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As Market Plunges, Bob Janjuah Opines: "Tactical Short Risk Time"

Tyler Durden's picture


Dow Jones down 250, and a new bearish letter from Bob Janjuah? Lucky coincidence? Or conspiracy? You decide. From Bob: "How to play it? The SPX is the obvious pure risk short because of how rich it is against other equity markets. Outright is fine, ao are options. Take a look at January 1350 puts for example currently trading at 20. If doing outright we would recommend a stop just above the recent highs at 1475. We also like the USD and Treasuries because the market has seen time and time again US problems do not lead to selling of (safe) US assets and it can and we think will be the same again."

Full Nomura note

Tactical Short Risk time

  • After a decent run markets have priced in a lot of good news and vol pricing suggests they are not paying sufficient attention to upcoming event risk.
  • Key near-term risks are political; the US election, the fiscal cliff debate that follows it and the long-term outlook for US monetary policy that is dependent on the result. There is also the Spanish regional election.
  • We see evidence that the market is positioned long of risk.
  • The earnings season thus far has not been good and economic data in the US and Europe are, at best, mixed, relative to expectations of a Q4 rebound that we believe may be disappointed.
  • The trades we like for a tactical play now are selling SPX (outright or via options), buying the USD (except against the JPY), buying US rates – 5yr outright or 10yr against swaps, and for those in the metals space we would look at buying gold at these kind of levels.
  • As always all views mentioned are solely the Macro Strategy team’s and not Nomura’s house view unless explicitly stated otherwise.

We shifted to a structurally neutral bias one month ago and since then we have watched the SPX rally to 1470 and back down to the 1420s twice. After that range-trading we expect that a break lower can now be seen with a reasonable near-term target around 1300.

While all upcoming risks as mentioned above are very much in the "known unknowns? category, it is still a reasonable call as a strategist to say whether they have been sufficiently priced or not. We think not.

Why? Because the SPX remains in its recent range (or just breaking out of it as we write) VIX and other volatility measures have remained very low and CFTC data show S&P net longs at their highest relative level since June 2009.

Why is the market behaving like this? We wonder if investors have looked at the relative returns this year (i.e. the degree to which risk has outperformed risk-free) and decided that because of this they need to take some "risk? on risk, which would explain why the positioning metric mentioned above has gone to this 3yr+ net long from a net short as little as five weeks ago.

We also think that a lot of complacency has crept in around Europe (OMT seen solving a lot more than we can see it does), and around a Q4 rebound which has been supported by better Chinese data, but not as yet so convincingly by Western data.

How to play it? The SPX is the obvious pure risk short because of how rich it is against other equity markets. Outright is fine, so are options. Take a look at January 1350 puts for example currently trading at 20. If doing outright we would recommend a stop just above the recent highs at 1475. We also like the USD and Treasuries because the market has seen time and time again US problems do not lead to selling of (safe) US assets and it can and we think will be the same again.

The USD looks cheap on a DXY basis, and that is probably the best trade to position for rather than trying to pick any one to pair it against, though if you put us on the spot our favourite to sell against it would be GBP and our least favourite JPY (for obvious reasons). On cable, we note that 3m vol is pressing close to the multi-year lows from 2007, so again options look a great way of positioning this.

Treasuries have had a tough time recently and have pushed back up to some attractive levels. If there is a true fiscal cliff scenario then we think Treasuries will rally even without the almost inevitable buying of them by the Fed (i.e. almost inevitable under that scenario). We believe that 5yr Treasuries can easily reverse the recent 15bp cheapening, but our preferred trade is buying 10yr against swaps from 5bp last looking for a move up to 20bp, as the perceived outlook for financial deteriorates.

Lastly, gold has fallen ~$100 recently and if you wish to position for a rise in global uncertainty and some additional Fed action being priced in then we think these look like attractive entry levels.

Which trades for a portfolio? We choose the outright short SPX and 10yr US swap spreads – we only want two trades as we want to be tactical here and while we think options offer good value across asset classes, the clarity of the view inherent in outright positions leads us to go for those in the portfolio, but we most certainly would not put you off options trades to express these views at all.

