in the low 2000s in Aug/Sept. So, -20% and three months would take us to 1600 by late November.

Tuesday, October 21, 2014

Fed will create policies to weaken US Dollar eventually in future

I think we will see UST 10yr yields closer to 1.5% before they get anywhere near 3.5%, with 10yr Bund yields at 50bp; that China is getting closer to the point where it will have to join the global FX wars – March next year is the focal point for me in this regard; and in terms of the Fed, I think it is 50/50 that we will see the Fed EASING monetary policy from here over the next 12 months vs the risks of the Fed starting a rate hike cycle. 

Here the focus on the US unemployment rate is covering up much weaker employment/aggregate income and deteriorating demographic trends that are playing out beneath the surface. And ultimately I feel the Fed will have to adopt policies that seek to weaken the USD vs the world.

Monday, October 20, 2014

Commodity prices going lower due to lower demand

Some market commentators have expressed a hope that weaker commodity prices, primarily in USD terms, will provide a consumption boost. 

This assumes that commodity prices are softer because of oversupply. I would suggest that the market is ignoring the obvious – that commodity prices are softer due to weak demand. If this is the case, then I see no reason to expect a material bounce in consumption from weaker commodities (other than perhaps at the margin in the US), and as such I see no reason why the price of some commodities cannot continue to fall. Crude may be different as US $80 a barrel is roughly where the world’s big swing producers start to see their profitability vanish.

Friday, October 17, 2014

US consumers key to global economic growth

The drivers of this risk-off phase that I have highlighted repeatedly this year are global growth weakness, deflation, and concerns about policymakers in the euro-zone, Japan, China and, importantly, the US. Broad markets have been looking for decent growth recoveries in Europe and Japan all year, and have been looking for the Fed to start its rate hike cycle. 

At the risk of being repetitive, I will state clearly in my view that we will not see strong sustained economic recoveries in the major global economies anytime soon, particularly in Europe and Japan. 

Global deflation should remain the dominant theme, and I repeat the message from my last note that I do not expect the Fed to be hiking rates for a long time – late 2016/2017 seems to me the earliest possible time that the Fed may hike.

In my last note I made particular mention of the fact that, in my view, the US economy was nowhere near strong enough to offset the deflation it would import and is already importing through USD strength vs EUR and JPY in particular, and this has now become a key market theme. 

In particular, much of the evidence I see points to the fact that the US consumer is neither willing and/or able to lever up to support or boost its consumption (thereby dragging the global economy into a period of sustained stronger growth). I think markets are not fully appreciating the longer-term consequence of the events of 2007 through to 2009 in particular. Confidence has been hit hard in a semi-permanent manner. And in the absence of the US consumer it is not clear who is going to drive global growth, particularly as the growth model for Europe, Japan, and the emerging economies is built around competitive devaluations all designed to boost exports, especially into the US. Governments are retrenching, and the corporate sector, increasingly globally, is focused on financial engineering to optically boost earnings, as opposed to focusing on capex, investment and hiring.

Thursday, October 16, 2014

The S&P 500 will need to recapture 1905 on a weekly closing basis before I change my bearish outlook for the next four to six weeks.

Wednesday, October 15, 2014

Markets could go as low as 1570 on S&P500

In terms of markets, a weekly close on the S&P 500 below 1905 was and remains my key pivot point. The S&P 500 needs to start closing above 1905 on a weekly basis this week and/or next. If this does not materialise this week then, as I said in September, I would start to get very excited, as then the door would be open to a much deeper correction. If we see consecutive weekly closes below 1905 then it would suggest to me that a very deep correction is under way.

So notwithstanding that my 1905 S&P 500 level is key, what would I do now? It seems to me that unless we get a major unexpected policy and/or sentiment shift this week, the S&P 500 will close below 1905 this Friday. I would then target 1770 as the next stop. This would lead to UST 10yr yields at or below 2% and the new iTraxx XO index would then trade well above 400bp, perhaps closer to 425bp/450bp. And if the S&P 500 also fails to regain 1905 by next Friday’s close (24 October), then I think it is entirely possible that by late November the S&P 500 could take out not just 1660/1650, but also perhaps 1600/1570.

Wednesday, September 17, 2014

Bob Janjuah not feeling comfortable about the real US economy

 I remain very uncomfortable, as I do not see the U.S. economy (the real economy, not financial asset prices) strong enough to offset the deflation it will experience as US Dollar continues to climb. Which is why I do not expect the Fed to do anything on the rates/easy money front for a long time.

Tuesday, September 16, 2014

Expect drop in market later this year

I would expect that, if I am right about the next quarter or two, then VIX should hit this target [single digit levels] during this time frame. At that point, positioning for the big turn and reversal of large chunks of the nominal wealth/asset price gains since early 2009 would take over as my key investment strategy.

