Photo: The Globe and Mail
Bob Janjuah, the bearish strategist over at Nomura, is out with his latest note. Its title: You Have Been Warned!His note includes eight big bad bullets. We summarize some of it here:
- Growth is slowing worldwide. “The softness in the manufacturing / industrials and basic materials/oil and gas sectors is the most worrisome trend as Western service sectors are in any case already seeing either very weak or close to zero trend growth.”
- The market consensus is way too optimistic about monetary and/or fiscal policy. Janjuah thinks that “the period August through to November (inclusive) represents a major global policy and political vacuum.” Due to the election, he sees no action by the Fed or the US government until after Novemeber. Due to leadership transition, he sees no action in China before the end of the year.
- “[B]efore the Fed does it next major round of QE (I am looking for USD1trn in December) the market will also unfortunately be forced, in my view, to price IN the fiscal cliff into its 2013 growth and earnings forecasts.”
- Food commodity prices will surge due to the US drought and European floods, which will be a drag on growth and make policymakers more reluctant to print money.
Here’s where it gets scary for stocks:
Based on the reasons set out earlier and also covered in my two prior notes, over the August to November period I am looking for the S&P500 to trade off down from around 1400 to 1100/1000 – in other words, I expect over the next four months to see global equity markets fall by 20% to 25% from current levels and to trade at or below the lows of 2011! US equity markets, along with parts of the EM spectrum, will I think underperform eurozone equity markets, where already very little hope resides…This four-month coming major risk-off phase will, in my view, also be very USD bullish (my expectation of Fed USD1trn QE in December should eventually alter the bullish USD trend of course) and bullish core government bonds (USTs, Gilts, Bunds) – perhaps we could see 10yr Bunds at 50bp all-in yields, with USTs and Gilts at/close to 1%. By late 2012, based on my Fed December QE view, my tactical call will likely turn bullish/risk-on – let us see about that closer to the time. And of course I still see a very clear path to 800 on the S&P500 at some point in 2013/2014, driven by market revulsion against pump- priming money printing central bankers, but this discussion is also for nearer the time.
“You have been warned!” exclaims Janjuah.