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.