Good luck, this year's trades and the two new ones below.

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Tue, 10/23/2012 - 10:55 | 2912732 vast-dom
vast-dom's picture

I have Bobby Boy Janjuah's chart right here showing SP at 800 about a month ago. Maybe he's off by a mere month, maybe not. 

Tue, 10/23/2012 - 10:59 | 2912750 slaughterer
slaughterer's picture

I like Janjuah, but this trade recommendation needs to be approached with maximum caution.  

Tue, 10/23/2012 - 11:01 | 2912760 vast-dom
vast-dom's picture

and buying treasuries is imnsho unpatriotic. short bonds out of principle, the hell with it.


most amusing mover today: harley davidson up 5.8%.

Tue, 10/23/2012 - 11:07 | 2912783 adr
adr's picture

Winter is coming and everyone buys Harleys to plow thier driveway.

Tue, 10/23/2012 - 11:14 | 2912805 otto skorzeny
otto skorzeny's picture

that HD chart is mind-bottling. the union trades guys that used to buy them are no longer working so who is buying these POS? the only thing i can figure is that the high-margin HD licensed apparel is still selling.

Tue, 10/23/2012 - 11:16 | 2912809 francis_sawyer
francis_sawyer's picture

He's rapidly becoming the 'Benjamin Fulford' of tactical planning...

Tue, 10/23/2012 - 12:04 | 2912958 NooooB
NooooB's picture

The Russian and Chinese thug elites probably... Money can't buy taste.

Tue, 10/23/2012 - 12:55 | 2913106 ssp2s
ssp2s's picture

who is buying these POS?

Folks who can't afford cars.


Tue, 10/23/2012 - 10:54 | 2912734 rajc
rajc's picture

row row row your boat gentyl down the stream....then jump off ... woot

Tue, 10/23/2012 - 12:13 | 2912992 asteroids
asteroids's picture

GS vs Nomura advice. Which would you pick?

Tue, 10/23/2012 - 11:01 | 2912763 alstry
alstry's picture

Money is debt and debt is simply us trying to control each other......the world is now bankrupt yet we're all still trying to position for control in a era where few of us produce what we consume.

In a world where technology is replacing most of our industrial jobs.....is time to milk off a new game in the http://www.udderworld.com

Tue, 10/23/2012 - 12:07 | 2912971 blunderdog
blunderdog's picture

    Money is debt and debt is simply us trying to control each other...

That's an important philosophical realization.  There are folks here who aren't prepared to accept this.

Tue, 10/23/2012 - 12:35 | 2913041 dmger14
dmger14's picture

...and isn't this the reason why you cannot inflate your way out of a debt problem?  The more you inflate, the more debt you add.  Inflation only buys time and makes it worse.  Question is, when is armageddon, 2015?

Tue, 10/23/2012 - 12:51 | 2913097 blunderdog
blunderdog's picture

You can't inflate your way out of debt owed to yourself, but you can inflate your way out of debt held by outside parties.  At least, as long as you know they don't have the leverage to make you pay for trying that strategy.

Tue, 10/23/2012 - 16:02 | 2913780 dmger14
dmger14's picture

OK, so "make you pay" aside, and as an example only, suppose we wanted to inflate our way out of our debt to China.  The fed can buy debt from the treasury who gives it to China to pay off the debt and some interest payments, thereby inflating our way out of our debt owned by China.  But the US has even MORE debt now.  So we can inflate the debt away to certain debtholders, but the US then has MORE debt outstanding. 

Tue, 10/23/2012 - 11:05 | 2912773 The big unzip
The big unzip's picture

Lot of profit taking today.  WoW

Tue, 10/23/2012 - 11:24 | 2912837 francis_sawyer
francis_sawyer's picture

Hey ~ that's a really cool Madeleine Albright avatar you've got there...

