Bob Janjuah Warns The Bubble Implosion Can't Be "Fixed" This Time

Tyler Durden's picture

Having correctly foreseen in September that "China's devaluations are not over yet" it appears Nomura's infamous 'bear' Bob Janjuah has also nailed The Fed's subsequent actions (hiking rates into a fundamentally weakening economy in a desperate bid to "convince markets that strong growth and inflation are on their way back"). In light of this, his latest note today should be worrisome to many as he warns the S&P 500 will trade down around 20% to 25% from current levels in H1, down to the 1500s and for dip-buyers, it's over: "I now feel even more certain that debt-driven asset bubble implosions cannot merely be 'fixed' with even more debt and another round of central bank-driven asset bubbles."

As Janjuah said in September (excerpted):

I believe there is more weakness ahead – both fundamentally and within markets – over Q4 and perhaps into Q1 2016.


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.


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.


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.

And in today's note, Janjuah takes it one step further:

Instead of writing in my normal narrative style, with each new note a direct follow-on from each previous one (my last note was published in October), I wanted to do something a little different. Not that my views have changed – rather I now feel even more certain that debt-driven asset bubble implosions (such as the GFC) cannot merely be ‘fixed’ with even more debt and another round of central bank-driven asset bubbles.


Policy since the GFC has resulted in a deeply unstable outcome in the global economy and across markets.


Alan Greenspan and US legislators addressed the early 2000s debt-driven asset bubble collapse (primarily in corporate equities) by driving another round of debt-driven asset bubbles (primarily in housing and the financial sector). And we know how that ended!

So I wanted to present my top 6 predictions for the year ahead, split by asset class, albeit the key drivers of my 2016 views (weak global growth, with the US at/near the centre of the storm; EM weakness particularly in China and oil/commodity producers) and how they will act across all asset classes:

1 – Rates – I like core duration pretty much across DMs, including the eurozone periphery, but particularly in the US. Before the end of 2016 I think the 30yr UST will be yielding well below 2.5% and the 10yr UST will be closer to 1.5% than 2%. The Fed may hike once or twice more in H1, but before 2016 is finished I think the Fed will be on hold/hinting at a new round of easing/actually easing.


2 – FX – The USD can do OK in Q1, but by the end of Q2/early Q3 the market will price in the Fed’s policy error (before the Fed acknowledges it) and the USD will then turn lower in a trend fashion. Until then China and the commodity/EM bloc will continue to be under pressure. We think China will keep devaluing (we could see 7 vs the USD). The Saudi USD peg is at risk, but may well hold and then get some relief if I am right about the Fed and the USD in H2 2016. In H1, and possibly in Q1, the BOJ will have to ease further to prevent further JPY appreciation, not just vs the USD, but also vs the EUR and China.


3 – Stocks – I think the S&P 500 will trade down around 20% to 25% from current levels in H1, down to the 1500s level that I wrote about last year as a target for 2016 (we are already 7% off from the 2015 highs), before a recovery (once the Fed ‘turns’). I am looking for an earnings and jobs recession in the US this year, to become clear sooner rather than later in the year. I do not want to be ‘invested’ in equities at least over H1, rather equities are a trading asset. As I am confident the BOJ will out-ease the Fed, particularly into end Q1/Q2, for H1 2016 I am happy to own Japanese equities vs short US equities, FX hedged, over H1 2016.


4 – Commodities – Further weakness ahead in H1. I look for WTI to trade below $30. And I hope the situation between Saudi Arabia and Iran remains as controlled as it can be, because the type of oil price spike that could result if things between these two nations deteriorate much further would I fear be extremely painful for the global economy. I am old enough to remember the 1970s oil price shocks.


5 – Credit – I am very concerned about the outlook for EM credit and DM high yield markets, particularly in the US. A possible safe haven is the eurozone IG credit space, albeit there is a rising level of idiosyncratic concerns even in this relative safe haven, and at some point markets may react to further instances of such risks by pricing in much greater correlated risks, à la 2007 and 2008. Liquidity will likely remain a major concern. EM and high yield markets MAY get relief if I am right about the Fed turning from hawk to dove during the belly of 2016, but until that becomes more obvious, my general recommendation is to focus on only the best, most transparent (and least spread heavy) parts of credit markets. For choice, I would rather own core duration in government bond markets.


