Barclays' Barry Knapp Batters Bullish Believers

Tyler Durden's picture

Barclays' Barry Knapp has joined the growing crowd of 'sub-1400 year-end S&P 500 target' realists among sell-side equity strategists. With Morgan Stanley's Adam Parker at 1167 and Goldman's David Kostin at 1250, Knapp just reduced his target to 1325 as he notes "the election scenario that unfolded was the one with the most risk, the status quo outcome." In a brief but densely packed interview on Bloomberg TV (the likes of which we suspect we will not see on CNBC), Knapp summarizes his non-rose-colored-glasses view: "In the longer term, while U.S. growth ... remains constrained by policy uncertainty and balance sheet deleveraging. Financial repression has limited the Fed’s effectiveness... We believe a period of significant equity market valuation improvement can’t begin until the Fed initiates the exit strategy process, which is unlikely to occur until Federal government debt sustainability is addressed." From lame-duck impotence to tax-selling pressures, Knapp nails our new reality and explains, as we have been saying, that the only solution lies in a market-forced move: "We suspect, absent a market correction large enough to force compromise, the two sides will not agree on the starting point for tax rates."

Knapp nails it a number of times including his dismissal of 'survey's versus market positioning - just as we have been arguing - and as he concludes: people may have been expecting this outcome but they certainly weren't positioned for it.

Within the equity market in the near-term we believe there will be nowhere to hide. Stocks with high dividend yields are likely to come under pressure as President Obama and Harry Reid renew their push to raise taxes on upper income filers taking the 15% dividend tax rate up as well. While some of the recent domestic consumer related data has improved, the market is not discounting the risk of a tax hike and economically sensitive sectors seem likely to take a hit as well.

Must watch:


Via Barclays:

In the longer term, while U.S. growth has proven resilient to confidence shocks, it remains constrained by policy uncertainty and balance sheet deleveraging. Financial repression has limited the Fed’s effectiveness, rendering it counterproductive as inflation volatility rises and multiples fall. We believe a period of significant equity market valuation improvement can’t begin until the Fed initiates the exit strategy process, which is unlikely to occur until Federal government debt sustainability is addressed.


The election scenario that unfolded was the one with the most risk, the status quo outcome. Thus, while some observers might argue that there will be no “lame duck” session of Congress, since the major players will all keep their jobs in the 113th Congress, there also seems to be little basis to believe that a grand compromise is in the offing. We see little reason to increase the probability of avoiding the tax cliff or brinksmanship over the debt ceiling, or to expect pro-growth tax and entitlement reform in 2013.


Although we’re less confident in a positive turn in the data than we were in 2010 or 2011, we are confident the portfolio balance channel will remain heavily utilized by the Fed. If stocks with bond-like characteristics – defensives, high dividend payers and the largest cap – get hit on the risk of higher dividend tax rates, we would add exposure. Given risks around the tax cliff we would avoid economically sensitive sectors unless they cheapen considerably.


Status quo it is.


Following the launch of QE3 (QE Forever) we wrote that for equities to extend the monetary policy easing anticipatory rally either the economic or public policy outlook would need to improve. We believe a long-term period of sustainable equity market multiple expansion requires monetary policy normalization, which is unlikely until key public policy concerns – tax and debt sustainability via entitlement reform – are settled. The 2010 midterm election provided a short period of improved investor sentiment around those issues however, in our view; the 2012 election has had the opposite effect. We believe that for these crucial fiscal issues to be addressed, in a perhaps even more polarized political environment, the market will probably need to play a central role. With that in mind we cut our 2012 price target for the S&P 500 on Wednesday back toward a level we consider fundamental fair value

So, while some might argue there is no ‘lame duck’ session of Congress, since the major players all will serve in the 113th Congress, it also appears that there is little basis to believe a grand compromise is in the offing. With a polarized federal government we see little reason to increase the probability of avoiding the tax cliff, brinksmanship over the debt ceiling that has already been reached or enacting pro-growth tax and entitlement reform in 2013, by what appears to be the equivalent of a fragile coalition government.

Two more charts of interest...

Business confidence has again dropped, diverging sharply from consumer confidence, leading to a sharp contraction in capital spending... We have seen this before!!


and the market is entirely not positioned for the kind of political uncertainty that is currently ahead of us...


so what's an investor to do...

