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Bob Janjuah: Forget Rate Hikes, "We May Well Need QE4 From The Fed"
Long before the Fed had no choice but to taper QE3 and ultimately halt it, we warned that the Fed will do just that as a result of the dwindling liquidity in the US Treasury market, and declining net Treasury issuance (to a great extent helped by the decline in oil imports from the shale boom, a boom which is now ending) the Fed would have no choice but to gradually move out of the bond buying business. Temporarily.
Because while the past year has allowed the private sector to boost its much needed Treasury inventory, aka "high quality collateral", it has also given the Fed a buffer zone of more Treasurys to monetize whenever it is ready to proceed with Jim Bullard's wet dream: QE4. And while it is still anathema to even think the Fed may have no choice but to ease at a time when consnesus is bickering over when the Fed will hike, increasingly more are speculating that as a result of the global deflationary wave (if not so much when it comes to Cartier watches in Russia and Suntory whiskey in Japan), the Fed will have to forget all about hiking and proceed straight to QE4.
Such as Nomura's Bob Janjuah.
Here is the latest Bob's World missive, in which he discusses just that.
I will write a 2015 outlook note in the new year. I am still thinking about the key issues, namely global growth weakness and the disinflationary and deflationary winds blowing through the global economy, and how these key twin factors will affect global policy and global markets. For now I continue to believe that four very strong deflationary factors are driving things – global indebtedness levels (which have gone UP since the financial crisis), demographics (rapidly ageing populations pretty much everywhere other than sub-Saharan Africa, the Middle East and, notably, India), technology (which is significantly disinflationary and deflationary in terms of the cost of goods and even services) and globalisation (whereby the average global worker has little or no pricing power).
As such, and with the above caveat that I will present my full views and thoughts early next year, as of now I see 2015 as more of 2014. Namely, a stronger USD versus the world, lower bond yields and flatter yield curves with long duration assets in core government bonds markets offering the most value, and much more volatility (I expect to see increased year-on-year volatility in 2015). This volatility should make equities an unattractive place to be particularly on a Sharpe Ratio basis (2014 has been bad enough, but 2015 will I think be even worse). And in credit markets it will mean being much more invested in the highest quality assets and much less invested in the riskiest parts of the credit markets – namely USD EM credit and the US high yield market owing to the significant concentration of issuers and issuance in the vulnerable energy and energy-related sectors.
If I boil 2015 down to one thing, it will be the US consumer – on the basis that the US is the relative bright spot in the global economy. For 2015 to end up being a bullish year for risk assets with attractive Sharpe Ratios I think the US consumer will have to deliver as I see no other obvious driver of global economic growth and inflation. There will need to be US consumption growth of 4% to 5% if this bullish outcome is going to play out. This will require the US consumer loading up on debt again. As of now, I rate this as only a slim possibility rather than a probability, hence my views in the paragraph above. As mentioned I will revert on all of this with more thoughts and detail early in 2015, and of course the outlook for crude oil and the geopolitics behind the crude price will be something I will focus on. Suffice it to say that the idea that lower crude oil prices are necessarily a net positive for the US consumer is, in my view, overly simplistic and not even necessarily correct.
For now I wanted to focus on the next month or so in terms of markets. When I last wrote I highlighted how uncomfortable I was with the bounce in risk assets after the capitulation in mid-October. This concern only got bigger as risk assets rallied over November simply because the data flow, the news flow, and in particular the price action below the surface in equities was flashing warning signs. Some will dismiss this, but the Hindenburg Omens that US stock markets were giving off in very early December were a clear warning.
Since early December the S&P has dropped over 100 points (5%) and the 10yr Note has rallied over 30bp. Other equity markets around the world have generally fared even worse, and some other core bond markets have done even better. Where do we go from here?
A positive policy shock between now and mid-late January seems unlikely. And it is very difficult to understand what will happen next in Russia and/or what will happen next with respect to OPEC, Saudi Arabia and the oil price shock. Positive outcomes seem very unlikely. So for me the pressure that has weighed on markets over the last two weeks seems likely to continue.
Of course the facts can change, and even more certainly interim bounces can and do occur. But on balance I think the key level to focus on is unchanged from my notes of September and October – a weekly close at or below 1905 on the S&P. This is my first target in this current risk-off leg. It would also mean much weaker equity markets globally (the US markets ARE a relative safe haven), much stronger core bond markets globally (sub 2% 10yr Notes), the iTraxx XO index well above 400bp, and some reversal in the USD’s strength (the DXY index is already off by 1.5 points from its early December high of 89.5, with 86.5 my next target). And if we get a weekly close in the S&P below 1905, and in particular consecutive weekly closes below this key level, then the October lows (1820 on the S&P) would be the next target. This in turn would give me a target for 10yr Notes closer to 1.75%, the iTraxx XO index closer to 450-500bp, and a DXY index target of 85 or possibly even lower.
