This page has been archived and commenting is disabled.

Bob, At His Bearish Best, On "Fudge, Fantasy And Fiction" - "My Target For The S&P Remains 800/900"

Tyler Durden's picture


And now for some good old fashioned Bob Janjuah, albeit with proper grammar (damn you Nomura proper English sylesheet... damn you to hell): "No change. Deeply bearish with respect to global growth, and on a secular basis I am very strongly risk-off – my 2012 target for the low in the S&P500 remains 800/900, with the risk of an "undershoot? to the 700s. See my last note for details/targets. I would highlight only my view that the global policy making community, based their "actions? over the last month, are doing a wonderful job in meeting my 2012 "target?. Namely that, in 2012, the current set of developed markets (DM) policymakers will be exposed as "emperors with no clothes on?, and their policy choices over the last few years will be seen as the central problem, rather than as some mystical bazooka solution which can somehow reconcile the chasm between a lack of growth and productivity on the one hand, and the enormous debt and debt servicing costs and unsustainable entitlement culture costs that we face in the DM world on the other." And for the shorter-term: "The implication therefore is that in 2011, the October equity lows MAY NOT be the lows for the year. So based on what I can see now, and with a S&P500 1310 “stop loss” as mentioned above, I am now looking for another major risk-off phase between now and year end, with a December target for the S&P500 back down in the 1100s for sure, and possibly even the low 1000s." In other words, Bob as we love him best: nearing his all time bearish zenith... Or nadir, depends on one's perspective.

Full note:

Fudge, Fantasy and Fiction

I always ask readers to refer back to previous notes – regular readers will know that I write on an “on-going narrative” basis. The same applies here, with a link to my last note Bob's World: Still Overreacting? Below I want to update some of the key messages from this previous piece:

Secular Message

No change. Deeply bearish with respect to global growth, and on a secular basis I am very strongly risk-off – my 2012 target for the low in the S&P500 remains 800/900, with the risk of an “undershoot” to the 700s. See my last note for details/targets. I would highlight only my view that the global policy making community, based their “actions” over the last month, are doing a wonderful job in meeting my 2012 “target”. Namely that, in 2012, the current set of developed markets (DM) policymakers will be exposed as “emperors with no clothes on”, and their policy choices over the last few years will be seen as the central problem, rather than as some mystical bazooka solution which can somehow reconcile the chasm between a lack of growth and productivity on the one hand, and the enormous debt and debt servicing costs and unsustainable entitlement culture costs that we face in the DM world on the other.

We all have reams of commentary on the latest eurozone “deal” to digest. I want to keep my contribution to a minimum. In summary, this latest round of eurozone shock and awe is, in my view, nothing more than a confidence trick and has possibly even set-up an even worse final outcome. With respect to the Greek debt “write off”, the bank “recap”, and the structured credit technology being applied to ESFS, my takeaway is fudge, fiction and fantasy. The eurozone leadership know they can’t really put in any meaningful amount of new money to fix things, yet are lacking in courage when it comes to forcing proper debt write offs and debt relief, ditto forcing genuine bank recapitalisation and financial sector restructuring, and we have a humiliation and tragedy of epic proportions when we consider that the ESFS leverage “plan” seems to rely on convincing a largely poor country where GDP per head is close to USD5k to bailout out a bloc where GDP per head is larger by a factor of x6/x8.

I spend a fair bit of time in China. Chinese policymakers on the whole impress me with their ability to understand what the real issue are. If my experience and read of China is right, Mr Regling is going to come back to Europe with lots of kind and supportive words, but little or no real hard cash. China wants military technology, nuclear technology, access to European corporates (ownership!), and it wants Europe fully on its side vs. the US with respect to human rights, the currency/the trade surplus, and in terms of IMF, WTO, and UN “status”. It does not want to buy eurozone government bonds for the sake of it (bunds are the major exception) and I suspect the first question Mr Regling will need to address is something along the lines of: “If your bond/ESFS deal is so good, why aren’t the financial markets biting your hands off for a piece of the action?”. After all, financial markets are pretty good at spotting give-away bargains when they present themselves! So in reality we are continuing with the policy of creeping fiscal union and kicking the can down the road, hoping that somehow growth with magically appear and bail out all (not just eurozone) heavily indebted nations. I think such hope is extremely misplaced. This latest bailout relies on the market not calling what I see is a huge “bluff”, because if the market does call it, the bailout simply won’t be credible or even deliverable. It is instead akin to a self-referencing ponzi scheme, and I can’t believe eurozone policymakers have even considered going down this route. After all, we all have recent experience of how such ponzi schemes end, and we all remember how eurozone officials often belittled and berated US policymakers for their role in the US housing/CDO/SIV financial bubble.

