Russell Napier: The Bear Market Bottom Will Be S&P 400

Tyler Durden's picture

It is no secret that CLSA's Russell Napier has not been a fan of QE2. As he pointed out in his recent prominent note, "whether equities will fall further depends on how flexible and successful the Fed’s next monetary package will be. Given the risk, investors are better off watching from the sidelines." He further explained: "A risk to reflation would send equities sharply lower. The failure of QEII will undermine investor faith in a monetary solution. With equities near bubble valuations, based on cyclically adjusted PE, a failure to reflate risks major downside. The Fed will try again with a new package, but investors would do best by waiting to see how it plays out." Since as of now we still don't know when and if there even will be a package, here is Napier once again, interviewed by the FT's Long View, presenting his updated views on the economy. His outlook, which we agree with entirely, is that first we will see another major deflationary shock, following which the Fed, already boxed in a corner, will have two choices: let major financial institutions fail, or proceed to monetize outright. Regardless of which outcome is picked, Napier's target for the S&P, which just happens to coincide with that of Albert Edwards, is not pleasant for the bulls: 400 (or somewhere in that vicinity). And that will be the true generational buying bottom.

(Full clip after the jump, with the key part starting 7:30 in)

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NotAllowed's picture

Historians have a bad habit of being able to predict the future.  Irony I guess.

Michael Victory's picture


historians, economists, even clive ...


Clive on AGQ and Silver ETFs.


JW n FL's picture
JPMorgan CEO Dimon sees self-sustaining recovery Bullshit! JP Morgan says its all Good! no worries! everyone back into stocks! sell your PM's for a loss! tax the tax benefit for all of the earning you have in Ralph Lauren and those other retailer stocks you bulked up on! 
jus_lite_reading's picture

Of course its bullshit! What comes from Jamies mouth that isnt?

vote_libertarian_party's picture

wow, talk about the potential for rioting in the streets...

jus_lite_reading's picture

The real doom is about the world running out of COFFEE!!!! Bring on the doom!

World shortage of coffee..... taste of things to come!!


Bastiat's picture

JPMorgan CEO Dimon sees self-sustaining recovery

Yeah should read:  JPMorgan sees only sheep protected by broken fences, drunk shepherds and geriatric guard dogs.


Sub Dude's picture

“Those who have knowledge, don’t predict. Those who predict, don’t have knowledge.” ~ Lao Tzu

pan-the-ist's picture

All war is based on deception.

Lao's brother Sun

jus_lite_reading's picture

"All your money are belong us now."  Sun's brother ChowMein

Hard1's picture

"Sorry, I can't pay your back right now"  ChowMein's friend Turbo Timmay

snowball777's picture

You sure that wasn't Heisenberg?

firstdivision's picture

Calling a bottom is as reliable as calling a top.  Just ask Cramer

Temporalist's picture

Creamer always calls bottom.  That's how he rolls.

Rick64's picture

 He called the bottom in Bear Sterns which was actually the top, thats how he rolls.

BC6's picture

Is he still pedaling his schtick on mad money? If so, does it even have a blip of viewership?


I read a recent article about him crying still for the Jon Stewart takedown.

DK Delta's picture

"His outlook, which we agree with entirely, is that first we will see another major deflationary shock, following which the Fed, already boxed in a corner, will have two choices: let major financial institutions fail, or proceed to monetize outright."

I agree, but I thought you guys were predicting that QE2 would be followed immediately by QE3. Hasn't everyone on this blog been ringing the bells of hyperinflation?

Temporalist's picture

Isn't stocks tanking a "deflationary shock?"  Then start the presses; Ben is back!

Tyler Durden's picture

Not at all. Zero Hedge has long predicted that the economy would stumble in 2011 and reality would catch up with the market post June 30. The only question is what/when is Ben's breaking point, and what format QE3 (it may well not be in the traditional format as defined) comes. Incidentally, as was discussed a month ago, the Fed, as part of its extraordinary measures, could well be and continue to be selling curve puts, which have a far greater impact on curve shape than outright monetization. Ref: Reinhart segment in June 2003 minutes.


