Bob Janjuah was interviewed by Bloomberg TV's Erik Schatzker earlier in which the famous former RBS and now Nomura contrarian who predicted the 2008 crash shares his "skeptically strategic" and tactical outlook on the market: in a nutshell he joins technicians such as Tom DeMark in calling for a 10% correction in the market. Among the three key themes underlying his skeptical views are the following: i) Asia slow down (hard or soft) which will have implications on US markets; ii) Is Europe closer to the endgame; and iii) the US recovery, and the question of how sustainable it is especially following the elimination of the ES boost courtesy of now-daily POMO operations. In terms of asset allocations, Janjuah believes that a reallocation out of EM and into DM makes sense (time for reverse reverse decoupling already?). And just to clarify what Bob's personal position is, for those who may have missed his last two years of letters and memos, he says "I think we are going to have a deeper and harder slowdown in Asia, I think the European situation is closer to the endgame, my biggest doubt is on the US recovery...I think in Q2 and Q3 the grow slowly weakens, and much like last year we are going to be looking for QE3, and my concern is that the hurdle rate for further policy, fiscal and monetary, is much much higher."
As for the question of what Bob sees the biggest beta driver in the world right now, the EUR doing in the future (with the entire market trading in lockstep with the European currency), he gives a very pragmatic answer: "The Euro will either be the next reserve currency... or it won't." His personal view: "I am more optimistic today than I was two months ago."
Lastly, now that everyone seems to have awoken and realized that the only reason the stock market is where it is is due to the Fed's intervention in capital markets, Bob says that absent QE2, the S&P would have ended 2010 "closer to 1,000 than 1,200." Then go ahead and back out QE Lite, and QE 1, and what does one get.... As Schtazker points out: "Effectively the Fed was the bid. If the Fed's hadn't been in the market, flooding investors with liquidity giving them cash to buy risk assets, the S&P would have declined." Finally people get how central planning works...
In terms of biggest risks, Janjuah says the i) "melt up" is the biggest risk, becase "we are building a bubble"; ii) jobs in the US are number two (one more month... just one more month we promise and we will have jobs growth... ignore all the other 18 consecutive months this has been said before), and iii) is the bond bull market over - when do rising bond yields negate and reverse the "Tepper" trade?
Much more in the full interview.