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Deep, Grammatically-Incorrect Follow Up From Bob (Janjuah)
Bob's World: Equity Highs/Credit Tights For 2010 Already Seen?
After putting my 1st piece out since Nov just this week, I have been sitting here and thinking...Forgive me for indulging myself in a stream of my own consciousness, but here goes:
The NAHB Index was ugly, as was the UK Inflation data, the ZEW survey, AND the ABC Consumer Confidence release....we also saw CITI BoA as well as MS all 'miss'....
And yet stocks were at/close to post March 09 highs and up over 1% on Tues in the US ....Very strange!! Whilst I have only a very small degree of doubt that the Fed/US Treasury PPT is and has been actively goosing the US equity mrkt since Obama said Stocks Were Cheap in March 09 (funny that!!), I was beginning to think that we were/are close to peak levels because at peak bubble levels the price action is most 'irrational'.
AND THEN 3 things hit me - Bang, Bang and Bang.....3 VERY SIGNIFICANT things:
1 - The Chinese are tightening policy more aggressively then even I thgt they would, and the core of the EUROZONE are playing uber Hard Money with Greece
2 - The Obama defeat in Mass is HUGE.......even a freshman can figure out that 'Obama's' defeat in Mass is a move towards a lame duck president AND, most seriously, is a move that will directly and indirectly cause de facto FISCAL TIGHTENING - the Republicans have seen some serious and seriously UNEXPECTED gains in Washington since Obama's inauguration and are now at the point where they COULD block Obama's fiscal recklessness....most seriously, the message out of Virginia, New Jersey and now Mass is that the Republicans will do really well in the mid-terms...they will do 'really well' because they are going on the tkt of anti-big govt, anti-bailouts to all, & anti-big deficits, all of which is clearly hitting the sweet spot with the US electorate....furthermore, Obama has become a guy who folks either perceive or believe (I'm in this latter camp) has merely bailed out Big Wall St & Big Corporate America, all at the expense of the lower strata of the US economy (the youth, Black and Hispanic people, the SME sector, regional banks) - Yes, that's right, the very folks who voted Obama in......all he has offered these folks is healthcare, which is now in serious risk, and benefits, where his temptation will be to DO MORE HANDOUTS (including making up more airy-fairy 'fake job creation schemes' just to keep folks, technically, off of the unemployment data) but which the Republicans can now much more effectively challenge/block, and which they certainly WILL (IMHO) block post mid-term victories. Key however is that the Mass defeat means Obama and Summers MUST now have serious doubts abt their reckless policies.
3 - The FHA is TIGHTENING policy too (!!!) re its lending in response to its SHOCKING delinquency data and its now invisible capital base - by law FHA will require a BAILOUT!!!!!! This is DIRECT MONETISATION and mrkts won't like it
SO, back to what I wrote earlier this week. It COULD be that the Austerity is coming ANYWAY & EVEN SOONER than I had originally thght thru a combo:
- of Euro uber-discipline (VA),
- pro-active China (tightening) policy shifts (VA),
- the commercial realisation that the US/UK consumer and housing mrkts are still in a deep deep hole where the fundamentals are getting worse and where lenders (are forced to) pull back even more/tighten money a LOT in order to stop the rot on THEIR OWN balance sheets (part VA, part IA), and, lastly & most importantly,
- maybe, JUST MAYBE, the People have spoken and the message is clear (clearly IA as far as policymakers are concerned). They DON'T want BIG GOVERNMENT. They DON'T want our currencies debased anymore. They DON'T want to bail-out everyone. They don't want to pay even more taxes to fund bloated government and to fund entitlement pay-outs ad infinitum. Maybe the People GET IT. They may get the fact that the West, esp. the US/UK, CANNOT PRINT/BORROW/SPEND its way out of our hole. Indeed, they may get the fact that we in the West need a deep-rooted and painful restructuring of our economies away from consumption and dissaving, towards savings and investment. If you think abt it for just one minute, it ain't that complicated. Yes it means less holidays and less consumption of rubbish we dont need. It means a painful period of higher unemployment whilst the Austrian cleansing is allowed to play out. But all of which will then create the platform for the next 20yr period of REAL growth, REAL wealth gains, REAL productivity gains & REAL innovation.
The US electorate, so far, is clearly shouting this message and Obama must be nervous. Clearly in the UK all will be clear in a few mths time. But the sense I have right now is that the political classes may be forced into austerity because its is what voters want. Wow! Lets See.
In terms of mrkts vs what I wrote on Monday, it may mean that the Q1 peak in risky assets that I was looking for MAY have already been seen this week. It is too soon to be too sure - I need to see 3/4 consec closes below 1120 S&P before I have a very high degree on confidence on this - but the distinct possibility IS there.
IF this does indeed prove to be the case, then I would expect to see a move in S&P thru 1080, 1030 and into the 950/1000 range over the rest of Q1. In this move credit does badly, esp. weaker rated credit, and govvies do well, as does the GBP and the UST. Why? Because the market will be pricing for lower grwth, and tighter money + smaller deficits esp in the UK and US).