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DK Delta's picture

Yes, I read the transcript for that meeting after reading your post and the video from MarketSkeptics. It was a very good call, but I'm not sure what their manipulation of the options market for treasuries has to do with the deflation call. If the curve starts to steepen, then depending on how big their position is, we could be in for a real catastrophe, but it isn't clear that they are doing this to any significant degree, and even if they were, I still don't see how this answers the "inflation/deflation" debate.

Maybe ZeroHedge has been making the case for intermediate deflation. If it has, I just haven't seen it. My perception was that you guys were expecting no major adjustment in prices, and that in fact, PIMCO's short position on bonds was a play on the board's expectations that inflation would continue and that monetization of debt would continue. This also seemed to be your take on the James Grant interview on 60 minutes, as you chose to focus on his statement that "there will be inflation and there will be a lot of it suddenly" instead of the fact that he was saying that cash would be king in the short term.

Anyway, not trying to start a fuss here about who said what, just trying to establish if you guys are expecting a strong correction in equities and commodities going forward, or if you think this is just a blip. For what it's worth, I think the contraction will be severe, and I think that this is why PIMCO is 37% cash as you have been reporting. 

nope-1004's picture

I can't see a short term deflationary shock happening.  For one, Benocide explicitly said (ya, I know, he's a liar anyway) that the Fed's #1 reason of QE was to fight deflation and #2 pursue an increase in overall employment.

Secondly, why the need for the exhorbitant take down in silver and oil if there were no perpetual QE?  Commod's would tank on their own, so why did the take down need to occur in the first place?

I am a firm believer that the Fed wants to keep everything calm, complacent, and without alarm.  A deflationary shock would send instant ripples, and that won't be good for Oscar's re-election bid.


Lucius Cornelius Sulla's picture

You assume that the FED is in control of the bond market.  I think that is a dangerous assumption to make.

nope-1004's picture

The Fed controls everything.  They issue their own debt and buy it back.  It's one of the biggest ponzi schemes of all time.  Now if they let their own monetization efforts revert back and spiral out of control, in light of recent commodity take downs, it will showcomplete incompetence.  I don't buy it.... I think QE has to continue or the sheeple will notice.

We are in a deflationary trench now, that's why QE is being done.


Lucius Cornelius Sulla's picture

The Fed controls everything.

I don't buy it.  Personally, I think they are a bunch of morons who create huge messes that everyone has to deal with but they don't have a clue as to what they are doing and what unintended consequences will be stirred up as a result of their stupidity.

snowball777's picture

Even idiots can grab a steering wheel.

Muir's picture


" His outlook, which we agree with entirely, is that first we will see another major deflationary shock"  




Well you do now, but you never explicitly said so.

I've said many times that your is the best coverage anywhere and still do so.

But here you are not truthful.

There were post after post after post on the inevitability and immediacy of QE(n + 1)











Tyler Durden's picture

Which "post after post" would those be? Please highlight them. We have certainly said on numerous occasions in the past that there could very well be a major deflationary episode, which however will certainly be transitory, and which would certainly be the last as the Fed throws the kitchen sink at the problem. In fact, the longer the Fed allows the deflation, the more violent the snapback will be following the subsequent complete devaluation of the dollar. 

Muir's picture

Just which Tyler am I speaking to?

You gotta be fucking kiddin me.

Just about any post before the commodities / PM risk off.

It was always the same, deflationary news meant the Bernak would have to start QE momentarily.

Inversely, inflationary news meant, well, just inflation.

In fact, I argued with one Tyler recently.

but to your point:

"Which "post after post" would those be? Please highlight them."

Tell you what, why do you not reread some of your stuff, as it seems another Tyler personality was the one in charge.


But I will take you up on the challenge and highlight at least 10 posts.

Tyler Durden's picture

Please do. And while you are at it you can start here.

Muir's picture

As I have said many times, you are the best source for info bar none.

