We’re stunned: Nomura’s famous uber-bear is kind of bullish.
Of course, it’s a perverse bullishness that assumes that Bernanke is going to pump a lot of money and inflate risk assets again before the ultimate reckoning that sees risk assets drop to generational lows.
Here’s Janjuah’s thinking on the economy and markets:
- Seasonal factors have artificially boosted the economy. Growth will be close to 1.5% this year.
- The US consumer is weak.
- Earnings will be mediocre.
- Europe won’t see a v-shaped collapse, instead it will be long and drawn out.
- China is “landing.”
- The ECB is done pumping unless Spain really implodes.
- Stay tuned for a massive downgrade of the global banking centre.
- There won’t be a war in Iran.
As for the markets:
As we get later into Q2 I think the shrill promises of more fixes of ‘M’ from Bernanke will get loud, and many investors remain underweight risk, having missed out on Q1. As such, the expected correction should not exceed 10%. Over late Q2 and Q3, we could – likely should – see another leg higher in risk, driven by TWIST. This shot of ‘M’ may have a very short half-life in terms of boosting markets – four to six months perhaps – with the presidential elections clearly being the target. Much beyond early Q4 I think things will look extremely challenging, with the lack of self-sustaining growth/end demand, the lack of growth in Europe, weakening EM growth and the US fiscal debate being the key agenda items. I continue to believe that while equity prices may surprise on the upside in Q3/into the US elections, late Q4/early 2013 and the (lack of) growth and US fiscal stories could herald the next stage of the post- 2008/09 ‘M’ bubble, i.e., the next major equity bear market.
Clearly fiscal and central bank activism and experimentation have, to date, succeeded in stretching out the cycle, but 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. I think the battle between central bank inflationist policies and the natural cycle of deflationary debt deleveraging will continue to be attritional, and it may drag well into 2013 and 2014. I do however remain hopeful that in the next 12-24 months we will see both the basis form for the next major multi-year cycle of global economic development and we will see risk asset valuations at truly ‘once in a lifetime’ cheap levels. We are not yet at this point.
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