Bob Janjuah: "This Is An Uber Bear Early Warning Alert...Major Risk Asset Sell Off Will See S&P Into 800s...The Fed Will Start New $5Tr QE Program"

Tyler Durden's picture

From Bob Janjuah of RBS

Bob's World: Maybe Not Such An Idiot

Dear All
I am deeply troubled by the world and markets. THIS IS AN UBER BEAR EARLY WARNING ALERT:...I know its not what folks in general want to hear but hopefully you'll understand that I am trying to do my little bit to help....
First please refer back to my last comment, dd 26th April (Bob's World: What an idiot!)....2 takeaways from this note in particular - 1) my bearish trading call on risk assets, looking for a 10%/10%+ S&P selloff over late Apr and May from the 1220 level, driven by sovereign concerns, was spot on - maybe not bearish enough!, and 2) the point of market and taxpayer revulsion with the horrendous Keynesian/monetarist nightmare forced upon us by policymakers has come to bear. Sovereign limits and sovereign credibility concerns are not now a future risk - they are HERE. The enormous failure here is that the private sector has barely had time to catch a breath, let alone develop any form of self sustaining private sector recovery, before these limits have already begun to hit home.
Before reading on the other item that needs to be highlighted upfront is the whole Inflation/Deflation debate. As I have been saying for many months, the TRUE underlying private sector trend is one of DEFLATION (balance sheet repair thru reduction of nominal debt levels). In my comment of the 26th, I capitulated in that I gave up on the idea of policymakers worldwide shifting to voluntary/pre-emptive tightening, and went with Kevin's long held view - that policymakers would keep pumping and dumping in order to try and create inflation until the point of bond market and/or taxpayer revulsion, or until the point that inflation fears themselves become the major problem. As you will read below we now seem, at the global level, to be at or close to the point of bond market (Europe) and/or taxpayer revulsion (US). Alongside which the UK and China seem to be 'voluntarily'/pre-emptively tightening, although in both these zones one could easily argue that INFLATION concerns are causing this tightening. Either way, the point here is that for now and for the next 6 months or so it looks like deflation will have the Upper Hand in the battle vs. inflation.
I still expect policymakers to come back - not yet, more likely in  6/9 months time - with NEW even more aggressive attempts to INFLATE likely thru fiscal policy (NEW China stimulus package by y/e?) and/or via a massive new Fed QE programme (see below). Thus - and whilst I have admittedly been wavering a little here - the outlook for govvies over the next 6 months IS bullish (USTs in the low 2s), but it is also clear that the Western world is NOT yet ready for multi-yr deflation and therefore the next huge attempt to reflate (around y/e?) could end up in a disastrous outcome for inflation and bond yields. But we can worry about this later - for now the winner seems to be deflation. Now, in no particular order:
A -  Quite a few important global markets are now deep in official Bear territory - China is the obvious big bad one, but many other are there/nearly there.

B - Global Growth IS slowing and will slow hard into Y/E as stimuli impacts fade/are reversed...the street/market consensus is 4.5% globally, the reality is that the annualised run rate will be 2.5%ish into next yr and beyond...developed growth will be 1%ish, developing will be 4%ish (too many officials keep talking to me about a target of around 5%ish growth rates for China over the next few yrs but the street/market seems to ignore this)...Btw, China reval? R U joking??? Even a 1%/2% token would be a huge surprise to me.

C - We have policy tightening all over  the world - fiscal (UK, Europe), monetary/credit/currency (China, US),  regulatory (EVERYWHERE)...the market and taxpayer revulsion with Government recklessness is HERE! Europe in particular has signed off from the growth path and is now firmly placing itself in the Japan style multi-decade deflation/despair path.

D - For the EURO and Europe to regain ANY credibility and hopes for growth, Greece should be put into restructuring asap, maybe others too. The alternative is a black hole whereby wealth is destroyed in Northern Europe as it is sent to bailout unviable countries in the South. This grotesque misallocation of capital is a disastrous move for Europe/European growth. My HOPE is that the error of these ways is addressed asap. My FEAR - as seemingly supported by the political noises out of  Europe over the last few days - is that when, come Sept/Oct, once we all realise Greece is badly failing its budget austerity targets, the politicians in Europe again usurp the sane eco based voices and keep pumping money/wealth into a bottomless pit. The UTTER NONSENSE that is now consensus is that the EURO fails if its weakest leg is allowed to fail. I'm sorry but this is RUBBISH. The EURO and Eurozone will fail if the ECB is made a tool of politicians (maybe already too late on this front - all ECB credibility & independence is seemingly LOST). And the EURO and Eurozone will fail if ECB and Eurozone policy is dictated by the weakest link (Greece) rather than the strongest link (Germany). Again, maybe its too late on this front too. Lets see what happens when Greece is seen to be running an annualised deficit/GDP ratio closer to 20% than 10% come Sept/Oct, once we all see little progress on cuts and huge shortfalls of (tourist based) revenues. For now, the Eurozone has joined the club currently only occupied by Japan since the late 80s/early 90s.