Wednesday, September 10, 2014

Money printing policy has failed because of this

I have long expected outright ECB QE, and we basically have that now, but I still think the ECB will move to explicit QE in the next quarter or so. Of course that won't 'fix' the real economy in the euro zone, but central banking easy money since 2009 has had very little to do with boosting the real economy and is much more about generating assets bubbles in the hope that it creates trickle-down consumption.

That this policy has failed is clear-the biggest beneficiaries since March 2009 have been the owners of capital (i.e., those who least need wealth gains and who tend to hoard, not spend, such gains) very much at the expense of the masses (i.e., those who most need income and wealth, and who tend to spend and not hoard).

Monday, September 8, 2014

Bullish on for next few weeks

On balance I feel that beyond the next three to four weeks, I am mildly bullish risk on a three- to four-month time frame. The drivers are likely to be central banks, as well as the usual seasonality factor, which tends to drive risk assets up into year end.

I would use any risk asset weakness over the balance of September and early October as an opportunity to BUY risk into year-end/early 2015.

Tuesday, April 22, 2014

1950 is the target up for now

Watch Bob Janjuah of Nomura talk on CNBC on why he thinks the S&P500 could go to 1950.

Monday, April 14, 2014

Markets need consumers to keep spending

We're back to the same gig actually globally...we're all desperately needing the U.S consumer to get silly with debt again.

Wednesday, April 9, 2014

The markets have more upside for now

If you look at the S&P, if you decompose the gains last year, the vast bulk of the gains did not come from earnings or revenue increases, they came from stock buybacks.

For me 1,950 is what I'm looking for on the S&P, so risk-on I guess for another month or so.

I think there's some small upside but I think the other thing is positioning and sentiment got a little bit wiped out earlier this year. And that means I think there's space for markets to get overboard again.

Wednesday, February 12, 2014

2014 market has been challenging

2014 is already proving to be more challenging, more volatile, more illiquid and more bearish than the significantly bullish positioning and sentiment indicators warranted as we came into this year, and way more bearish than the enormously bullish consensus emanating from the sell-side. 

We will see painful counter-trend rallies, perhaps even to marginal new highs – never underestimate the willingness and ability of central bankers to persist with flawed policies – but overall I think the end of the post-2009 QE-driven bull is at hand (or very soon to be at hand) and the onset of the next significant (post-QE) deflationary bear market, which I think will run deep into 2015, should now begin to guide all investment decisions.

Monday, February 10, 2014

3 predictions for 2014

Without turning this into a year ahead-type note, I wanted to highlight what I think could be three big surprises for the year: 

Currency Wars – the big one, China! At what point does China and the RMB say "No Mas?"; 

Japan – what if the squeeze on real incomes and the squeeze on the SMEs is so strong that the BOJ does NOT deliver more new easing beyond March year-end? The JPY has been a one-way trade and is now the major funding currency of the global carry trade – any sign that the BOJ and Prime Minister Abe are blinking would be very difficult for the broader global markets; and lastly, the 

Fed – to taper or not to taper – what if the data become even more volatile and mixed? Does the Fed reverse taper? What about credibility? And what if the PCE reading drops below 1%? Going from over 2% to 1.1% is disinflation and "good" for all assets in a QE world, but a sustained move below 1% is not good for risk assets and growth expectations and would surely prove, once and for all, that QE is little more than money illusion. The new Chair of the Fed may end up with a major credibility gap, having been so wedded to this policy. And what would it mean for Abenomics (albeit in Japan there is at least an attempt to force some real economy reform).

Thursday, February 6, 2014

Weak Chinese data was just excuse for last week sell off

Focusing on the shorter term we think that weak Chinese data are just an excuse for last week’s price action. The reality is that the pressure behind the dam had been building for weeks – there was excessively bullish positioning and sentiment coming into 2014. Fear and greed was at work again. Investors were too hopeful coming into 2014, and last week fear dominated as, so far in 2014, the global data points to very mediocre global growth at best, mediocre earnings, and generally deflationary economic data.

Wednesday, February 5, 2014

QE will fail equities in 2014 - 2015

Of course QE has been a friend for the paper wealth of the top 1%, at the expense of the many, through boosting speculation and financial engineering. 

But as we can all see, QE stopped being a friend of commodities in 2010/11, it stopped being a positive for EM around late 2012/13, has I think stopped being a positive for housing assets from around mid-2013/early 2014, and in 2014/15 the ‘last man standing’ in the QE fan club – equities – will also fall out of love with QE. 

Why? Because as 2014 unwinds the data will I think expose policymakers as falling far behind the curve, persisting with a policy tool, whose ‘success’ is increasingly narrowly based and which is failing to deliver broad-based inflation, growth or any other meaningful positives to the real economy, whose incomes, earnings and cashflows must ultimately validate all financial market asset valuations. 

