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Bob Janjuah: Euphoric In The Short-Term, Apocalyptic In The Longer

Tyler Durden's picture





 

Nomura's Bob Janjuah has released his latest Bob's World macro observations which won't come as a big surprise to most. As per the last time he forecast the future, Bob has a very bullish outlook on the short-term, where he sees the market potentially jumping into the 1400s, however turning very bearish into the longer-term: "In this risk-off phase I expect to see, as a proxy, the S&P down in the low 1000s by year-end/early 2012, and of course weaker credit spreads (Crossover over 500), weaker commodities, a stronger USD (DXY Index up at 77.5/80) and lower government bond yields/flatter curves (10 year USTs at 2.5%). In response to this risk-off move, as well as a move in the US unemployment rate to/above 10% by/around year-end, I expect to see policy responses  in the form of QE2 in the UK, QE3 in the US, and in the euro zone deep and meaningful (orderly) debt restructuring for Greece, Ireland and Portugal." As for the catalyst for the transition from the "short" to "long-term" Bob sees the following trigger: "Weak Trend Growth" - "Most policymakers and many in the market are still desperately hanging on to the view that trend growth rates in DM (and EM too) have not been impacted materially as a result of the financial crisis. To me the evidence is clearly ‘in’. The only way DM (and EM) policymakers have been able to deliver even barely acceptable trend growth has been through the use of unsustainable policies which put short-term gains first but which clearly create huge longer term risks to sovereign credit quality and which leave a deeply negative scar in the minds of the private sector, which is attempting to de-lever and which knows it is facing the mother of all tax liabilities going forward." Simply said: no more debt, no more growth: "The reality is that absent a private sector debt binge (the private sector is not that stupid) and assuming we are coming to or are at the end of the line with respect to policy, then DM trend growth over the next 3/5 years will be in the 1-1.5% range." Keep an eye out for ongoing debt trends at the private sector: according to Bob, this will be the key leading indicator for whether the trend at the DM, especially America, which has already been cut by the consensus from 4% to around 3%, is sustainable.

From Bob Janjuah:

Please refer to my last 2 Bob’s World notes (Reinitiating coverage & Vigilantes bite back) where I have outlined my market call for the next few weeks and months. As market developments and price action are very closely tracking the views I set out in my previous 2 notes, nothing has changed for me but I want to add some clarity. This really will be my last note before my summer break! In no particular order:

1 – Multi-day/Multi-week: To reiterate as clearly as possible, tactically I remain bullish the risk-on trade for now, and I expect to see, as a risk proxy, the S&P up at 1350/1370 over the next 4 weeks. Risk-on also means tighter credit spreads (Crossover at 370), higher government bond yields (10 year USTs at 3.4%),  steeper curves, strong commodity prices and a weaker USD (DXY Index at 73.5). The key drivers of this risk-on phase will be (compromised) deals relating to both the current US and euro zone debt issues. I do not see any solutions to the debt problems in any part of the DM economies anytime soon, but I do see fudged deals on the current live issues. I think Obama will ‘blink’ in the US and accept de facto a 1 year deal. And in Europe I expect another push by politicians to deliver us another round of ‘shock and awe’ headlines, mostly around the EFSF. In addition I think we will see ongoing ‘talk’ on the prospects of more QE3, a little more of the post-tragedy Japan bounce, and a settling down of the concerns around Italy, which to me, as long as the outcomes of last week (pro-Tremonti) can be executed, would take Italy firmly back into the core and away from the periphery.

To be clear, there are risks to this view, especially around the 2 big current debt issues in the US and the euro zone. As such, this week and next week can be volatile with markets responding to all/any headlines. But I think the big risks here are that we will get ‘agreements’ and, taken together with what is clearly very negative investor/market sentiment right now, and ‘gappy’ illiquid markets, I think risk markets may surprise to the upside over the fullness of August. And I would not rule out an overshoot, into September, where, as a proxy for this tactical risk-on phase, S&P gets into the 1400s (1440 tops I think). Which in turn will mean even tighter credit spreads, higher commodity prices, higher core government bond yields and a lower USD than the targets reiterated above.