6 – EM – Until the Fed turns I remain bearish China, commodities and EM. If the Fed turns (as I forecast), or more likely once the markets begin to price in a reversal by the Fed, which should then lead to looser USD global liquidity and a weaker USD on a trend basis, then I will look to reconsider my EM views more positively. As discussed above, that means the next three to six months will likely continue to be a major challenge for the EM world, particularly commodity producers, but of course also including China.

Let’s see how things play out – I will refer back to this note as the year unfolds, by way of an audit/sanity check. To end I wanted to highlight the two areas that would force me to reconsider my views herein sooner rather than later.

First, if we get major fiscal policy action across China, Japan, the US and the eurozone, I will have to review my outlook. As of now, I feel this is a low risk to my views.


Second, the US (and to some extent the global) consumer could surprise me and all of a sudden start levering up to consume at an annualised rate to 4% to 5%, rather than 1% to 2%. If this looks like it is happening, I will have to review. As of now I think this is also a low probability outcome, but it would be foolish to ignore this risk.

As Janjuah concluded previously, the last few months have seen markets meandering around largely sideways as policymakers attempt to talk things up in the face of intense market concerns. However, 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.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
HedgeAccordingly's picture

The bubble boy must be loving this.

froze25's picture

Good read, I don't see the USD weakening in the near term though.

KesselRunin12Parsecs's picture
KesselRunin12Parsecs (not verified) froze25 Jan 7, 2016 4:57 PM

a bit like the czar 'not seeing' the Bolsheviks as any threat.

mtndds's picture

Its all about housing.  If housing prices fall then I know things are real.  Everything else is TRANSITORY.

new game's picture

as said above-ten yr at 1.5. exactly my view. refi op coming. 3:1 arm to 2.25 percent.

so far 20 percent return in a yr and a half.

and another leg up in the asset class of hsg. yup, i said leg up. been saying this for quite a while and will continue as rates  keep going lower and people buy a payment and get a home.

but i'm ready for another rd of red down arrows. oh, well...

agree with this guy overall. good article, thanks tyler.

gatorengineer's picture

Low rates versus no jobs in housing which will win..... I think housing tanks as joblessness rises.

marts321's picture

Treasury yields, gold and stocks would argue the opposite.

gatorengineer's picture

I agree excellent article.  What I don't see is the dip buyers conning in at 1500-1600. If it slides that far it won't stop.  I also don't see the Fed out printing Europe Japan or China so strong dollar.

The Saint's picture
The Saint (not verified) HedgeAccordingly Jan 7, 2016 4:46 PM

Prognosticators are a dime a dozen.  Accurate prognosticators are a rare breed.

zorba THE GREEK's picture

The Fed needs to surprise everyone and raise Fed's fund rate .5 % on Jan 27.

This would be cathartic for the markets and would get us back on track for

normalizing markets, as painful as it may be in the short term.

gatorengineer's picture

If the end game is destroy China that would do it.

Early Retirement's picture
Early Retirement (not verified) Jan 7, 2016 4:34 PM

Big "wow"s on that piece.

khnum's picture

yep central banks tried to bluff on a pair of threes.

The Saint's picture
The Saint (not verified) khnum Jan 7, 2016 4:50 PM

Old Yeller's first move and it's an error.

Clowns on Acid's picture

NO ... Yellen first move and mistake was to accept the Chair of the Fed. She knows that now... ergo the fainting spells. Stan the Man Fischer on deck.

NoDebt's picture

When you are in a liquidity trap your only choice is to print. All other actions produce only pain. Eventually the fed will have to back up. The only question is how much pain they will inflict before they do. 

corporatewhore's picture

Or maybe they'll put a dog collar on everyone (while we're on our hands and knees) and whip us til we bark

tc06rtw's picture

    …  well,  at least that’s  SOMETHING.

Clowns on Acid's picture

Indeed ND - the choice becomes pain...or war and hope for inflation while providing a "excuse" for the pain.

Yen Cross's picture

   I don't particularly, like the guy.

