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Bob Janjuah Ushers In The New Year: "Here We Go Again!"

Tyler Durden's picture




 

Bob Janjuah, despite never leaving, is once again back:

It has been a while since I last wrote. At one point I thought I was having a period of "writer's block", but over the Christmas break I had a "Eureka" moment. I don't have "writer's block". Instead I realised that I was trying to write something "different" at a point in time where actually the key issues are, pretty much, the same as they have been for some years now. As such, I have abandoned this attempt and instead present my latest thoughts, even if you have "heard all this" before:

1 - Key Issues:

Unchanged from last year/the last few years: Too much debt, insufficient "real" self-sustaining growth, and the same old failed thinking from (Western) policymakers, which over the last 20 + years has created the biggest debt disaster in modern history. Western policy makers, at the national and G20/IMF level, still seem to have no response to solvency problems other than printing more money, loading on more debt, and hoping that "time" sorts it all out. In other words, the extension of ponzi schemes which are being used to cover up our lack of competitiveness and real productivity growth through the use of money debasement and leverage.

As ever, the bigger this effort gets the harder the fall once the inevitable collapse happens. Of course NOTHING moves in a straight line, so investors must understand and accept that even in a secular period of weak growth and bearish market moves we can still have occasional risk squeezes and short periods of "OK" data within a broader declining/weak trend. What is clear is that the financial crisis that began in 07/08 heralded the end of a policy era, and instead the collective fear amongst policymakers and their desire to protect and preserve self-interests has led to (Western) policymakers embracing some ugly version of pseudo capitalism that is best labelled neo-communism.

Turning very briefly to some specific issues:

  • The worst of the eurozone mess is still ahead of us. This is in spite of the attempts by the ECB and national eurozone central banks to rule out QE with one hand, yet at the same time engaging in the worst form of policy behaviour and de facto QE with the other and with a hard Greece default likely this quarter.
  • Yet again, and certainly for the 3rd year in a row, we are being told that the US is over the worst and that a sustainable recovery is here. We are expected to believe yet another 'decoupling' fairytale, only this time around apparently neither Asia/EM nor the eurozone really matter to the US economy. We are highly suspect of this line of thinking! Mini business cycles are to be fully expected - as Kevin and I have said for years. This is not the same as a real and sustainable recovery. The US economy bulls very happily downplay the "post-Japan tragedy" very overdue pop in the global supply chain, the dangerous running down of savings by the US consumer, and the inventory build-up. I have high conviction that the US economy will be seen as a risk, rather than as a saviour, within the next quarter or two. Furthermore the potential fiscal time bomb in the US will be a big issue to consider this year, especially as the temporary payroll tax and extended unemployment benefit deals reach maturity in the next few months, and also more generally as we get closer to the US elections. A complete breakdown in politics in 2012 in Washington around the deficit and debt issues may not be certain, but the risks are, to me, worryingly high.
  • Investors should fully expect Fed QE3 in Q2 2012, BoE QE3 around the same time and maybe even explicit ECB QE in/around Q2 as well. I am pretty sure all of this will be bullish for risk assets, for about two to three months (the half life of QE is pretty clear I think), but in the real economy and even in markets, this latest (and last?) monetary shot will soon thereafter be seen to fail (see below), with deeply negative consequences, likely before Q3 is over;
  • Growth in the Asia/EM block is and will continue to moderate, if left to its own devices. Not great, but not disastrous. Unfortunately, when Western policymakers deliver QE in Q2, then much like we saw post the Fed's QE2, the USD will weaken and global commodity prices (especially food and energy) will spike as per last year. As a result the US/Western consumer will again see his/her disposable income crushed, which in turn will crush overall growth (especially in the US, as per Q1 and Q2 2012), and Asia/EM will be forced into another monetary tightening cycle to combat inflation (as per late 2010/2011), which in turn will risk a much harder landing in Asia//EM than would normally need to be the case. This in turn will further damage global growth.

2 - Key Investment Outlook:

The secular outlook remains unchanged - for 2012, it is again Risk-Off, long core high quality bonds and strong balance sheets/short risk and weak balance sheets. This worked tremendously well in 2011, and should work at least as well in 2012. In 2012 balance sheet strength and reliable cash flows will be far more important than reaching for growth and maximisation of earnings. As per 2011, I really like Australian government bonds as well as the AUD. Ditto non-eurozone Scandinavian government bonds and their currencies.