In the near-term, we suggest generally cutting risk.




We would not be tempted to add risk to economically sensitive sectors, particularly not the QE2 roadmap such as the commodity plays (metals and mining, energy) or weak dollar beneficiaries (industrials, technology), unless they cheapen considerably.

An abundance of hope (green lower panel) in strategist's forecasts for S&P 500 performance... but 2012 appears to have reverted them to reality a little - though dispersion is extremely high.


Meanwhile, year-end 2012 forecasts (that's less than 2 months away) are topped by Jonathan Golub at 1525 for UBS, Credit Suisse's Andrew Garthwaite at 1500 , Weeden's Chris Harvey at 1492, and HSBC's Garry Evans at 1490


Source: Bloomberg and Barclays

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DowTheorist's picture

The stock market is now walking on thin ice. While still in a primary bull market, there is imminent risk of a new primary bear market.


Here you have the details:


AU5K's picture

Gold looks poised to challenge and take out all time highs...

knukles's picture

Official US Policy?
Or Just Dumb as a Fucking Box of Rocks?

Dr. Idiotcracy Hisself's (I didn't name him myself, aka Paul Krugman) op-ed in today's NYT recommends that even in spite of a "bad economy", For Ideological, Political Purposes Alone, there should be No Negotiation regarding the Fiscal Cliff which will result in Economic Harm to Millions.


Reckless Irresponsible Ideologue

Welcome to the New Versailles where the rich promulgate policy over the peasantry, endangering the welfare of the poor for political purposes alone, benefiting only of the growth of the Leviathan.

This is a profile of the new uber leftisit statist Democratic Party, of the peasantry, by the peasantry for the detriment of the peasantry.

vast-dom's picture


PUD's picture

2 Questions..

1. Why does anyone give a shit about what any analyst thinks or feels?

2. WTF is there to "compromise" on? There is too much debt, too much leverage, too many entitlements, and taxes are a zero sum game. What possible "compromise" is there? The debt has to be cut =depression, entitlements/gov spending has to be curtailed=depression. Where is the magic fix?

deflator's picture

Where is the magic fix?

 I think most everyone is expecting money printing, further debt creation, kicking the big assed can further down the road, whatever you want to call maintaining the status quo of infinite growth.

 Their, "magic fix" is hope that decline can happen gradually enough that most people will not notice it.

Peter Pan's picture

The so called fiscal cliff is BS purely because it does not even take into account unfunded liabilities. In other words the yearly deficits are nothing compared to the accumulating shortfall between future revenue and future commitments.

James_Cole's picture

" Why does anyone give a shit about what any analyst thinks or feels?

Yeah it's painful listening to guys like him whine every day, they give analysts a bad name too.

"it remains constrained by policy uncertainty and balance sheet deleveraging."

Oh you can't leverage to infinity? Boo hoo.

"Although we’re less confident in a positive turn in the data than we were in 2010 or 2011, we are confident the portfolio balance channel will remain heavily utilized by the Fed. If stocks with bond-like characteristics – defensives, high dividend payers and the largest cap – get hit on the risk of higher dividend tax rates, we would add exposure."

BTFD. Probably a good idea. 

Sam Clemons's picture

Haha.  I love when people say things like "they (being a political party) just blocked anything the president wanted from getting done."  I usually respond with "what do you want the government to do?  I prefer they do less."

Bill D. Cat's picture

Alliteration , in all it's glory .

Tinky's picture

They could have added "Beyond Belief".

ebworthen's picture

Elvis Costello and the Attractions, "Beyond Belief"

"You'll never be alone in the bone orchard."

AllWorkedUp's picture

Are you saying Barry Knapp should just shut his trap?

Seriously, we'll see if the market is even capable of a major correction. The Money Masters have had this thing completely under their control since 2009.

Even if it should go down ( and no doubt it should) I wonder if it will. Then again, the erection is over. No readson to protect O'Bum any longer.

Zero Govt's picture

"....the election scenario that unfolded was the one with the most risk, the status quo outcome." 

