Bob Janjuah: "Bubble Still Building"

Tyler Durden's picture

After a five month absence, Bob Janjuah is back.

Bob's World - Bubble Still Building

From Nomura

Since I last wrote markets have largely followed the path I set out in June. At the time I was looking for the risk sell-off that began in May (and which was sparked by Fed Chairman Bernanke’s tapering comments) to result in the S&P falling from 1687 to no lower than 1530 in Q2/Q3, and then I expected the S&P to rally (driven by the Fed’s inevitable subsequent concerns on tapering, which I felt would see the Fed heavily water down its tapering message) all the way to the high 1700s/1800 in Q3/Q4.

By way of review: The Q2/Q3 sell-off stopped with an S&P low print at 1560 in late June; the Fed got so concerned about tapering over Q3 that it not only heavily watered down its tapering message, it abandoned it (for now!) altogether; the subsequent rally I expected has seen the S&P trade to a Q4 2013 high (so far) of 1775. Overall, my forecast set out in my June note turned out to be accurate.   

Now that my Q3/Q4 targets have been hit an update is due:

1 – As per my June (and earlier) note(s), from a TIME perspective I still see end Q4 2013, through to end Q1 2014, as the window in which we see a significant risk-on top before giving way, over the last three quarters of 2014 and through 2015, to what could be a 25% to 50% sell-off in global stock markets. From a LEVEL perspective, my 1800 target for the S&P into the aforementioned ‘peak’ time window (Q4 2013/Q1 2014) has pretty much already been hit. As I expect marginal higher highs before the big reversal, and while my target for this high in the S&P over the next five months remains anchored around 1800, an ‘extreme’ upside target could see the S&P trade up to 1850. Put it another way – before we see any big risk reversal over 2014 and 2015, we need to see more complacency in markets. I am looking – as a proxy guide – for the VIX index to trade down at 10 between now and end Q1 2014 before I would recommend large-scale positioning for a major risk reversal over the last three quarters of 2014 and over 2015.

2 – The major themes are unchanged – anaemic global growth/mediocre fundamentals, what I consider to be extraordinarily and dangerously loose (monetary) policy settings, very poor global demographics, excessive debt, an enormous misallocation of capital driven by the state sponsored mispricing of money/capital, and excessive financial market/asset price speculation at the expense of any benefit to the real economy. In the context of growth surely I am not the only person surprised at policymakers, especially in the UK and the US, where seemingly the only solution to massive financial market and economic failures is to resort to more of the same of what caused the original problems – namely debt-driven consumption, debt-driven asset price speculation, and the expansion of the ‘Ponzi’ that best describes our modern day economic ‘model’. Personally I do not think the recent mini outbreak of growth optimism is sustainable, primarily because this optimism is based on more leverage and more asset price speculation, which in turn is based upon a set of policies (easy money) that are not credible nor consistent over any ‘real economy’ time frame that really matters. Shorter-term speculation/trading gains are a different matter of course!

3 – Between now and the end of Q1 2014, when I expect to see a major higher high in the S&P in the 1800/1850 range, I would also caution that we could see an interim sell-off that may surprise. Specifically I feel that between now and year-end, especially over the rest of November, we could see a risk-off period that, for example, takes the S&P from 1775 to perhaps 1650/1700, or even as low as the 1600/1650 area. The key here is that, I think in the very short term, markets have priced out pretty much all the risk in markets, and have priced in pretty much all the ‘good’ news. As such I feel sentiment and positioning are currently very vulnerable, especially to any unexpected bad news out of China, out of the eurozone, out of Japan/’Abe-nomics’, and in particular on the confirmation of Janet Yellen by the Senate. If we do get a decent risk-off period in November, I would buy this dip on a tactical basis into the 1800/1850 S&P high target I have for Q4 2013/Q1 2014.

4 – Beyond Q1 2014, the longer term will all likely be driven by the growth data and the credibility of policymakers and what seems like an all-in ‘bet’ on QE as the solution to our ills. It is easy to argue that the major real impact of this policy has merely been to make the rich – the top 10% – ‘richer’, at the expense of the remaining 90%. It seems pretty obvious to many that while the last five years has all been about policymakers being ‘reverse hijacked’ by financial markets and financial market players (the ‘top’ 10%), the next five years HAS to be about a rebalancing towards the ‘real economy’ and the bottom 90%, at the expense of the top 10%. This shift in policy emphasis will not be a happy time for financial markets and speculators while the transition happens, but in the very long term will be seen as a major positive event, in my view. Certainly, the alternative (and current policy) of waiting for some mythical wealth trickle down impact to take us back to the seemingly good old (debt driven) days of the 00s is, in the long run, a delusion that is also likely to result in another financial market and economic failure to rival the very failure we are still, five years on, trying to address!