E - The political situation in the US is turning/will turn deeply RIGHT - the Tea Party folks will have a huge say on how  the US is run post AND into mid-terms. These folks are NOT elitist Republicans,  they genuinely want smaller deficits, a weaker Washington, smaller govt. overall, and they want to attack the Fed....

F - Policymakers are (nearly) all in, some have lost all credibility (clearly Europe currently dominates this loss of credibility right now), others are close...

G - Technically, the set up of markets looks VERY BLEAK
Dear All - its seems to me that:
A - Risk markets can stabilise/rally a tad this week, perhaps a little into the week after, but overall there is a decent chance of a VERY SERIOUS risk asset sell-off late May/early June into late June/early Jul....I am talking ANOTHER 10%/10%+ off S&P from here....


B - After more weakness into late May/early Jun, we can then see some stability over JUNE, before a MAJOR 10%/15% PUKE begins in/into Jul
Sorry I can't be more precise, but net net it seems clear to me that the key risk here is of major risk asset sell off, with (eventually) S&P into the 800s, iTraxx Crossover up at 750/750+, a 5/10 big figure EURO Puke vs the USD, a broad USD rally, and 10yr USTs down at mid/low 2% levels. Whether we see a small bounce next week before the big selloff, or whether we see another week of weakness, followed by a month of 'strength' and then the big puke is not I think particularly crucial - the overall trend is the key. And in this respect, whilst following either of the above routes would then lead to a brief multi-month period of consolidation, the overall trend for the rest of 2010 will be weaker with respect to growth & risk assets/markets, and higher with respect to volatility. Key levels are (S&P cash) 1180 to the upside (and then 1220) and, to the downside, the 1020/1040 area. If we close below 1020 S&P, it would be very negative, implying that a mid-to-high 800s S&P is right around the corner...
How can we fix/avoid the nasty double dip in both the global economy and in markets? Well, it seems very difficult and there is no easy route:

A - Globally, the corporate sector would need to go on a huge spending/leverage/capex/hiring binge - this seems extremely unlikely...

B - China goes on a huge fiscal/Credit binge - again this also seems VERY unlikely, at least for now...

C - The US  goes on a huge new fiscal binge (Hmmmm....if its going to happen it has to happen NOW, before the Tea Party hijacks Washington), and/or the FED moves to a 3/5trn QE programme... credibility destruction would be huge, the Fed would then be a MAJOR target for the Tea Party folks, and for me this IS the last bullet in the gun. I reckon the Fed would know this and would only use this bullet once we are in serious pain, i.e., the Fed would only go down this route AFTER  the USD has rallied another 20%+ vs. the EURO/Others from current levels, AFTER 10yr notes are at low 2% levels and AFTER the S&P has already gotten down to the 800 level (maybe lower...)
SO, the asset allocation decision remains unch'd: QUALITY (driven by balance sheet strength, market position, and the ability to be a PRICE SETTER and NOT a price-taker) should drive all investment (as opposed to pure short-term trading) decisions.
Quality is now key in any investment (as opposed to 'trading') decision. Lets see if Europe sees sense come Sept/Oct. And lets see re the Fed, but please don't forget you heard it here 1st - policymakers will NOT like deflation, and the last real roll of  the dice will be (I think) late this yr/early next, when (I think) the Fed goes to a new QE programme in the order of $5trn. But because this IS the last roll, it will happen LATER, rather than sooner, and only when the pain in markets  (equities, credit) and the economy is already excruciating. At which point we had better all hope that bond markets don't react BADLY, because by then we will be ALL IN. If bond markets do revolt/react badly (as I fear) we will then very quickly be ALL OUT!!
Cheers, Bob

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George the baby crusher's picture

Roll up, roll up everyones a winner.

etrader's picture

Zero Hedge whips the other blogs again by getting Bob's full note....

