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Bob The Bear Is Briefly Bullish... Before Things Go Boom

Tyler Durden's picture




 

The latest Bob's World From Nomura's Bob Janjuah

Back on Track

My last note, back in the beginning of April, concluded that:

"…in Q2 we should expect a nice 10% equity sell-off, with the S&P500 falling from 1420 (+/-20) to 1280 (+/-20). Credit should continue the sell-off of the last few weeks (iTraxx Crossover up at 750/800), and rates should rally with 10-year UST yields back below 2%, perhaps even down at 1.75%..."

After a poor January and February, it was nice to get firmly back on track re the global market call – using the S&P500 index as the risk-on/risk-off proxy, a "top" was – as forecast – in place at the beginning of Q2, at 1422 (intra-day high), and then followed an almost perfect 10% correction lower, with the S&P troughing at 1267 (intra-day low) in early June. The iTraxx Crossover index did indeed widen out from around 550bp in early Q2 to just over 750bp in early June. And we saw 10yr UST yields rally hard from around 2.25% in early Q2, all the way down through the rally target (1.75%) and ultimately we saw yields trough below 1.5% in early June.

Going back to the early April note I also concluded that, after the forecast correction (which as highlighted above has played out in line with our projections) we would get:

"…later into Q2 I think the shrill promises of more fixes of "M"…will get loud, and many investors remain underweight risk, having missed out on Q1. As such, the expected correction should not exceed 10%. Over late Q2 and Q3, we could – likely should – see another leg higher in risk, driven by TWIST. This shot of „M? may have a very short half-life in terms of boosting markets…" but "…I continue to believe that…equity prices may surprise on the upside in Q3…"

My current view remains pretty much unchanged. I am fully aware of the current phase of eurozone concern (Spanish bank recap, Greek elections), but neither I nor my colleague Dr. Kevin Gaynor believes that any form of eurozone exit/break-up is a likely reality for this year. Ultimately we both believe that, in the short run, Germany will „blink?. We also continue to believe that policymakers in the eurozone (fiscal and monetary), in the US (the Fed) and in China (fiscal and monetary) will attempt once again to pump things up.

The effectiveness of „more policy? is clearly waning and seems to have a rapidly decaying half-life when it comes to successfully pumping up risk asset valuations. Furthermore, policymakers are indeed fast running out of effective tools and ammunition, but at this point in time we think it is too premature to assume that policymakers have either zero options or that they will have zero impact. To be clear, Kevin and I expect some form of Fed TWIST+, but no meaningful outright QE – that will be reserved for late this year if – as I fear – the US has its own a fully-fledged fiscal crisis.

Even with "just TWIST+" rather than QE, together with our expectations that China will make some (albeit very modest and targeted) attempts to stimulate, and our belief that some (albeit not genuinely game-changing) real progress and hard capital (rather than more debt!) will be seen in the eurozone, we should – factoring in the currently very bearish sentiment (if not positioning) in the market – see some form of risk-on relief over the back end of Q2 and early Q3.

As per my April note and the extract above, my expectation remains that this risk-on phase should see the S&P rally over late Q2 and through July, possibly all the way back up to the 1400s, perhaps even setting new cycle highs (around 1450) by late July or early August. In this risk-on phase core bonds should sell-off – I have a 2.35%/2.45% 10yr UST yield target, and I expect the iTraxx Crossover index to rally back below 600bp, maybe even below 550bp by late July or early August.

My stop loss over the next 4-6 weeks while I expect this risk-on phase to play out is simple: a weekly S&P close below 1267 would for me be very bearish and likely change things. But as mentioned, instead I expect to see markets struggle with headlines and volatility, but ultimately climb the wall of worry up towards 1400, perhaps 1450 S&P.

And then? Well, again things are largely unchanged from my April note. Much beyond late July or early August, and assuming we get to 1400/1450 S&P, I then would look to position for an extremely bearish risk-off phase over late August through to November or December. The drivers of this extremely bearish expected phase are not new: overly bullish positioning and sentiment; weak global growth, not just in the eurozone but also in the US and the BRICs; the next leg of crisis in the ongoing eurozone debacle in my view; and of course the looming US fiscal crisis, which in my view is not even "slightly" priced into markets, but where I feel the probability of a crisis is close to 75%. Hopefully by year-end US sell-siders will realise that blaming the eurozone crisis for everything that is going wrong in the US has been a serious error, which has resulted in them being blind-sided to the other real „gorilla?s in the room? – namely the US debt/fiscal weakness, and the hard landings now beginning in the BRICs.

