And now for something completely different.
In his latest note to clients, Nomura’s Bob Janjuah goes all technical:
In terms of the secular outlook, I wanted to do something different, so I have included below a classic Greed & Fear chart. The chart looks at a 90 year history of the Dow, rebased in terms of the price of an ounce of Gold. I am not including this chart to specifically support my secular bullish Gold view or my secular bearish equity view.
Click to enlarge
Rather, for me, this chart speaks to long-term trends and turns in the Greed & Fear equation, which is a principle driver of market returns. I find this chart stunningly clear and simple in its message: Over the next year or so the Dow can, in Gold terms, hit a ratio of 1. Think about that. Of course I know many folks dismiss such chartlology (I have too much respect for the world’s technical analysts to call my work technical analysis), and I know many folks look at Gold as some barbaric relic. So readers should feel free to dismiss the message from this chart. Personally I think this chart is telling us something very profound – and worrisome. Especially if one shares my view that the latest eurozone solution‟ simply clarifies one thing – that full fiscal union in an immediate time frame is OFF the agenda. As a result of which, eurozone policymakers are now all-in and have merely succeeded in giving us an extremely worrying outcome whereby the future of the eurozone now becomes a binary bet on survival vs. breakup/ shrinkage. I am convinced markets will soon reach the same conclusion, so this latest plan had better work, because if it doesn’t there is no more credible policy response left. All proposed solutions so far are internally inconsistent and unviable as sustainable fixes in my view. The only sustainable fixes are proper default/restructuring and the ejection of some existing members, thus leading to the creation of a neue- eurozone (which seems to be not on the cards for now), or full and immediate fiscal union, which for now only remains a distant hope.
And it’s for that reason Bob doesn’t think EFSF head Klaus Regling is going to return from his whistle-stop trip to China with any hard cash.
I spend a fair bit of time in China. Chinese policymakers on the whole impress me with their ability to understand what the real issue are [sic]. If my experience and read of China is right, Mr Regling is going to come back to Europe with lots of kind and supportive words, but little or no real hard cash. China wants military technology, nuclear technology, access to European corporates (ownership!), and it wants Europe fully on its side vs. the US with respect to human rights, the currency/the trade surplus, and in terms of IMF, WTO, and UN status. It does not want to buy eurozone government bonds for the sake of it (bunds are the major exception) and I suspect the first question Mr Regling will need to address is something along the lines of: “If your bond/ESFS deal is so good, why aren’t the financial markets biting your hands off for a piece of the action? After all, financial markets are pretty good at spotting give-away bargains when they present themselves! So in reality we are continuing with the policy of creeping fiscal union and kicking the can down the road, hoping that somehow growth with magically appear and bail out all (not just eurozone) heavily indebted nations. I think such hope is extremely misplaced. This latest bailout relies on the market not calling what I see is a huge “bluff” because if the market does call it, the bailout simply won’t be credible or even deliverable. It is instead akin to a self-referencing ponzi scheme, and I can’t believe eurozone policymakers have even considered going down this route. After all, we all have recent experience of how such ponzi schemes end, and we all remember how eurozone officials often belittled and berated US policymakers for their role in the US housing/CDO/SIV financial bubble.
Indeed we do, Bob.
We are in a secular bear market – FT Alphaville