Bob Janjuah

Following Nomura's Bob Janjuah's 'wine into water... are we there yet?' note in February, the market has followed his script almost perfectly with a continued push to new highs and a small sell-off that was bought excitedly. While he remains convinced that "in terms of positioning and sentiment, we are 'not there yet'," for his 50% S&P 500 plunge; he does believe Q2 will see a 5-10% dip to 1450 as the shambolic policy responses to Cyprus and the 'cat' that #DieselBoom 'let out the bag' add to increasingly weak global growth data. While this dip will also likely be bought, the bearded bear expects the market's comeuppance to arrive late 2013.

Whether you're aware of it or not, a great battle is being waged around us. It is a war of two opposing narratives: the future of our economy and our standard of living. The dominant story, championed by flotillas of press releases and parading talking heads, tells an inspiring tale of recovery and return to growth. The other side, less visible but with a full armament of high-caliber data, tells a very different story. One of growing instability, downside risk, and inequality. As different as they are in substance, they both share one fundamental prediction – and this is why you should care: This battle is about to break. And when it does, one side will turn out to be much more 'right' than the other. The time for action has arrived. To position yourself in the direction of the break you think is most likely to happen. It's time to choose a side.

Bob Janjuah may nt have rvrted to his RBS wrtng style of yore, yet, but the New Nrml appears to also fnly b getting to 1 of our fvrte strategists, who has finally gone bold, ALL CAPS. "IF I AM WRONG AND WE TRULY HAVE FOUND ECONOMIC AND MARKET NIRVANA SIMPLY THROUGH THE CENTRAL BANK PRINTING PRESS AND ENORMOUS INDEBTEDNESS, THEN I WILL HAVE NO HESITATION IN ENJOYING THE FUTURE, THINKING ABOUT THE FUNNY MONEY MIRACLE, NEVER NEEDING TO WORRY ABOUT ECONOMIES OR GROWTH EVER AGAIN (all hints of sarcasm entirely intentional)....Real wealth can only be created by innovation and hard work in the private sector, with policymakers, the financial sector and financial markets there to aid and encourage/incentivise. Real wealth is not created by the printing press and by excessive government spending. We simply cannot turn wine into water – after all, if it were that easy, why have we not done this before (with any lasting success, as opposed to abject failure, for which there is plenty of evidence)! "

Presenting Dave Collum's now ubiquitous and all-encompassing annual review of markets and much, much more. From Baptists, Bankers, and Bootleggers to Capitalism, Corporate Debt, Government Corruption, and the Constitution, Dave provides a one-stop-shop summary of everything relevant this year (and how it will affect next year and beyond).

A mere three weeks ago, Nomura's Bob Janjuah forcefully suggested that complacency warranted a tactical risk-off position given the misplaced confidence heading into the plethora of event-risk ahead. It seems, 60 points later, that he is on to something; but this time he is more critically concerned: "Investment decisions based largely on the greater fool theory and predicated by the assumption that central bankers can sustainably and credibly misprice money, supporting a significant misallocation of capital, without any major negative consequences, are in general not good investments."

Dow Jones down 250, and a new bearish letter from Bob Janjuah? Lucky coincidence? Or conspiracy? You decide. From Bob: "How to play it? The SPX is the obvious pure risk short because of how rich it is against other equity markets. Outright is fine, so are options. Take a look at January 1350 puts for example currently trading at 20. If doing outright we would recommend a stop just above the recent highs at 1475. We also like the USD and Treasuries because the market has seen time and time again US problems do not lead to selling of (safe) US assets and it can and we think will be the same again."

While Nomura's Bob Janjuah remains 100% correct in his diagnosis and prognosis of the current 'grossest misallocation and mispricing of capital in the history of mankind', his tactical short was stopped out last week. The modest loss on the position though provided clarity on the importance of the 1450 level for the S&P 500 and he remains confident that on a multi-month timeframe he expects 800 to be hit with only a muted 10% possible upside in global equities due to underlying growth, debt and policy-maker concerns. Critically, he suggests it is premature to go aggressively short risk at this precise moment, urges traders to stay nimble, and warns "...risk assets are in a bubble which of course can extend, but which can reverse sharply and suddenly. Up here, 'valuation metrics' are not going to help much... this bubble could extend for maybe a few months and by up to 10%, ...but that we could see global equity markets 10/15% lower in virtually a 'heartbeat'."