Again, IF this is the path we are going to follow, I would be extremely surprised if we did not see at least 1 decent multi-mth counter trend rally, but I also think we see lower highs. So think S&P going form 950/1000 back up to 1080/1120 in Q2. The driver for this counter trend rally will be the mrkt belief that the grwth story can survive even with tighter policy. Lagging grwth indicators and overly optimistic fwd looking 'subjective' indicators will support this, + also lower bond yields will provide 'some' support.
HOWEVER, as Kevin and I remain convinced that the underlying grwth story for the US & UK - in fact, for the whole world - will be one of multi-yr grwth disappointment (esp. in the UK US) due to weak final demand/prvte sector balance sheet repair and due to the fact that the supposed driver for grwth for EVERY economy seems to be EXPORTS, yet NOBODY can tell who the end buyer is ( it AIN'T China!!), then the call remains that in H2 10, we will see the resumption of serious risk asset weakness, higher volatility, and strength in govvie mrkt - esp BUNDS.
Cheers, Bob
Bob Janjuah
Chief Markets Strategist
RBS Global Banking & Markets
135 Bishopsgate, London EC2M 3UR
Office: +44 20 7085 3249
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You were right in your previous piece, and right in this one. Those on Wall Street colluding with the Obama admin. will now run for the hills. A seriously weakened Obama won't be able to protect them from the blowback that's coming. The moment Brown's win was announced, I guessed the mkt. would tank big.
One can only hope and pray.
Course, he expected a move down through 700 back in Q3 2009.
When do we stop listening?
2 days ago he was aying s&p 1250 gold 1300..... what a tool
waiting for the spx gap at 901 to be filled.
thats what she said.
But when have we seen this before. A rapid, VIX boosting selloff that gets both shorts and puts in a frenzy and by the end of the day gets parked right on heavy support only to go higher the next few days. I can't predict the market but this pattern works until it doesn't and so far it has been working.
It's our grand-kids and great-grand-kids that will be paying off all the Fed bucks that kept this joke above the 700 mark.
Nah, since the Fed has been buying S&P futures since 666... they are up about $500B already.
Doesn't matter, there is no buyer for their overpriced crap. Look at the volumes. They can't exit at these levels.
If i may correct you, your grand-kids and great-grand-kids will be paying off ONLY THE INTEREST on the Fed bucks. Soon enough the interest alone will be more than money collected via taxation. So either tax people to death or default.
http://www.businessinsider.com/some-traders-has-inside-scoop-on-obamas-n...
I would expect anything that sounds sensible to be wrong.
...the fact that the supposed driver for grwth for EVERY economy seems to be EXPORTS, yet NOBODY can tell who the end buyer is ( it AIN'T China!!)...
This has always nagged my layman's economic theorizing as well. Where is the growth going to come from if the world is in the race to the bottom?
World population growth is massively slowing. This is a very good thing, but it means lower top-line growth expectations.
Focus on profitability, stability, progress. Not growth.
Imagine a world with a slightly shrinking population... kinda messes with typical economics.
I agree wholeheartedly. The new model should be stability. Sustainable growth always struck me as a ridiculous concept. But as you say, it flies in the face of the dogma of current economic thinking. Natural constraints on growth don't care what we believe. It ain't going to go on forever. It's a good time as any to start thinking about that dead end in front of us.
But I'm not pessimistic as you are... if we can manage some of the silly nominal financial changes (like deflation)... the slightly shrinking population will be a massive boon for per-capita income, wealth, and things like education.
China is outfront on this curve and its cool to see. I think they will stay with 1-child policy and drop population to ~600M in 100 yrs. Imagine that!?
Key however is that the Mass defeat means Obama and Summers MUST now have serious doubts abt their reckless policies.
I doubt they will have doubts. Their ability to get the policies to pass through Congress is diminished, of course, but that just means they'll try to find ways to do an end-run around Congress.
I seriously doubt the shift in balance of power in the senate is going to do anything to reduce spending. Rahm will cut more backroom deals, more pork, more vanity projects and bridges to nowhere. Almost all senators have a price at which they will do business and the deals will be done. The result will not reduce the deficit, but will waste even more money.
It is funny any time there is an electoral upset, everyone is convinced things will be different, but they never do - big business interest run America, this does not change...
Sorry. gotta disagree on austerity. I see the exact opposite. I think Obama will open the spigot through Backdoor Bennie and flood the market with paper in an effort to lower unemployment and prop.
And how's that been working so far?
We are effectively in the land of negative interest rates, and it hasn't had a positive effect on unemployment one iota.
Why is that, you think?
So far, flooding the market with paper via the Fed has helped the larger banks quite a bit, as the spread between Treasuries and their zero cost of funds remain as wide as ever.
Has it created jobs? No, it hasn't. Why? Well, because the banks aren't lending... why in the hell take the risk, when you are making 3.5% risk free?
The sad state of affairs we see ourselves today has it's foundations based on this simple notion: that our governing elite is dumping capital into a financial sector that creates little to no social tangible value-- period. In fact, as we've seen over the past 2 years, our financial sector is more adept at destroying capital than anything else. Yet, our policy makers seemed determined to allocate capital in the most inefficient ways possible.