In terms of the secular outlook, I wanted to do something different, so I have included below a classic Greed & Fear chart. The chart looks at a 90 year history of the Dow, rebased in terms of the price of an ounce of Gold. I am not including this chart to specifically support my secular bullish Gold view or my secular bearish equity view.

Rather, for me, this chart speaks to long-term trends and turns in the Greed & Fear equation, which is a principle driver of market returns. I find this chart stunningly clear and simple in its message: Over the next year or so the Dow can, in Gold terms, hit a ratio of 1. Think about that. Of course I know many folks dismiss such “chartlology” (I have too much respect for the world’s technical analysts to call my work technical analysis), and I know many folks look at Gold as some barbaric relic. So readers should feel free to dismiss the message from this chart. Personally I think this chart is telling us something very profound – and worrisome. Especially if one shares my view that the latest eurozone “solution” simply clarifies one thing – that full fiscal union in an immediate time frame is OFF the agenda. As a result of which, eurozone policymakers are now all-in and have merely succeeded in giving us an extremely worrying outcome whereby the future of the eurozone now becomes a binary bet on survival vs. breakup/ shrinkage. I am convinced markets will soon reach the same conclusion, so this latest plan had better work, because if it doesn’t there is no more credible policy response left. All proposed “solutions” so far are internally inconsistent and unviable as sustainable fixes in my view. The only sustainable fixes are proper default/restructuring and the ejection of some existing members, thus leading to the creation of a neueeurozone (which seems to be not on the cards for now), or full and immediate fiscal union, which for now only remains a distant “hope.”

Short-term View

Whilst the timeframe of the moves has been faster than I expected, both the direction and the extent of the market moves in October have been largely in line with my previous calls. The S&P500 hit a low of 1074 in early October. For some months now I have been forecasting a move in the S&P500 into the low 1000s in October 2011. The S&P500 at 1074 comes pretty close! The 10 year yield targets for both USTs and Gilts were also hit, and the Bund target was only just missed. Beyond this October low I also forecast an “up to 20%” rally in risk assets in Q4 2011, from an S&P500 low in the  low 1000s, up to/towards 1200 – see my previous notes for both targets and drivers. Whilst this rally since the October lows has been much faster than I expected, and reached (on the S&P500) 1285 on a closing basis as opposed to my 1200 target, because the October low was 1074 and not in the low 1000s the actual percentage move in the subsequent rally has been pretty much in line with my +20% targeted move higher, as have the drivers for the move (which can be summarised in one word: Hope). The key question now is “what happens next?”

At this juncture, and for as long as 1310/1320 holds on the S&P500 (on a three to four day consecutive closing basis), I strongly believe that we have begun, or about to begin, the next major risk-off phase, which should culminate in my secular targets being hit in 2012. The sharpness of the rally from the October risk lows suggests strongly to me that what I thought would be a process that plays out over a year may well now be a process where the timeframe has been accelerated by a quarter, maybe two quarters.

The implication therefore is that in 2011, the October equity lows MAY NOT be the lows for the year. So based on what I can see now, and with a S&P500 1310 “stop loss” as mentioned above, I am now looking for another major risk-off phase between now and year end, with a December target for the S&P500 back down in the 1100s for sure, and possibly even the low 1000s. As I expect to see a series of ongoing lower lows and lower highs all the way through to the eventual secular super cycle lows in 2012, if my  call for the remainder of 2011 is also proven correct then the S&P500 can get much closer to 1000 in December than in the move to the October lows just seen.