"The bottom line is simple: The Fed and the ECB are directing and attempting to orchestrate the grossest misallocation and mispricing of capital in the history of mankind. Their problem is that their actions have enormous unintended and even (eventually) intended consequences which serve to negate their actions in the shorter run, and which could create even bigger problems than we currently face in the near future. Kicking the can is not a viable policy for us now. The private sector knows all this, consciously and/or sub-consciously, which is why I feel these current policy settings are doomed to fail. Having said all that, the one area which for some reason still holds onto hope that Draghi and Bernanke can still perform feats of "magic" is the financial market, which central bankers assume, rely on and are happy to encourage Pavlovian responses. The reality here though is that even financial markets are, collectively, either sensing or assigning a half-life to the "positives" of central bank debasement policies, which to me means that even markets are only suggesting a short-term benefit from the latest policy actions. This is not what Draghi and Bernanke are hoping for, but in order for them to see the half-life outcome averted they know that we need to see major political and structural real economy reforms which somehow make Western workers competitive and hopeful again. The track record of the last four to five years inspires very little confidence that we will see such great necessary reformist strides taken anytime soon."

A month ago, RBS' Nomura's permarealist Bob Janjuah wrnd tht mrtks r set 4 a squeeze breakout. He was right. Today, he has sent out an update, saying the party is over, the ramp is finished, and the time to sohrt ahead of a "major risk off phase" is here: "my stop loss on the risk off call effective immediately is a consecutive weekly close on the S&P500 at or above 1450. As the Global Macro Strategy team is looking for Mr Bernanke to disappoint markets at Jackson Hole next week, and also because we are confident that markets will soon discover that neither the ECB nor Eurozone politicians will actually be able to deliver on their ‘promises’, we are hopeful that our stop losses will not be triggered. For now we are happy to risk 30 S&P points against us, in order to potentially pick up 300 S&P points in our favour."

"The global growth picture is, as per our long-term contention, weak and deteriorating, pretty much everywhere – in the US, in the eurozone and in the emerging markets/BRICs.... We in the Global Macro Strategy team still think the market consensus is far too optimistic on policy expectations both in terms of the likelihood of seeing more (timely) fiscal and/or monetary policy assistance (globally), and in terms of any meaningful and/or lasting success of any such policy moves. In particular, we think that the period August through to November (inclusive) represents a major global policy and political vacuum. Based on the reasons set out earlier and also covered in my two prior notes, over the August to November period I am looking for the S&P500 to trade off down from around 1400 to 1100/1000 – in other words, I expect over the next four months to see global equity markets fall by 20% to 25% from current levels and to trade at or below the lows of 2011! US equity markets, along with parts of the EM spectrum, will I think underperform eurozone equity markets, where already very little hope resides. For iTraxx crossover, this equates to a spread wide for 2012 of – in my view – 800/1000bp.... And of course I still see a very clear path to 800 on the S&P500 at some point in 2013/2014, driven by market revulsion against pump-priming money printing central bankers, but this discussion is also for nearer the time."

Between 'Twist+', his belief that Germany will 'blink' leaving any eurozone breakup/exit unlikely this year, and confidence that the US (Fed) and China (fiscal and monetary) will attempt once again to pump things up, Bob Janjuah (of Nomura) expect to see a risk-on phase that lifts the S&P - possibly climbing the wall of worry back up to the 1400s by late July or early August. His stop-loss (which would be very bearish in his view) is a weekly close under 1267 for the S&P. And then? He 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 Bob's view is not even ‘slightly’ priced into markets, but where he feels the probability of a crisis is close to 75%. His forecast for this extremely bearish risk-off phase over late Q3 and Q4 is that the S&P 500 trades below the low of last year, perhaps as low as 1000. Into 2013-14, I am still concerned that my long-standing 800 S&P500 target will be hit, but it will not be a straight line - QE3 will provide a short but sharp risk-on relief to markets. But as the bearded bear forecasts, once its ‘benefits’ subside (in weeks) it will be the failure of this QE3 to ‘fix’ things that, I fear, will open the door to 800 S&P.

