Bob Janjuah: Markets Are "Tepper'd Out So Don't Get Sucked In"

Tyler Durden's picture

Via Nomura's Bob Janjuah,

Referring back to my last note from 26th March (Bob's World: Post-Cyprus Tactical Update):

A – At best I give myself 5 out of 10 in terms of the accuracy of my main tactical call detailed in the above note. The S&P rallied to 1597 in early April, and then sold off 63 points (4%) to 1534 in Q2 before recovering. I was looking for a 5% to 10% sell-off from 1575 to around 1450/1475.


B – I score myself more highly for the 2nd key call I made back in March, which was that once we cleared a consecutive weekly close above 1575 in the S&P, we’d see new nominal all-time highs with the S&P trading in the high 1600s. I had thought we’d get there in Q3, but as it happens we have seen a (to date) Q2 high print of 1687 (22nd May). So maybe that deserves 7 out of 10? My sense that positioning and sentiment was set-up to get to extremes and chase/buy any dip seems to have played out pretty well.


C – The 3rd and last main call I made was that – based on (poor) fundamentals, (in my view) dangerously loose global central bank policy settings, increasing complacency towards risk and blind faith in central bank ‘puts’ amongst investors, and the sense that positioning and sentiment can and needs to be at (even more) absolute extremes as a pre-condition to any major market move – it would not be until late 2013 or early 2014 before we see the onset of the next major (-25% to -50%) bear market. Time will reveal all on this call, but for now I continue to hold this view.


D – To clarify further, I feel that the current dip that began with the S&P at 1687 in late-May, sparked by moves in rates and rates volatility in Japan and by the Fed ‘taper’ talk, is not the big one. Risk became way overbought from late 2012 and through the first 5 months of 2013, so a 5% to 10% correction (see A above) in, for example, the S&P (from 1687) should and will, I think, be considered normal and healthy – and will be a dip that is also bought (into C above)

Of course things change all the time and I would have to be an (even bigger than usual) idiot to ignore all the Fed ‘taper’ and Japan talk.

Here is what I think matters:

1 – There can be no doubt in my view that the global growth, earnings, incomes and fundamental story remains very subdued. But at the same time financial markets, hooked on central bank ‘heroin’, have created an enormous and – in the long run – untenable gap between themselves and the real economy’s fundamentals. This gap is getting to dangerous levels, with positioning, sentiment, speculation, margin and leverage running at levels unseen since 2006/2007.

2 – The Fed knows all this. The Fed also knows that it was held at least partially responsible for creating and blowing up the bubble that burst spectacularly upon us all in 2007/2008. But very importantly, the Fed now has explicit and pretty much full responsibility for regulation of the banking and financial sector.

3 – As such, and as discussed by Jeremy Stein in February (remember, Mr. Stein is a Member of the Board of Governors of the Fed), the Fed now de facto has a new duel mandate based on (the trade-off between) what I’d call Nominal GDP (or macro-economic stability), and Financial Sector Stability (or what I’d simply label as system-wide ‘leverage’ levels).

4 – This means first and foremost that while growth, inflation and unemployment all matter a great deal, the Fed cannot now either allow, or be perceived to allow, the creation of any kind of excessive leverage driven speculative (asset) bubbles which, if they collapse, go on to threaten the financial stability of the US. Imagine if this Fed were to allow a major asset bubble to blow up and then burst anytime soon (say within the next two or three years). This time round Congress and the people of the US would be able to place the entire blame on the Fed – probably with some justification – and, if the fallout approached anything like that seen in 2008, then it would mean, in my view, the end of the Fed as we currently know it.

5 – Turkey’s do not vote for Christmas, nor is Chairman Bernanke or any other member of the Fed willing, in my view, to take such a risk. Back in Greenspan’s day he could always blame asset bubbles on someone else – even though leverage either in and/or facilitated by the banking/finance sector is always at the heart of every asset bubble. But this get-out has now explicitly been removed from the list of options open to the Fed going forward.