My forecast for this extremely bearish risk-off phase over late Q3 and Q4 is that the S&P500 trades below the low of last year, perhaps as low as 1000 +/- 20. The iTraxx Crossover index should over that period widen from around 550/600bp (my end July/early August risk-on target) out all the way to certainly 800bp, and more likely closer to 1000bp. And we should see core bond yields rally hard – I expect 10yr UST yields to rally from my 2.35%/2.45% end July or early August target, all the way down to 1.5%, maybe even lower.

 

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Thu, 06/14/2012 - 09:34 | 2525251 quintago
quintago's picture

Stop quoting this idiot. Predicting the s&p plus or minus 20 is everything that is wrong with the market.

Thu, 06/14/2012 - 09:36 | 2525267 SilverTree
SilverTree's picture

Monkey Hammer gold.

Thu, 06/14/2012 - 10:34 | 2525546 Precious
Precious's picture


My last barf, back in the beginning of the beginning of the end (April), concluded, deluded and construded that:

"…in Q2 we should expect a nice 1000% equity sell-off, with the S&P500 falling from 1820 (+/-20.546) to 1280 (+/-20.862). Credit should continue the sell-off of the last few weeks, hours, minutes and seconds (iTraxx Crossover scooby doo up at 750/800), and rates should rally with 10-year UST yields back below 2%, (I guess) perhaps even down at 1.75%..."

After a poor weather forecast from my finger in January and February, it was nice to get firmly back on the quarter mile track re the global market call every Tuesday on Skype– using the handle bozo!S&P500 from the contacts index as the risk-on/risk-off proxy for my blog popularity, since a "top" was – as forecast – in place at the beginning of Q2 while I was using Google+, at 1422 (intra-day high), and then followed an almost perfect 10% (bite me Blake Edwards) correction lower, with the S&P troughing like a PIGG at 1267 (intra-day low) in early June --- and I mean VERY EARLY dear June (of The Beaver). The iTraxx Crossover index did indeed, indeed, indeed, widen out from around 550bp in early Q2 to just over 750bp in early June as my HOT bath was finally ready. And we saw 10yr UST yields rally hard from around 2.25% in early Q2, along with the PPI, CPI, DPI, UPI and GPI, all the way down through the rally target (1.75%) and ultimately we saw yields trough (again like a PIGG) below 1.5% in early June (but not as early as the last time).

Going back to the early April note (as long as your still with my exposition) I also concluded that (according to my dream therapist), after the forecast correction (which as highlighted above has played out (according to charts (technical and test pattern) from MTV) in line with our projections) we would get:

"…later into Q2 I think the shrill (per my Fluke 950 tweeter instrument) promises of more fixes of "M"…will get loud (more in the 20kHZ range, and many boom box investors remain underweight risk, having missed out on Q1, QE and HMS Faulklands. As such, the expected correction (of my exposition) should not exceed 10%. Over late Q2 and Q3, we could – likely should – see another leg higher in risk, driven by TWIST. This shot of „M? may have a very short half-life in terms of boosting - possibly should - likely would - if its good - knock on wood - markets…" but "…I continue to believe that…equity prices may surprise on the upside in Q3…"

My current view remains pretty much unchanged (from the changes I reported in Q5). I am fully aware, lately taking much less Prozac, of the current phase of eurozone concern (Gold, Spanish bank recap, Gold, Greek elections, Gold), but neither I nor my esteemed, and highly rainmaking colleague Dr. Kevin Gaynor (no pun intended) believes that any form of eurozone exit/break-up is a likely reality, illusion or even physical manifestation, for this year. Ultimately we both believe that, in the short run, Germany will blink like a school girl lighting an M80. We also continue to believe that policymaker bitches (just quoting Putin) in the eurozone (fiscal and monetary and substantially), in the US (the Fed) and in China (fiscal and monetary and revolutionary) will attempt once again to pump things up until water catches on fire.

The effectiveness of more policy is clearly waning (since bitches in parliment need sleep too) and seems to have a rapidly decaying half-life when it comes to successfully pumping up risk asset valuations (bitch). Furthermore, policymakers are indeed fast running out of effective tools and ammunition, and are rethinking butter, but at this point in time we think it is too premature to assume that policymakers have either zero options, or infinite options or that they will have zero impact or infinite impact. To be clear, AND I REALLY MEAN IT THIS TIME, Kevin and I expect some form of Fed TWIST+, but no meaningful outright QE – that will be reserved for late this year if – as I fear – the US has its own a fully-fledged fiscal crisis AND THAT'S PROBABLY UNDERSTATING IT (bitch).