After some further work I feel that over the course of the next 5/10 days, and again using the S&P as a proxy, my bear alert stop-loss to my tactically bullish call is at 1280. If we close below this level for more that 3 or 4 consecutive days then I will have to admit defeat and consider a much more immediate negative outcome for risk. The US debt ceiling issue will I think be key here.

2 – Multi-week/Multi-month: I remain very firmly bearish and risk-off, and based on what I can see now September/October is likely to be the pivot point from risk-on to risk-off. The key drivers will be the (latest!) inevitable breakdown of confidence in the sustainability of the euro zone absent restructuring (I see the outlook for fiscal union as extremely unlikely) , global growth concerns and heightened concerns around the fast diminishing policy options left open to DM policymakers, the ineffectiveness of policy to date and, linked to this, rapidly deteriorating policymaker credibility. In this risk-off phase I expect to see, as a proxy, the S&P down in the low 1000s by year-end/early 2012, and of course weaker credit spreads (Crossover over 500), weaker commodities, a stronger USD (DXY Index up at 77.5/80) and lower government bond yields/flatter curves (10 year USTs at 2.5%). In response to this risk-off move, as well as a move in the US unemployment rate to/above 10% by/around year-end, I expect to see policy responses in the form of QE2 in the UK, QE3 in the US, and in the euro zone deep and meaningful (orderly) debt restructuring for Greece, Ireland and Portugal.

Quite clearly I see the shorter-term tactical risk-on phase as also setting up a big and painful risk-off phase over the latter part of 2011 and 2012, as positioning and sentiment clearly need to get more bullish before we can get the kind of market weakness I am forecasting.

At this point it is worth repeating something to those looking for a ‘trigger’ to the risk-off phase. I think it’s as simple as 3 words: Weak Trend Growth. Most policymakers and many in the market are still desperately hanging on to the view that trend growth rates in DM (and EM too) have not been impacted materially as a result of the financial crisis. To me the evidence is clearly ‘in’. The only way DM (and EM) policymakers have been able to deliver even barely acceptable trend growth has been through the use of unsustainable policies which put short-term gains first but which clearly create huge longer term risks to sovereign credit quality and which leave a deeply negative scar in the minds of the private sector, which is attempting to de-lever and which knows it is facing the mother of all tax liabilities going forward. The reality is that absent a private sector debt binge (the private sector is not that stupid) and assuming we are coming to or are at the end of the line with respect to policy, then DM trend growth over the next 3/5 years will be in the 1-1.5% range. This I think is the key. Yes, there is too much debt in the balance sheets of the DM economies, particularly at the sovereign, bank and consumer levels. But if we all had confidence that DM trend growth rates could sustainably be 150/200bps higher than my expectation, then these debts would not be a major issue. However, at the kind of trend growth rates I expect to see, debt is a major problem, as are excessive risk asset values, as well as excessive ‘entitlement’ expectations. Once the market is able to see the limits of policy, and once the market is able to see through the excuses (of ‘soft patches’), then it is inevitable that we see a significant re-price lower of earnings expectations, of incomes, of asset values, and a genuine (rather than hypothetical) acceptance that living standards, especially in the DM economies, are going to be materially lower over the next 5/10 years than current consensus expectations/forecasts. EM economies will also see weaker trend growth, but they in general have strong balance sheets, huge flexibility in taxation and labour markets, and very low levels of entitlement expectations. Hence these (and similarly positioned DM economies) will ‘outperform’.

More on this later, once I am back from my break.

 


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Sat, 07/23/2011 - 15:04 | Link to Comment rajat_bhatia
rajat_bhatia's picture

The debt deal is gonna get resolved,and my gold shorts are gonna pay me Big Time!!! heehehe

Sat, 07/23/2011 - 15:10 | Link to Comment kito
kito's picture

unless the repubs are able to prevail, and there are massive cuts, short term gold wont care. a huff puff and fluff deal wont ding the mighty metal.

