Bob Janjuah’s prediction of a market crash shows the perils of fixed beliefs in a changing world
Expert forecasts about market directions are usually wrong. But Bob Janjuah, a strategist with Nomura, takes the cake. He says he would have been right with his extreme bearish views but the central banks came and rigged the market
Experts often make market predictions that are wrong. Worse, some of them continue to hold on to their jobs despite grossly inaccurate predictions and stay stuck to their wrong beliefs at a considerable cost to their clients. Bob Janjuah, a strategist with the Nomura group, is a noted market bear. He has been predicting a market crash since early 2011 and that the S&P 500 of the US would soon hit 1,000. Well, after a year the market index is up 35%. The frustrated bear still seems to have a “high conviction” that the markets will end badly, no matter what: “...the longer we have to wait for the ‘final’ resolution to the global financial crisis, the bigger and more devastating the final leg lower will be.” But he has essentially given up trying to predict a market that he says is rigged by central banks.
Janjuah has been raising concerns of a bubble in the making, this time created by irresponsible policymakers trying to bail out Greece, by throwing good debt after bad. According to him “our policymakers seem so one-dimensional, so short-termist, and so utterly bereft of courage or ideas... that (they) again misprice the cost of capital... through increased leverage/debt... which in turn will lead to yet another round of asset bubbles.” The markets have been moving up precisely because of this, so called, artificial monetary push.
Bubbles, of course, always burst but this would be the mother of bubbles, according to Janjuah with consequences possibly greater than the 2008 sub-prime crisis. He notes that “in this current cycle, where central banks’ balance sheets are at the core, the bubble is everywhere... when it bursts that it will make 2008 feel, relatively speaking, like a bull market”.
He feels that the Greek bailout has been a farce and tragedy of sorts and that the charade has been going on for far too long, which has been serving the elites at the expense of the average Greek. “Policy seems to be focused on protecting and preserving vested interests, with little consideration given to the dreadful conditions the people of Greece,” he adds.
Janjuah feels that central bankers might have stepped too far and might have run out of options required to prop up the markets. Even as the market has climbed higher, Janjuah sees more and more of problems: “The really dangerous thing about this next bubble is that ...central banks are... accumulating ever more toxic assets, is at the centre of the current cycle... This of course means that if/when the current cycle implodes central banks which have seen explosive balance sheet growth will add to the problems, rather than being able to act as credible lenders of last resort. A resulting consequence is that we will, at that point, usher in a new era of central banking and policy settings, where the key will be to regain a semblance of credibility and independence. This will be good news. But we will likely have to go through the bust first.” Thus he notes that the central bankers may not be able to save the system due to their bloated balance sheets, which are filled with (worthless) illiquid bonds that were created during the sub-prime crisis. Rather than let markets fail and cleanse themselves, they have been propping up the markets over and over, to no end.
When will these dire predictions—that seem to be at odds with the world’s most successful investor, Warren Buffett—play out?
Having found his calls going wrong he now says that “I am not well equipped to navigate bubbles where tactical views and secular views are all thrown into the melting pot together, where there is no visibility.” He says he has absolutely no idea what is happening in the market because the central bankers have distorted the markets beyond recognition. But the end must come according to this perma-bear. According to him “such rallies can last days, weeks, months, perhaps we could even extend into 2013... The S&P could end up in the high 1500s again if this current binge lasts into 2013.” But it is a bubble, according to him, and it will burst. He may well be right eventually but as a strategist who is supposed to advise his clients about what is likely to happen he seems to be too dogmatic, stuck to his position.
There are two problems with such dogmatism. First, it is the job of an expert to provide assessments of market movements and includes anticipating and analysing what the world’s central banks do. Second, Janjuah has been making market calls, too, not just ranting about policies. In November he wrote: “I will simply wait for the inevitable knee-jerk rally to fade before reloading my short risk positions.” And now, he says the world has gone crazy. To say that he would have been right but for a “rigged market” is a case of sour grapes or how not to forecast.
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