A hard landing is likely coming and it will force the Fed to initiate quantities easing 3, according to Nomura’s Bob Janjuah (via Zero Hedge).
Janjuah still believes there is a chance that the emerging world experiences a soft landing, but has now decided the chances of that scenario are moving way lower. QE3 wouldn’t come until Q4 2011 or early 2012, but it would have strong negative results.
From Janjuah (via Zero Hedge):
We feel that QE3 would risk a very negative outcome whereby US Treasuries start being priced as a risky credit asset (with real yields rising sharply) and where the US dollar would no longer be viewed as any sort of useful store of value.
And the result of such a scenario:
Assuming that the QE3 option is eventually exercised (as we do under the hard landing outcome) and assuming it does what we fear to the credibility and status of the US, the US dollar and US Treasuries, then we think the result, most likely at some point between 2012 and 2014, will be major fx regime changes and significant paradigm shifts in global fx markets. As these changes and shifts occur, gold could perform very well, as could other scarce physical assets (possibly super prime real estate). And the highest quality (by BS strength) nominal corporate assets – top quality equities in other words – may at least on a relative basis (if not absolute) perform fairly well.
So if we do see QE3 in response to a global economic weakening, gold and prime real estate are the winners, according to Janjuah.