In this next risk-off phase expect the USD and core government bond yields (USTs, Gilts, Bunds etc) to do well, expect credit spreads to widen and commodities to sell off. I also expect peripheral eurozone government bond markets, including France, to again perform very poorly. If this risk-off call into 2011 year end proves correct, I would expect to see the current iTraxx Crossover index widen from the mid/low 600s back up to 900, and I’d expect to see 10 year yields in USTs down at 1.75% or lower, Bunds at 1.5% or lower, and Gilts sub-2%. Using the DXY Index as a measure of the USD, I’d be looking for it to move back to and probably above 80.

More Policy

It is important to highlight that markets should expect at least one further round of (perhaps globally coordinated) monetary easing, including QE3 in the US, likely around year end/early 2012. I have been highlighting this event all year and my view remains unchanged. This may well act to put a floor on risk assets and maybe even give a boost to the risk-on trade at that time, but it will be a purely temporary (two month?) fillip for paper assets and will do nothing except damage (a la the Fed’s QE2 move) to both global and DM/US growth. This in turn will expose us to a very difficult risk-off phase over H1 2012, when my secular super-cycle target lows in risk asset valuations should be hit.

It is also worth stressing again that generational geo-political changes are underway to both the global economy and global markets as a result of the Great Financial Crisis. Europe is the centre of the storm right now, but in 2012, perhaps driven by the eurozone ills, these changes will become more evident and more significant, paving the way for a major new global currency accord between deficit nations and surplus nations in late 2012 or, more likely, 2013. Until then expect the naked emperors to continue to play their fiddles, to little or no avail. Eventually however the geo-political changes should lead to effective and sustainable outcomes, but until then, the name of the game is preservation of one’s capital and a hope that China doesn’t land too hard in 2012. Unfortunately the risks are, in my opinion (different from the “house” view) rising rapidly that we may see a hard landing in China. I hope my worries are misplaced, and for now I still have the same view that I have had since late last year: China”s GDP growth rate in the current 5 year plan, which began in March 2011, is forecast to trend down to (and average) around 6%pa to 7%pa. This growth rate is however uncomfortably close to the pivot point between a soft landing and a hard landing (5% or below) for China. As mentioned earlier I have more faith, based on my own interactions, in China policymakers than in the majority of DM policymakers, but the task ahead in China is no doubt a challenging one. The bailing out of the rich eurozone will not I feel be a high priority in China as the domestic situation will require full focus and attention.


- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Mon, 10/31/2011 - 12:33 | 1828808 DoChenRollingBearing
DoChenRollingBearing's picture

Gold, bitchez!  And take the physical, don't buy it from your buddies at MF Global, Goldman Sachs, JPM, Interactive Brokers, etc.

Jon Corzine should be planty evidence enough that the system is rotten.  Rotten.

But, hey Corzine comes out OK.  $12,000,000 bonus.  What say you, OWS?

Mon, 10/31/2011 - 12:41 | 1828827 drivenZ
drivenZ's picture

"Jon Corzine should be planty evidence enough that the system is rotten.  Rotten."

you don't like it? don't put your $$ in MF Global. simple as that. 

Mon, 10/31/2011 - 12:43 | 1828834 wisefool
wisefool's picture

Not as simple as that. You would also have to move out of new jersey and the USA based on his Eric Cartman authority he had in office.

And exactly where do you think this guy's next job is going to come from? K street. (He will be a lobbyist)

Mon, 10/31/2011 - 14:35 | 1829262 Hard1
Hard1's picture

Bob has become way too optimistic. I think we may overshoot to 500 in S&P.

Mon, 10/31/2011 - 15:17 | 1829405 Lucius Corneliu...
Lucius Cornelius Sulla's picture

There is no doubt in my mind the we are primed for a credit crunch death spiral. 

Mon, 10/31/2011 - 18:43 | 1829957 rocker
rocker's picture

 In the long term a bounce off of 800/900 would be nice on our way to a double bottom 666 again.

 Just sayin.

Mon, 10/31/2011 - 12:44 | 1828835 DoChenRollingBearing
DoChenRollingBearing's picture

+ 1

You are right.  I don't like it.  And I am happy that none of my money went to Corzine.

The system is still rotten.  It is hard to find ANYWHERE honest to put your money.  Or get income, they really seem to HATE savers and investors nowadays.