I think later in 2014 the themes of deflation and recession will dominate, and in the middle of this it will I think be painful to watch Ms Janet Yellen and other policymakers flip flop and attempt to extract themselves from their policy errors.

Tuesday, February 4, 2014

Bob Janjuah reconfirms bearishness long term

 I remain firmly and resolutely structurally BEARISH the post-2008/09 QE driven rally in risk assets. So no change there. 

As the year unfolds in both EM and DM we will I think see that most major and relevant data (economic) and earnings trends will be weak or deflationary. QE has so far failed to create the broad-based real economy inflation in incomes, earnings and productivity needed to get growth going again and thus has largely failed to achieve its primary objective, which was to drive the much-needed post-2008/09 debt deleveraging – heavy indebtedness, now also including the EM bloc, still dominates.

Monday, February 3, 2014

S&P500 needs to capture 1800 short term to go higher

Using the S&P500 as a risk proxy, 1800 and 1770 as weekly closes are now key levels. Intra-week we can bounce around, but we need to see – this week or next week latest, a weekly close above 1800 if we are going to see a quick turnaround and rally back to 1850. In such a case, and as per my note from last week, once we see a weekly close above 1850, then 1950 S&P by April remains the target.

If we cannot recapture 1800 this week or next, then a weekly close below 1770 points to a much more bearish picture for February. A weekly close below 1770 this week or next tells me that the risk/rewards favour a meaningful risk-off move to the low-1700s in the S&P during February, with even 1650 and 1600 possible. In this more bearish short-term scenario I’d expect Ms Yellen and her late February testimony on the Hill to be a catalyst for a bullish turnaround – if the S&P drops 100/150 points in the next 2-3 weeks I suspect that she will then send out extremely dovish signals, which the market will not be able to resist responding to! 

At this point in time, if this is indeed how it plays out, then from late February through to April I’d look to recapture 1800 and then aim for a weekly S&P close above 1850 into end Q1 2013 or April.

Thursday, January 30, 2014

Bob Janjuah worries explained

Just to recap the underlying worries I have, they remain: Global Growth – mediocre at best, in both EM (China, Brazil, Turkey, Indonesia and India – call it 50% of the world – are too big to ignore and stalling hard. They cannot survive the deflation that the eurozone and Japan especially are exporting to them considering their mixed combinations of heavy indebtedness, deficits, uncompetitive labour markets and in particular in the case of China, an FX regime that is hugely deflationary too) and DM (I fully expect the US to disappoint – again, just look at the PCE indicator that is flashing US DEFLATION, and the eurozone is flat at best for growth, has unsustainable debt dynamics and is also a major DEFLATION hot-spot). 

Furthermore, the disparity in wealth and incomes in the West, where the policies of the last five years have only really enriched the top 1% at the expense of the rest is, in my opinion, one of the most unpleasant and unsustainable developments in our societies; Global Demographics – extremely poor everywhere except perhaps India and sub-Saharan Africa – and China, Europe and Japan in particular are major concerns over and above the end of the US baby-boom era; Global Speculation – I live in central London and I can only say what I see; and Global Hope – at a very macro level policymakers were way behind the curve in the period 2004/05 into 2007/08, hence the bubble and subsequent crash, they got ahead of the curve late in 2008/early 2009, hence the recovery in markets, but now again look way behind the curve, persisting with a set of policies that have merely built up speculative excesses again and which are reliant on policymakers continually adding more fuel to the already blazing inferno.

Wednesday, January 29, 2014

2015 selloff can be fairly severe

Beyond this next few months, and with the caveat that the VIX index hitting 10 is a prerequisite, I stick with the view outlined in my November note – that over the rest of 2014 and into 2015 we could and should see a significant reversal of the bull-run since March 2009. 

Not necessarily in terms of systemic panic (à la 2008), but more in terms of the normalization of the (real) cost and availability of capital, of (the true levels of) market volatility, of growth expectations, of valuations, and of incomes and earnings expectations, resulting in the "NPV-ing" of all these factors once markets accept that current (central bank) policies are neither credible, sustainable nor consistent with real economy success.

The only real "success" of these current policies is to create significant investment distortions and misallocations of capital, at the expense of the broad real economy, leading to excessive speculation and financial engineering. 

If I am right about the final outcome over 2014 and into 2015, the non-systemic three-year bear market of early 2000 to early 2003 may well be a better "template". Of course the S&P lost virtually the same amount peak-to-trough in both bear markets, and in real (as opposed to nominal) terms actually lost more in the 2000/03 sell-off than in the 2007/09 crash.

