Bob Janjuah - "Hopefully, For All Our Sakes, The Bubble Bursts Sooner Rather Than Later"

Tyler Durden's picture

Submitted by the man himself in all its epilepsy-inducing grammatic glory. As always read this in parallel with Seth Klarman's lessons.

In my last cmmt I said the rebound from the initial S+P sell-off (from 1150 to 1045) would get us back to 1080/1100, before resuming the downtrend. As a cautionary 'stop' I highlighted 1120 as a key level for the rebound and said that 3/4 consecutive closes above 1120 would CHGE the tactical view - in such an outcome 1150 and then 1220 S+P would be the tactical objectives. Whilst - so far - we have had one marginal and only 1 meaningful close above 1120, I wanted to highlight as early and clearly as possible the potential for this new BULLISH tactical outcome to become THE CALL for the weeks ahead.

I know I will always be labelled a perma-bear, and I have given up on the idea that (at least some) folks will ever understand/appreciate that occasionally I do make bullish calls (most notably early in 2009!). But for those who do follow/read my work in more detail I want to be crystal clear: If S+P closes above 1120 for the 1st 3 days of this week, 1150 and 1220 are next. If not - if we fall and close below 1120 on 3/4 consecutive closes this week/early next, then the odds are high of a resumption of a downtrend which shud take S+P to sub-1000 over the next mth or so.

With that said I want to finish off with some longer terms messages:

- the Big Reality over the next 3/5 yrs, esp. in the bad balance sheet countries - the UK, the US, Japan, big parts of Europe - is a long period of balance sheet repair which will mean weaker grwth for longer, deflation, weaker incomes, softer employment outlooks, more savings, more taxes, and less spending.

There is NO sustainable prvte sector demand, and there really won't be any for some yrs.

- 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 wrk 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 mrkts 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 qtrs (in the case of the US). On the basis that prvte 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).

- delusion no.4 is 'the weather'. What a load of tosh. Frankly I am shocked the 'mrkt' collectively has fallen for this rubbish.

Anyway, due to the above 4 delusions the mrkt - as ever dominated by FEAR and GREED - is already badly mispricing the Big Reality and risks taking this mispricing YET AGAIN to horrible bubble proportions over the next few weeks/mths. YES - we have learnt nothing!

At some point the bubble will burst. Hopefully for ALL our sakes its sooner rather than later. The longer we are forced to wait, the bigger the bubble will be and the more horribly damaging the bursting process will be. And if we are forced to wait and the bubble gets anywhere like the one that went pop in late 2007 I have ZERO idea who will credibly be able to bail us all out the next time round. Certainly not OUR governments.

The gap between the fantasy in mrkts, which is being heavily touted by most of the sell-side, vs the reality of the real economy/prvte sector, is already worryingly large but risks becoming dangerously large. I am staggerred that folks who are paid to spot such things not only missed the biggest eco/mrkt disaster of our times, but are now cheerleading the 'recovery'. It seems to me that we are once again in the zone where policymakers and their willing partners on the sell-side are convincing the 'mrkt' that nothing can go wrong again and that worrying abt debt is just foolish. The same fantasy which said that house prices could never go down and that CPDO was a brilliant idea is now reforming/taking hold so that investors are once again chasing yield with little/no appreciation for the true risks being taken.

My futile rantings are not going to chge 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.

Those that do will I think be the real multi-yr winners. Those who don't might see/rept a few decent qtrs (q2 09 thru to some point in h2 10), but ultimately will likely suffer so much when the current bubble bursts that they'll wish they 'had'.

Cheers, Bob

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Madcow's picture

Wall Street is broadcast center for delusion. Analysts, traders, and politicians in New York, Washington, London, and Brussels do NOT see (or at least acknowledge) that the supply chains supporting the private economy are falling apart. 

Google "sudden stop" for a glimpse of the future.  

 

disclosure: long peanut butter, dried beans, propane, seeds, and fertilizer.

Missing_Link's picture

Wall Street is broadcast center for delusion.

This.

WaterWings's picture

Ooh, goody.

The term “sudden stop” was inspired by a banker’s comment on a paper by Dornbusch and Werner about Mexico, that “it is not speed that kills, it is the sudden stop”.[2]

Sudden stops are commonly described as periods that contain at least one observation where the year-on-year fall in capital flows lies at least two standard deviations below its sample mean[3]. The start of the sudden stop period is determined by the first time the annual change in capital flows falls one standard deviation below the mean and the end of the sudden stop period is determined once the annual change in capital flows exceeds one standard deviation below its sample mean.