Sat, 07/23/2011 - 15:14 | Link to Comment rajat_bhatia
rajat_bhatia's picture

It will, Gold is Going Down baby!

Sat, 07/23/2011 - 15:31 | Link to Comment malikai
malikai's picture

It will go down. Right after you cover. Risky play there over the weekend especially.

Sat, 07/23/2011 - 16:09 | Link to Comment flaunt
flaunt's picture

You're some kind of troll considering you have been posting on other threads that you went long on Friday.  Regardless, you're probably right both gold and silver will take a hit when the inevitable resolution occurs, because that's how naive the markets are right now.  So it plays right into the mentality of people like you.  Question is will you be smart enough to consider yourself lucky and take the money and run, or will you hold on thinking you're smart and gold is going to zero?

Sat, 07/23/2011 - 16:32 | Link to Comment There is No Spoon
There is No Spoon's picture

down to what, from where? if gold spikes to 1800 before the debt ceiling is resolved, then comes back down to 1600, you've made nothing and maybe even panicked and covered at a loss. better to wait and see how bad things get before shorting something in such a strong, sustained uptrend.

Sat, 07/23/2011 - 21:09 | Link to Comment AmCockerSpaniel
AmCockerSpaniel's picture

Don't TRADE gold. Just buy the physical, and hold till 2016.

Sat, 07/23/2011 - 16:45 | Link to Comment Madcow
Madcow's picture

why ? 

now, there's no longer any hope of a serious dollar-strengthening change in Washington. Curious to hear your reasoning - 

 

Sat, 07/23/2011 - 19:33 | Link to Comment tom
tom's picture

Good luck with that, Rajat. I'm not one of these sticks-in-the-mud who gets all up in a huff when somebody suggests short-term tactically shorting one of my favorite long-term longs. Be consistent in your outlook, bipolar in your trading, that's my motto. I don't see how anything else can work in these majorly manipulated markets.

I expect a deal in time to avert default, but only by the skin of their chinny chin chins. So you'd better be hovering over that terminal ready to cover, cause I see a spike coming before any retreat. And what's more I don't see gold making any significant retreat from 1600. There will be a deal but a disappointing one. The Rs will get the extension of Bush tax rates that they are holding out for, and the rest will just be fluffy declarations of intentions. It will be short-term bullish for stocks and long-term bullish for gold.

Sat, 07/23/2011 - 15:28 | Link to Comment ViewfromUnderth...
ViewfromUndertheBridge's picture

that Korea Research chart showing the sell-off on the news of ceiling hikes is pretty convincing...so rb coud be right this time again...but this close (10%ish, thank you Jim Sinclair) to rocket-fuelled parabolic take-off...what is that saying? pennies in front of steamrollers...

Sat, 07/23/2011 - 15:39 | Link to Comment Re-Discovery
Re-Discovery's picture

Timing is everything.  Any announcement of a 'deal' this weekend wil be instantly rejected by the die-hards on each side.  Then sometime Monday or Tuesday the vote counters will announce they have the votes. 

At which point, the question will be 'where is the price of gold'?  The gold market has a lot of cross-currents right now so -- while I expect a move down when the votes are in place -- I dont expect a massive sell-off.  The sauage making has been TOO gross this time.  So good luck shorts.  Hope you time it right.   Dont wait too long to get back long . . . if you can.

Sat, 07/23/2011 - 17:31 | Link to Comment Quinvarius
Quinvarius's picture

How is the debt situation going to get resolved?  LOL  Did our gold supply suddenly become worth 14 trillion dollars?  No?  Then nothing is getting resolved.  We have no assets to balance our debt.  Just a printing press.

Sat, 07/23/2011 - 18:57 | Link to Comment oldman
oldman's picture

No one has to balance their debts              they simply fail

Sat, 07/23/2011 - 17:31 | Link to Comment Cdad
Cdad's picture

@ rajat

Like every status quo defender, you fail to recognize that our current president wants a debt downgrade/default.  Too many of you guys have forgotten who Obama is.