Tue, 10/23/2012 - 11:05 | 2912774 Vincent Vega
Vincent Vega's picture

I guess I've just become cynical, or maybe it's a sign of the times, but when I think of a "tactical short" the only thing that comes to mind is .223

Tue, 10/23/2012 - 11:05 | 2912776 adr
adr's picture

It's only 11:00. There is at least 20 years left in HFT time during this day. To the bots this moment is Black Monday, noon could be the bottom. 3 to 4PM plays out like 1999. Green by the close.

Tue, 10/23/2012 - 11:07 | 2912784 ghostfaceinvestah
ghostfaceinvestah's picture

Just wait until the Fed buying programs kick in at about 3PM

Tue, 10/23/2012 - 11:59 | 2912944 Zero Govt
Zero Govt's picture

I can't connect the dots between Fed buying crappy MBS's and the Russel 2000

....or improving unemployment

It takes a pickled brain in an academic ivory tower, like Krugmans, to do that

Tue, 10/23/2012 - 11:10 | 2912795 Lost Wages
Lost Wages's picture

I waited all summer for this shit and it never happened.

Tue, 10/23/2012 - 11:20 | 2912823 Quinvarius
Quinvarius's picture

It isn't happening now either.  Printing money matters.  Your confirmation is bears howling like mad.  BTFD x2. 

Tue, 10/23/2012 - 11:22 | 2912830 Grand Supercycle
Grand Supercycle's picture

SP500 impending sell off...

Despite recurring short squeezes, SPX etc daily charts continue to break down.

DOW 8 hour chart shows possible H+S (bearish pattern)


Tue, 10/23/2012 - 12:25 | 2913019 lasvegaspersona
lasvegaspersona's picture

I know people have to make a living giving advice but this market is predictable only if you know the mind of the central planners....and since they are insane.....

Tue, 10/23/2012 - 11:32 | 2912863 slaughterer
slaughterer's picture


Tue, 10/23/2012 - 11:39 | 2912884 inevitablecollapse
inevitablecollapse's picture

somebody? or some thing?

Tue, 10/23/2012 - 12:05 | 2912964 Zero Govt
Zero Govt's picture

Bubble Ben's algo?

Command: seek and destroy all market shorts

...one day when all remaining human particpants decide to sell-off that algo is going to be digitised toast 

Tue, 10/23/2012 - 11:38 | 2912888 Bastiat009
Bastiat009's picture

Stocks are like gold with dividends. And no, my investment horizon is not 2000, 100 or even 50 years. It is much shorter than that.

Tue, 10/23/2012 - 12:37 | 2913053 blunderdog
blunderdog's picture

Stocks are like gold EXCEPT their value can go to zero, you can't make jewelry out of them, and they've only been treated as a form of wealth for a few hundred years.

In that regard, stocks are actually a lot MORE like paper money or checks.

Tue, 10/23/2012 - 11:45 | 2912900 q99x2
q99x2's picture

Nothing a little Obama apple accounting can't fix on Thursday.

Tue, 10/23/2012 - 11:46 | 2912901 viahj
viahj's picture

treasury auction week. 

1. drop the equity indexes, buy UST and MBS. 

2. wait for the FOMC to hint at expanding QEternity. 

3. profit.

4. run for the hills.

Tue, 10/23/2012 - 12:03 | 2912956 Quinvarius
Quinvarius's picture

So Bob is on record again.  Short into unlimited money printing and 0% credit.  I'll pass on that.

Tue, 10/23/2012 - 12:07 | 2912972 Artful Dodger
Artful Dodger's picture

Can't possibly be time to short when the IPAD MINI will add 1.3% to GDP, carrying cases for it will add 0.2% to GDP, and fucking connection adaptors will add another 0.4% to GDP. Don't fight the "Conspicuously Broke Consumer Who Wastes Their Last Bit of Savings and/or Credit on Their Fifth Apple Gadget".

Tue, 11/13/2012 - 11:47 | 2976139 rustymason
rustymason's picture

The collapse is taking too long. Booooring! Change the channel.

Do NOT follow this link or you will be banned from the site!