Not a very sharp cookie this Barclays Boy

We had 1 status quo (banker manipulated) outcome, like it or not, the only 'choice' being which of 2 party colours you liked most/least.  Anyone would think Barclays top brains were born yesterday (or trying to pull the wool over our eyes).

Now the bankers have 'reduced risk' in the political arena by heavy investments in buying puppets we all hope Blankfeins lives up to his promises of how "productive" banking is to society and delivers ...any chance it'll get near the $300 Trillion, 10 times global GDP, steaming high-risk junk-paper of the derivatives market Lloyd?  

...that's alot of pedding all hours of the day to balance that amount of shit  ..10 times what the worlds productive people produce to balance what bankers put out???

James_Cole's picture

"....the election scenario that unfolded was the one with the most risk, the status quo outcome." 

Apparently not so much risk that he changes his outlook from business-as-usual. 

Zero Govt's picture

Indeed, it must have come as a real shock of the 2 bankers puppets that ran, a bankers puppet won it

look at all the risks to finance if the other bankers puppet had won

Mr Knapp must have bitten through all his nails waiting for the 'result'

ebworthen's picture

It's going to be 2008 all over again, but worse:


  • More people on food stamps, less employment, less savings and assets to cushion the blow.
  • FED QE, and especially QE3 MBS purchases, are re-inflating the same debt bubble that caused the 2008 collapse.
  • Consumer confidence at high since July 2007, right before the current depression hit. 
  • Unrealistic property valuations owing to FED propping and FHA 3% down and lowest mortgage rates in history. 
  • ARM's and Home Equity loans starting to fill the pipeline again. 
  • Reverse mortgages, aging downsizing boomers.
  • $6 Trillion more in national debt and untold Trillions more in unfunded liabilities. 
  • Overvalued stocks chased 200%-500% above realistic valuations by hedge funds, HFT, and retail lemmings (Apple, Chipotle, and the like).

These things are clear as day, unless you are wearing triple thick kaleidoscope rose-colored hexagonal shaped tunnel vision glasses.

Zero Govt's picture

let us not forget also in an environment (politically created) of more taxation... Jabba the Hut Govt can't find a diet that 'works' for him, so he's wanting more food off your table

Jabba doesn't do diets

Jabba only knows how to eat

Jabba can't do maths or balance budgets

Jabba's only 'skill' is how to spend himself silly

the jibbering Jabba's in Govt can't agree dieting or behaviour-change is neccessary

Jabba takes the 'easy option' out as he can't stomach ideas of diet. Pass the buck, send armed IRS around everyones houses to empty your fridge.

Jabba has taken a 'democratic' decision for society (cough)


disabledvet's picture

i think you're hitting on something when you bring up the baby boomer thing. that trickle becomes a flood now. this will have PROFOUND implications for the US economy in the here and now and not just "going forward"...not the least being "do they need all that housing stock"? (i would argue "no way.") the one thing NOT in ObamaCare is long term care insurance. that's your tell that even for the "nanny state" taking care of these retires will strain our system to the MAX. i think these managed care facilities are going to be a big deal and are a big reason why the Fed and the market are going hog wild in the REIT market. I obviously don't see a return EVER to the bubble years in US real estate...and i think another leg down is in order...which should present some excellent buying opportunities come next fall for those in the market for a home. this will still be the "most unfair economic recovery in US history"...the big winner is STILL arable land--and the Upper mid-West as a region i think will benefit enormously...especially if the stories about the hundreds of billions of barrels in shale oil just across the border in Canada pan out. if so then the City of Chicago's heating bill will definitely go down big time. But it could also power an industrial boom in that area of the country that already has a lot of that stuff to begin with. (Polaris, Harley, Oshkosh, etc...

gjp's picture

Worst of all, there is no rescuer this time.

oldfruit1's picture

these analysts are fools .. they see the market come off & they adjust their forecasts (marginally) to follow .. then drum up some 'clever chat' to explain said adjustment. i should know as i used to do it for a living myself before i got a real job lol



oldfruit1's picture

when i said fools i realise in hignsight i was being overly generous .. i meant TOTAL AND UTTER FUCKWITS ;)

JustObserving's picture

Everyone analyzes this market as if were a free and open market subject to the usual forces of a market.  They forget that it is a completely manipulated market and the Fed, accustomed to printing trillions since 2008, can come in and print a trillion or two to support the stock market.