6 – So for me, ‘tapering’ is going to happen. It will be gentle, it will be well telegraphed, and the key will be to avoid a major shock to the real economy. But the Fed is NOT going to taper because the economy is too strong or because we have sustained core (wage) inflation, or because we have full employment - none of these conditions will be seen for some years to come. Rather, I feel that the Fed is going to taper because it is getting very fearful that it is creating a number of significant and dangerous leverage driven speculative bubbles that could threaten the financial stability of the US. In central bank speak, the Fed has likely come to the point where it feels the costs now outweigh the benefits of more policy.

7 - As part of this, the lack of sustainable growth in the US (much above the weak trend growth of 1% to 2% pa in real GDP which has been the case for some years now) is very telling. And, while I can’t be 100% certain, at least some members of the Fed and other central bankers must be looking with concern at recent developments in Japan whereby the BoJ’s independence has, for all practical purposes, been consigned to history, and which has a two decade head start with respect to QE. At least some members of the Fed may be worrying about the future of the Fed and the US if they persist with treating emergency and highly experimental policy settings as the new normal.

8 – The Fed will hope that markets heed its message and that we gradually, through the normalization of yields (in the belly of the curve) and rates volatility (higher!), move aggressively over optimistic financial market asset valuations somewhat closer to what is justified by rational and sustainable real economic fundamental metrics. Rather than being based on some circular and self-serving ‘risk premium’ delusion, which is almost completely predicated on the bogus time-inconsistent assumption of a continuous and never to be removed Fed/central bank put on yields and rates volatility.

9 – The sad likelihood is that markets – which are suffering from an acute form of Stockholm Syndrome - will listen and react too little too late. This could give us the large 25% to 50% bear market I expect to see beginning in late 2013 or early 2014, rather than a more gradual correction. In part, this is because markets will not believe – until it is too late – that the Fed is actually taking away its goodies. Further, it’s because positioning and sentiment among investors just always seems to go to extremes, way beyond most rational expectations, before they correct in spectacular style. Think Chuck Prince and his dancing shoes.

10 - Crucially I suspect that the Fed will be so conflicted/whip-sawed by, and suitably vague in its response to data that it ends up watering down its tapering message a little too often and a little too much, thus encouraging one or two more rounds of ‘buying the dip’. This would reflect the new dual FED mandate and because we are living through an enormous and never seen before global policy ‘experiment’. Furthermore, we are probably going to see Bernanke be replaced come January 2014. I don’t actually think it matters who will replace him – anyone different is a risk and a new uncertainty for the market. In the unlikely event that Bernanke signs up for another term, I don't think that the coming shifts and changes will be reversed, but I tend to feel that the transition phase would be a little less fraught with risk and volatility, as Chairman Bernanke has credibility and the confidence of the market.

11 – So, going back to C & D above, we can certainly see a dip or two between now and the final top/the final turn. But it may take until 2014 (Q1?) before we get the true onset of a major -25% to -50% bear market in stocks. We also need to be cognizant of the Abe/BoJ developments. Along with the Fed, ‘Japan’ is one of the two major global risk reward drivers. The ECB response to (core) deflation and the German elections, and weakening Chinese & EM growth and the indebtedness of China & EM, will also matter a great deal.


As of today, my best guess is at least one major dip around Q2/Q3 (we may be in the middle of it now) as we seek more clarity around all of these drivers. My initial line in the sand for this dip is around S&P at 1530 and my major line is at S&P at 1450. A weekly close below 1450 S&P, in particular, would be extremely bearish. But I expect at least one more major buying of the dip come (late) Q3/Q4.I would not be surprised if we saw the S&P not just back up in the high 1600s, but perhaps even a 100 points higher (close to 1800!) before the next major bear market begins. It depends on who says what, and on the levels of extreme speculation and leverage. In other words, did we collectively learn our lesson from the events leading up to and including the global 07/08 crash? My 25+ years in financial markets lead me to believe, sadly, that the answer is almost certainly NO.