 India is a cess pool, looking for an, " Break Out".

yogibear's picture

We have enough arrogance with H1bs, L1s and H2s visa holders.


Yen Cross's picture

I agree.

 Wouldn't it be nice to bring manufacturing back to North America?

 China is facing the labor dilemma... Input costs?

 I clearly stated that a massive wave of Asian inflation, was headed our way.

 Inventories were lighter this holiday season. Retailers saw /see the writing on the wall.

 Let's discuss manufacturing? Let's discuss OIL?

Lore's picture

Agreed. There seems to be a tendency here to address things through a softened (institutional?) lens: "a US recession is merely possible rather than probable." Groan...  The only reference to "Safe Haven" is in government bonds...

JonNadler's picture

oh yeah no this time they really, really lost control, give  me a break, they will hold this bad boy up no matter what

Chris P's picture

What is H-1 & H-2

xrxs's picture

half 1, half 2 (of the year)

Clowns on Acid's picture

Half year 1, half year 2.

Osmium's picture

He is talking about some people getting an ass reaming. 


H = hemorrhoid.  He’s probably talking about getting two tubes of Preparation H, hence the H1 and H2.

Niall Of The Nine Hostages's picture

First half and second half of year. He's predicting the S&P 500 to drop 25% by the Fourth of July.

kamikun's picture

Wait.. you can't cure a debt problem by taking on more debt?? Since when??

The Duke of New York A No.1's picture

Bob, Bob, Bob .... never underestimate the power of the monetary printing press, comibned with a captive media, and captured regulatory system.

llessur_one's picture

The Fed may hike once or twice more in H1, but before 2016 is finished I think the Fed will be on hold/hinting at a new round of easing/actually easing.

That pretty much covers all the bases, we've got hiking holding and easing all in one prediction.

My prediction. the 2016 summer olympics may or may not take place and and at least one athlete will become sick or die as a result of the conditions in Rio.

OzFan's picture

All bullshit and no-shit-sherlock analysis from a mainstreamer.

These guys were waking ppl up years ago while this fcka was sucking on the teet of some money-changing insider:

Peter Schiff

Andy Hoffman

Jim Sinclair 

Dr Paul Craig Roberts

Ron Kirby

Jim Willie

Dave Kransler

Gerald Celente

John Rubino

Turd Fergurson

On and on I could go.

Actually, on that topic, ZH should be connecting and syndicating a shitliad more content from the above.....though naybe these articles are really tongue-in-cheek, as in "hey look, an insider is coming out"


EndOfDayExit's picture

S&P will trade where the Fed wants it to trade and allows it to trade. End of story.

mendigo's picture

So, things might improve... if we break down the furniture and throw it on the fire as well.

QQQBall's picture

All about Housing? You write that in crayon?

Slowdrip's picture

It's all too beau-t-ful.....

pitz's picture

US consumer levering up?  Good luck with that.... 

ForWhomTheTollBuilds's picture

" the next Fed “put” is not likely until the S&P 500 is trading in the 1500s"


I was just noticing today that the Fed has been awful quiet lately.  Shouldnt someone be leaking rumors of new policy accomodation by now?

Yen Cross's picture

  Personally & Honestly... The fed is completely lost, and probably reads Zero Hedge, for advice.


marts321's picture

Even though they only have 2 options they still manage to fuck it up, assuming they are aiming for a stable economy. I get the feeling the FED want stability as much as Merkel wants the best for the citizens of Germany.

Government needs you to pay taxes's picture

An addict has to pass thru withdrawal before they can recover.  Many relapse.  Will 2016 be a year of relapse or successful passing thru withdrawal?

Grandad Grumps's picture

I suppose if you have plans to cull the planet of a large portion of the "human" population, you will want to do it in a way that will allow you to enjoy it afterwards ... and of course rationalize to yourself that you are doing it for the greater good. That goes without saying.

... and they want us to all be afraid as well ... so, by all means please cooperate in being afraid and then dying for them.

redscud's picture

One of the better posts. I think he is spot on.




I can't wait for oil to drop below $28. I will jump in with both feet and pray

Herodotus's picture

Keep your powder dry.  Crude oil will bottom out at $16.