I realise that it is not normal to have a bearish risk view for December through to mid-January. Normally markets tend to ramp up in December and early January before selling off later in January. But this year I do think things are different. One look at the moves in core bond markets over 2014, when almost everyone I talked to had been bearish bonds, paints a stunning picture. I would entitle this picture ‘The Victory of Deflation’, or (as many folks now talk about (but still generally dismiss)) ‘The Japanification of the World’. I may end up eating my words in 2015 if the US consumer does come through, but if he or she does not, then we may well need QE4 from the Fed to battle the incredibly strong headwinds of deflation around the world. And I will revert on this subject, but to me the coming ECB QE and more BOJ QE are woefully inadequate substitutes for USD Fed QE.
Lastly, and in order to protect myself over the next few weeks against a meaningful bounce (driven by a change in the facts most likely) my stop-loss would be a weekly close in the S&P above 2020 (a key level as per my last note) on a consecutive basis.
Good luck and a Merry Christmas and Happy New Year to all.
Rgds
Bob
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Does the Fed manufacturing crises?
http://failedevolution.blogspot.gr/2014/11/us-debt-held-by-fed-further-i...
FUCK Janjuah, this cocksucker hasn't made a right call in years.
Translation: "Holly shit, I'll be out of a job soon with the market imploding now"
Because you can never post a video by The Vapours too many times: http://youtu.be/gEmJ-VWPDM4
Peter Schiff is dancing to the sky right now...
Translation: "Holly shit, I'll be out of a job soon with the market imploding now"
But we need hyper-inflation to go with it....
Anyone who thinks there is a a soft landing coming, to avoid the deflationary spiral we're in, is smoking crack.
The FED will NEVER stop printing. There is NO plan B.
"Please, sir, may I have some moar?'
Printing will never stop since sheeple will likelly take hyperinflation than bank runs. Hyperinflation is a boiling frog, most of the sheeple think raising prices on daily basis is normal. No one will know it's hyper untill it's well underway. Just stack pm's and flour. and crypto...
no shit sherlock
LOLOL.....so the moral of the story is "I may be right or I may be wrong".....just shows you how fucked up market analysis has become in the uber central banking era
Not only that, but there's the "I'll tell you more about my prediction after the decision."
you will have to see whats in it after it passes- nancy pelosi on obama care
Could the end of QEEE3 be the cause of all this stock market and oil mayhem? Just asking...
Probably not since QE never really ended. They just shifted from Fed printing to using excess reserves and foreign buying (BoJ). Other shenanigans were behind oil.
Not a peep about inventories into collapsing oil/gas prices either.
So, QE 4 is guaranteed.
QE3 had very little effect and QE4 will have none but Wall St. WILL get another payday....
Lookin' for some hot funds baby this evenin'
I need some hot funds baby tonight
I want some hot funds baby this evenin'
Gotta have some hot funds
Gotta have some love tonight
I need hot funds
I want some hot funds
I need some hot funds
A QE Christmas compliments of Old Saint Yellen!
Oh oh oh, who wouldn't know?
Produce MOAR debt OBAMNEY & CONgress, so that Yellen can mop it all up!
She'll drink your milkshake!
Krugman save us plz - it was last words of the crowd
"(if not so much when it comes to Cartier watches in Russia and Suntory whiskey in Japan)"
TTyler 1 to Tyler 2: "Hey man, the line is inflation over here."
Tyler2: "Oh, OK, no problem. I got it covered."
Cut the crap already. We have always known it will be QE forever; that is, until the implosion.
QE is the old world order, once its exterminated then these satanic fucks yank the plug and finally get their nwo.
Do us all a favour and don't bother penning any more worthless bullshit. Merry Christmas BOB.
It's a global PONZI scheme plain and simple. Without QE there would be absolutely no way to cover the debts. What part of that don't you understand, Bob?
Sure. You know, why not start letting NIV home loans put down 1%, eh?" How is the US consumer going to spend 4/5% more?
Credit cards and easy money, combined with the ongoing fuckery of the investment banks and hedge funds simply means larger, more devastating crash.
How does distributing more money to the banks change the fundamentals of the real economy?
