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Bob Janjuah's "Interim Capitulation" Line In The Sand
Via Nomura's Bob Janjuah,
I am glad I got my last note out on Tuesday this week! The key market outlook from that earlier note was:
So notwithstanding that my 1905 S&P 500 level is key, what would I do now? It seems to me that unless we get a major unexpected policy and/or sentiment shift this week, the S&P 500 will close below 1905 this Friday. I would then target 1770 as the next stop. This would lead to UST 10yr yields at or below 2% and the new iTraxx XO index would then trade well above 400bp, perhaps closer to 425bp/450bp. And if the S&P 500 also fails to regain 1905 by next Friday’s close (24 October), then I think it is entirely possible that by late November the S&P 500 could take out not just 1660/1650, but also perhaps 1600/1570. This would take UST 10yr yields well below 2%, perhaps as low as 1.75%, and we could see the new iTraxx XO index closer to 475bp/500bp. Throughout all of this I would expect the USD to sell off a little vs the global basket.
Clearly, the last 48 hours has seen significant price moves and my shorter-term targets have been hit already – UST 10yr yields have traded below 2%, the new iTraxx XO index has traded at 430bp and the USD is weaker. The S&P 500 has not quite hit 1770 but since my note it has traded down from 1899 to 1821. The 1770 level could be taken out today or tomorrow. And, of course, the S&P 500 is merely a proxy for “risk-on” – most other equity markets, particularly in Europe, have been much weaker.
My confidence that we avoid an S&P 500 close above 1905 this Friday is extremely high, as it is for next Friday. As such, I remain confident that by the end of November there will be further risk-off moves that will take UST 10yr yields to 1.75% (or maybe even 1.5%), USDJPY closer to 100 than 105, the new iTraxx XO index up to 475bp/500bp, and the S&P down to 1660/1650, possibly as low at 1600/1570. It would take a sudden unlikely sentiment and/or significant policy shift to force me to re-assess these targets, again with the 1905 weekly closing level on the S&P 500 as my pivot point.
So no change. In this note I focus on two things:
1 - We all hear nonsense in the course of our lives. Sometimes we talk it. Over the past 48 hours I have heard that this apparently unforeseeable re-pricing of global markets is down to Greece, down to Ebola, and/or down to the fact that the street is not offering much liquidity. However, I think the re-pricing was foreseeable and has – so far – barely anything to do with these first two items. At some point I’m sure the market will accept that the re-pricing is much more about reassessing global growth and deflation expectations and collapsing policymaker credibility.
And as for the liquidity argument – which HAS been a factor, in my view – how can this be a surprise? After all, as I see it, one of the cornerstones of regulation over the past five or six years has been to ensure that banks are unable to provide liquidity when clients really need it en masse. Providing so-called liquidity when nobody really wants it and when everyone is buying risk without fear is easy. But every market participant should have had it drummed into them by regulators over the past few years that the sell-side will not be there precisely when liquidity is required en masse by clients.
Risk bulls have always talked about the lack of leverage in the system. They failed to understand that the size of positions on client balance sheets vs the levels of real liquidity on offer from the sell-side which can facilitate risk transformation or portfolio rebalancing represents the new “leverage” in the system. This mismatch – in market panics – runs probably into double-digit multiples. And I don’t see it getting any easier/better.
2 – This week feels like INTERIM capitulation. So I feel that the probability distribution now favours a short-term three- to seven-day period of RELATIVE calm/counter-trend bounce/easing-off of VOL spikes, over next week/the early part of the week of 27 October. I fully expect the market to convince itself that in two weeks’ time the FOMC will deliver us all some relief.
I say interim capitulation because I think the Fed will likely disappoint at the FOMC meeting at month-end: it may leave the stub of QE open, it may talk about data-dependency and options, it may even highlight (global!) growth and deflation risk. But I firmly believe that for the sake of its own credibility the Fed will not say or do enough to satisfy the market’s plea for more help.
As the market is pleading for help which I doubt the Fed will give (yet), I would focus on the ECB and the BOJ. I think the Italy/Bund 10yr spread needs to get to 250bp or so before the ECB can “act decisively” (i.e. outright QE). In other words President Draghi will need to convince Chancellor Merkel that break-up risk is back on the table before she gives him the go-ahead for outright QE. And USDJPY needs to be a lot closer to 100 before the BOJ can act earlier than expected.
Unfortunately, I think that by definition it will require another round of panic and capitulation in November, perhaps prompted also by another strong NFP (lagging indicator, of course) as well as disappointment with the Fed at month-end. A strong NFP would be bad for risk as markets would have to price out any immediate Fed help even further into the future. So the ECB and the BOJ appear to be the only (semi-) credible saviours, but the pre-conditions they require before they step up, highlighted above, means that first we need to see much more panic and capitulation, over November.