We discussed Bob Janjuah's must-read perspective of the market just over a week ago and his appearance on Bloomberg TV this morning reiterates that strongly held view that we are in midst of central bank anarchy and the rules of the game continue to change. While earnestly admitting his miss in Q1, on the back of under-estimation of just how incredibly un-independent central banks are (and will be proved to be in an election year), the bearded bear goes on to confirm his view of short term 10% correction in the S&P 500, a mid-year recovery on Bernanke's bowing to Obama's pressure, and ultimately back to S&P 500 in the 800pt range (and Dow/Gold to hit 1). Dismissing the don't-fight-the-Fed argument with analogies from 2007's 'you have to dance while the music is playing' and the tick-tick-boom carry trades that so many funds and investors follow now, he reminds the interviewer and the audience of how quickly all the trickle of carry gains are lost and then some when the music stops. Must watch to comprehend how smart money is comprehending the ultimate game theory of today's central bank largesse and the clear non-self-sustaining recoveries in global economies.

Bob Janjuah, who has been quiet lately (recall his last piece in which he quite honestly told everyone that "Markets Are So Rigged By Policy Makers That I Have No Meaningful Insights To Offer"), is out with his latest, in which he gives us not only his long-term preview, "ultimately I still fear and expect the S&P500 – as the global risk-on/risk-off proxy – to trade at 800, and the Dow/Gold ratio to hit parity (currently at 8, down from an all-time high of 45 in late 1999) before we can begin the next multi-decade bull cycle", but also his checklist of 8 things to look forward to in the short-term centrally-planned future.

First it was Bob Janjuah throwing in the towel in the face of central planning, now we get the same sense from Bill Gross who in his latest letter once again laments the forced transfer of risk from the private to the public sector: "The game as we all have known it appears to be over... moving for the moment from private to public balance sheets, but even there facing investor and political limits. Actually global financial markets are only selectively delevering. What delevering there is, is most visible with household balance sheets in the U.S. and Euroland peripheral sovereigns like Greece." Gross' long-term view is well-known - inflation is coming: "The total amount of debt however is daunting and continued credit expansion will produce accelerating global inflation and slower growth in PIMCO’s most likely outcome." The primary reason for Pimco's pessimism, which is nothing new, is that in a world of deleveraging there will be no packets of leverage within the primary traditional source of cheap credit-money growth: financial firms. So what is a fund manager to do? Why find their own Steve McQueen'ian Great Escape from Financial Repression of course. " it is your duty to try to escape today’s repression. Your living conditions are OK for now – the food and in this case the returns are good – but they aren’t enough to get you what you need to cover liabilities. You need to think of an escape route that gets you back home yet at the same time doesn’t get you killed in the process. You need a Great Escape to deliver in this financial repressive world." In the meantime Gross advises readers to do just what we have been saying for years: buy commodities and real (non-dilutable) assets: "Commodities and real assets become ascendant, certainly in relative terms, as we by necessity delever or lever less." As for the endgame: "Is a systemic implosion still possible in 2012 as opposed to 2008? It is, but we will likely face much more monetary and credit inflation before the balloon pops. Until then, you should budget for “safe carry” to help pay your bills. The bunker portfolio lies further ahead."

The latest report from Morgan Stanley's Graham Secker can be summarized simply as follows: i) in January everything has disconnected as traditional linkages between asset classes have broken down, ii) also in January every major asset class (equities, treasurys, gold, oil) was up materially, iii) such a phenomenon has been seen only 5 times in the past 5 years, iv) a double digit decline followed 3 of the past 4 such surges. Then again, as Bob Janjuah lamented earlier, when a bunch of bespectacled economists who have never held a real job in their academic careers since transplanted with banker blessings to various central bank buildings, and who continue to plan the fate of the world in secrecy (a fate that can be summarized as follows: CTRL+P), as the only marginal decision makers, who really cares anymore?