RBS uber-bear issues fresh alert on global stock markets

Three-month slide could hit record lows, Royal Bank of Scotland chief credit strategist Bob Janjuah predicts.

RBS uber-bear issues fresh alert on global stock markets
A bear market is being forecast for after the summer Photo: REUTERS

Britain's Uber-bear is growling again. After predicting a torrid "relief rally" over the early summer, Bob Janjuah at Royal Bank of Scotland is advising clients to take profits in global equity and commodity markets and prepare for another storm as winter nears.

"We are now in the middle of a parabolic spike up," he said in his latest confidential note to clients.

"I expect this risk rally to continue into – and maybe through – a large part of August. What happens after that? The next ugly leg of the bear market begins as we get into the July through September 'tipping zone', driven by the failure of the data to validate the V (shaped recovery) that is now fully priced into markets."

The key indicators to watch are business spending on equipment (Capex), incomes, jobs, and profits. Only a "surge higher" in these gauges can justify current asset prices. Results that are merely "less bad" will not suffice.

He expects global stock markets to test their March lows, and probably worse. The slide could last three months. "A move to new lows is highly likely," he said.

Mr Janjuah, RBS's chief credit strategist, has a loyal following in the City. He was one of the very few analysts to speak out early about the dangerous excesses of the credit bubble. He then made waves in the summer of 2008 by issuing a global crash alert, giving warning that a "very nasty period is soon to be upon us" as – indeed it was. Lehman Brothers and AIG imploded weeks later.

This time he expects the S&P 500 index of US equities to reach the "mid 500s", almost halving from current levels near 1000. Such a fall would take London's FTSE 100 to around 2,500. The iTraxx Crossover index measuring spreads on low-grade European debt will double to 1250.

Mr Janjuah advises investors to seek safety in 10-year German bonds in late August or early September.

While media headlines have played up the short-term bounce of corporate earnings, Mr Janjuah said this is a statistical illusion. Profits were in reality down 20pc in the second quarter from the year before. They cannot rise much as the West slowly purges debt and adjusts to record over-capacity. "Investors are again being sucked back into the game where 'markets make opinions', where 'excess liquidity' is the driving investment rationale.

"The last two Augusts proved to be pivotal turning points: August 2007 being the proverbial 'head-fake' when everyone wanted to believe that policy-makers had seen off the credit disaster at the pass, and August 2008 being the calm before the utter collapse of Sept/Oct/Nov… 3rd time lucky anyone?"

The elephant in the room is the spiralling public debt as private losses are shifted on to the taxpayer, especially in Britain and America. "Ask yourself this: who bails out Government after they have bailed out everyone?"

Mr Janjuah said governments might put off the day of reckoning into the middle of next year if they resort to another shot of stimulus, but that would store yet further problems. "If what I fear plays out then I will have to concede that the lunatics who ran the asylum pretty much into the ground last year are back in control."

Over at Morgan Stanley, equity guru Teun Draaisma thinks we are through the worst. "We were on course for a Great Depression in February, but Armageddon was avoided. Governments did not repeat the policy errors of the 1930s."

"We have seen the lows of this crisis. This is a genuine rebound rally, and it has been short by historical standards so far," he said.

Mr Draaisma, who called the top of the bull market almost to the day in mid-2007, has crunched the worldwide data on 19 major stock market crashes over the last century. They show that the typical rebound rally (as opposed to bear trap rallies, when markets later plunge to new lows) lasts 17 months and stocks rise 71pc. The 1993 rally in the US was 170pc over 13 months. Finland's rally in 1994 was 295pc. Hong Kong rallied 159pc in 2000. This rebound is only five months old. The key indexes have risen 49pc in the US and 42pc in Europe. Mr Draaisma advises clients to stay in the stocks for now, but stick to telecom companies, utilities, and oil.

Yet he too expects a nasty correction once this rally falters. The usual trigger at this stage of the cycle is when central bankers start to make hawkish noises, typically a couple of months before the first turn of the screw (normally a rate rise, but in this case an end to "quantitative easing". "As long as policy-makers are talking about how fragile the recovery is, equities are unlikely to go down much."