MrTrader's picture

Too funny, RBS's former chief credit strategist is back as the doom and gloom prophet. How comes he has not foreseen his bank's own mess coming ?
 With other words : strong buy. :=)

Gully Foyle's picture


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Noah Vail's picture

Dear Son:

Your Mother just died.

Cheers, Dad

Tart's picture

What a retard. When calls have "Uber" totally fantastic, know they're bs.

Tyler Durden's picture

Janjuah called both the 2007 and 2008 crashes to within weeks of the actual occurrence. Pretty much every trading desk in the world reads him.

Christobevii3's picture

Marc Faber has been riding his 1987 call all these years.  He's now been pushing chinese stocks all the way through its market fall and on par with Schiff on gold $5000 calls rambling for the last two years now.  Their theory on inflation may work one day but as long as credit destruction is outpacing QE, they are wrong.


I'm not saying that they are wrong, but usually after the initial perfect call everyones timing becomes quote premature or off enough that is not useful as a trade.

Wynn's picture

"credit destruction is outpacing QE"

nice succinct sentence to describe the last two years


Double down's picture

My thinking this is not working is because the FED also have to finance the cost of credibility. 

Money is a poor store of value for purchasing credibility, it is deeply and increasingly inefficient.

Also, the  QE "leaks", goes into hard assets and PM.  Even the "help" is gamed. 


chumbawamba's picture

Yeah, this article is written by Bob Janjuah, and clearly he didn't call for inflation but in fact says deflation is the name of the game.

Read the article again.

I am Chumbawamba.

SWRichmond's picture

Politics: the Fed's game may be to keep things going until November, when the fiscal conservatives take over.  Fiscal conservatism will end the bubble, and that's for sure.  We all know the bubble is ended anyway, but if it can appear to be extended into November, then the collapse can be publicly blamed on the fiscal conservatives.  It seems this is what Bob expects to happen, IF we can make it to November.  Or maybe the looming takeover of the fiscal conservatives will be used by the media as the reason markets are crashing into October, so as to try to minimize the takeover.  Both plans are probably in place, to be played as the situation warrants.

Bob might be expecting deflation, but he also says the Fed will come with more QE, and he also raises the issue of sovereign solvency.  It seems to me he isn't ready to make the call yet.

B9K9's picture

Ironically, the final crash will be due to fiscal conservatives, in the sense that it will be they who will precipitate & force a final resolution of the Fed(ish) question.

Reference some of Travis777 (snowball777?) or Mako's posts: the day QE ends is the day public sector credit expansion ends and thus is the day the entire shell game finally ends.

If you look at some of my earliest posts at ZH (even on the old blog), my interest has always been in identifying the "tell" as to when the Fed comes down. I believe Brown's election was the first tip; November of course will be the final nail.

Hussein, Goldman & the Fed had two years. They pulled off a nice little feint with the whole hope & change song & dance, which gave them access to the complete financial, economic, governmental & legal core of the world's most important country.

Six more months is all they have left. My primary interest is to not only participate in reforming the USA, but to make sure Hussein and the other criminals don't get a chance to enjoy their ill gotten loot.

When this fucker crashes, the long knives are coming out.

SWRichmond's picture

my interest has always been in identifying the "tell" as to when the Fed comes down.

For me, the "tell" has been the overtness of the looting.  And it's been ringing loud and clear.

hound dog vigilante's picture


We have a winner!

The bankster bonus payouts last year were THE tell. 

If the banksters thought there were any hope beyond 2012, then they would never have invited the PR nightmare that was triggered by massive bonus payouts (less than 12 months removed from taxpayer bailouts, no less).

The game is over. Everything is now calculated around "surviving" the mid-term elections, and nothing else. Wall St. will pay out one more whopper round of bonuses to their toadie employees in Q4 2010. By 2012 we will not recognize Wall St. or the big banks... Everything will change dramatically, for better or worse.


Ripped Chunk's picture

"Everything is now calculated around "surviving" the mid-term elections, and nothing else"


snowball777's picture

I am not Travis, I assure you.

Nice Nazi reference with the long knives, though.

B9K9's picture

The conceit of every generation is the unfounded belief that their experiences are unique. What has happened before will happen again, for the simple reason that history is nothing more than an illustration of human emotions writ large.

This country is riven by racial, ethnic, generational, regional & class distinctions. The reason Ben has carte blanche ability to circumvent Constitutional restrictions is the realization of what is going to happen when the party ends.

Long knives will be the least of it.

