Bob Janjuah, now of Nomura, spoke to Bloomberg’s Inside Track about the growing global asset bubble.
0:50 I’m not sure whether quantitative easing 2 fixes anything.
1:00 QE 2 is the only thing clients want to talk about.
1:35 People are getting sucked into the buy-risk trade, which is what the Fed is trying to do. But QE doesn’t impact housing, and that’s the most important asset.
2:05 We’ve had conversations with clients about the Fed targeting an S&P level; we think the Fed is trying to take away the tail risk of deflation, but what they’re actually achieving is fattening tail risks. Investors are piling into risk assets, and if the growth story in emerging markets etc. don’t follow through, this could turn out to be a bubble.
3:55 1210 is an important Fibonacci retracement level on the S&P.
4:30 The levels of uncertainty in the market are much higher right now, but bizarrely at the same time risk assets are being chased. It doesn’t make him comfortable.
5:10 We had a leverage driven asset bubble in the NASDAQ, then housing, and it seems like the only response of Fed policy makers is to keep making them.
6:40 Valuations are stretched in emerging markets; they are going to get more overvalued going forward; exports are what is driving this, as is commodity inflation; the possibility there is for a much more dramatic correction.
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