This moment can be hard to judge. There has already been rumbling from some governors at the US Federal Reserve and from the European Central Bank's Jean-Claude Trichet. Markets are pricing in rates rises by early next year.

The pattern after major financial bust-ups is that the rebound rally gives way to another fall of 25pc or so, lasting a year, followed by five years of hard slog as stocks bounce up and down in a trading range, going nowhere. Mr Draaisma suggests taking a close look at the chart of Japan's Nikkei index from 1991 to 1999. Gains were zero.

We are in uncharted waters, however. Monetary and fiscal stimulus has been unprecedented. Russell Napier at Hong Kong brokers CLSA says a powerful bull market is already taking shape as the American giant reawakens. Perma-bears will be left behind. He said: "It is dangerous to be in cash."

When the finest minds in the business disagree so starkly, the rest of us can only shake our heads in confusion.

Comments: 41

  • I look forward to each of AEP's articles. I check daily to see if there is a new story. Glad to see two new stories.

    I also enjoy the reading the commentary - there are many interesting posts.

    Keep up the good work Ambrose and to all the readers with your comments.

    I believe that in the US, the balancing act between deleveraging deflation versus the inflationary monetary base will SHOCK the living daylights out of us all, when the massive inflationary spiral WILL start someday. I believe there will be a calm before the storm and everyone but the few will wonder what the whole fuss was about, AND THEN we will be hammered with an inflation not seen on a global basis for a century.

    It will be the punishment.

    Nothing is free - there is always a cost. God gave us for free things like water, free air to breathe, weather, and inherent change. God did not give us free money to avert depression and cover greedy losses in overleveraged gambles like the 100 trillion USDOLLAR black hole that has been created by traders and investment bankers.

    Will it be some October in 2009 or 2010 that the next hammer hits us square on the head?

    What do you think?

    on August 13, 2009
    at 02:55 PM
  • The market will not rebound until every crook on wallstreet is hanged or jailed. This will bring back confidence to the market investor. Until then.....invest in your local community so you can physically monitor the end result and maybe get your name on a keystone or plaquard, or perhaps a building named after you.
    Inflation is our next bubble. Unless your having a bowl movement, paper is not something you want to be holding on to.

    on August 13, 2009
    at 02:52 PM
  • Erratum - should read:
    "Coming to you from RBS - that august entity that recently lost the largest amount in Scottish banking history!

    Same clowns as UBS

    NU Yawk Frankie
    on August 13, 2009
    at 02:25 PM
  • Ambrose, you really are spoiling us. Two bearish posts in as many days. Thankyou.
    J Jenkins
    on August 13, 2009
    at 07:12 AM
    Report this comment

    Why do Ambrose and Edmund Conway ever produce bearish articles in the DT? The answer is simply to soften up the masses for more QE.
    They have done a magnificent job. The BoE must be proud of them.

    on August 13, 2009
    at 02:25 PM
  • Nu Yawk Frankie - it's RBS, not UBS. With an eye for detail like that you should work for the FSA

    on August 13, 2009
    at 02:24 PM
  • If Bob is so smart how come he didn't try and convince Sir Fred not to buy ABN, at the market peak and ultimately bring to its knees the whole of the UK financial markets.

    on August 13, 2009
    at 02:24 PM
  • WE ARE IN A GLOBAL WAR: Capitalists vs Socialists
    Barack Hussien Obama is doing all he can to ruin the USA, drive up debts, take over health care, take over all energy, take over 2/3 auto companies, take over the banks....Our Community Organizer is doing all he can to destory the financial system so he can provide economic justice to his peeps.

    We are at war with the Socialists/Marxists. God Save The USA.

