Photo: The Globe and Mail
The last time we heard from Nomura’s bearish Bob Janjuah was back in November when he warned that stocks could experience “a parabolic spike powerful enough to take S&P – briefly – into the 1500s, before resuming the longer-term march over the rest of 2013 and 2014 to the 800s.”Last week, the S&P 500 went above 1,500 for the first time since 2007.
Janjuah reminds us of that call in his note this morning. However, he also cautions that we are likely to see a few more corrections and rallies before we could see the mega-plunge. From his note:
The number of times I have heard from clients that ‘with central banks in full QE mode, financial market risk asset prices can ONLY rally’ can now almost be described as a cacophony. The key word here is ‘almost’. I don’t think investors are yet ‘fully’ positioned. We are ‘not there yet’. There is not yet sufficient leverage in risk-on positioning in my view. I think we need at least another round or two of ‘buying the dip’ before we can consider positioning to be at extreme enough levels to set up the conditions necessary for a major sell-off (25% to 50%) as opposed to a minor correction (5% to 10%).
Janjuah’s primary longer-term concerns revolve around “wasteful government largesse” and central banks’ unconventional efforts to support the financial system and stimulate the economy. Here’s an excerpt:
…Future generations will and indeed already are beginning to pay (chronic youth unemployment in the Western world is the current channel) for what I see as deeply depressing policy settings and failed policymaker thinking, which persists with the idea that some form of debt-fuelled asset price elevation will lead to real wealth creation, which in turn will fix all our ills…
Here’s his outlook:
As can be inferred from the above, in the medium term (2 quarters +/- 1 quarter), and as per the route map in my previous notes, I think risk can rally further. I continue to believe that the S&P500 can trade up towards the 1575/1550 area, where we have, so far, a grand double top. I would not be surprised to see the S&P trade marginally through the 2007 all-time nominal high (the real high was of course seen over a decade ago – so much for equities as a long-term vehicle for wealth creation!). A weekly close at a new all-time high would I think lead to the final parabolic spike up which creates the kind of positioning extreme and leverage extreme needed to create the conditions for a 25% to 50% collapse in equities over the rest of 2013 and 2014, driven by real economy reality hitting home, and by policymaker failure/loss of faith in ‘their system’
“Enjoy the dips,” he writes. “And good luck for 2013 and beyond.”
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