 

http://en.wikipedia.org/wiki/Sudden_stop_%28economics%29

Disclosure: sealed #10 cans (~25 years) of the above food stuffs, plus solar energy/oven, and 7.62 FMJ

Cognitive Dissonance's picture

I assume you will willingly hand over those 7.62 Full Metal Jacket beauties along with the weapon that fires them when you're asked nicely to disarm, right?

WaterWings's picture

Chuck Heston sez:

http://www.youtube.com/watch?v=O0B_UZNtEk4

"And how we burned in the camps later, thinking: What would things have been like if every Security operative, when he went out at night to make an arrest, had been uncertain whether he would return alive and had to say good-bye to his family? Or if, during periods of mass arrests, as for example in Leningrad, when they arrested a quarter of the entire city, people had not simply sat there in their lairs, paling with terror at every bang of the downstairs door and at every step on the staircase, but had understood they had nothing left to lose and had boldly set up in the downstairs hall an ambush of half a dozen people with axes, hammers, pokers, or whatever else was at hand?"

 

Nobel prize winner Alexander Solzhenitsyn

 

http://www.lewrockwell.com/gaddy/gaddy53.html

carbonmutant's picture

 I'm sure that people along our southern borders will take a strong interest in how that progresses.

Real Estate Geek's picture

+1, except instead of 7.62FMJ, it's surplus .30-06 in my case. 

If an M1 Garand was good enough for my relatives in WWII & Korea, it's good enough for me.  (Plus, I love the "ping" when the clip ejects.)

http://www.youtube.com/watch?v=W9d01zAmnMY

Mr Lennon Hendrix's picture

Long olive oil and other cooking oils, butter, sugar, salt and other spices, rice, batteries, gold bitches and silver snitches, cereal, honey, green tea, other teas, coffee, a generator, some handy knives, a tool, some good books, a four season tent, a decent sleeping bag, canned foods (ie tuna and jams), bleach, and a lot of tabasco.

wejn's picture

Hm. You're forgetting so many things it's not even funny.

toilet paper, antibiotics, soap, laundry detergent, lye, other basic chemicals.

I could go on and on, but I guess you get the idea.

10044's picture

"We have learnt nothing"
Actually "we" have, "THEY" haven't! That's why we buy GOLD bitches!!

Anonymous's picture

I'm thinking of getting rid of the lawn and planting potatoes. It's only a few square meters, being a normal Dutch backyard, but every little bit helps, doesn't it?

nedwardkelly's picture

Yeah, but much like stocks, you'll want to diversify your vegetable portfolio. Mix up the crop a little in case the spuds get the blight. There's a lot you can translate from stock investing to growing vegetables :)

chumbawamba's picture

I think that's a fine idea.  I've been contemplating doing the same myself with my front lawn.  It's a mess anyway since the sprinklers broke down years ago and I never bothered fixing them because fuck the lawn.  It's only costing me money to water it and pay some poor laborer to come mow it and clean it up occasionally, and if I don't the city apparently has the funds to send someone out to stick a stupid notice on my door about the "overgrown vegetation".  Overgrown vegetation?  Bitch, those are green shoots!  Don't you know there's a recession on?

Meanwhile, it doesn't do shit for me.  Even if I did have time to spend lounging around on a full, luscious lawn, drinking some brews and taking in the rays on an outdoor recliner amidst my personal savannah, it's just not worth the ROI.  Dogs and cats from the neighborhood use it as their personal toilet, pissing and shitting all over it, and the weeds have made themselves at home as well.  If I wanted a high maintenance money drain I would've kept my first wife.  Lawns are a liability, not an asset.

No thanks, I'd rather turn it into something productive, in full view of the neighbors so that hopefully they'll get inspired and start their own garden.  The last thing I want is every unprepared softie coming to me when the local Safeway is barren hitting me up for some squash.

I am Chumbawamba.

Justin Credible's picture

Sorry to go off topic from the BJ piece, but I am glad to have finally found someone with the same viewpoint on lawns and grass as I have.  It's my belief that one day, we will look back as a civilization and wonder why we spent so much time, energy, money, sweat, fertilizer, and water to grow grass on dirt outside of our residence.  Horrible ROI, unless you're definition of ROI includes outdoing your neighbor's landscape.