Mon, 10/31/2011 - 12:56 | 1828869 drivenZ
drivenZ's picture

well, I can agree on rates, blame that on the politicians and the fed. More likely the politicians. People here are always quick to blame "the fed" for everything, blame wallstreet for everything, blame china for everything. Granted, Washington gets alot of blame but not enough. They're hired to get shit done...

As a is now 6 months since the May 11' debt ceiling fiasco. We had a repeat in August 11', and now we're about to have a repeat in November when the supercomittee through their own fault or not, gets nothing done. A complete and utter failure, as usual.     

Mon, 10/31/2011 - 12:58 | 1828879 DoChenRollingBearing
DoChenRollingBearing's picture

+ 1 again

LOTS of blame to go around.  LOTS more problems loom ahead.

Mon, 10/31/2011 - 13:03 | 1828892 wisefool
wisefool's picture

Agreed. But then on the sunday talk shows you'll have all the pundits saying "The founding fathers wanted a system that was gridlocked to prevent radical changes"

The problem is (we bash finaincial talking heads) the politcal talking heads have total lack of mental facility when they dissassociate the fact that the "founding fathers" government was less than .1% of GDP. Today it is over 20% of GDP and they accomplish "nothing by design so it is okay when they fail."

Some ZH poster was a genious when he posted re Soylindra

"If you give me $500 Million of tax payer money I also can make some amazing crap that nobody wants to buy"

Mon, 10/31/2011 - 13:26 | 1828941 juangrande
juangrande's picture

 "They're hired to get shit done"....and those who hired them get their shit done! what's the problem, really?

Mon, 10/31/2011 - 15:19 | 1829419 Lucius Corneliu...
Lucius Cornelius Sulla's picture

"They're hired to get shit done..."

And that pretty much sums up the root cause of our predicament.

Mon, 10/31/2011 - 13:54 | 1829033 vast-dom
vast-dom's picture

As in my post of earlier today, I couldn't agree more re: SP 800-900 as I wrote, "SP 850".


My calcs point to something much worse than 2008-09 in terms of low bottom. But my timeframe for this was late August/early September, and now we are essentially in November. So I'm off by a couple of months, or so it appears.....

Mon, 10/31/2011 - 12:33 | 1828810 Gubbmint Cheese
Gubbmint Cheese's picture

Love Bobby J - thx Tyler

Mon, 10/31/2011 - 12:37 | 1828817 pendragon
pendragon's picture

yes just don't mention his all in call on the s&p at the end of july....

Mon, 10/31/2011 - 13:30 | 1828959 Gubbmint Cheese
Gubbmint Cheese's picture

sees 20-40 point drop in S&P

August sees 1350 to 1370

10 year UST at 3.40%

downside 1250-1220

1440 extreme upside

potential for 1.50% GDP..


that call?

given the accuracy of his other calls over the years, I'm inclined to cut the guy a little slack. How have your calls done since say 2007?

Tue, 11/01/2011 - 00:52 | 1830885 pavman
pavman's picture

Dow 30,000 Bitchez (hyper-inflation tends to do that).

Mon, 10/31/2011 - 12:36 | 1828813 Cdad
Cdad's picture

News Flash...BlowHorn [CNBC]...some a**hole....

"Pressure on the Euro dollar is good because it puts policy makers in a position to make good on empty promises."  [paraphrased]

Good about straws being grasped at...

Mon, 10/31/2011 - 12:36 | 1828814 pendragon
pendragon's picture

these kind of calls are a bit of a waste of space as FED monkeys just raise the strikes on the S&P puts they're writing on any downleg

Mon, 10/31/2011 - 12:37 | 1828816 LawsofPhysics
LawsofPhysics's picture

Technically correct, until the printing resumes in earnest.  Hedge accordingly.

Mon, 10/31/2011 - 12:38 | 1828818 TradingJoe
TradingJoe's picture

Hmh, logic says indeed so but....(damn there seems to always be a BUT somewhere), year end rally still is a MUST for all the parasites to make their year or else...!?

I am guesstimating that some type of sell off, say 2-5% should be in order but then, it may well be off to the races, or NOT!! I tend to go with long short term and short long(er) term!

"BUT" then again, election year, pumping and printing will be the norm, or not?!

There is really only one thing here, pick a side and stick to it or stay out of IT!