Good luck out there.

Sat, 07/23/2011 - 17:41 | Link to Comment living on the edge
living on the edge's picture

and my gold shorts

Are you referring to your underwear?

Sat, 07/23/2011 - 15:05 | Link to Comment falak pema
falak pema's picture


Bob Janjuah: Euphoric In The Short-Term, Apocalyptic In The Longer

That's called the Viagara syndrome... good luck as Amy Winehouse paid for us all. In her own way. She died an inimitable poet, but a 'hooked on dope' one. Like all of her own kind; brilliant but unstable.

Sat, 07/23/2011 - 15:26 | Link to Comment turds in the pu...
turds in the punchbowl's picture

an honorable death - remember when this was par for the course? - those days before rockstars grew old and married amputees or pledged to feed the skinnies of the dark continent; where the food ISN"T.

 

Sat, 07/23/2011 - 15:19 | Link to Comment oblonsky
oblonsky's picture

i think now with the US current account deficit as a percentage of GDP down to sustainable levels, gold's best days are behind it. 

Sat, 07/23/2011 - 15:33 | Link to Comment ViewfromUnderth...
ViewfromUndertheBridge's picture

and when it turns to surplus you will be even more confused...Martin Armstrong has some eye opening views for you on this topic...hint, Capital Flight

Sat, 07/23/2011 - 15:22 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

I really think that no matter what is done by .gov and the Fed that there is no way to avoid great pain.

Of course, some roads will lead to greater pain than others.

Sat, 07/23/2011 - 15:23 | Link to Comment AustrianEconomist
AustrianEconomist's picture

Only a restructuring of the international monetary system and its underlying economic theories will help resolve the sovereign debt crisis in the US and Europe.

Check out the latest from the Capital Research Institute (CRI):

The Financial System - A House of Cards

Sat, 07/23/2011 - 15:51 | Link to Comment THE DORK OF CORK
THE DORK OF CORK's picture

Its obvious one of the Tylers has a man crush , unless unless its a act of self love Bob

 

Sat, 07/23/2011 - 16:01 | Link to Comment PulauHantu29
PulauHantu29's picture

Wait a mintue. Is Bob implying that His Majesty cannot inject an $800 Billion QE Bolus into the economic arm every 6 months?

Sat, 07/23/2011 - 16:19 | Link to Comment Madcow
Madcow's picture

Money = Debt. 

Now that credit is no longer expanding voluntarily, you have deflation, as confirmed by PMs. 

Anyone dependent upon "income" is f*d - 

 

Sun, 07/24/2011 - 00:46 | Link to Comment Aloysian
Aloysian's picture

Madcow.

assuming your short gold at $1600, lets see how it goes whenever you post again

Sat, 07/23/2011 - 16:59 | Link to Comment valuetrader
valuetrader's picture

I think the points of this piece make a lot of sense - low growth and decreasing living standards. The policy response, especially in the UK and US, will be currency debasement in order to 'stimulate' the economy and lower the debt burden through inflation. At the same time inflation will be reported fairly low to make sure that people are content (although going to the supermarket should open their eyes), additional QE easy to justify and various entitlement adjustments (linked to CPI) kept low. How many Nobel prize winners, professors and other geniuses do we need at CB's to convince us that this is the path to prosperity? Meanwhile, we are going to face higher costs on everything. I am not convinced that the $ can strengthen much as the FED is trigger happy and likely to meet any significant strength with a wall of QE. Gold is the best investment in this unfortunate situation but there maybe better entry points (I doubt it but it is a market that moves up and down).

On the policy side I think that the idea is to gradually inflate the debt using negative real yields. This is very clearly the idea in the UK (check all BOE letters) but the rest of the DM are not far behind. Of course, if you manage to maitain this gradual currency debasement for say 15 years, you are likely to see lower debt levels (assuming you also cut annual deficits somewhat). The side effects will be much lower standards of living and slow growth. I think that a substantial risk is that the market starts pricing this now rather than gradually which can bring substantial volatility in FX and bond markets. We are going to see this volatility as some point but timing is uncertain. All fiat currencies are suspect and there is no CB under the sun you can trust these days. 