I live in CO - grass is not supposed to grow here.  Quit fixing the sprinklers - they just always break again.  Told my neighbors "I'll let God decide where my grass will grow" (am not religous in that way). 

 

Sadly, I receive no incentives for consuming far less drinking water (to blow all over the dirt) than my neighbors who constantly water.

 

Of course, if I were a wealthy hedgie living in CT, I'd probably have a lush lawn and a fleet of landscapers who manicured it at least once/week.

 

God bless America.

 

carbonmutant's picture

"Lawns are a liability, not an asset."

Try selling a house without one

chumbawamba's picture

No problem, I still have equity :)  And after the loan modification, I have a variable payment for the first five years leading up to a fixed 5.x% interest rate that will then stay with me for 30 years.

By the time I'm ready to sell, a front yard garden will be an asset, and a selling point.

I am Chumbawamba.

Anonymous's picture

Is that true?
Is the highly leveraged guy with horrible personal finances advising others on this site to buy gold because borrowing is too pervasive?

Chumba, you spout on and on about certain financial sovereign default, yet you yourself are a party to the stupidity. Yes, some on here are actually debt free. Imagine that.

Borrow Bitches!

WaterWings's picture

Uh, savers are getting killed, by design.

Instead of a natural interest rate set by the free market you have bankers with asymmetrical ethics gaming returns to force mom and pop to "speculate" in order to preserve their sweat (net worth = wealth).

Instead of being able to judiciously squirrel away for rainy days, a relatively comfortable future, and provide opportunities for offspring we are deceived and lulled into thinking inflation is a good thing. "Wow, my house is worth $400,000!!"  

Load up and default viciously - follow the lead of banksters if you want to make it through - hard work, integrity, and justice are figments of your imagination when a fiat currency is in its death throes.

Defaulting on banksters is patriotic at this point - or shall we all pretend this too shall pass and gladly accept our slavery? 

Anonymous's picture

yeh you noticed that too huh? imagine that....

tmosley's picture

Try selling one WITH one.

HA!

But seriously, soon enough a functioning and producing garden will be seen by buyers as a great asset, and will drive up the value of a given plot of land by quite a bit.

Winisk's picture

This pressure to maintain a freshly mowed lawn is typical of the sterilized monoculture that we have embraced.  I live in the country so when I left home for a few weeks last summer, the natural vegetation kinda took over.  When I returned I just let it be.  I couldn't bring myself to mow down the wild flowers, frogs, snakes, and the diversity of life living over my septic field.  There must be some symbolism in there somewhere.  Leave it alone.  Life will be just fine without the constant manipulation.

Lux Fiat's picture

In order not to be persona non grata in the neighborhood, try xeriscapic landscaping and mulch.  It'll look a lot better than weeds, and not require watering once established.  I'm shrinking my lawn bit by bit with this approach.  Then again, you may enjoy being persona non grata.

Also, I will assume that you have never grown squash before - they are amazingly prolific plants, like most well-cared for vegetables.  You will either need a large freezer, lots of jars for canning, or need to share the bounty, because even just 3-4 plants will have you swimming in squash.  If you have other like-minded neighbors, coordinate with them, and then swap vegies.

delacroix's picture

put in fruit trees now, they take time to mature, and low maintenance

Anonymous's picture

I just have to share... my parents have a couple acres. One summer my mother was on a dietary kick and decided to "grow some spaghetti squash". So she planted about an acre. To my parents credit they harvested all of the squash with very little machine power... sold some at farmers markets. Side note - it is hard to sell yuppies something as heavy as a squash at a farmers market.

So in closing... who wants squash? I've eatten all I can stand and there are still a few thousand left...

... I think they are watching me... waiting...

Squash > humans

Anonymous's picture

Nice, but then you'll have to defend it should the neighbors decide to do a little "foraging".

One idea springs to mind: http://blog.makezine.com/archive/2008/06/computercontrolled_airsof.html

Real Estate Geek's picture

A book which may prove very helpful to you is "Square Foot Gardening," by Mel Bartholomew (ISBN: 978-1591862024). 

Using the techniques outlined in this book, the author says that one four-foot by four-foot (i.e. 1.2M by 1.2M) box garden can supply one person with salad each day of the growing season.  An additional box of the same area can provide that person with his supper vegetables each day of the growing season.

 

WaterWings's picture

Yes, yes, yes:

http://www.amazon.com/All-New-Square-Foot-Gardening/dp/1591862027

This is a seriously great book. It is amazingly simple, set up shop anywhere, and "get sustainable" in a hurry. Took the fear of gardening right out of me - extremely pragmatic.