Guys like this are too fucking stupid to examine their own premises, but it's our collective fault for taking them at all seriously.
Note to anyone that can do some math [0.3% of US population]: take $18 TRILLION in debt and going higher every frickin' day and tell me how interest on the debt gets paid with substantially hgiher interest rates? There aren't enough "rich" people or taxes that can be collected to pay even the interest. Go ask Japan how that's workin' out for them.
www.traderzoo.mobi
Janet will pull a Draghi/Couere and talk and talk about how good the economy is doing and how they will still be data dependent on rates hoping to strike a balance between a strong dollar and a strong stock market. Nothing else matters. No QE until the Treasury needs to sell more bonds.
Rikards thinks 15 months from the end of QE3 in Oct. I wonder if they can hold out that long?I guess they can if they get Draghi to cough it up, next. Stack'em while they're cheap!
Let's try something different this time. Give the same amount of those freshly printed FRNs to everyone that pays some income tax. Trust me motherfucker, you will get the inflation that you are looking for.
Stupid fucking sheep.
"We may need?" NO, you need, and to the FED Banksters Q4 I say 4Q!
"then we may well need QE4 from the Fed"
well, that is nice
But what are you going to buy??
QE3 full throttle was $85 billion/month split between treasuries (avg duration 9yrs) and mbs ... FY2014 deficit less than $500 billion (and much of that debt issued is T - bills)
can't do it (for now) ... supply (and liquidity) issue
Maybe deflation is exactly what the world needs to clear the dead weight, rent seekers, and criminals out of the system.
But academia worships at the alter of "controlled" inflation, and most governments other than a few savers like Norway absolutely require inflation to stealth tax their citizens and reduce their debt burdens. Shit getting cheaper only benefits 99% of the world so fuck them.
Like pouring water on a drowning man.
and, if you recall, with earlier iterations of QE ... Mr Market not happy with smallish amounts or end date expiration.
only "happy" with LARGE amounts (that can be adjusted accordingly) with OPEN ENDED time frame
good luck with that
Said it before and will say it again: Yellen's slophole MUST raise rates only because Fed needs to relower them shortly thereafter. This is all for show - .gov is piloting a stalled plane.
Unfortunately he's probably not that far off. This just goes to show how completely addicted these douche nozzles are to central bank schnanigans.
The markets certainly seem to think so today. Another day of shitty macro, and another day of getting " machine fucked".
Insanity= Doing the same thing over and over expecting a different result.
You're betting 2015 on the U.S. consumer? The same U.S. consumer who is living in their parent's basement, and is already up to their eyeballs in credit card, student loan, and subprime auto loan debt? Lol... good luck.
The cognitive dissonance in this piece and indeed in the entire world of market professionals is that they somehow hold these two views:
1) The world is being saved through developed market quantitative easing.
2) Developed market sovereign bonds are the highest quality assets.
Hilsengraft and this arsewhole need to be CORKED
atleast he said "good luck" gotta love that casino talk roll the fucking dice one more time there betsy maybe we'll get lucky this time NOT
Game Over Man!
It's not surprising that US QE would outpunch the European and Japanese versions, since most of the world's debt is denominated in US dollars. I wonder if 4%-5% US consumption growth is possible in 2015. High structural unemployment, stagnant wages and already-high debt levels will make this an uphill slog. It seems equally likely that the tapped-out US consumer will pull in his horns, develop a deflationary mindset, and postpone purchases in expectation of a better employment picture or of lower prices to come.
Tapped-out mindset = deflationary mindset. That which can't be sustained...
Who's the maroon that is fighting deflation? Evidently he doesn't do the grocery shopping, electric bill, insurance, or egg nog paying. Geez. If I hadn't prepared so well for this reset, I'd be broke. AND
as for the "perpetual" growth in fiat needed to keep the world functioning, LMAFROF!
AND,
Fuck all those companies laying off before christmas.
"The FED will NEVER stop printing. There is NO plan B."
That's right! Jim BullTard of the St Louis Fed already mentioned QE 4.
It's QE-To-infinfity until they trigger hyperinflation.
"It's QE-To-infinfity until they trigger hyperinflation."
It is deflation that is coming. It is the irresitable force that a credit bubble creates.
Exactly. Look at Japan. I don't care how many helicopters they launch.
Sheesh at least Gartman knows what's going, with a sense of humour too!!
Sarc off
Bob Janjuah: Have you no shame. At long last have you no modicum of shame?
Fascist Much?