The tactical outlook is always more difficult to nail, but as of now:

  • I think we are very close (days) from a top of some sorts in equities and the risk-on trade. Depending on price action, I reckon the time to get short risk is around/by January 13th - as a proxy guide the S&P should be within 3% to 5% of current levels (1277 S&P).
  • I think Q1 is going to be extremely bearish for risk, for equities, for the periphery, for the euro, for credit spreads, etc. The real pain may only be seen in March, when I expect the hard Greece default to happen. In Q1 I expect the S&P will trade down to/below 1000, and core US, UK and German government Bond yields will be closer to 1.5% than 2%.
  • For the balance of H1, based on my US, UK and eurozone Q2 QE call, I would expect to see risk assets recovery hard (especially commodities);
  • At some point in early Q3 a huge opportunity will present itself to those who want to get short risk, as by the Summer I fully expect the (coordinated) Western QE to result in global real economy failure. However, for now, I think H1 will contain significant volatility, so I will worry about H2 nearer the time. Suffice it to say that my S&P 800 target for 2012 still holds.
  • In terms of where my outlook herein for markets may prove to be wrong, I think most likely that it will be by being too bearish (risk) too soon, by around a quarter or so, driven by a failure on my part to recognise not just the willingness but also ability of policymakers to "kick the can" down the road for a little bit longer. Let's see!

Apologies to all for not telling you anything new or very different. One day, when we collectively abandon the neo-communist experiment in the West that relies on more debt and printing money in order to maintain the status quo, then I will hopefully have a different and far more positive view of the years ahead. I look forward to this time. But for now, expect more of the same as in 2011. And I know it's a few weeks early, but as I am unlikely to write anything for at least a month, Kung Hei Fat Choi. The year of the dragon will soon be upon us.

 

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Tue, 01/10/2012 - 09:11 | 2049744 King_of_simpletons
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"Climbing the wall of worries" is an euphemism for outright fraud and ponzi.

Wed, 04/25/2012 - 02:09 | 2372530 jaffa
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Mon, 05/07/2012 - 05:53 | 2402749 jaffa
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New Year is the time at which a new calendar year begins and the calendar's year count is incremented. In many cultures, the event is celebrated in some manner. Thanks for sharing.
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Tue, 01/10/2012 - 09:14 | 2049751 GeneMarchbanks
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'Apologies to all for not telling you anything new or very different. One day, when we collectively abandon the neo-communist experiment in the West that relies on more debt and printing money in order to maintain the status quo, then I will hopefully have a different and far more positive view of the years ahead.'

Stop the fight. Bob jst KO'd the rvls 4 most brsh eva...

Tue, 01/10/2012 - 09:16 | 2049754 Mugatu
Mugatu's picture

Meanwhile stock futures keep climbing.   

Tue, 01/10/2012 - 09:35 | 2049787 Snidley Whipsnae
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...and, gold, silver, oil steadily moving up.

http://finviz.com/forex.ashx

Tue, 01/10/2012 - 09:39 | 2049800 GeneMarchbanks
GeneMarchbanks's picture

The still believing Causal Attribution crowd says due to China 'jaw-boning' more easing...

... it's just sad now.

Tue, 01/10/2012 - 09:58 | 2049845 Ronstradamus
Ronstradamus's picture

Why not go all in then?

Tue, 01/10/2012 - 11:22 | 2050181 Vince Clortho
Vince Clortho's picture

Yes.  It appears the gurus have solved all those financial issues that were so troublesome in 2011.

 

Tue, 01/10/2012 - 09:18 | 2049758 Ruffcut
Ruffcut's picture

Banks are still in need of capital, so they may be scalping in this upthrust. Anything goes in the market.

It is winter and the bears are tired and sleeping in a hole.

If all the shitty stocks are rising then robo is happy. Netfucks up near a hundred. My wife cancelled the steaming. I liked the comedy but she would not watch anymore shitty D movies. If they had porn, then they would go back to 300 bucks.

Tue, 01/10/2012 - 09:18 | 2049761 ZeroPower
ZeroPower's picture

Bear Bob is back. Good reads as usual, though always remember, he is (still) a very short term credit trader despite being at a fancy jap bank. 

(Waves at his old ABN desk;))

Tue, 01/10/2012 - 09:22 | 2049767 francis_sawyer
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All I can say is I prefer "Bear Bob" to "Birinyi's Ruler"...