Although, I (and many others) posted charts such as those earlier than you in other blogs (Housing bubble under Muir)

But you see things as inevitable.

They are not.

What today makes perfect sense could spiral out of control tomorrow.

While it is likely that QE(n +1) will come around, a complete deflationary collapse is not out of the question.

Tyler Durden's picture

A complete deflationary collapse could very well happen... and will be met by an equal and opposite response by the Fed. Will it be successful is absolutely unknown, but what is absolutely certain is that the USD will be sacrificed in the process before the Fed gives up. After all, the value of the dollar - a liability on the Fed's balance sheet is contingent on the value of the assets held by the Fed's balance sheet.

cranky-old-geezer's picture

After all, the value of the dollar - a liability on the Fed's balance sheet is contingent on the value of the assets held by the Fed's balance sheet.

Uhhhh..... no.

Did the value of German currency during Weimar times depend on the German government's balance sheet?   No.

Does the value of Zimbabwe currency depend on the Zimbabwe central bank's balance sheet?  No.

The value of the dollar has been maintained primarily by its status as world reserve currency, and by "the full faith and credit of the US government" (whatever the hell that's supposed to mean).

The Fed paid 100 cents on the dollar for trash everybody knows is worth way less if not worthless.  From a balance sheet perspective the Fed is already insolvent.  Just another TBTF zombie walking-dead bank keeping the doors open by mark-to-myth accounting. 

The value of a currency is determined by the public's perception of it's value.  It has nothing to do with the issuing bank's balance sheet.

And it won't be a deflationary collapse.  The money supply will not shrink.

It will be a liquidity crisis, exactly what happened in '08.

And yes QE in some way shape or form will continue, there's nobody else around willing to step up and buy the endless flow of new treasury debt, and yes the dollar will eventually collapse because of it.

Muir's picture

Crispin Odey: "The West Will Become Flooded With Inflation" on 04/28/2011 13:58 -0400

Indirects Flee From Poor 7 Year Auction Which Pushes Bond Curve Wider Submitted by Tyler Durden on 04/28/2011 13:13 -0400

"Overall a very poor auction, considering that conventional wisdom was that when the Fed launches QE3 it will focus on bonds at the belly and to the right, in order to moderate inflation."

As One Million Exhaust Jobless Benefits, A Look At What Recent Deteriorating Layoff Trends Means Submitted by Tyler Durden on 04/28/2011 12:56 -0400

"  I think the number will be 160k, but in this world it makes no difference since that will encourage belief in QE3 which will trigger dollar weakness which will cause stocks to go up. "

Relentless Dollar Pummeling Continues Submitted by Tyler Durden on 04/28/2011 05:10 -0400

"But at least Bernanke's plan of inflation our way out of insolvency through a complete currency devaluation is working"

No QE3 Right - So Why Did The USD Just Hit A New Cyclical Low? Citi Explains Why Submitted by Tyler Durden on 04/27/2011 17:25 -0400

And Gold Is Back To Record Highs Submitted by Tyler Durden on 04/27/2011 13:01 -0400

"The market took a sniff at the FOMC statement, and the robotic consensus is: more QEasing."

Citi On Possible USD Surprises From Today's Overhyped FOMC Conference Submitted by Tyler Durden on 04/27/2011 10:22 -0400

"3) opening a door to QE3 if the outlook disappoints further"

On The Verge Of The FOMC Presser, Dollar Hits 3 Year Low Submitted by Tyler Durden on 04/27/2011 04:46 -0400

"gold is also back in fine form, over $1,506 and going higher now that the shakeout of the latest batch of weak holders has taken place. All in all, a perfect day for nobody to ask whether it is US policy to destroy its own currency."

"Gold Glitters Amid Economic Woes" - A Reuters Special Report new Submitted by Tyler Durden on 04/26/2011 17:16 -0400

After Dallas Fed, Richmond Fed Re-Confirms Economic Contraction: Manufacturing Index Plunges Submitted by Tyler Durden on 04/26/2011 10:22 -0400

"But that's fine: somehow the economy will really hockeystick in Q3. And if not, there is QE3, 4 and 5."