If you have full-spectrum LEDs you can get a head-start indoors with seedlings to transplant as soon as winter has ended its reign for the year. That would be LEDs run off a small bank of deep-cycle batteries.

Kreditanstalt's picture

What does "bail us all out" actually mean?  Hell if I want to "bail out" any governments...   Or any banks, or public sector pension funds or greedy spendthrift middle-class consumers...

I mean, who's left to be "bailed out"?  What's he talking about? 

Public services, schools, hospitals, etc.?  If those were unaffordable entitlements BEFORE, how can they possibly be afforded now, with businesses failing, printing presses running overtime and tax takes down?

I don't see anything deserving of a bailout at all.

Kreditanstalt's picture

What does "bail us all out" actually mean?  Hell if I want to "bail out" any governments...   Or any banks, or public sector pension funds or greedy spendthrift middle-class consumers...

I mean, who's left to be "bailed out"?  What's he talking about? 

Public services, schools, hospitals, etc.?  If those were unaffordable entitlements BEFORE, how can they possibly be afforded now, with businesses failing, printing presses running overtime and tax takes down?

I don't see anything deserving of a bailout at all.

Sancho Ponzi's picture

When you get right down to it, economic capitalism is 'No pain, no gain.' Through his attempts to ensure a painless depression, Bernanke's policies will result in economic atrophy.   

WaterWings's picture

It'll be like the 1800's all over again: lots of ghost towns between here and San Fran, except where you can find Mormons.

Anonymous's picture

devaluation relative to materials because that is the only place where capital can hide. not necessarily gold, but probably, and definitely non-ferrous metals. its a coordinated devaluation of western currencies against the basic inputs. you kill two birds with one stone - kind of hard to have deflation if you are pump priming material inputs, right?

claradan's picture

It is difficult to beat the same drum in the face of current price action - but Bob's view has been consistent and I hope and believe he will not waver.

In 30 years time - an MBA class will be studying a 'must read' book about the era we are currently experiencing. It will be detailing the bio's of the great investors of the time and those that were fooled and failed to interpret events correctly.

The book will become a historical benchmark for investing in times of extreme risk, high debt burdens, sovereign vulnerability, low interest rates and volatile exchange rates.
What will that book say - I have no idea, but one thing I do know is that if we were to look back at any other period in time that had the same mix of extremes - students would not be concluding that it was a no brainer to expect stocks to rally and sit on bonds despite the nose bleed levels of debt.

Anonymous's picture

there won't be any MBA students in 30 yrs time.

http://seekingalpha.com/article/165918-jim-rogers-on-the-next-10-years
(see "Best Comment of the Night" at the bottom)

Cognitive Dissonance's picture

Why is the default setting for the press, academia and the public at large always the assumption that the powers-that-be are trying to "fix" anything at any time? Why don't we all assume that they are trying to propagate a Ponzi to enrich the few to the detriment of the many?

Would changing the default view upset the many, maybe even pop the balloon we all carry through life that is printed with the words "sucker for life" and which everyone sees but ignores? We participate in the myth in order to excuse ourselves from taking a stand, of fighting back, of screaming at the top of our lungs "Just say NO to the Ponzi" (thanks Nancy dear) and forcing those that do strictly for themselves to also take a stand. Maybe that's it, no one wishes to stir the pot, to wake the savage beast, to come face to face with the ugly truth.

Why do the vast majority of us shrink away when the school yard bully draws close? Because we falsely believe we are alone. Since we believe we are alone, we act as if we are alone. Perception is reality folks. Wake up!

Seer's picture

1) Because we are loath to admit that we are/were wrong.

2) Because we don't want to be killed by the machine*.

* We've been progammed for non-violent reform, which means that reform isn't really possible and that the only acceptable violence is by the system itself.

I think that there's also a third reason:

3) Patience, and the art of affecting change by appearing to do nothing*.  Or, more bluntly, withhold one's energy from the system in order to cause its demise. *Obviously, one cannot do "nothing," as the choice to not do something is in itself an active choice.

Cognitive Dissonance's picture

"1) Because we are loath to admit that we are/were wrong."

A comforting delusion that allows us to remain in our delusion. If I don't have to admit I'm wrong, I never need to examine my basic premise.

"2) Because we don't want to be killed by the machine*.

* We've been progammed for non-violent reform, which means that reform isn't really possible and that the only acceptable violence is by the system itself."