What I do know is that the longer we wait and the longer we put our faith in a set of time-inconsistent policies the greater the fallout will be from the forced unwind of the resulting speculative leverage extreme. This would come once the cost and availability of capital (i.e., rates volatility) ‘normalizes’. It would follow current policies that seek to force a mis-allocation of capital by mis-pricing the cost and availability of capital. I am confident that view is a correct read of the current state of affairs . And I think the Fed is telling us that they know this too. Ignoring this seemingly transparent signal from the Fed – by, for example, believing that the Fed will not have the courage to taper, or  that the BoJ and/or ECB can replace or even out do the Fed over the next year or so - could prove to be extremely dangerous for investors.

We are (I think) in a new volatility paradigm now. Cash will increasingly become King over the next year, even if I do still expect another round or two of dips that get bought during this period. Not getting too sucked in and/or too long illiquidity and/or overly invested in high-beta risks should all be avoided. Nimble tactical trading of risk should be the rule. An increasing focus on de-risking core balance sheet/portfolio should, over the next 12/18 months, hopefully set one up to take advantage of what I think will be another savage bear market in global risk assets over most of 2014.

If cash is too safe, then safety should be sought in the strongest balance sheets, whether one is investing in bonds, in credit, in currencies and/or in stocks. And, as a rule of thumb, (and excluding real house prices in the US) those things that have ‘gone up the most’ over the past few years are likely to be the things that ‘go down’ the most – so as well as equities, EM investors also need to be very careful. 

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LawsofPhysics's picture

Blah, blah blah, the 85 billion per month monetization continues.  Same thing for CBs around the world...

Long black markets and sharcropping, everything else is noise at this point.

Let the paper promises burn.

Pladizow's picture

"In central bank speak, the Fed has likely come to the point where it feels the costs now outweigh the benefits of more policy."


"The illusion of freedom [in America] will continue as long as it’s profitable to continue the illusion. At the point where the illusion becomes too expensive to maintain, they will just take down the scenery, they will pull back the curtains, they will move the tables and chairs out of the way and you will see the brick wall at the back of the theater." - Frank Zappa

LawsofPhysics's picture

"and you will see the brick walls all around you at the FEMA camp" - fixed.  Man I miss Zappa.

Sudden Debt's picture

America only builds with cardboard and wood. Bricks are Sooooo European....

Renewable Life's picture

Long live Zappa!!

One of the greatest observations ever formulated on the circus we live in!

howenlink's picture

“So you think that money is the root of all evil? Have you ever asked what is the root of money?" --Ayn Rand

El Viejo's picture

FYI:  "money is the root of all evil"  is a New Age misquote of the Bible.  The Bible quote says it's "the love of money is the root of all evil"

Just sayin.

slaughterer's picture

Janjuah = one of the best strategists.  His timing is a little slow: markets rush to his upper price targets much faster than he thinks. And his lower price targets never seem to get hit.   But: Thanks for this.

dcohen's picture

He is too extreme and realistic with his targets. He thinks market forces are stronger than Ben Shalom Bernanke. They probably are, but it will probably take a few hundred years or so to play out, I will be a poor dead guy by then, if I listen to Janjuah. Imagine those that did and stuck to it.

SheepDog-One's picture

Face the real facts Bobby, the Fed knew what they were doing all along and were just monetizing the debt, buying up everything for themselves FREE of charge under cover of this bullshit 'We're rescuing the economy! Look at stawks go gee aren't you happy you have us!'. It's all just the biggest scam ever, all your talk is just nonsense.

DaveyJones's picture

they "now fear the costs outweigh the benefits"

the costs for whom, the benefits for what group?

for whom the bridge tolls? 

SheepDog-One's picture

I guess the bridge trolls (central banksters) are starting to fear diminishing returns to themselves even with their free money flow....nevermind new debt to the peasant class 99.99% of everyone else has just had debt go up to $188,000 per peasant. It's all just such a mountain of bullshit.

alangreedspank's picture

"real" facts ? Because this post is made of unreal facts ?

