Clearly Bob Janjuah’s guest editing slot on Alphaville has had a profound effect.
He’s turned bullish!
I know I will always be labelled a perma-bear, and I have given up on the idea that (at least some) folks will ever understand/appreciate that occasionally I do make bullish calls (most notably early in 2009!). But for those who do follow/read my work in more detail I want to be crystal clear: If S+P closes above 1120 for the 1st 3 days of this week, 1150 and 1220 are next. If not – if we fall and close below 1120 on 3/4 consecutive closes this week/early next, then the odds are high of a resumption of a downtrend which shud take S+P to sub-1000 over the next mth or so.
But worry not readers, the RBS strategist has not gone over to the dark side. He still remains very, very pessimistic.
With that said I want to finish off with some longer terms messages:
– the Big Reality over the next 3/5 yrs, esp. in the bad balance sheet countries – the UK, the US, Japan, big parts of Europe – is a long period of balance sheet repair which will mean weaker grwth for longer, deflation, weaker incomes, softer employment outlooks, more savings, more taxes, and less spending. There is NO sustainable prvte sector demand, and there really won’t be any for some yrs.
– delusion no.1 is that these economies will devalue and export there way out of trouble. This seems a nonsense to me as EVERYONE is looking to devalue (a race to nowhere) and EVERYONE is looking to export, but to whom??
– delusion no.2 is that we can inflate away our debts. This can ONLY wrk successfully if such a policy of inflation is unanticipated, as otherwise it gets pre-emptively priced into inflation expectations. So it has already failed as AT LEAST half the mrkts see/expect this as the attempted way out.
– delusion no.3 is that governments can keep pumping/printing/borrowing, without consequence, and for long enough to hide the private sector deleveraging/deflationary trends. Those limits are pretty much already with us (Greece), or are soon to be with us give or take a few mths (in the UK), or at best give or take a few qtrs (in the case of the US). On the basis that prvte sector weakness is a multi-yr trend, government is NOT gonna be the solution and will become/is now part of the problem as austerity kicks in (Greece ‘done’, UK in a few mths, then the US later this year).
– delusion no.4 is ‘the weather’. What a load of tosh. Frankly I am shocked the ‘mrkt’ collectively has fallen for this rubbish.
Anyway, due to the above 4 delusions the mrkt – as ever dominated by FEAR and GREED – is already badly mispricing the Big Reality and risks taking this mispricing YET AGAIN to horrible bubble proportions over the next few weeks/mths. YES – we have learnt nothing!
Full note in the usual place.