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Bob 'The Bear' Janjuah Warns "Fed 'Put' Unlikely Until S&P Hits 1500"
Via Nomura's Bob Janjuah,
A review
The titles of my last two notes pretty much speak for themselves. Since May and in particular since my July note my expectations for fundamentals (weak global growth, deep China concerns, “FX wars”, disinflation/deflation outweighing inflation) and my outlook for markets (risk-off, volatility higher) have largely been borne out. China did indeed ”devalue” (I think this is only the beginning), the Fed indeed passed in its September meeting, and my major market targets (that the S&P 500 would fall from the 2100 area to the low 1900s/1800s by end Q3/early Q4, with 10yr UST yields falling from the 2.4% area to below 2%) were met easily in late August. Since then markets have meandered around largely sideways as policymakers attempt to talk things up in the face of intense market concerns. Significant damage has yet again been done to the credibility of policymakers, and to the belief in normalisation, in inflation, and in the ability of risk markets to continue ignoring the harsh realities of weak growth, weak pricing power and weakening earnings.
Looking ahead
My bottom line is clear. I believe there is more weakness ahead – both fundamentally and within markets – over Q4 and perhaps into Q1 2016. Of course, there will be counter-trend moves and occasional data bright spots ahead. In particular, I expect more commentary from the ECB, more action from the BOJ and PBoC (markets are looking for effective game-changing moves in fiscal and monetary policy, but I believe China’s devaluations are not over yet), and certainly by/in Q1 2016 I expect markets to be focused on/looking for/dealing with a much more dovish, perhaps even easing, Fed versus the current situation. I repeat my view that the Fed does not need to hike based on fundamentals, but I would not be at all surprised to see the Fed hike in late 2015, in an attempt to convince markets that strong growth and inflation are on their way back. Any such hiking cycle by the Fed would I believe be extremely short-lived and quickly give way to renewed dovishness.
In terms of targets for Q4 I am targeting an 1820 print on the S&P 500, and I fear that we could even see prints in the low 1700s which would entail a 20% move (an official bear market) in the S&P 500 from its 2015 high of 2134. Globally I expect things to be even weaker, particularly (but not exclusively) in the EM space and in global credit markets, which already feel very vulnerable albeit they are attempting to hold onto a sense of orderliness. In terms of core government bond yields, I am looking for 10yr UST yields to again trade below 2%, this time targeting 1.8%. As China reduces its selling of USTs and other core government bonds – which I feel has been done since the devaluation in an attempt to counter the natural capital outflows that are now evident in China – and as China resumes its next leg of FX wars I fully expect core government bond yields to rally strongly.
In light of my May and July targets being hit I have reviewed my two stop-loss triggers. For yields, I retain my previous stop-loss – a weekly closing 10yr UST yield above 2.4% would force me to stop-out and reassess. For risk I am amending my S&P 500 stop-loss trigger a little – a weekly close above 2020 (was 2135) would now stop me out and force me to reassess. I stress that I am expressing views covering Q4 as a whole, and as such I fully expect counter-trend moves within Q4, sparked most likely by DM policymakers. But overall I feel that, much like the second half of Q2 and all of Q3, the overall outlook for Q4 will be for risk-off, higher volatility, heightened growth/earnings/deflation concerns, lower core government bond yields and a continuation of FX wars. And my stop-loss points will provide a prudent degree of protection should my outlook for Q4 prove too bearish.
Priced for recession?
To answer the question, first I should be clear that while I think a US recession is merely possible rather than probable, the evidence is growing in my view that a global recession is more probable than possible. Certainly the global trade data are pointing to meaningful global growth weakness, backed by weak data from EM and large parts of DM too. And a quick look at credit markets, in particular the HY markets in the US and Europe as well as the EM credit space support my view of a global growth recession being probable and not just possible. So if a global growth recession is more probable than possible, then it seems clear to me that neither risk assets nor core rates markets are accurately reflecting this at this time – instead, they reflect the “more possible” scenario rather than “more probable”. In other words, financial markets are NOT yet pricing for a recession, rather they are merely flirting with the idea. I suspect this largely reflects faith/hope in policymakers within market participants. The events of the past few weeks, both going into and after the most recent BOJ and FOMC meetings, should give those heavily invested in policymaker faith/hope a lot of food for thought.