We are not in Kansas anymore.  Never short a manipulated market.

fonzannoon's picture

i just want to see that guy Abe Joseph Cohen at GS look bad. he's ugly.

Steve in Greensboro's picture

Sub 1,400? How about sub 700?

Mark Wilson's picture

1167? Wow. Market would have to take more than a couple of major dumps to get there with only 34 trading days left. 

disabledvet's picture

Well clearly the burden of proof is on the bears since "the status quo has worked for equities three years running." to argue as is done total rubbish. not saying he won't be right..."this time"...but the fact of the matter is the argument is total CRAP. I listened to the "monied interests" who explained to me when Obama won how "that would be bad news for the recovery." And while this has been true economically sure has been false when it comes to equities, debt, commodities and every other asset you can think of. "Long only" has made a killing these last four years...why should an argument for "status quo" change that status quo then? Will the "No Deal Democrats" win out? We'll have to see how this boondoggle election shakes out first. There is a LOT on the plate of politicians right now so the idea that the same crowd that's been in charge the last 2 years doesn't know what's on the table is CLEARLY FALSE (which is why that simple argument isn't presented here. has the added value of being true i might add.) the other thing that stands out is there is nothing NEW here. Can this PHUCKING IDIOT say SANDY? This is a PROFOUND event...far larger than Katrina as the USA was still ostensibly rich when that happened and it hit oil rich emirate if there ever was one and the largest trading port in the Western hemisphere. I'm still in the camp that people have over-reacted to this election result and sheer momentum will carry the market higher through to Christmas. By then we'll have a clearer idea of "what's really going on"...unlike what this overpaid numbnut is talking about. How can we possibly know they will fail when they haven't even tried yet? How do we know IF the Government fails prevent the Cliff that's that bad?!!! the answer of course is WE DON'T. What we DO know is that a lot of uncertainty has now been taken out of the market (who the next President will be) and based on "buy on the rumor/sell on the fact" i think traders have done well on this election. The Republicans still remain the insurgent Party which is why the retain the People's House...while the Democrats remain the Party of the Status Quo which is why the retain the Senate, the War effort and ObamaCare. The onus will be on the Dem's to execute with the Republicans literally controlling ALL THE MONEY for whatever happens. I think the first stop for the President and his Gang-bangers STILL should be Long Island...lest that "Katrina on steroids" turns into the biggest political debacle since the Great Depression. My view? Long Rudy Giuliani....short the You Know Who.

buzzsaw99's picture

The only question is what does Moby Dick Dimon, the Great White Blow Hole think about all of this?

CunnyFunt's picture

"We need muppets! Fast!"

disabledvet's picture

Dimon, Immelt and Blankfein should all submit their resignations RIGHT NOW. (pending Board approval of course.) these guys have NO play and NO plan. And least "none that have ever worked." I think these Wall Street Boards have had enough of these clowns flying around on the taxpayer dime "while waiting for a business plan." in the meantime the rest of America pushes Forward indeed...

NoDebt's picture

Does anyone here think our economy is fundamentally more stable now than it was prior to the 2008 crash?

Yeah, me neither.  

But thanks for the run-up in equities and... well, pretty much everything (except housing, which I don't care about and never did).  I really appreciate that.  But it doesn't make me believe things are better.  I'm only dancing because the music is still playing.  My eyes are on the exit, not my date.


Mr Lennon Hendrix's picture

Batters bullish believers?  Of what?  Higher prices?

So because I think all Central Banks are going to send fiat reeling and that this will create higher asset prices (hence stocks as they are asset numero uno on many balance sheets) I am "bullish"?

This debate is as tired as the GOP Vs the Dems.  The Hegelian Dialectic wins all, apparently, as though I see an end to the financial ponzi scheme, I also see asset prices sky rocketing, but I have to be labeled bullish on "the market" because of this.

And by the way those who use paper to short stocks are just as much to blame for the fiat ponzi's devastation of the people's money as the longs. 

Pull your paper out and buy physical bullion and save the world from the banksters!

Atomizer's picture

Barclays - "Big”


I have a big dick, never lost for words!

