Nomura's bearish macro strategist, Bob Janjuah, is out with his latest update on the stock market in nearly two months.
Nothing has changed about his long-term view–he is still very pessimistic on markets and the economy.
However, Janjuah thinks we could see a major move higher in the over the medium term, owing to some sort of fiscal cliff deal that kicks the can and full-blown QE from the ECB.
Here's what Janjuah has to say in his note:
If I look out 3 - 6 months I am open to the idea of one last parabolic spike higher in risk-on markets in this interim timeframe . I think we will eventually get fiscal and debt ceiling fudges in the US. Of course long - term credible solutions are needed , but are the most unlikely outcome.
Instead we may well be ‘forced’ to celebrate another round of horrible fudges which DO have a consequence. Namely, that the private sector continues to ignore Bernanke and the Washington elite (who between them continue to enjoy printing significant sums of money and/or spending way beyond their means) by instead doing the exact opposite, which means holding onto/building cash and savings, delaying spending/investment/hiring and thus hurting growth.
Markets will I think worry about these negative consequences eventually (see paragraph above) , but in the interim the knee jerk reaction of markets to fiscal/debt ceiling fudges will likely be positive. Furthermore, and again on a 6 to 12 month interim timeframe, I think we could also see the ECB finally move to all out QE driven by another round of eurozone panic and driven in particular by the strong deflationary data trends that are emerging in the eurozone and which we in GMS think will get much stronger.
A combo of ECB QE and fiscal/debt ceiling fudges in the US – perhaps also complimented by a short-lived centrally planned but debt fuelled and ultimately wasteful China uptick – could even cause a parabolic spike powerful enough to take S&P – briefly – into the 1500s, before resuming the longer-term march over the rest of 2013 and 2014 to the 800s.
However, for the rest of 2012, in the short-term, Janjuah still remains bearish.
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