Beyond this week and through to 29 October, where the short-term counter-trend multi-day bounce is my central probability, I would use this period as a time to sell risk, and to reload and get both short stocks and long USTs/Bunds again for the capitulation I expect to see into late November. For non-traders, stay short risk (subject to my 1905 caveat) and long USTs/Bunds through to/through November and until we price in major measures from the ECB and BOJ, which should hopefully be sufficient to turn sentiment and markets around in December. For those who choose to stay short risk don’t be too surprised by some relative calm/counter-trend bounces as a possible theme for next week/into 29 October, at which point I expect the Fed to fail to deliver what the markets want to hear.
One last point – QE4. I received some pretty critical feedback when I said that, over the next 12 months I saw a 50/50 chance that the Fed would be EASING monetary policy vs commencing a hiking cycle. I still think it is 50/50 because the events of the past few days and weeks are not a surprise to me. What has surprised me, however, is how many people are now openly talking about QE4 and no Fed hikes until 2016/2017 – a complete turnaround from the consensus only three days ago. My key point here is that I do not believe the Fed is going to do anything substantive on the easing front (other than as discussed above) anytime soon, but over the next 12 months 50/50 seems a fair assessment to me.
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funny how they act as if anyone believed for one minute the lie that QE was over
How good/bad is Bob Janjuah's credibility? How is his actual (vs. theoretical) track record?
http://finance.yahoo.com/news/bob-janjuah-could-see-p-133442500.html
Shit an analyst that I pretty much agree with.... Am I loosing it?
And don't forget the elctions in 3 weeks. A crash before the election would be a Black Swan in my view. The Fed will do all in its power to prevent. Just talk of expanded QE will hold the line.
And explain WHY the Feral Reserve should and would do that you fucking moe-ron!
QE is dead, deceased, not sleeping, over, ended, quit, defunct, destroyed, dissolved you DOPE
GET IT THROUGH YOUR RETARDED HEADS YOU MOOKS THAT QE IS OVER!!!
SHEEEESH!
Who says the Fed doesn't want a crash? Wall St might want to get rid of Obola and his ilk.
QE may be dead (or not) but the federal reserve still has a voice and can speak, even if it lies. It can "promise" more even though it knows it can't deliver. Why you have to tell people they are fucking moron anyway?
I disagree w/ 'even if it lies.'
They could still let QE run for another quarter even as the risks continue to pile up. your mistake (and Tylers') is to think they will let bond market liquidity problems trump their hardheaded commitment to keep pushing inflation higher, in whatever way possible. they don't even own 1/2 of the 10YrTSY equivalents yet, which means they still have some room to grow the balance sheet before the bond market comes completely unmoored. but that seems to be where they are headed, how far they are willing to go.
they are getting very deep into the twilight zone of monetary policy. they are gambling at this point, but when a gambler is down to his last chips, who hasn't watched him start making more and more reckless bets? i have, and they've put this very behavior on predictable display for over 6 years now.
Yep, Pull a page from the Draghi playbook. It has worked for the last two years or so.
Headbanger, Your name calling, berating of people, and cussing is what convinced me that your "argument" is correct. </sarc>
LOL!!!
Bring Public Banking to all US States, mandatory like Bank North Dakota.
http://www.publicbankinginstitute.org/
https://en.wikipedia.org/wiki/Ellen_Brown
http://wallstreetonparade.com/2013/08/public-banking-institute-calls-lar...
http://ellenbrown.com/
http://www.nytimes.com/roomfordebate/2013/10/01/should-states-operate-pu...
"one of the cornerstones of regulation over the past five or six years has been to ensure that banks are unable to provide liquidity when clients really need it en masse. Providing so-called liquidity when nobody really wants it and when everyone is buying risk without fear is easy. But every market participant should have had it drummed into them by regulators over the past few years that the sell-side will not be there precisely when liquidity is required en masse by clients."
yep. they will wheel out a fed jawBONER every hour on the hour today to get this thing green
maybe some musing from varied fed heads, but absolutely no formal announcement from FOMC at end of month meeting.
If it did it would be seen as political (ie: helping O and the Ds)
I don't see why they would care about who wins.
the paths are very different to the same endpoint... The red path destroys the middle class, the blue path, destroys both the mdidle class and impacts the less wealthy of the wealthy. The red path buys 5 to 10 years of time before the final collapse. The Blue path gets us there a hell of alot quicker, likely before 2017.
Whether this election is relevant is another question. It will be Obozo unleashed no matter what the outcome of Nov4.
More than that, who's to say the Fed wouldn't actually prefer a change in government? I think those who profess the Fed is always doing the current administration's bidding have too simplistic a view of things. Remember, the Fed is owned by it's member banks, and if the members want regime change, that's what rules the day.