5 - As mentioned above, the VIX index at 10 would, to me, indicate that the time is then right to get seriously positioned for a major risk reversal, but until then any Q4 2013 dip (as per 3 above) would to me represent a buying opportunity into my expected high in Q1 2014. As a stop loss for this Q4 2013/Q1 2014 high, consecutive weekly closes in the S&P500 above 1850 would stop me out.

To answer the question I get asked the most right now: What in terms of financial assets, would I own NOW if I had to hold it for a year? My answer remains strong balance-sheet corporate credit spread (yields may be expensive, but spreads are not), Italian government debt, and the USD (esp. vs JPY). As one never knows, I’d also have small speculative ‘long-risk’ positions in bank equity, via options, just in case the speculative bubble takes longer to peak and peaks at levels even higher than forecast above.


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magne13's picture

USO has underperformed by 120% over the last 5yrs so not sure what you mean, there is not a correlation.  Remember equities can only pull back so much when you have $85bln a month coming in.  That is $1Trn per year, now extrapolate that forward for another year and then you will see where the stocks will be, they certainly will not be lower...

VD's picture

Bob Janjuah was so wrong on his last famous call of S&P at 700 that i won't even read the above in detail. disclaimer: i had same range as he did so i'm in same lack of cred position, for now...

Running On Bingo Fuel's picture


Your ID.

Stoploss's picture

There can be no bears as long as a FED exists.

Whole lot of people going to figure that out the hard way.

taraxias's picture

Why doesn't anyone from all these pundits, including Janjuah, just be honest and say "The FED is the market now. You are on your own" and be done with it.

All I hear is the "big correction" is right around the corner but never seems to arrive, and "the policy makers will lose credibility" when all it takes is one of these fucks to shout "we'll do whatever it takes" and the markets go orgasmic again.

Unless a black swan, a total surpirse exogeous event, rips the market away from the FED's stranglehold expect this madeness to continue. And even then, I doubt it. 

asteroids's picture

The "big correction" will come from a party not directly being supported by the FED or the boyz. Perhaps a big pension fund somewhere will blow up, or a series of citys will declare bankruptcy in a short time period. Maybe a big Chinese bank implodes. Maybe Greece and Italy in unison tell the ECB to fuck off. You need something that will cause a chain reaction.

falak pema's picture

well BJ got it all wrong for 2012 and 2013.

ejmoosa's picture

Inject as much money as the Fed has into the economy and a lot of results become distorted.

The whole economic picture is grossly distorted.

ebworthen's picture

Government making "all-in" bets with future generation's money.

Who says that is a good thing and will end well?

Oh yeah, the crazy people.

FieldingMellish's picture

Its funny how everyone knows there is a bubble but also knows they will see it popping and get out in time. Nasdark and bidless flash crashes don't seem to mean aything to them.

fonzannoon's picture

"but until then any Q4 2013 dip (as per 3 above) would to me represent a buying opportunity"

rinse, repeat.

NEOSERF's picture

Yah, I expected that for the last 4 years too but the smart investor was 120% in the market and with Yellen coming in, even bets are that she INCREASES QE vs. tapers...Dow 20K!!!!

NEOSERF's picture

I can't take any pundit whose hair is the same shade of green as US currency seriously...

Iam Yue2's picture

Bob Janjuah: "In One Year I Expect Global Equities To Be 25%/30% Lower; The S&P Will Reach Low 1000s In October"

Pareto's picture

+1  EXACTLY.  More fortuitous bullshit.  Even a blind squirrel finds a nut every once in a while.

Dr. Engali's picture

Bob let me save you some trouble. BTFATH or BTFD it doesn't matter, just ride the melt up. When the time comes for downside risk it will be too late. The market will vaporize before our eyes.

Legolas's picture

The Doctor is right.  I think the vaporize theory is most probable.  All the club members will get notice.  Non-club members will get clubbed like the poor baby seals in that worldwide scare many years ago.


orangedrinkandchips's picture

Keep on Rockin in the Free World!

q99x2's picture

But it's only a software driven bubble. The bankster globalists only have 3000 of the wealthiest people in the United States to take the money from. Then worry.