Mon, 10/31/2011 - 12:40 | 1828823 Boilermaker
Boilermaker's picture

REITS and IYR are actually positive today...after running up massively over the last two weeks....

You've got to be shitting me.

Mon, 10/31/2011 - 12:46 | 1828844 Raskolnikoff
Raskolnikoff's picture

Why doesn't barry take all that commercial RE the gov owns through the fed and convert all that space to condos to house his main voter base is beyond me....I just came back after living in China for a year and saw first hand the many high rise developments just built and that are being built and are for the most part empty...why doesn't the communist gov just write off all that bad debt and open those cities up to all those malcontents? Surely these guys are  capable of hiding these huge paper losses?

Mon, 10/31/2011 - 12:40 | 1828825 semperfi
semperfi's picture

Ain't gonna happen. Plunge Protection Team will keep the party going until they can't, and the time that they can't is still a looong way off.  Just inject more magic juice from the ePrintingPre$$ and keep partyin' dude!  Party on.

Mon, 10/31/2011 - 12:46 | 1828829 devo
devo's picture

Today's strong dollar is just an excuse to print. It's very sick. It makes me sick. OWS needs to become financially informed and put pressure on Bernanke to turn off the printing press. It's clearly a scam to mislead uninformed Americans and get the bank puppet, Obama, reelected.

Mon, 10/31/2011 - 12:44 | 1828838 The Axe
The Axe's picture

Tom Lynch  JPM    just on Bloomberg 1475  by year end....BAC to double in

Mon, 10/31/2011 - 12:50 | 1828850 firstdivision
firstdivision's picture

Have no fear, for the PPT is here.  That is the only thing that is holding the markets together today. 

Mon, 10/31/2011 - 14:17 | 1829174 CPL
CPL's picture

The PPT needs the bond money/IOU's (which has dried up for today) to push into the markets.


Right now...everything is locked down, nobody is moving, even the HFT's are missing their timing because the retail investors are on an indefinate hiatus, or have been for a couple of months.


Besides his 800 call is optimistic in a universe where the valueless has value and anything physically available is cheap as human life.  Nobody in their right mind would touch any of what is offered right now unless they wanted a severe fiscal beating.  Personally I think we will swoop under the 600 mark just like last time.


Sadomasichism aside.  I'm pretty sure we'll see the PPT wake up again at 3:30 when they buy 1 share each from the Unfortune 500 in the usual overbid/overprice strategy they've been fucking around with so far.  Seriously, I'm looking at dog shit companies that shouldn't be even listed on the open market acting as if they are pure gold nuggets with the European flim-flam going on.

Mon, 10/31/2011 - 12:51 | 1828853 RobotTrader
RobotTrader's picture

Yep, REITS and retail stocks unfazed again.

Even chip stocks like XLNX still on an uninterrupted meltup.

Mon, 10/31/2011 - 12:54 | 1828865 HelluvaEngineer
HelluvaEngineer's picture

How's your CMG "call" from earlier doing?

Mon, 10/31/2011 - 12:56 | 1828873 DoChenRollingBearing
DoChenRollingBearing's picture

INTC and SNDK are down...

Mon, 10/31/2011 - 13:55 | 1829040 Boilermaker
Boilermaker's picture

I love how this douche bag scans for shit to post based on others comments.

What a f'ing tool.

Mon, 10/31/2011 - 12:53 | 1828861 CapitalistRock
CapitalistRock's picture

Fed cant print with Dow above 12,000. Blatant money printing for the benefit of wall st. will create a popular uprising against the fed. They simply will not go there.

Mon, 10/31/2011 - 12:58 | 1828877 devo
devo's picture

Probably, but the Dow will likely drop below 12,000. I don't see how a positive European resolution isn't already priced in given that the market went up 1400 points in about a week.

Mon, 10/31/2011 - 15:59 | 1829575 reload
reload's picture

Dont get me wrong - I do not condone what is coming in any way - but the writing is on the wall - an unbridled orgy of printing.

The UK is pushing the EU to get started NOW, while Cameron and his banker friends dream up new ways to crank up the BOE efforts. The Sunday Times (Murdoch rag) reported yesterday that the BOE is being primed to monetise the shortfall in public sector pensions - to get this into perspective the National Health Service (huge employer) alone has a shortfall of over $1.5 trillion.