Well, the funny thing is that the arguments for ending QE are fundamentally sound and rational (and those reasons do NOT include improving economic conditions), but you cannot expect desperate people to make sound, rational decisions.
Ending QE = bad now, better later
Continuing QE = bad now, worse later
I frequently read that ending QE and raising/rising rates will be (short-term) bad for risk assets, but no one ever mentions what it could mean for other aspects of the economy.
I'd make the Thelma and Louise Argument. I would like them to go 200B a month, get us over the cliff once and for all with a little style.
What we have now is at best a slog to the end...
QE is over.
Introducing qe!
Or is it QE?
QE ending ... for now
liquidity/supply problem
probable restart when we re-enter recession (won't be long) and deficits jump to $trillion (again) ... plenty of supply then
Listen.
Just keep your eye on retail gasoline/diesel prices. That's the leading indicator.
irrelevant point. oil price is probably the most rigged market in a very rigged system.
I would offer Ebola count. If it stays at 2 in two weeks, it will be out of the news cycle and back to your regullarly scheduled kardashians episode. If we start picking up a few a week, then you will get genuine panick, and Christmas will be a smoking crater.
It will be E La Q or El QE, but not QE.
I look at this volatility today and can only think..What a bunch of degenerate gamblers...
Hey how about that Friday full retard closing ramp about 4 weeks ago where we were told the all-clear green light was given and the 'smart money' had just gone all-in long fully leveraged?
They need two things 1) a good excuse, 2) a new magic number. Other than that things are going just super fucking wonderful.
fyi, http://www.barchart.com/chart.php?sym=%24spx&style=technical&template=&p...
And now you ruined that play. Next thing you know Gartman will be going long S&P for 7 days in terms of dongs
At some point I’m sure the market will accept that the re-pricing is much more about reassessing global growth and deflation expectations and collapsing policymaker credibility.
possibly ... just possibly ... Mr Market sensed what i sensed back in august - we're entering (or just about to, Q1 latest) another recession
So.....when did we ever leave the Greatest Depression ?
Don't point at the naked emporer like that, he's sensitive about such things...
The market crash is part of the election strategy from MIC and TBTF. They hate Obamalola too and want a lame duck President for the next two years.
I think there is self-reinforcing truth there.
Another clownpenis who sees a 50-50 chance of things happening or not happening.....absolutely worthless gibberish.
I believe if it doesn't rain things gonna be kinda dry.
Yup.
Irrespective of QE, Ebola, etc. from a technical stand point the primary trend of the market turned bearish on October 10th. Now the odds favor lower prices ahead, as explained here:
http://www.dowtheoryinvestment.com/2014/10/dow-theory-update-for-october...
you do realize the Fed follows you technicals mumbo jumbo, too, right?
and when they notice technical breakdowns (that could quickly result in a market rout) they come out and talk the markets back up.
have you even been watching what's been happening the last 6 years?
Fed finger in the market = no market crashes, no bear markets
Well less than 40 points to go to 1905 after rising 45 today...LOL just no end to this shit
Already blew through the two handle on the ten.
"Now you'll see the power of this fully operational battle station"?
The only way to " account" for Ebola is through the psychology of fear and fear alone. I fail to see how (fear of?) Ebola drives rates lower...but it certainly drives the dollar higher.
If there is a massive outbreak underway inside the USA as I have SPECULATED then that could result in a massive amount of debt issuance...globally I might add...and that could result in much lower rates.
Hard to tell because the PTB rushed that one doctor dude back for the "miracle cure." Not finding anything dispositive news wise so sure sounds like equities is a no go. Trading Ebola plays? That's friggin psycho.
Disclosure: I haven't done jack shit today it's just fluffing around within that 1840-1870 crash channel and I'm not the fluffer I'll leave that to Pisani. Low probability of success within this area in my humble view so fuck it.
All good points Bobby Boy. But here's what's actually happening. They want it above 1870 this week on volume because that will attract peeps for the ride. they can jerk this thing very rapidly. The entire planet can see 1904-05 and I agree with its significance. I guess I'm saying don't be surprised if they pull out another rally which ultimately originated from that sub-1833 level I've referred to a few times. Not saying I agree with it nor am I predicting it just relaying how the game can be played and keeping my brain open to all options.
And on cue here's an attempt . . . . . . .
50/50, Bob? Real risk taker, you are!
you got to love the americans, europeans, and japenese, they still think they have control,or any freedom of what happens to thier paper, (non-physical), assets.
Baloney. This market only knows two things: Fear and Greed. This market will become numb to the ebola "noise" in a matter of days and unless some celebrity contracts ebola and dies, the s&p is headed to 2,100 before year end. "Janet's has the market's back".
Don't you know it's the weather, Bob? The weather is to blame for it all.
well it looks like they are going to do it unfuckingbeleivable nothing rigged here