SWRichmond's picture

The conceit of every generation is the unfounded belief that their experiences are unique.

Amen, brother.  Even those who have studied history are doomed to repeat it if they are surrounded by those who have not.

mtomato2's picture

Few seem to understand that:

   -borrowing more than you can pay back

   -consuming more than you are willing to produce

   -absorbing all the resources in your immediate

     environment without reinvesting in that same environment

   -considering fiscal and monetary policy to be political instruments


   -the basic, underlying greed innate in human nature,


All lead us to an unstoppable, ineveitable end:  Total cyclical destruction and renewal.  On every scale.


You say:  "yes, but it's not the end of the world..."

I say:  "it depends on what you mean by "end of the world...'"



I am NOT Chumbawumba, but sometimes wish I was.



Mako's picture

B9K9, nice posts.

"We have met the enemy and he is us"

Double down's picture

I think the economy handles contraction quite well.  All those monetary medicines slows down the contraction but they remain in the system.   What will get us is the side effects of these medicines at the point of recovery.

A double down

20smoney's picture

My question is how many real fiscal conservatives get elected vs. typical Republicans?  Unless we get a sweep of Rand Paul types (which I doubt), will they really clamp down on policies like QE while the market crashes?  You have to have balls of steel and insane conviction to stand by and "do nothing" while the economy deflates, which would surely be ugly (yet necessary).  I just don't see it.  Thoughts?

B9K9's picture

When people are diagnosed with lung cancer, doctors typically operate to either remove infected tissue or even complete lungs. While it usually doesn't prevent an eventual demise, the fact that patients are willing to undertake such radical procedures in a last ditch attempt at survival is a lesson all should learn.

A lot of ZH readers, and apparently writers, analysts & managers, are still operating under a post-WWII paradigm where economic growth is a normal & logical course of action. But it's all fiction - the Fed and CBs invented & perfected a credit leveraged, asset inflation game - it's their baby, and they're willing to do anything in a mad attempt at preserving the status quo. The government was co-opted and enjoyed the tremendous power, prestige & riches which were bestowed on those who allowed & enabled the game to continue uninterrupted.

But there is no way out of this trap; it really is simple mathematics. Hence, the frustation Mako and others sometimes express. Compound interest, exponents, entropy, declining marginal return, resource depletion - these are all terms everyone should learn and understand if they are to have a clear picture of where we're going.

Hence the analogy above - there isn't any choice. Slash & burn is going to be the option taken because there aren't any others.

snowball777's picture

How many doctors remove a lung without anaesthetic?

ColonelCooper's picture

Yeah, but in this case, we can't live on one lung, and we're too weak to handle the anaesthetic.

tony bonn's picture

republicans gained control of the house in 1994 and for 15 long years they spent exactly as democrats spent....fiscal conservatives my can't elect a majority of fiscal conservatives....besides democrats and republicans are the same and controlled by the same dark powers....

standing by and doing nothing would be the correct policy option....deflation is a sign of correction when followed by inflation...

chet's picture

There is no way enough "real fiscal conservatives" get elected to steer fiscal policy after November.  They will be a rump faction in Congress, with a Democratic President.  It's a long shot for the GOP to even regain the majority.

The Tea Party's excitement will be quickly tempered in the next few months as their candidates get onto the Big Boy stage of politics and have to appeal to the whole electorate.

Sucks, but true.

hound dog vigilante's picture

I see it.  I see it everywhere.  November is going to be an incument bloodbath.

I see "tea party"-type disgust coming from the Right and from the Left. Long-standing party apparatus at the local and state levels are being over-run by activists. This trend is gaining momentum.

Not sure how anyone could witness the primary & special election season (thus far) and 'not see' the groundswell of activism/disgust/anger/passion that is overwhelming the status quo.

Bennett - incumbant senator dumped by his own state party in a primary.

Spector - incumbant seator dumped by both state parties.

Lincoln - incumbant will soon be dumped by state party via run-off.

Mass. - "Kennedy seat" won by independant conservative, easily defeating establishment choice.

Kent. - independant conservative easily defeats establishment choice, now favorite to take senate seat.


Plenty to "see", IMO, and there's more anti-establishment upheaval coming...


taraxias's picture

Who are these "fiscal conservatives" you speak of?

All politicians are sons and daughters of the same whore mother. When the deflation realization sets in, THEY will all be begging Uncle Ben to set the printing presses to warp speed.

Fiscal conservatives my arse.