SheepDog-One's picture

Yea too much navel gazing and buying the story from this guy. He's talking about a national bank robbery with terms that paint the bank robbers as Robin Hood heroes who are just now worried their heroic actions 'for the people' may have actually killed the people and they're just now realizing it? it's bullshit in my opinion.

alangreedspank's picture

There's some of that. But a lot of Fed do gooders actually think they're doing something useful, and that's a tragedy. As for "navel gazing", you have to seperate opinions from strategy. "OK, the Fed is a bunch of crooks, but how do I make a return in all of this, regardless" ?

SheepDog-One's picture

Well I'm hardly going to delve into this realm of there being 'Fed do-gooders' I don't believe there are at all as I explained clearly in my comment above. You're trying to make a return in their game? Well, good luck.

dumpster's picture

bobby lives in a keynesian world

If QE was curtailed the world would implode, the dollar would be killed after a short rally, and gold would be the only man left standing. J.S.


kliguy38's picture

Tepper is such an obvious shill for the boyz.....and just adds to the distrust of this ponzi system called a "market"

q99x2's picture

CNBC finally goes dark on the light of reality, automates headlines and cuts Europe/Asia from world markets to International. Bonus punch in face to anyone other than a shill that still visits their site: Sell Gold Today: Pro

Howdan's picture

Very smart (and credible) man is Bob Janjuah.

Spot on analysis and candid opennesss about his calls.

Remember folks : "CASH IS KING".

I'm keeping my powder dry aswell. Smart....

dumpster's picture

cash is king LOL


gold can be converted to cash in mini seconds if that is what is needed

LawsofPhysics's picture

"the Fed cannot now either allow, or be perceived to allow, the creation of any kind of excessive leverage driven speculative (asset) bubbles which, if they collapse, go on to threaten the financial stability of the US."

LMFAO!!  What a fucking joke.  Transferring wealth through currency debasement and blowing bubbles (then popping them intentionally) is what the Fed has been doing for over 100 years!!!  Now they found religion?!?!  Fucking halarious.  Stick that neck out a bit further Bob so I can take you fucking head off, you have no credibility asshole.

Vooter's picture

LOL...exactly! That horse left the barn around the same time Secretariat did...

DaveyJones's picture

I love how these psychotics ramp up the assurances as the shit hits the fan

Vooter's picture

The more miserably the Fed fails, the happier I'll be. ROUND 'EM UP...

LawsofPhysics's picture

Exactly, time for some real accountability.  Nothing changes until the fraud is prosecuted and the bad debt cleared.

Cruel Aid's picture

They won't clear bad debt until they are forced to and nobody of any consequence ever gets prosecuted.

There is the bubble, ideology bursting.

disabledvet's picture

Wall Street is the bubble factory...not the Fed. I do agree we have a multitude of asset bubbles right now and they can and will correct. Equities is still pretty far down on that list...but in my view a simple pull back in the equity space is sufficient to "dull the horns" in say..."the house flipping market." obviously the collapse of a multitude of East Asian currencies is not treasury supportive going forward. "nothing the continued easy money policies can't cure." buying MBS is obviously great for Fannie and will be interesting to see how the Fed's really do spin that thing off.

SillySalesmanQuestion's picture

Dear Bob, you're just figuring all this out now...RRRREALLY.

fonzannoon's picture

Can any of these banana heads answer one simple question? If we get a 25% - 50% correction if the fed were actually to taper and eventually stop QE, and the realization hits home that all QE did was stop the 2008 crash by blowing another bubble...then what will be the catalyst to stop that 25% - 50% correction?

mayhem_korner's picture



The Fed cannot taper.  If it did and the bubble pops 25% or more, the marginal effectiveness of re-starting the liquidity spigot would be crushed. 

and then...China will announce how much gold they actually have

Professorlocknload's picture

The Fed cannot taper.