Tue, 01/10/2012 - 09:20 | 2049763 slaughterer
slaughterer's picture

BJ provides the full calendar for the year, and his tactics advocates shorting on 13 January, after JPM earnings and ECB rates are already in.    Sounds like a plan to me.  

Tue, 01/10/2012 - 09:25 | 2049774 francis_sawyer
francis_sawyer's picture

They managed to push BAC back up over $6.00 in that "pre-bank earnings" fiesta... [coughs] impressive...

Tue, 01/10/2012 - 09:23 | 2049770 freemktspls
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Gawd bless ya Bob... I feel better about my short positions already! 

Tue, 01/10/2012 - 09:38 | 2049795 resurger
resurger's picture

The next time i see the Dow futures -100 Am selling! but am with you on the short , the markets are overbought!

Tue, 01/10/2012 - 09:26 | 2049776 Quinvarius
Quinvarius's picture

The debt ceiling is about to go up another 1.2 trillion dollars.  What else do you need to know?

Tue, 01/10/2012 - 09:29 | 2049780 Vaiman
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Yes...it seems the "supposed" rally has the news driven crowd piling in.  We'll have to see where the volume is at though.  Indices still in overbought territory.  I think when this tops we're in for a rapid fall again.  Depending how things go today...possibly see a reversal or correction this week.  But then again....there is no crystal ball and the powers that be and the media will spin in whatever direction they want.  Highly manipulated!  JMHO

Tue, 01/10/2012 - 09:33 | 2049785 spinone
spinone's picture

BJ can't predict the outcome of coordinated central bank manipulations.  No one can.  Sure it looks bad, but it can look bad for a long long time.  The wheels on the ponzi may be squeaking and shimmying for along time before they fall off.

Who would have thought they could keep it going for so long?

Tue, 01/10/2012 - 09:38 | 2049797 Snidley Whipsnae
Snidley Whipsnae's picture

Hinde Capital takes a long hard look at the entire European Economic landscape... warning PDF

http://www.hindecapital.com/docs/hil_reports/HindeSight%20Investor%20Letter%20December%202011%20-%20Should%20I%20Stay%20or%20Should%20I%20Go.pdf

Tue, 01/10/2012 - 09:59 | 2049852 Urban Redneck
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That's sacrilege - David Cameron could never measure up to Joe Strummer.

Tue, 01/10/2012 - 09:36 | 2049789 DannyTX
DannyTX's picture

Thank you Bear Bob!!!!!  My QID holding has had my stomach a little raw lately.  In twenty+ years of trading I have never been more baffled as I have been lately with the current market action in this economic environment.  You would think SP would be at 600 now!

Tue, 01/10/2012 - 09:39 | 2049790 resurger
resurger's picture

"Apologies to all for not telling you anything new"

 

"Take off is Optional, Landing is a must"

Tue, 01/10/2012 - 09:36 | 2049791 chindit13
chindit13's picture

Having made a half dozen international flights in South and East Asia in the last two weeks, it seems they have not yet gotten the message that things are bad.  Every flight was fully booked with waiting lists, and getting anything less than a fleabag hotel to stay in takes some time.  Room prices are up not due to printing, but demand.  I watched a gaggle of people buying iPads in an airport shop...at airport prices.  Funny it is not only Asians traveling and picking up stuff at the airport.  There's plenty of Westerners out merrymaking, and some are even from Spain.

Yes all the data points in one direction, but the scene on the ground looks to be in stark contrast to what many on this site claim, and which I believe, is the harsh reality.  Perhaps it is just one last dance before the music stops, but this looks by its outward appearance as strong as it has in at least three years.  I have to consider that just because I do not have a solution to this problem, that does not mean it cannot be solved.  If actions and events tell me my views are wrong, I have to take another look.

Tue, 01/10/2012 - 09:41 | 2049802 Snidley Whipsnae
Snidley Whipsnae's picture

Chindit 13... 1% of 7 billion earthlings is a very large number... So large that if they all decided to fly at the same time all flights would be waaaay overbooked.

Tue, 01/10/2012 - 10:50 | 2050006 Belarusian Bull
Belarusian Bull's picture

Not to say about all the airport istuff sold out!

Tue, 01/10/2012 - 09:53 | 2049825 francis_sawyer
francis_sawyer's picture

I'm guessing none of those you witnessed buying iThingy's in airport stores, or staying at the 5 star hotels had a SNAP card in their pocket...

Now ~ If all the SNAP card users decided to fly around Asia & stay in hotels, then I think we'd REALLY have a problem in terms of overbooking...