Another plan for the UK is to start a `sovereign wealth fund`. I always thought this was the investment of surplus that prudent governance allows. In the UK case the plan is to borrow the money (issue Gilts and monetise) then spend the money on `infrastructure`. Ok bridges to nowhere etc. Unbelievable how they can describe more debt as wealth, but they are.

The bottom line is that our masters ARE scared of the mess they have got into, they have 2 stark choices. Let the chips fall and say goodbue to power and all its adictive trappings - or print and hope that `this time it will be ok`. I am sure they will print and then go on another drunken spree of malinvestment.

Once the Euro press starts churning at warp speed, Ben will be able to follow suit in the interests of combatting a strong dollar. It will not matter at all where the Dow is at that point, the unemployment numbers will demand it.

We may get a tradable sell off before the ink flies in earnest, but the printing needs to start pronto if the squabbling in Euroland is to be stopped from getting very ugly. The priorities of our rulers are, stay in power and keep their dream of a european super state alave - in fact speed up its creation. Make it less democratic as soon as possible. They will not be able to resist a very big print run, and another and another.

Mon, 10/31/2011 - 12:53 | 1828863 NuYawkFrankie
NuYawkFrankie's picture

Re: Bob, At His Bearish Best

Given the circumstances, a target of even 700 on SP500 -far from being bearish - strikes me as overly optimistic.

Am I missing sumthin? tia


Mon, 10/31/2011 - 12:55 | 1828868 catch edge ghost
catch edge ghost's picture

Wow. more hater spam. This math and reality stuff isn't fooling anybody. The S&P is about at its low for the day right now.  I'm going to make a sandwich and cause it to shoot up. Back in a bit.

Mon, 10/31/2011 - 12:55 | 1828872 gatorengineer
gatorengineer's picture

Ben and the magic printing press Wednesday.... Shorts keep your stops tight......  here it comes straight to 1350.......

Mon, 10/31/2011 - 13:03 | 1828894 Jim in MN
Jim in MN's picture

In two years here at ZH, my most consistent message has been Dow:Gold 1:1 @ 5,000.  For stocks to be the same in the year 2020 as in the year 2000 makes good sense.  That is what a lost decade on steroids is all about.  Then we might get a good run if we take the opportunity to clean out the corruption and rein in excessive debt and nonproductive bullshit in the USA. 

Using Bob's chart, if gold meanders higher from $5,000 and the Dow hits the trendline at say 60:1 in 2025-2030...well why the hell not?  To the moon!  But not yet. 

Not ever if we stay fat n lazy, AKA in slave mode.

Mon, 10/31/2011 - 13:16 | 1828910 JR
JR's picture

Federal Spending per Household Is Skyrocketing | The Heritage Foundation

…The federal government is spending more on a per-household basis than ever before. Since 1965, spending per household has grown by nearly 162 percent, from $11,431 in 1965 to $29,401 in 2010. From 2010 to 2021, it is projected to rise to $35,773, a 22 percent increase.

…U.S. Census and White House Office of Management and Budget charts show that while median household income grew 27% from 1970 to 2009 - $39,732 to $50,255 -  total Federal spending grew ten times faster, or 299% - from $890 billion in 1970 to $3,551 billion in 2009.

…Federal spending is outpacing inflation. Prices of goods and services normally rise year to year, but federal spending has risen even faster. Although spending grew substantially after 9/11, less than half of the increase can be attributed to defense and homeland security spending.

The U.S already borrows 42 cents of every dollar spent;  food prices are up 34% in the last year, according to The Economist.

Mon, 10/31/2011 - 14:53 | 1829335 ivars
ivars's picture

All my prediction charts are now in one place without unnecesary text:

Please visit!

Mon, 10/31/2011 - 16:42 | 1829732 prophet
prophet's picture

960 1280

Mon, 10/31/2011 - 17:34 | 1829827 Imminent Collapse
Imminent Collapse's picture

Gosh, this is interesting, but it appears that a chasm is approaching.  Step on the gas and let's jump the canyon.  Fuck gravity.

Do NOT follow this link or you will be banned from the site!