I'm with ya there mayhem. The FED is well into the Crackup Boom process. It can accelerate or decelerate the momentum, but it cannot, at this juncture, reverse course, let alone just tread water. 

Seems to me to be a done deal. This ends at the destruction of the currency, which is where the FED hits the wall, as well. 

They are just putting the boat engines lower a notch to see how big the stern wave is. Just before it gets to the transom, it's all ahead full.

The Big Egos have no options now. Moral Hazard is a bitch, eh Bennie?

Cash as king? Depreciating cash? Really?

Ginsengbull's picture

Quantitative easing of the debt-slave population.

mayhem_korner's picture



The Fed is more concerned with bubbles popping than further inflating them.  The only tapering will be the hinting of it.  If the spigot is closed for anything more than a couple of bond auctions, the increase in Treasury yields will be intolerable and the spigot will be turned back on (but it will have been severely neutered).

fonzannoon's picture

Breaking news from Hilsenrath "I don't think you will get a lot of fed officials out there saying they bungled this".

q99x2's picture

In other words the FED banksters have taken so much from the economy that they will not be able to fund the military and black ops (surveillance of the public, DHS etc.) if they continue because there is only so much real wealth and they have reached their limit. If they continue then the money to fund the empire will have to come from the Rothschild and Rockefeller stolen wealth accounts.

(Read) They are switching to military force from economic policy at this time.

youngman's picture

They are not monetizing the debt...they said will make the bubble....and be late to the game to take it will blow....some event will cause it...I don´t think they can ever quit as interest rates will go up enough to blow the budget....its all about the Faith in the dollar...they are losing that and they can´t lose any more...

Dr. Engali's picture

The fed is fearful that it might create a large speculative leveraged bubble? It already has and fed can not and will not taper. It is already responsible for blowing up the largest asset bubble in history. Once they start tapering they will be responsible for it popping.They are in this until the end, and whether through war or a false flag, maybe both, the Bernank will be given plenty of cover when this thing finally pops. 

mayhem_korner's picture



The fed is fearful that the masses will find out it has created a cadre of large, speculative, leveraged bubbles.

Professorlocknload's picture

Again I agree, mayhem. The FED is also extremely sensitive to a new mid term election season.

Got to do some PR posturing here.

NoDebt's picture

Ah, the elegant beauty of a liquidity trap.  Do you want it to hurt some now or a lot later?  It's not even about money, it's about human nature. 

My guess?  They'll choose "hurt a lot, later".

alangreedspank's picture

The "taper" is like the "sequester". It won't change much... The "taper" is not tightening at all.

Inthemix96's picture

Listen up Bob,

Get your hair cut ands shave that shit off your face,

And then start talking sense boy.  The fed Monitizing 85 billion a month?

God I hate these fucking pricks, speak English boy, and stop talking shit.

TheMayor's picture

The beach is looking better and better.

tuttisaluti's picture

It means Bernake has the pants full.....

Unprepared's picture

"Holly Printer, that's some conundrum. Maybe I should taper"

"Learn from GreySpan, Leave it to the next guy"

What is the Bernank telling himself?

Sudden Debt's picture

America should look at Toyota....

they now make build your own cars for kids ago 9 to 15!!

Dangerous you say?
Well, they only go 40 miles a hour and if you call that dangerous we shouldn't do anything anymore....

that's what that Toyota guy just said on TV....

now.. I'm not giving my kids a DIY car...

franzpick's picture

Abe's plan-Fed looks more teppered out than ever with the future currently at 12593 down 380, minus 3%, but why surrender now?

slaughterer's picture

Today is a great day for commodity positioning.  Thank you JPM/GS/DB.  

WoodMizer's picture

"5 – Turkey’s do not vote for Christmas, nor is Chairman Bernanke or any other member of the Fed willing, in my view, to take such a risk."

WTF did I just read.  I don't understand this metaphor; anyone care to explain this one to me.