“Nomura’s Bob Janjuah has released an update on his market take.
Time has come to update my views. I have not written since late January as markets and economies have by and large moved as we expected back then. That late January note – which set out in detail my market views into April/May – is reproduced in its entirety below, and below each main bullet point I set out (in bold font) my latest views:
Bob’s World: Is it bear ‘clock now?
(original release date 27 January 2014)
It’s funny how – after not writing for over two months – I put a note out last week (highlighting some key levels) and within hours of publishing we have gone on to test and break some of these key levels. So in the spirit of the ongoing narrative:
1 – I remain firmly and resolutely structurally BEARISH the post-2008/09 QE-driven rally in risk assets. So no change there. As the year unfolds in both EM and DM we will, I think, see that most major and relevant data (economic) and earnings trends will be weak or deflationary. QE has so far failed to create the broad-based real economy inflation in incomes, earnings and productivity needed to get growth going again and thus has largely failed to achieve its primary objective, which was to drive the muchneeded post-2008/09 debt deleveraging – heavy indebtedness, now also including the EM bloc, still dominates.
May 2014 Update: The global data and earnings flow since January has supported my views outlined above, and over the belly (middle two calendar quarters) of 2014 I continue to expect downward growth and earnings revisions, with global deflation being the key macro theme. In particular, the risk of STRONG headline inflation, specifically in food prices driven by the Ukraine situation and by El Nino, and at the same time weak and weakening core inflation driven by weak income growth and soft discretionary consumption, will present a major (net) deflationary growth challenge to policymakers and markets.
2 – QE has been a friend for the paper wealth of the top 1%, at the expense of the many, through boosting speculation and financial engineering. But QE stopped being a friend of commodities in 2010/11, it stopped being a positive for EM around late 2012/13, has I think stopped being a positive for housing assets from around mid-2013/early 2014, and in 2014/15 the “last man standing” in the QE fan club – equities – will also fall out of love with QE. Why? Because as 2014 unwinds the data will, I think, expose policymakers as falling far behind the curve, persisting with a policy tool, whose “success” is increasingly narrowly based and which is failing to deliver broad-based inflation, growth or any other meaningful positives to the real economy, whose incomes, earnings and cashflows must ultimately validate all financial market asset valuations. I think later in 2014 the themes of deflation and recession will dominate, and in the middle of this it will I think be difficult to watch Fed Chair Janet Yellen and other policymakers flip flop and attempt to extract themselves from their policies.
May 2014 Update: No change of view – see update above. The waning of US housing data and the lack of growth in leverage by the US real economy (the private sector) over the past three to four months IMHO strongly support the views outlined above. And, it is now a consensus opinion, among many investors that I talk to, that we are dependent on policymakers and their willingness to persist with a set of policies that have largely failed real economies, but which have led to what many now increasingly see as speculative financial asset ‘bubbles’ in which the global top 1% has been the winner, largely at the expense of the other 99%. Civil society is the big loser. And while the top 1% may live comfortably in ‘gated communities’ and alike, this misses the bigger picture – the recent EM civil unrest shows clearly what can happen when wealth disparity gets too large (and which needs to be addressed sooner rather than later). The claimed ‘wealth’ effect and the trickle-down theory of economics are increasingly disputed and real redistribution policies are inevitable.
3 – We think that weak Chinese data explain last week’s price action….”
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