SWRichmond's picture

THEY will all be begging Uncle Ben to set the printing presses to warp speed.

But we all know where that leads, don't we?  It won't work because it can't work.  Nothing of value comes from the output of a printing press.  At some point, we must populate the political system with genuine fiscal conservatives.  There is no alternative.  Is there?  Tell me what it is.

Raymond K Hassel's picture

It will work - and it will work best at precisely that point that it breaks - most likely with paper money being properly revalued.  At that point, the lumps will have to be taken and they will be taken by the dumb money, therefore, real capital will be in the hands of the smart money which is as it should be - great place for the world to move forward from.  Which side of the divide we find ourselves on, time will tell, but the broken system will eventually allocate productive means into those hands who are clearly most capable. 

legerde's picture

I want to believe you.  But I guess we may differ on the definition of "most capable".   I am concerned that the people responsible know exactly what they are doing and are positioning themselves for the other side right now.

Do you mean most capable of "construction of capital" or most capable of "political control"?

Forgive me... I'm reading Atlas Shrugged.  :)

chet's picture

As Raymond says, the system will have to break first.  Seriously break.  Then hopefully, we still have a democracy left, and then we will elect people who are serious about doing things in a different way.

Ripped Chunk's picture

"Who are these "fiscal conservatives" you speak of?"

There are a number of them out there. They were unpopular for a long time.

You will see a conversion/emergence of candidates who (suddenly) claim to be "fiscal conservatives" because these filthy vermin WILL DO ANYTHING TO GET ELECTED OR RE-ELECTED.



BobWatNorCal's picture

"...the collapse can be publicly blamed on the fiscal conservatives.."

That plan would seem to be working in England.

Brown is took the economy into the ditch,

but Cameron will be associated with the crash.

Lux Fiat's picture

Yes, I expect that the MSM will start laying the subtle groundwork to place blame for the coming debacle at the feet of the Tea Party and Co. and discredit the opposition.  Nevermind that this is a problem that has been decades in the making.

I heard Bob say deflation, and then potentially inflation, depending on what the Fed and other CBs do, and how it is received in the market.  Reminds me of iTulip's ka-poom theory.

ghostfaceinvestah's picture

Agreed.  Ka-poom.  my own personal forecast is for a $5T Fed balance sheet sometime in 2012.  There is no other way.

Lux Fiat's picture

"Thereis no other way."   Interesting comment.  Would you care to elaborate on that, and hopefully educate myself and other ZHers in the process?

ThreeTrees's picture

If QE stops one of the biggest sources of demand for financial products disappears and the market dies (faster).  If the asset side of the bank's balance sheets starts imploding again in earnest, faster than they can raise capital prop trading,  then it's 2008 all over again except the reserve chute has already been pulled.

They will print until they can't.

Hulk's picture

Faber called the march 09 low exactly....

FEDbuster's picture

Faber "called" the March 09 low, too.  Faber contends (confirmed by Euro Zones recent trillion dollar bailout) that central banksters led by Benron, will continue to print when any perceived crisis pops up.  The "Bernanke Put" is still in play against the credit collapse.

financeguru500's picture

I don't believe Faber as well as Schiff had realized the extent to which the U.S. could manipulate the system (i.e. purchasing their own treasury bonds through mystery direct bidders to keep the dollar valuable as well as allow for endless spending)


I think we should all be concerned by the fact that weekly treasury sales are now over $100 billion but I don't believe there will be anything that can cause a drop in the dollar because the mystery bidders now control the majority of the bonds. At this point, playing the stock market as well as making predictions on the dollar are complete guesses because TPTB control the system. Expect that when the sytem does start to come crashing down the Rothschild owned World Bank will be right there to issue a new world currency.

Spitzer's picture

You are right but Schiff doesn't claim to be a trader, niether does Eric Sprott. Look at these guys 10 year calls. That is where they make their hay.

Faber is both, he runs that Fundmymutualfund blog where he tries to make trade calls but I don't follow it.

gmrpeabody's picture

What...Faber and TraderMark are the same guy?

That IS news.

Spitzer's picture

I don't know, I just assumed that the author of the daily market wrap on Europac was Marc because Faber and Schiff are buddies. Maybe your right, I don't fuckin know.


side from being a daily contributor to Euro Pacific Capital, Mark also maintains the website Fund My Mutual Fund.

Il Duce's picture

" Pretty much every trading desk in the world reads him."


Computers don't read.

TonyV's picture

And how many calls has he made where he actually missed?