Tuesday, January 28, 2014

Why Bob Janjuah is bullish early 2014

On why the markets can outperform higher early this year 2014:

More of the same I suspect – any weakness in earnings will be ignored (virtually all of last year's equity market gains were NOT earnings or revenue growth driven, but were rather virtually all multiple expansion driven), any bad economic data will be ignored – the weather provides a great cover,  and instead markets will I think see (one last?) reason to cheer the Fed and/or the BOJ and/or the ECB and/or the PBoC. 

In particular, the market will fully expect a more significant BOJ easing after the coming tax hike, and I have little doubt that Ms Yellen will – for now – be dovishness personified once she is officially in charge and starts speaking.

Monday, January 27, 2014

The market will sell off when this happens..

Based on my VIX call, whereby I expect to see the VIX index hit 10 before the onset of the next major risk-off downturn – and beyond the very short term (point "2" above) – I think there will need to be more risk-on over the second half of Q1 2014. 

By the time we get into April +/- a week or so, I expect the VIX index to have traded down to 10 and, during this expected risk-on phase, I would look at 1850 as an initial S&P target. 

Upon a weekly close above 1850, I would not be at all surprised to see a strong risk-on move over the second half of Q1 and into April, taking the S&P into the 1900s, perhaps as high as 1950. It is worth remembering that blow-off parabolic spikes into a meaningful top tend to surprise in their "strength".

Friday, January 24, 2014

Buy the weakness

Markets have moved in a broadly sideways fashion since my targets were hit. I think this reflects the fact that positioning and sentiment had gotten extremely bullish into year-end, too bullish I would say, and with less than stellar earnings and economic data emerging since Christmas we are (so far in January) having to work off these extreme overbought conditions. 

I suspect there may be a little more to go over the next two weeks or so, but unless we see a weekly S&P close below 1800 – which I doubt – I expect this slight weakness to pass. It should instead be considered a tactical buying opportunity.

Thursday, January 23, 2014

Bob Janjuah forecast was on target

The Q4 2013/Q1 2014 forecast was for risk-on, but also I felt we would see one or two bouts of higher volatility and mild selling at the back end of Q4 2013 that I felt would be good entry points for tactical risk-on positioning. I had an S&P target by end-Q1 2014 of 1850 (from 1750), and a VIX target of 10 (from just under 14). It has been very pleasing to capture 100 S&P upside points since this call, and to note that so far the peak in S&P has been (to the point) 1850. 

The VIX rally has also played out directionally but, so far, 12 has been the low point. It is also pleasing to note that we did see some mild weakness in December in the risk-on trade, creating the risk buying opportunities I was looking for, whereby VIX peaked at just over 16 in December before rallying to 12.

Tuesday, January 21, 2014

Bob Janjuah on the 4 tricks on investing

My futile rantings are not going to change the game, and indeed many of you may already be bored stiff with my worrisome ways, but hopefully some of you will take heed and not get too sucked in. 

The trick is 
(a) to remember this, i.e, to be fully aware of the gap between reality and delusion, 

(b) to retain a rock solid appreciation of the differences between 'investing' vs. 'trading', between 'debt' and 'liquidity', and between actual vs. assumed liquidity, 

(c) as investors to ensure that your 'balance sheet' is not unduly damaged in the pursuit of yield - be sure you understand that taking a whole heap more risk now for a bit more carry is likely to be a strategy that ends very badly once the current bubble bursts, and 

(d) to stay on the right side of these 'pairs' - simply put, favour QUALITY.

Tuesday, January 14, 2014

Bob Janjuah still sees a top in Q1 2014

"I still see end Q4 2013, through to end Q1 2014, as the window in which we see a significant risk-on top before giving way, over the last three quarters of 2014 and through 2015, to what could be a 25% to 50% sell-off in global stock markets." - Bob Janjuah via

Wednesday, January 8, 2014

Bob Janjuah explains the 3 delusions

- Delusion no.1 is that these economies will devalue and export there way out of trouble. This seems a nonsense to me as EVERYONE is looking to devalue (a race to nowhere) and EVERYONE is looking to export, but to whom??

- Delusion no.2 is that we can inflate away our debts. This can ONLY work successfully if such a policy of inflation is unanticipated, as otherwise it gets pre-emptively priced into inflation expectations. So it has already failed as AT LEAST half the markets see/expect this as the attempted way out.

- Delusion no.3 is that governments can keep pumping/printing/borrowing, without consequence, and for long enough to hide the private sector deleveraging/deflationary trends. Those limits are pretty much already with us (Greece), or are soon to be with us give or take a few mths (in the UK), or at best give or take a few quarters (in the case of the US). On the basis that private sector weakness is a multi-yr trend, government is NOT gonna be the solution and will become/is now part of the problem as austerity kicks in (Greece 'done', UK in a few mths, then the US later this year).