Obama may never get this message due to the superior advice he is getting from his crack economics team, but they will need to attack unemployment through fiscal means versus monetary means, because the latter has gotten us nowhere. There still remains a better than average change, however, that even this capital will be sqandered away-- much the way that the first stimulus bill was spent.
Only now, the stakes are much higher.
I hate the word "austerity", becuase the meaning is open to interpretation. But I do agree that and equivalent "tough love" moment will come-- whether it's voluntary or not. I still don't quite suscribe to Bob's timeline, however.
Its going to take another couple years for political leaders in the West to snap out of their stupor and come to terms with the logic of DEFLATION.
So far, policy measures (tax increases) are pro-cyclical. Taking money out of circulation via higher taxes is deflationary. To make matters worse, debt burdens among the marooned and insolvent are not being dealt with at a systemic level. This reinforces the mechanics of deflation.
The "West" is not equipped to deal with deflation. Its like driving a Renault in high in the mountains. No 4 wheel drive. No snow tires. No weight. It is dangerous. The politics of growth and taxes and central banking and global public corporations are COUNTER-PRODUCTIVE in this environment.
If the West was serious about tackling Deflation, we'd see massive debt relief and tax relief. But that is NOT what is happening. It will take political leaders about 18 months to figure out what ordinary people already understand.
It will be interesting to see how the political environment changes to deal with parabolic curves in bankruptcies, foreclosures and lawsuits.
When they re-wrote the bankruptcy laws in 2005 they didn't see any of this coming.
No. Not at all.
(upper management at the GSE's should have been shot on the spot)
The key to the market is volume. Everyone is long and with little new money coming in...save for mandatory 401K and daily HFT...nobody big could exit even if they wanted to get out. That's why these 1% up days are meaningless compared to the possibility of a 30% down DAY. Collecting shells in front of a tsunami.
This is non-sense. Many large-caps trade $1B/day. You have to adjust "volume" for avg share prices which are up over 100% off the bottom. And finally, volume is a contrary indictor -- buy on big volume down days.
Its funny how easy it is to do the opposite of people like this...
I guess you haven't been a trader for very long. October 1987 was one example when large holders tried to exit at the same time, and those of us in the pit just lowered our bids by a hundred handles or so.
Then in Japan in 1990, nobody could get out because with everyone already long, there was nobody left to buy. 39000>>>>>>20000.
Then in China in 2008 when the turn came nobody---and I mean nobody (no shorting allowed) was there to pick up the pieces. 5100>>>>>>>1850.
Your moniker is prescient.
My moniker is like my portfolio -- big, and getting bigger (though not today).
Uh, yeah... 1987, like last year. And then you buy. Right?
There is always event risk. Right now, "fear of" event risk is v v high.
The sooner bears like Bob shut up and stop predicting a decline the sooner it will happen.
Pardon me but didn't the Republicans under Bush start the bailouts & the stimulus? Now they're begging to differ, but at the end of the day they will all agree on more. Maybe that will require the much needed equity-drop to get everybody on board. But on board they will be once again. A liquidationist approach was defeated in the 1930" for heaven's sake. Does anybody really think it will be tried today? It's just a dog and pony show: fiscal "conservatism" to pave the way for more of the same. BTW the same show is going on in Europe right now with Greece as the epicenter. The bottom line is: as long as government's can borrow at low long-term bond yields (printing most of the money to buy these bonds in the process), no discipline is to be expected.
The Republicans will do exactly what the Democrats did in 2006 -- exploit extreme unhappiness with the party in power to grab power for themselves....and then go about doing the same things the other party did.
We no more have a 2-party system than did the old USSR. What I want to know is how long people will lurch back and forth between the two parties before they wise up.
"Don't blame me, I voted for Kodos"
-Homer Simpson
Speaking of “the Obama defeat in Mass is huge,” Hitler Finds Out Scott Brown Won Massachusetts Senate Seat is breaking the charts—more than 418,000 views here, 19,000 views there--through this morn. It’s also on HuffPo.
http://www.youtube.com/watch?v=c4aQCiRjvZY&feature=popular
A trembling Hitler, screaming with rage:
“Everything Obama does turns to crap…
“How do you blow a 30-point lead? ... And in liberal Massachusetts of all places?…
“Health Care was supposed to be done by August... now it drags on forever... like Stalingrad!”
Lew Rogers said this morning that Nancy Pelosi has just announced she doesn’t have the votes in the House to accept the Senate version of health care without changes.
THE DOLLAR WEEKLY CHART IS GIVING BULLISH SIGNALS.
My earlier USD uptrend and EURO downtrend warnings continue.
My earlier bearish warnings for stocks continues.
UPDATES:
http://www.zerohedge.com/forum/market-outlook-0
In early 2007 I warned of an impending stockmarket crash.
I confirmed a bottom by early April 2009.
In mid 2009 I warned of an impending USD rally.
The uptrend since March 2009 has been a bear market rally contained within a much larger bear cycle that started in 2000.
Please Grand Whizzer, enough with the chicken entrails.