- Don't know we have winners & losers in policy, Fraud, & Corruption
- Don't know all our markets are Fixed
- Don't care much for Grandma, Grandpa & Fixed income citizens
- Probably you don't see housing & education Inflation, property tax, utilities, Obama Care Inflation & Tax
- Have no Moral Standing, Ethos, concern for Moral Hazard
- 6 Years of ZIRP, $18 Trillion Public Debt, $57 Trillion Total Debt, Rape the Savers??? Expand the Slave Population??
- You probably stand for Open Borders too
Using the latest Federal Reserve data, the Pew Research Center said Wednesday that the median wealth for high-income families was $639,400 last year — up 7% from three years earlier on an inflation-adjusted basis.
"... then we may well need QE4 from the Fed to battle the incredibly strong headwinds of deflation around the world."
QE1,2,3 fueled those headwinds. More of the same won't work.
You wrote,
“Treasury inventory, aka “high quality collateral””.
It’s fortunate you put the phrase in quotation marks, which indicates a study of a certain concept is in order,
Counterparties… counterparties… counterparties.
And no one thinks to examine the most basic of all.
When I was in the Navy, I was the lead electronic technician (ET) for a task force of 8 ships; when ET’s on other ships couldn’t fix gear, they’d call me. Most of the problems were too simple for them to see. For example, who would think to check the AC plug? It’s the simplest thing that could go wrong, and yet, nothing happens without secure connections to power. It would usually take me about 15 minutes to find this problem (more than once); and I never told them what I did; didn’t want to embarrass them.
We have the same problem today: people fail to consider the most basic of factors needed to secure capital: namely, our currency unit.
Two most important questions are, ‘Who is the counterparty for money… and what instruments are considered “money”?’
The most basic factor relative to all economic activity is a currency unit. Without a stable or functioning currency unit, barter is the alternative – or will be the alternative when a baseless currency unit ultimately fails. When that happens, fully 95% of all economic activity will cease. It would lead to… well, let your imagination run wild.
Unfortunately, owing to the mandate of Congress (thru the FR Act and debt authorizations), bureaucrats of the FR and Treasury are pursuing policies that can only end with the total destruction of the dollar and, owing to its status of reserve currency for the world, a few dozen banking systems that use the dollar as a reserve currency (Yen, yuan, Euro, English pound, Canadian and Australian dollars, among others). (Bad News…; and Anat., part two)
Chances of survival are very slim for those 95% who fail to prepare for those storms now looming on the horizon.
What are preparations most essential for survival?
There are at least two: and each requires a comprehensive network of sub-factors: one) establishment of an alternative and functioning currency and two) the collection of power (thru First-Amendment assemblies) needed to protect your person and company from those who failed to prepare. (What Price Gold…; and Failure of Power)
Physical gold, of course, is the only historically-proven stable currency.
The problem here is that, if you deal with fairly large “cash equivalents” or dollar-denominated investments (bank notes, bank reserves, debt instruments, Mortgage Backed Securities (MBS) serving as “cash equivalents” (see What Price Gold…), you’ve just about run out of time to convert to physical gold.
Twenty years ago, while I was operating my gold-based banking service, I learned that an order for $500,000 to $1 million worth of physical gold would seize up the physical gold market 4-6 weeks.
I need to stress the enormous disparity between “cash equivalents” and assets supposedly collateralizing them.
By “cash equivalents”, I mean, 1) all paper currency; 2) all bank reserves; 3) Mortgage Backed Securities (MBS) owned by central banks; 4) all $ instruments owned by foreign institutions; 5) all US Treasuries; 6) plus a large variety of flimsy paper (student loans, car-lot loans, SBA loans, credit-card loans et cetera (see Anat., part one)) owned by the Federal Reserve.
All these “cash equivalents” are collateralized by a scrap of paper listed as “gold certificate” on the FR’s asset statement, which, in turn, is collateralized by a scrap of paper listed as “gold or gold swaps” on the Treasury’s asset statement. This last should tell you that there may not be any physical gold at Fort Knox.
Now, what is the price of gold necessary to make the following formula an equality?
“gold or gold swaps” = all those “cash equivalents” listed above.
Remember, we are dealing with a situation where 90% of the world’s banking systems (by volume) are built (at least partly) on top of the dollar.
What is the price… $7,000… $70,000… infinity?
What will the Piper demand when he finally presents his invoice to the town council?
What will people do when they can no longer cannibalize their children… on a world-wide scale?
Please, let your lawyers and accountants examine my work; and then act accordingly.
Good on macro, shit on S&P price predictions, as per.