Everyone agrees that the Federal Reserve’s unlimited QE and the ECB’s OMT plans are historic. Both plans involve buying tremendous amounts of debt on the markets in efforts to suppress borrowing costs and ultimately stimulate economies.
Nomura contributing strategist Bob Janjuah, however, thinks that history won’t remember these actions very kindly. From his latest note to clients:
“We can now clearly see that the only solutions that are offered by the Fed and the ECB are the extension of the same failed policies that got us into our financial and economic despair in the first place. Namely MORE debt, MORE bubbles and MORE monetary debasement. When future historians look back for the day that the West lost its status as global economic superpower, and for the day that the West lost its aspirational leadership in terms of sound economic and prudent financial system management, I feel that September 2012 may be seen as a significant pivot point.”
This criticism is not unexpected by those who follow Janjuah.
However, his note also revisits his big call of the year: that stocks would rise into the fall, and then plummet by 20% to 25%.
In short, Janjuah had said if the S&P 500 rallied to 1,450, his call was off.
From his note today:
We are four S&P closes away from being stopped out on the bearish call outlined in my August note . It seems – let‟s see how this week plays out – that we were wrong to believe that central bankers would not become so „political‟. As we have captured around 300 S&P points in the sell-off that began in early April (1422 to 1275) and the rally that began in early June (1275 to 1425), and as the S&P traded at 1425 on the day my August note with its 1450 S&P stop was released, the extraordinary central bank actions of the last few weeks has resulted in a very small hit to „our year to date‟. As said, however, my stop loss will be triggered on this Friday‟s close if the S&P is still above 1450. So my stop-loss and I are at the mercy of the next four days‟ price action. Real-world risk takers/investors may choose to exercise any such stop sooner but I will wait/accept the risk. But to reiterate, if the S&P closes above 1450 on Friday, the bear call of August is closed and initially at least I‟d choose to go flat/neutral on a tactical basis. If my stop-loss is NOT triggered by this Friday‟s close – a possibility, but not a probability – then I will write again, but my initial sense in such an event would be that the half-life upside cycle is even shorter then I currently think and has already played out. Let‟s see.
Regardless of whether that particular call comes into fruition, Janjuah is sticking to his guns. He warns that “markets are now fully hostage to the data and in particular the political ebbing and flowing in Europe and in the US over the next few weeks and months.” He’s also deeply concerned about China’s decelerating growth.
Longer-term, he thinks this is all bad for stocks, which could see the S&P 500 dive to 800.
Lastly, and for avoidance of any doubt, my 800 target for the S&P is truly alive and kicking. Actually, the recent Fed and ECB actions give me HIGHER confidence in this call.
…A quick and dirty look at the charts would imply that by H1 2013 we could see mid- to high-1500s on the S&P. So as per above, if I adopt my most bullish stance possible, I can see the S&P rallying another 10% from here over the next two to six months. However, I believe that this will be the „riskiest‟ 10% to try and capture, that this possible 10% upside move can truncate and reverse at any time, and that it will be followed by what I think will be a severe repricing of risk over the rest of 2013 and 2014, which should deliver my 800 S&P target.
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