In this context the question I ask myself is, if needed, where is the Fed “put”, and what would such a “put” look like? It is very early in the process and lots will depend on global policy responses and data outcomes, but I am happy to declare my view: the next Fed “put” is not likely until the S&P 500 is trading in the 1500s at least (so more likely to be a Q1 2016 item rather than Q4 2015); and in terms of what the Fed could do, clearly QE4 has to be in the Fed’s toolkit. However, considering the failure of global QE to generate sustainable global growth and inflation, and considering the Fed’s starting point, 2016 could be the year when we see negative Fed Funds as a way of getting money velocity moving up rather than down. Such a move may work, in that risk assets could react very positively for a period of time, but in the longer run any such moves would only serve to highlight the extraordinary ongoing failure by global central banks to manage economies (both into and) since the 2008-09 crash.
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US is in a depression, anyone that says a recession is just "possible" should step outside and stop by your local Walmart.
That would mean leaving my cellar. Fuck that.
Geez, APMEX ASE's cost $7. That's a 50% premium! How long before it's 100%?
Wow, the drums of NIRP are getting louder and louder. I am not sure how but I have to say BULLISH. The FED must keep the illusion alive!!
im still struggling to wrap my head around this concept. Im guessing the banks get free juice to make loans? Are we already at NIRP considering bank fees?
Yep, most people don't understand the difference though. Recession is when the numbers are negative. Depression we just don't grow http://www.hyperhistory.com/online_n2/connections_n2/great_depression.html we stagnate instead and no matter what the stock market does, if there is no foundation, the economy cannot stand.....
No. A recession is when your neighbor lost his job. A depressed is when you lose you job.
you are closer than the dragger. a depression (from the dragger's link) is more extreme/extended than a recession (from the notes for 1932): "GNP has also fallen 31 percent since 1929."
Yep, but the difference is what comes after things bottom out. Look at the entire 30's decade, the country grew slowly and haltingly at best and Roosevelt kept meddling in the economy, starting with gold, which is what made it last so long. Obutthead has done much worse and the effects will last far longer
First Janjuah note i (and many of my colleagues throughout the world) disagree with. Too bad. He was once excellent.
The US economy is sustained by the gains in the US stock market, courtesy of infinite manipulation by the Fed. No Fed put means start of US recession/depression and end to endless wars funded by infinite printing by the Fed.
I think we're screwed no matter what the Fed does. All they can do is make things worse.....
or, more likely, start of us recession/depression means an end to the fed put.
i doubt it means an end to endless wars funded by the fed without some very significant and unprecedented activity in elections, assuming they occur and are legit.
if they'd do 9-11, and they did, what wouldn't they try to stay in power and out of jail?
"The Fed can change how things look, it cannot change what things are."
James Grant
so we should steal more money from everyone to backstop the rich?
ALL FOR ONE
NOTHING FOR ALL!!
What do copper and steel prices say? Kaboom
If the fed waits until this thing cascades down to 1500, no amount of printing will save this pig. And for, crying out loud..., we're in a fucking depression! How can we take you seriously if don't call a spade a spade?
yeah, too much leverage ... by that point selling will be FORCED.
Anyways, we're entering "every central bank for themselves" territory ... which will keep $US (too) strong ... crushing S&P revenues/profits/capex ... global economy circling the drain ... US might well be the caboose, but it won't escape
You gotta keep in mind that on wall street, it doesn't "pay" to be a bearish analyst (right or wrong). Being too perma-bearish loses you clients. Whatever his downside targets publicly stated, he obviously feels more bearish than that, those are his conservative figures.
Yeah, concur w/ that. His note seems optimistic compared to what is really happening.
Damn good article on the scum Federal Reserve (Any Central Bank).