Sat, 07/23/2011 - 19:10 | Link to Comment oldman
oldman's picture

Well said, VT

I have a question, however, about 'growth'.

What happens if one morning we wake up to the news that the world population has flattened and if we do not continue to increase in population because unequal distribution of wealth, growth will be negative for the balance of the century?

This is the black swan aside from Fukushima that has occupied my mind now for some time. What do we/they/us do in a scenario that no one expects might be underway already?

thanks in advance               om

Sun, 07/24/2011 - 06:43 | Link to Comment malikai
malikai's picture

That's not a black swan, that's mother nature reasserting her control over this place. We should be so lucky that population would plateau and decline slowly. The more likely outcome is that mother nature does us with another plague or famine to get our numbers back in check. That's when you need to worry.

Sat, 07/23/2011 - 17:24 | Link to Comment sabra1
Sat, 07/23/2011 - 17:38 | Link to Comment Atomizer
Atomizer's picture

That headline has been lingering for over 10 years. Don't you see the debt ceiling comedy? How can you fund another war without raising taxes and raising the debt ceiling? Riddle me?

Sat, 07/23/2011 - 17:28 | Link to Comment Cdad
Cdad's picture

Nice fucking crystal ball/Ouija board stuff here, Bob Janjuahweed.  Anyone who thinks he can accurately predict such short term movements in the broader indexes is one of two people:  A.  a pumper [about to sell] disguised as a mystic  B.  a guy plugged into the inside HFT/TBTF plan for the indexes.

Both of those guys are assholes.  

Bring on the debt downgrade and default...if only to get rid of guys like this once and for all.

Good grief.

Sat, 07/23/2011 - 17:44 | Link to Comment Atomizer
Atomizer's picture

I agree with you half way. They intend to take down all $$ indexes at once, to form a new currency under Basel III accord. We still have a battle ahead of us.

Sat, 07/23/2011 - 20:02 | Link to Comment tom
tom's picture

I like Bob. The best forecasters usually get the general picture right, rarely the timing. The forecasters who get the timing right are usually just broken watches who happened to be right at that time of day.

Weak trend growth is exactly the problem. But also, the credit cycle is turning. I know that's hard to believe - the last credit cycle was so huge and lasted so long, people have been trained to expect that this one would be similar.

I count the positive turns in credit cycles at the point where the pace of ex-fin private credit contraction starts to slow, and the negative turns at the point where the pace of expansion starts to stlow. Ex-fin private credit is still expanding, but at a slower pace than last year. That means credit expansion is making a smaller contribution to GDP. That means the pace of credit expansion is making a negative contribution to GDP growth.

Sat, 07/23/2011 - 20:13 | Link to Comment oogs66
oogs66's picture

I was just thinking the same thing.  Great big picture guy.  Awful short term most of the time.  Occassionally has the 10% stop/loss...hmmm, my boss will never let me lose that much, but pay attention to his longer term.  usually good, and often done with less pressure from his trading desk

Sat, 07/23/2011 - 23:57 | Link to Comment Ted K
Ted K's picture

Bob Janjuah: "The reality is that absent a private sector debt binge (the private sector is not that stupid)

Oh, yeah Boberooni, like those CDS and derivatives the banks didn't capitalize for, and General Motors, Chrysler, AIG.  MCI Worldcom, Enron.  Bear Stearns, Lehman.  No those private sector motherfuckers would NEVER be that stupid.  The community banks the last 3 years in FDIC receivership.  The LA Dodgers. The New York Mets.  The average American housewife with her credit cards, the number of families with ARMS mortgages screwing them up the ass.  No no no, Bobberooni you sure got that right buddy, the private sector would NEVER be that stupid.  Newt Gingrich and his 3rd wife at the Jewelers. "W" Bush and his oil ventures......  I can't think of anyone in "the private sector" who would ever be that stupid.  


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