Even with "just TWIST+" rather than QE, together with our expectations that China will make some (albeit, abot, aboot and slinky, very modest and targeted) attempts to stimulate, and our morbid belief that some (albeit not genuinely game-changing) real progress or green swan and hard capital (rather than more debt! you bitch) will be seen in the eurozone, we should – factoring in the currently very bearish sentiment (if not positioning) in the market – see some form of risk-on relief over the back end of Q2 and early Q3 as the Arab Spring finally yields some economic opportunity like BRIC, to stimulate global supply gluts in Dry Shipment indexes.

As per my April note and the extract above (the one labeled "bitch") my expectation remains that this risk-on phase ONE should see the S&P rally over late Q2 and through July into Q3 August, possibly all the way back up to the 1400s BC, perhaps even setting new cycle highs (around 1450 AD) by late July or early August 1540 BCE. In this risk-on phase core bonds CDEs and ICE should sell-off – I have a 2.35%/2.45% 10yr UST yield target (my cowgirl position), and I expect the iTraxx Crossover index to rally back below 600bp, maybe even below 550bp by late July or early August, September, or October at least.

My stop loss plug prevention margin call short (SLPPMCO) over the next 4-6 weeks while I expect this risk-on phase to play out is simple (YOU SHOULD BE SO LUCKY): a weekly S&P close below 1267 would for me be very bearish and 860 S&P would simply be intolerable, so likely change things in my next slumbering monologue. But as mentioned if you were paying attention (bitch), instead I expect to see newpaper markets struggle with headlines and classified ad volatility, but ultimately climb the wall of worry (like a Marine, bitch) up towards 1400, perhaps 1450 S&P (the Queen permitting).

And then? Well, again things are largely unchanged from my April note (why not). Much beyond late July or early August (if your not dead, dumb and blinded from boredom), and assuming we get to 1400/1450 S&P without QE 5.4, I then would look to position for an extremely bearish risk-off phase (tidal pools and movie blockbusters, permitting) over late August through to November or December or whatever. The drivers of this extremely bearish, bull market, primary secondary, short-term long, expected phase are not new: overly bullish nor squeamish, positioning and sentiment; weak global growth, (notwithstanding K-Cup coming off patent) not just in the eurozone (since there are no cars burning at this time) but also in the US and the BRICs; the next leg of crisis in the ongoing eurozone debacle in my view (assuming Iran doesn't get B2'd); and of course the looming US fiscal crisis (assuming that Obama wins the gay vote), which in my view is not even "slightly" priced into markets, but where I feel the probability of a crisis is close to 475% that the Heat will take the championship. Hopefully by year-end US sell-siders, along with other insiders, Dimon and Jerry Lewis will realise that blaming the eurozone crisis for Slutty Wednesday and everything that is going wrong in the US has been a serious error, which has resulted in low television ratings, higher beer prices and no more orgies at the IMG, causing them being blind-sided to the other real gorillas in the room? – namely the US debt/fiscal weakness, MTV ratings, and the hard landings now beginning in the BRICs.  Lets us pray.

My forecast for this extremely bearish, despot hunting, risk-off phase over late Q3 and Q4 is that the S&P500 trades below the low of last year, perhaps as low as 1000 +/- 20 or at least within 50% of the up / down phase shift from the quantum effects of CERN. The iTraxx Crossover index should over that period widen the galaxy from around 550/600bp (my end July/early August risk-on target) out all the way to certainly 800bp, where we see sun spots accruing and more likely closer to 1000bp for a rise in CO credits of + or - 40. And we should see core bond yields rally hard (bitches) – I expect 10yr UST yields to rally from my 2.35%/2.45% end July or early August target, all the way down to 1.5%, maybe even lower, and lower and all the way down.

Thu, 06/14/2012 - 12:28 | 2526062 gwiss
gwiss's picture

Dude, that was epic.  I have tears in my eyes I'm laughing so hard.

Thu, 06/14/2012 - 13:52 | 2526376 DOT
DOT's picture

" beer prices and no more orgies at"

Yeah, sure... Got a link?

Thu, 06/14/2012 - 09:46 | 2525311 CommunityStandard
CommunityStandard's picture

Well, not EVERYTHING that's wrong, but certainly up there.

Thu, 06/14/2012 - 09:46 | 2525316 Eireann go Brach
Eireann go Brach's picture

Isn't he Ipu that runs the 7-11 store in the Simpsons?