Disclaimer.... For the resident Russian phoebes, this is from Pravda Russia. Good article nonetheless.
http://english.pravda.ru/world/americas/30-09-2015/132200-federal_reserv...
Im not worried in the least. Suzy Orman told me to just be fully invested in a broadly diversified portfolio of stocks and just sit back and I will be soon retiring smoking a fat Cohiba.
I can almost taste the Bananas and coconuts now in my island villa with hula girls in grass skirts putting flowers around my neck. It will be smashing.
"To answer the question, first I should be clear that while I think a US recession is merely possible rather than probable, the evidence is growing in my view that a global recession is more probable than possible."
WTF? Really? THAT has got to be one of the stupidest things I've heard in a long time.
"possible but not probable"?
yeah, uh huh ...
QE4 by Q1 2106?
Pray tell, Mr Janjuah what (and how much) will the FR QE?
The bond pond kinda looking like Lake Mead
there, you see? that, finally, is at least someone taking a stab at the only important consideration having to do with equities. make a guess, have some ballz. i say the fed starts buying equities overtly at 1222 on the s&p 500. [/out of my ass guess]
Article 14 of Federal Reserve Act spells out acceptable purchases ... equities ain't on the list.
Not saying that things couldn't change (hello, staring at the abyss) but it would mean a republican controlled congress giving implicit/explicit agreement.
Janet CAN NOT MAKE THE CALL ON HER OWN
Don't see Congress giving OK, and if they did ... buy gold ... LOTS of it
i see your point. the fed wouldn't want to do anything illegal. :snark:
I would never trust anyone with those bloodshot eyes, and a name like
Ganjanuah...
So let me get this straight. Our entire economy is staving off a depression because of a hope and a prayer the criminal fed can invent new tools. This is so tragically laughable and backwards
It's time to elect someone with balls. I am almost 35 and I promise if elected I will declare the US bankrupt and screw the Fed royally. Can ZH form a PAC?
The US already declared Bankruptcy in 1933. http://anticorruptionsociety.com/the-bankruptcy-of-america-1933/
Yeah great, I'll just waive that to the federal reserve and chinese and problem solved. Come on man
Come on man what? We are bankrupt and operating under bankruptcy. That's it. All the debt instruments are null, even the Federal reserve on their own website says that FRN's have no value, they are only an extension of credit. So all debts denominated in Federal reserve notes are worthless.
Another election year accompanied by an economic bust... It's about to get all hopey and changey up in here!
"Janjuah is Biederman! Biederman is Janjuah!"
Hello Mr. Yellen, My cat tells me that if you relink the dollar with gold, even 1/1000 penny to the dollar, you can turn from crypt keeper to wield the stake that kills JM Keynes spectre once and for all. In the words of the master: "The difficulty lies not so much in developing new ideas as in escaping old ones." Good luck and see you at the range on Saturday.
SPX 1500 is "Bearish".........?
Wishful Thinking.....Hope, Denial, Delusion, etc.
I have been called many things, but you can call me "The Great Bear of Wall Street"......
Let the Real Bear speak:
SPX will break 500 on the DOWNSIDE.............
Nothing will stop that Outcome......
Those who believe the Federal Reserve can or will stop that Outcome, are truly living in an "Extraordinary Popular Delusion"......
For $ 100 Million Upfront, I will gladly Lead any amount of Capital away from that Outcome....
And then we can get to the "When" Factor.....
We will reach the point when that $ 100 Million is going to look alot more appealing than the Window.....
I don't mind waiting....
As the True Master Sagely noted long ago:
"You quickly forget being Poor....but you Never Forget Being Rich".....
Indeed.....You can add "Powerful" to that equation.....
Otherwise, better RUN to US Bills and stay there until it is all over......
As I have said: Beans, Bullets AND US Bills........
NO Gimmick, Propaganda, or Machination can create Real Wages.....
Nor alter the Consequences of the lack thereof....
To be reflected in the SPX, infra.........
Stay Tuned......