Riquin's picture

I do not fully understand why the big thing about the deficit? 16T is a lot of zeros to the right of the 16. There is no way that we can pay that back. So the discussion must be how to default in a gracious way and how to recuperate after that. 

Harry Reid is thinking about adding only 2 trillion to the limit.

I do not think that Harry Reid understands that we are going to need more trillions. The war with Iran is going to be expensive and see no alternative and then we have the destruction of the Northeast due to the bad weather and lack of preparation for such catastrophes by FEMA and local governors. I really think we are going to be needing to raise the limit to 20 or 21 not 18 like he thinks.  

We really need to do an Iceland dance and get it over with. We already have 47 million people in food stamps soon it will be the whole country. The sooner we default is going to be better for everyone.

Atomizer's picture



The liquidity consequences of the euro area sovereign debt crisis 

Improving the BIS international banking statistics

This report documents a series of enhancements of the BIS international banking statistics (IBS) that have recently been endorsed by the Committee on the Global Financial System (CGFS) and are designed to make significant and long-lasting improvements to the IBS. The report provides a short introduction to the IBS and their main uses and discusses the nature and rationale of the forthcoming changes, which have been developed by a group of statistical experts and economists chaired by Werner Hermann (Swiss National Bank). The enhancements will provide a more comprehensive picture of national banking systems' global consolidated balance sheets, allow for a more detailed analysis of vis-à-vis country information, and help to better track banks' funding patterns and associated risks. They will also make national contributions to the IBS more complete and accessible.


For every hole we seem to create, we cannot find enough hands to plug leaks.

-BIS Distress Taskforce

Lost Wages's picture

So you're saying this time is different and the sell-side analysts aren't just pumping out more Muppet Fodder? I say if Goldman and Barclays are calling for a 1200 S&P you should be buying that shit hand over fist. :)

Atomizer's picture

You do whatever you want Lost Wages. Big money has already left [leaving] arena. Playing with the computers will be you own judgmental call. Don't be a stupid fucking muppet by taking risks, just advice. Good luck!

fonzannoon's picture

I will admit I saw "fast money" this past Friday during the day. The host ( a real dipshit) was trying to bait the traders into what they would buy. They would not endorse anything. So he started bullying them and making fun of them. It was like watching an elementary school fight. These guys wanted no part of this market.

ItsDanger's picture

When the 'official' debt blows through the $16Bln barrier with ease, how is that deleveraging?  More like leveraging the balance sheet (of the govt that is). 

neutrinoman's picture

No, I think ZH and others have made it abundantly clear that all major financial and economic indicators and markets were put to sleep for 4-5 months before the US election. It has nothing to do with the market being upset that Romney lost. Financial markets want continued fiscal deficits and stimulus, to pump up corporate cash and earnings, and Bernanke et al. and their infinite punch bowl of liquidity for speculative purposes. But you can't suppress volatility and reality forever -- now the piper must be paid.

mvsjcl's picture

..."absent a market correction large enough to force compromise..."

Barclays' Barry Knapp


"...absent some catastrophic catalyzing event – like a new Pearl Harbor."

PNAC, Rebuilding America’s Defenses (1997)



The statements are eerily similar. Is another "attack" imminent?

Quinvarius's picture

Bill knapp June 15:

At least this dude is consistantly wrong.

If you listen to these guys all screaming sell so they can escape their pre-QE3 short mistake, you will get destroyed.  Printing money is all that matters to the stock market.  Free money = no banking crisis = no markets selloff.  The risk is on a massive up move, not a massive down move.

Quaderratic Probing's picture

Check any company for insider selling and option exercise ( bottom of page )they have been selling since 2009 collecting MR B'S gift. For 3 years you have been buying over priced stock from Board members... want to guess how that will end?

SKY85hawk's picture

Why is everyone saying the legislated changes must be stopped? 

At the same time the media say spending must be reduced and 'revenue' increased!


These fearsome changes have been needed for many years.  Something has to change in the way politicians buy votes and voters acquire 'benefits'.


Finally, I wonder why few pundits try to remind people that Keynes said the additional debt must be paid back during the good times.

Remember "Surpluses as far as the eye can see" in 1999-2000?


We have only ourselves to blame for the irresponsible abuse of the Public Checkbook!. 


I look forward to your howls of denial!