We’ve offered our fair share of bullish outlooks recently so we figured we’d throw the bears a bone here. Bob Janjuah, one of Nomura’s resident bears, see equities cratering in the first quarter of this year:
The secular outlook remains unchanged – for 2012, it is again Risk-Off, long core high quality bonds and strong balance sheets/short risk and weak balance sheets. This worked tremendously well in 2011, and should work at least as well in 2012. In 2012 balance sheet strength and reliable cash flows will be far more important than reaching for growth and maximisation of earnings. As per 2011, I really like Australian government bonds as well as the AUD. Ditto non-eurozone Scandinavian government bonds and their currencies.
The tactical outlook is always more difficult to nail, but as of now:
- I think we are very close (days) from a top of some sorts in equities and the risk-on trade. Depending on price action, I reckon the time to get short risk is around/by January 13th – as a proxy guide the S&P should be within 3% to 5% of current levels (1277 S&P).
- I think Q1 is going to be extremely bearish for risk, for equities, for the periphery, for the euro, for credit spreads, etc. The real pain may only be seen in March, when I expect the hard Greece default to happen. In Q1 I expect the S&P will trade down to/below 1000, and core US, UK and German government Bond yields will be closer to 1.5% than 2%.
- For the balance of H1, based on my US, UK and eurozone Q2 QE call, I would expect to see risk assets recovery hard (especially commodities);
- At some point in early Q3 a huge opportunity will present itself to those who want to get short risk, as by the Summer I fully expect the (coordinated) Western QE to result in global real economy failure. However, for now, I think H1 will contain significant volatility, so I will worry about H2 nearer the time. Suffice it to say that my S&P 800 target for 2012 still holds.
- In terms of where my outlook herein for markets may prove to be wrong, I think most likely that it will be by being too bearish (risk) too soon, by around a quarter or so, driven by a failure on my part to recognise not just the willingness but also ability of policymakers to “kick the can” down the road for a little bit longer. Let’s see!