Tue, 01/10/2012 - 09:59 | 2049853 lizzy36
lizzy36's picture

I can't remember what commentator (Howard Marks perhaps) said in early 2009 that the FED would succeed in blowing one more bubble. That would be the final blow off the top as there would be no way to paper over the debt that was created from papering over the debt created to paper over 2008.

I believe that commentator is right. I looked at that Consumer Credit number from yesterday and though, how much of that debt goes bad with even a 50 bps rise in interest rates?

The real solution is to restructure, write off the bad debt and start fresh. By simply leaving the old system in place, making it more interconnected, and adding fresh debt on top of the bad, the status quo had ensured that the necessary restructing will come close to breaking the Western world, when it does eventually occur. And make no mistake come at some point in the next 10 years it will come. There is NO way that i no of to avoid an eventual reversion to the mean. This time is not different but it sure will be way more painful than it would have been 3 years ago.

The place i visit each year after Christmas was indeed busier than at any time in the last 3 years. Restaurants were packed, plenty of shoppers. Still every 3rd house was for sale, and if those houses started selling believe that every 2nd house would come onto the market. In a State, where taxes will likely have to triple at some point in the next 10 years to avoid bankruptcy.

Tue, 01/10/2012 - 10:06 | 2049871 ZeroPower
ZeroPower's picture

Those shitty iAirportStores or whatever theyre called dont charge a premium in airports. Granted, just the regular 'this is an aapl product' premium is enough..

 

Tue, 01/10/2012 - 09:36 | 2049792 Roland99
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ES 1500, BAY-BEE!!

 

Then comes the March Madness

 

Tue, 01/10/2012 - 09:48 | 2049811 Manthong
Manthong's picture

Any of the ratings agencies still in business?

Tue, 01/10/2012 - 09:55 | 2049833 DannyTX
DannyTX's picture

chindit13, The people you describe sound just like my wife.  What recession???  I guess she will just keep spending until the network news agencies finally tell the truth about what is going on around the world.  Right now she thinks I'm off my rocker with my bearish outlook----save, don't spend, save, don't spend. 

Tue, 01/10/2012 - 10:03 | 2049864 rsnoble
rsnoble's picture

All I read was Alcoa was bullish on commodities.  Just gerneralizing......could that mean metals are going to the moon because the economy is going to tank?

If AA had tanked we would've got a -100 open to a flat finish by the end of the day.  This shit is under complete computer control. 

Tue, 01/10/2012 - 10:21 | 2049914 francis_sawyer
francis_sawyer's picture

Dr. Copper:

CNBC spin ~ Look! Cu & Zinc are up... that's bullish!

Reality ~ Brass (a Cu & Zinc, alloy), is used to make ammo jackets...

 

Tue, 01/10/2012 - 10:06 | 2049872 THE DORK OF CORK
THE DORK OF CORK's picture

Printing base money is not debt creation - its the opposite, is it not ?

Tue, 01/10/2012 - 10:32 | 2049946 marcusfenix
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we already had a complete breakdown politically regarding debt and deficit issues in 2011, along with most everything else. as far as I remember the only things that the two party dictatorship agreed on last year was-

1. American citizens are potential terrorists and should no longer enjoy the full rights and protections enshrined in the constitution

2. the MENA is full of illegitimate nations to which democracy must be exported

3. when dealing with dangerous entities such as Gibson Guitars, Rawsome foods and the Amish it is necessary to bring the guns and the body armor, cause you never know if one of the crazed lunatics in these organizations may try to attack you with a stratocaster, stab you with some organic carrots or run you over with the hourse and buggie.

4. telling lies, even mind numbingly outrageous ones that make absolutely no sense, is always the best policy.

5. terrorists would become incredibly stupid, always and without fail contacting federal agents for help and support in hatching their evil plots and schemes, emailing their plans to themselves, keeping written diaries, buying large amounts of explosive material in their own names using their own id's, and not even batting an eyelash when the undercover fed asks them five times "are you sure you want to go through with this?"

5. and lastly your vote counts only if you cast it for a candidate that will not upset the established order.

Tue, 01/10/2012 - 11:14 | 2050136 e92335i08
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Will be important to see how we close today on this gap up. Stochastics are at overbought levels, which they could stay for awhile but 1300-1310 has some strong resistance. I'm a scale up seller every 10 handles.

Mon, 04/16/2012 - 01:54 | 2347900 jaffa
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