The Axe's picture

OIL is tell me.....sell    rates are telling me sell    I have nithing left to sell........

Yen Cross's picture

   O/T but here's another bubble for you. Federal Debt Jumped $409 Billion in October; $3,567 Per Household | CNS News

  So, not only were extraordinary measures and monthly payment obligations fulfilled/replenished off of the original $223 billion spent, but almost $200 billion in additional debt was added.

  Almost 1/2 $ trillion in 1 MONTH of new debt! This country is so fucking lost it couldn't see itself in a room full of mirrors...

PowerPlayer's picture

The fact that they mention the word "bubble" every five minutes on CNBC assures you that there is no bubble.  There is no doubt that there are individual stocks that are overvalued such as Tesla, but there are also still tremendous values to be had, such as in the airline and rail industries.  Now if interest rates go much higher with no improvement in the economy it would be a different story, but that isn't what the current environment looks like.  

AON's picture

sorry, that line of reasoning doesn't fly.  i got that exact same argument in 2000 with tech and 2007 with houses.  i remember like it was yesterday everyone telling me that because everyones arguing about whether its a bubble means its not a bubble.

wrong then and wrong now.  but i can understand why it seems to you like that might be the case


joego1's picture

With all of the HFT and rigged markets your chances of beating the big boys on the exit are about zero.

DOGGONE's picture

Public drunkenness by the majority!
Look at what is kept out of sight:

Professorlocknload's picture

In another 50%, or so, dollar devaluation, 1800 is cheap.

polo007's picture

According to Macquarie Research:

Could the Fed flip flop?

“Enlargement” could become the new “tapering”

- Our view that tapering will commence in March 2014 has become the consensus and continues to be our base case (50% chance). We place a lower probability (15%) on an earlier taper (Dec/Jan) and a higher probability (25%) it occurs later (April to Sept). While incremental delays could impact near-term asset class performance these would only provide temporary respite from longer-term trends established when expectations for tapering began in early 2013.

- One outcome (to which we assign our final 10% probability) that would result in a more dramatic shift would be a 180 degree turn or flip flop in Fed communication that caused investor anticipation to move from “taper” to “enlargement”. The potential for such a shift is barely being acknowledged (no less considered!), by consensus. This is all the more reason to give it attention in our view. Such a flip flop would have important implications for asset market returns. In particular, it would likely lead to outperformance from emerging market equities and precious metals. Treasury bonds would also benefit.

The Fed would need to doubt the recovery’s sustainability

- Incoming data are an obvious catalyst for a Fed flip flop. The labour market has softened recently (Fig 8, 9), housing momentum has slowed (Fig 10, 11) and inflation is well below target (Fig 12, 13). Despite downgrades in its forecasts (Fig 14), the FOMC remains above consensus (Fig 15). While this evidence may be enough to delay tapering, modest downgrades or data misses likely won’t be enough to change the Fed’s tapering narrative.

- In our view, for such a flip flop to take place, members must become more pessimistic about the recovery’s sustainability. What might cause this? The combination of continued soft data alongside greater than expected fiscal tightening in 2014 is one possibility. It was the worry about the impact from the fiscal cliff, after all, that contributed to the QE3 launch decision in 2013.

And the Tea Party could provide the catalyst

- Consensus expects the Tea Party and other Republicans to take a less hardline approach towards negotiations in 1Q14 after they were punished in public opinion polls as a result of the shutdown. Such a near-term detente in Washington will only become likely should President Obama make concessions. Should this occur, the President may be more willing to sacrifice on near-term spending rather than changes to Obamacare (his legacy) or long-term entitlement programs (resistance from his own party) (see pgs 3 to 5).

- The magnitude required to impact the 2014 growth outlook is not high. Annual spending cuts offsetting just one-third of the long-term debt impact from Obamacare would act as an incremental ~0.4% headwind to growth in 2014 (combined with sequestration already embedded in current law, this would mean fiscal drag of ~0.5 to 1.0% for much of the year) (Fig 7).

AON's picture

Hey Bob - go fuck yourself. 

why don't you just admit you are a totally clueless idiot.  the spoo was ready to crash about 500 pts and 3 years ago in your book.  now you tell us we need more complacency and 1850.  more complacency?  LMFAO! you may think its going higher but to suggest we need more complacency in an era of epic complacency just proves your level of ignorance. 

it also shows you to be a coward who can't just admit he was wrong and wrong huge and wrong huge about everything. You sir, are a fucking moron and should be embarassed to even open your fucking mouth.