Bob Janjuah is back and in his latest note we find the RBS strategist in reflective mood.
Maybe its the return of sunshine, maybe its because I have moved back into my lovely ‘new’ home after 6mths of renting & refurbishment, it may even be because I have accepted that my beloved Liverpool FC now needs some dramatic and radical ‘surgery’ if it is ever to be a real force again. Whatever it is, the net effect is that I have spent an awful lot of time ‘reflecting’, just thinking abt the world, watching the world ‘get on with it’, and listening to our policymakers and their buddies in the media, in the lobby groups and in the financial sector. My conclusion? Well, I am fast coming round to the idea that (A) I am an idiot (cue the applause!) and that (B) Kevin G may have been right all along.
Now to put that into a little bit of context, Kevin Gaynor is Bob’s colleague at RBS.
His view has been that policy-makers would keep on behaving recklessly by loading on more debt, and blowing ever bigger bubbles, until markets and/or taxpayers reared back in revulsion.
In contrast, Bob had hoped policy-makers might come to their senses and push through serious austerity measures.
But no longer…
I had assumed, after doing what it took in late 08 and early 09 to avoid global depression and systemic financial system collapse, that policymakers & their buddies would see the light and realise that the only path to long term success for the problem economies (US, UK, most of Europe, Japan, etc) would be a period of Austerity, Balance Sheet repair, Deflation, Real Structural Economic reform and Serious Financial System/Accounting regulation/reform. This path is NOT the easy path near term, but it is the ONLY path for ensuring the long term health and success of the problem economies, as well as ultimately the ONLY path which will both successfully iron out the grotesque global imbalances and help ensure the long term success of the global economy.
SADLY, during my period of reflection, I have come round to the view that we have missed this golden opportunity. What instead I am seeing is a desperate attempt to re-write history (‘there was no bubble’, ‘rates too low for too long had nothing to do with it’, ‘it’s all just the fault of a bunch of greedy traders’, etc etc) AND at the same time it is clear global policymakers and their buddies, whilst jaw-boning us abt ‘exit’ and ‘austerity/fiscal repair’, simply do NOT mean what they are saying – in other worlds, they are talking ‘responsibly’ but are acting IMHO in a reckless and irresponsible manner. And in my book actions ALWAYS speaker far more clearly and far louder than (cheap) talk.
The Greece bail-out, the goings on at the IMF involving the huge build-up of ‘new bail-out’ reserves, and all the talk in the UK abt fiscal repair based on fantasyland ‘efficiency gains’ are the latest evidence that policymakers EVERYWHERE have no appetite to be brave, to be strong and to do the right thing. It seems that it is clearly too painful to do anything else. Instead, policymakers EVERYWHERE seem to have decided that the only way out of the hole is MORE DEBT, MORE DEBASEMENT, MORE BAILOUTS, ugly INFLATION and/or even uglier STAGFLATION, FAKE AUSTERITY, ZERO STRUCTURAL ECONOMIC REFORM, & MINIMAL REGULATORY REFORM.
We are trapped in some horrendous Keynesian/monetarist nightmare, where policymakers, aided/abetted/advised by their buddies in the media, in the lobbyist cabal and in financial system, have YET AGAIN decided to go down the route which merely delays the problem/pushes it down the road, but which virtually guarantees that when the NEXT bubble collapses (I assume it will be the Global Government Debt/Bond Bubble and/or the Global Fiat Money/Paper Money/FX Bubble), there is NO pleasant way back.
Phew!
And if you were wondering about the near-term trading outlook, Bob is tactically reducing risk because he thinks a 10 per cent correction is on the horizon:
Why? Well firstly because we have had lots of ‘good’ news over the last 2mths, esp. around grwth & Greece (yes, good news!..or aren’t bailouts good news anymore?!?!), but also because I think that over the next few weeks bond yields are going to breakout into a higher trading range (say 4.25% 10yr UST yield +/- 20bps) as we collectively realise that reflation is the only game in town – whatever the consequences!! For me the initial breakout will be enough to knock up to 10% off global stocks over and May, which in turn shud set up the next bubblicious buying oppo.
Bottom line though re the trading outlook is that the BULLISH call from early March has abt run its course with upside S&P price targets pretty much hit – 1220 should be hit in the next few days but I think this is the tail of the rally from the 1040 early Feb lows. From here, over the next mth/6 weeks, the trading theme is MORE BEARISH with higher bond yields and S&P off by maybe 10%, say from 1120 to very low 1100s.
Full note in the usual place.
Related links:
Bob the Bull – FT Alphaville
[Bob and Kevin on AV] Guest editing for the day…- FT Alphaville