Thu, 06/14/2012 - 09:46 | 2525319 junkyardjack
junkyardjack's picture

"After a poor January and February, it was nice to get firmly back on track re the global market call" I lol'd right at the beginning and couldn't continue.  Even a broken clock is right twice a day....

Thu, 06/14/2012 - 09:34 | 2525256 SeverinSlade
SeverinSlade's picture

If we don't get QE3 on the 20th and if Syriza wins on the 17th, I don't see how the fuck the S&P hits 1450 anytime soon.

Thu, 06/14/2012 - 09:37 | 2525273 SilverTree
SilverTree's picture

PPT/ESF and a dash of Hopium.

Thu, 06/14/2012 - 09:45 | 2525308 Sudden Debt
Sudden Debt's picture

faith....

It's how Jezus walked over water...

Change water into beer...

How his mother got pregnant, not by his "father" but by the "holy spirit"...

...

and dad was dumb enough to believe it...

you know...

being dumb of haveing faith... pick one... will get you there...

 

 

Thu, 06/14/2012 - 09:35 | 2525265 lolmao500
lolmao500's picture

Bullish! Hell it is! Just ask Ben! 10y Treasuries at 1.6%! Hell with interest rates that low, congress can pass a 2$ trillion stimulus! Bullish for short term... when the credit card bill comes back... then it's kaboom time.

Thu, 06/14/2012 - 09:36 | 2525268 Boilermaker
Boilermaker's picture

You know, this makes positively no sense to anyone with any common sense.  The value will climb before it plunges.  So, if the mid-term value is known to be significantly less, there is s mid-term value that is higher? 

How the hell does that work?

Thu, 06/14/2012 - 09:49 | 2525328 kahunabear
kahunabear's picture

Since when did common sense rule the markets?

Thu, 06/14/2012 - 13:02 | 2526207 dredheadz
dredheadz's picture

Always figured that "Common Sense" desn't really apply in finance...

Thu, 06/14/2012 - 09:40 | 2525280 GeneMarchbanks
GeneMarchbanks's picture

the US has its own a fully-fledged fiscal crisis.

What? Since when?

The half-lives of monetary 'intervention' are getting shorter you say? Can't be.

(d?-fl??sh?n)

Thu, 06/14/2012 - 09:42 | 2525288 SheepDog-One
SheepDog-One's picture

This is just silly.

Thu, 06/14/2012 - 09:43 | 2525297 evolutionx
evolutionx's picture

APRES NOUS LE DELUGE

A deluge of an unprecedented magnitude is both inevitable and imminent. The consequences of the economic and political mismanagement will have a devastating impact on the world for a very long time. And the consequences will touch most corners of the world in so many different areas; economic, financial, social, political and geopolitical.

 

http://www.mmnews.de/index.php/english-news/7423-apres-nous-le-deluge

Thu, 06/14/2012 - 09:47 | 2525321 spastic_colon
spastic_colon's picture

the fed is waiting for the greek election outcome....if syriza wins then a global coordinated QE is next.....very quickly i might add

Thu, 06/14/2012 - 10:32 | 2525515 GNWT
GNWT's picture

Earth to Bob the "Bear"...

 

So which central bank is his money on.

 

Don't fight the Fed?

 

My head is exploding.

 

If Bob were really a bear, would be hedging by trading for his own account.

 

Sometimes I wonder about you guys, one foot in that world, the other in the real world.

G

Stay liquid my friends...

Thu, 06/14/2012 - 11:03 | 2525666 slaughterer
slaughterer's picture

Bob figured out the most irrational market behaviour... he might be correct in this call.  

Thu, 06/14/2012 - 11:10 | 2525706 q99x2
q99x2's picture

Markets up 1% on War, Bank failures, credit over 7%, and a collapse of the Eurozone.

Thu, 06/14/2012 - 12:16 | 2526007 I should be working
I should be working's picture

"I expect 10yr UST yields to rally from my 2.35%/2.45% end July or early August target, all the way down to 1.5%, maybe even lower."

 

If the SnP breaks down below 1000 the 30 year will be closer to 1.5 than the 10 year.  The 10 will be less than 1% if he is correct in his target for the SnP.

Thu, 06/14/2012 - 12:29 | 2526068 Grand Supercycle
Grand Supercycle's picture

Rally warning continues...

Despite stockbears with their pre-election jitters, SPX choppy bullish daily & USDX bearish daily charts strengthen.

Significant equity / EURUSD upside & USDX retracement ahead.

http://www.zerohedge.com/news/2012-12-24/market-analysis

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