The above was during/after the silver "correction"

Now I'll go earlier.

citta vritti's picture

Muir -

Yours was my impression, too. Thank you for the spade work.

And speaking of too, your avatar has two of the most entrancing DSK catchers. Reminds me that for the idle minded like me, ZH should provide means to increase avatar size in line with sometimes hyperbolic commentary

Tyler Durden's picture

Where in any these posts does it say a QE3 on July 1 is inevitable (which goes to your "immediacy" argument)? But, yes, QE3 is inevitable,
in some form or another. We don't dispute that statement, just as we do
not dispute that we first called for a contraction in the US economy in
both Q1, H1 and full year periods, an event that is gradually being
perceived by all. Just as in H1 2010 nobody thought QE2 would happen
(except us), and yet it happened, so the same will happen this year.
However, the Fed needs commodities much lower before that happens. There
is no disputing that either.

And please go as far back as January 2009.

Muir's picture



"But, yes, QE3 isinevitable, in some form or another."


You are wrong. You are brilliant. You provide the best reporting, bar none.

But you are wrong.

Of course,QE (n + x) leading to  inflation/hyperinflation is a very real possibility. Maybe even likely.

But so is a complete deflationary collapse.

Things can get out of control. Very fast. 

And just what is the FED fighting anyways if not deflation? 

And what of all the money destroyed in 08, or the bankrupt municipalities, bankrupt pensions.

The only difference is that you see an inevitability to a FED action that I do not.

I have always been respectful and appreciative to ZH and have continuously praised your posts. I will continue to do so. 


DK Delta's picture

I totally agree with you man. ZH does great work, but people here seem to grossly underestimate the power of anarchy in markets caused by panic in the face of artificially created and maintained markets. The more markets rely on the Fed to keep things moving, the more anxiety builds up in the system.

Even if QE3 were inevitable, there is no guarantee that markets wouldn't reject it and sell like made ahead of what they would perceive to be a new credit freeze. 

Rick64's picture

Time will tell, but I have to side with Tyler on this. QE 3 will be implemented in some form.

Texas Gunslinger's picture

And here, ZeroHedge predicts QE2.5 or QE3 to be announced (in some form) in May, with a QE4 follow-up in early 2012.

With all due respect, there is virtually no way ZeroHedge can deny they have been calling for a seemless, linear transition from one QE to the next.  Perhaps there might be a few recent articles suggesting some delay and some deflationary contraction, but those articles are few and far between.  ZH has been pumping the (hyper)inflationary story since its inception, which is why there are more whacked-out PM goons here than there are hams in Tmosely's backyard.

Allow me to add, I think ZeroHedge is the best blog around.  However, I do wish it was more balanced.



malek's picture

have been calling for a seemless, linear transition from one QE to the next

That's overdoing it as well. Next you accuse ZH of stating that markets always move in a straight line.
Also note that this post is discussing short-term events.

But the long-term result will be very high inflation, maybe hyperinflation. That's a given.

malek's picture

While I very much agree that a transitory deflationary episode could occur before QEx kicks off, it is a bit of a stretch to postulate such a short-lived episode could take the S&P to 400. That would be overdoing it, even if the FED thinks it needs a whiff of panic to convince politicians to continue queasing.

Edit: but that's a minor quibble in comparison to the fantastic work you are doing, Tyler!

dmger14's picture

I had come to the conclusion that the ultimate QE3 et al. would paper over deflation, which would cause a nominal rebound in stock valuations.  S&P 400 (and PM collapse) does not fit that thought.  Could this be another market expert who underestimates the Bernank?

Jonas Parker's picture

I think we're headed for something of a "selective hyper-inflation". Real estate and high ticket items will deflate, food and energy will inflate. I can live without a new house or new car, but food and heat would be a problem.

DK Delta's picture

I haven't smelled a whiff of deflationary talk on here until this week