Bingo! Institutionalized violence always flows down hill, from the "more worthy" to the "less worthy." Thus the state can inflict violence upon the citizens to protect the state but the citizens of the state cannot inflict violence upon the state to protect the citizenship. This relationship implies that the knowledge of what is right and just lay with the state and not the individual. "We The People" doesn't mean "individual" but rather the "state".

Someone once told me we don't live in a violent state. I pointed out to him that as long as he goes with the flow and doesn't resist, there is no violence. But once he says "No" the guns come out and he is violated.

And as you pointed out and as I always inform my clients, doing nothing is in and of itself, doing something. It is an action, to remain where you stand. People conveniently forget that there are three choices. Going forward, going backward and standing still. The military is one institution that fully and completely understands this concept.

 

Anonymous's picture

>Institutionalized violence always flows down hill, from the "more worthy" to the "less worthy."<

This is how it as always been through history. "Might makes right".

However, the equally long tendency for people to resist that which they know to be wrong, I think proves that when the state resorts to violence, one can be near certain that it is the state that is wrong.

Yes, only a small percentage actively resist. However, it has always been that it is a small group that causes change.

Humanity knows what is right, and hopefully will get there someday. One must have the patience of a saint, however.

Anonymous's picture

>3 do nothing<

I assume that you mean withdrawal from the current system. I've read that a popular saying in the Soviet Union was "they pretend to pay us, we pretend to work". Likewise one of the few strategies available to slaves (as in American South) was to be unproductive.

I am seeing an increasing number of Americans who've adopted the "withdrawal method" for coping with the current situation. (Others working harder than ever to keep their jobs.)

The Empire is collapsing, and we wait out the collapse.

Fortunately, there are those who do more than just wait and are helping to bring a better day (www.ae911truth.org as an example).

WaterWings's picture

Advocating violence is unromantic until you see loved ones hauled away/cut down right before your eyes.

"Is that a real gun! Why do you have a real gun!!"

Cognitive Dissonance's picture

"Is that a real gun! Why do you have a real gun!!"

I am often asked that as I practice my right to open carry. I always answer the same way.

"Yes, the gun is real. Why don't you own a gun?"

godfader's picture

Where's the crash Bob has been harping about for months?

Assetman's picture

Yeah, well... that's the tough part, isn't it?

Bob can keep on postponing Financial Armageddon by suggesting that things will be worse the longer we wait for the bubble to burst.  Eventually he will be "right" the same way a busted clock is "right" two times a day.

That's not to say that Bob's an idiot or lacks insight.  I just find it hard to invest with someone who says something along the lines of "the market remains in a downtrend, but if it trades for 3 days above X level, revise your sights higher".  Well, until the bubble bursts.

Like I said, though, I still like reading Bob for his unique perspectives, and don't really disagree with his central thesis.  I just don't see how I can consistently make money by following his insights.

godfader's picture

That's why him and his ilk are predicting/forecasting for a living instead of trading for a living. Big difference.

aus_punter's picture

look up his history and you will see that he tried the trading bit.......no dice......bounced from shop to shop sprouting the same armageddon type stuff.  The difference between him and the cheerleaders is that if you had followed their advice you would still have some capital , over the last decade if youd followed his advice you would be broke. 

He works for RBS.........

Miles Kendig's picture

There it is.  And which is why I cannot but be focused upon capital preservation rather than trading around these markets as I appreciate how little I do know about this particular arena.  Best wishes to as you has you make the attempt Assetman.

Assetman's picture

In other words, "good luck with that trading thing"...

Thanks... though I've given up the attempt to out-trade the financial elites a long time ago.  This is why I take a look at this commentary and conclude is a little bit on the silly side.  It doesn't matter, because most of us are being manipulated for as long as were foolish enough to trade.

Nope, I've got my two positions in gold and a long term derivative bet in market volatility.  Hopefully, I'm right on both, but I'll take one out of the two.

WaterWings's picture

It doesn't matter, because most of us are being manipulated for as long as were foolish enough to trade.

There it is.

"If you love wealth more than liberty, the tranquility of servitude better than the animating contest of freedom, depart from us in peace. We ask not your counsel nor your arms. Crouch down and lick the hand that feeds you. May your chains rest lightly upon you and may posterity forget that you were our countrymen.” —Samuel Adams

mule65's picture

So the "man" is short term up and long term down.  Spineless way to be right all the time.