    March on Washington

    Buck Farack
    on August 13, 2009
    at 02:24 PM
  • Missing missing missing is common sense and logic.
    RBS strategist Bob Janjuah is correct that there will be a new meltdown.
    Real estate construction firms are down to 30% of their capacity!!! That's right they are down by 70%!!
    Nobody is buying new homes and therefore nobody is building and therefore no materials required.
    Look out below!!
    By Johnathan Vrozos JV

    Johnathan Vrozos JV
    on August 13, 2009
    at 01:56 PM
  • While 'surfing' economic 'news' Spring 2008, I ran across an article titled "RBS warns...". Not knowing what'RBS' was and curious, I read the article. Never heard of AEP. Never heard of Janjuah. But having read other 'tidbits' on the economy, that when I read that Mr. Janjuah could not be 'more blunt', Sept. was it, I took the advice and took my 401K out of S&P. In early June. You all know what happened after that! I now have the article in a frame with candles and incense burning beneath!! BECAUSE IT SAVED MY ECONOMIC ASS!

    on August 13, 2009
    at 01:56 PM
  • Coming to you from UBS - the bank that recently lost the largest amount in Swiss banking history!

    You'd get better advice talking to your goldfish - even if you forgot to feed it for a week and it's floating on the surface!

    Nu Yawk Frankie
    on August 13, 2009
    at 01:38 PM
  • Get out while you can. Obama has crushed our dollar and people are starting to no longer accept them in the USA (western states).

    on August 13, 2009
    at 01:37 PM
  • Freemarketeer. You can't do multriplication or your using historical EPS. Neither of which qualifioes you to comment on the market. 2009 EPS on US market will be approx 18.5 (operating) 2010 MIGHT be $68. Hence 2009 PE = 18.5 and 2010 = 14.8X.

    on August 13, 2009
    at 01:28 PM
  • This is a "carry trade" market . Plain and simple.

    on August 13, 2009
    at 01:27 PM
  • In my honest opinion do your own research. If you think investment A is good and B bad go with A that way you have no one to blame. In todays climate people are using hindsight to predict the future stock market which imho only leads to confusion. Over the last 6 years hundreds of people through the media have been trying to predict the end of this cycle and the bubble bursting, the problem is maybe only 10 percent got it correct. The same 10 percent also made dozens of other predictions that didn't come true in the same period of time but you dont here about them because they only pop there head up when a prediction comes true. DO YOUR OWN RESEARCH AND DON'T BE LEAD

    on August 13, 2009
    at 01:27 PM
  • Ambrose. If this information is as relevant as the one you can find here : then no doubt the Telegraph has openend a new era in IT !

    on August 13, 2009
    at 12:36 PM
  • Might be worth checking out what Felix Zulauf thinks. Mr Zulauf is credited with predicting the 1987 stock market crash and is a regular commentator for Barron's.

    Back in March 2009, Mr Zulauf reportedly predicted that stocks were poised for a bear-market bounce from their lows of March 3rd and that the rally could last between two to four months, boosting the S&P by 25% to 40%, to around the 900 mark (with a corresponding level for the DJI index of about 8,750).

    However, Mr Zulauf apparently then expected the rally to end and markets to fall even further than their March lows over the next two years as global deleveraging continues.

    Just another happy thought.

    Kind regards
    Huw Sayer
    Business Writer.

    Huw Sayer
    on August 13, 2009
    at 12:16 PM
  • The elites have suckered the dumb dumbs back in and now will pull the carpet out from under them.

    That is the only truth you need to understand.

    The insider selling spectacle of the last 5 months has been nothing but profound. You all got suckered into buying the stocks of execs and children of elites who were so busy buying 60 TV's they didn't realize the world was ending.

    Well they fabricated this gem like they always do to allow them to get their cash out and into gilts. Yes gilts - the only investment to make it through the last great depression. Why do you think the analysts don;t want you to buy them?? Use your heads people.

    To the intelligentsia guy - you go back to work serf the elites love you. They don't make you kind anymore.

    on August 13, 2009
    at 11:46 AM
  • FTSE at 2,500 - surely that can't happen?

    Kevin Smith
    on August 13, 2009
    at 11:44 AM
  • Interesting that Roubini's forecast the S&P to hit 500 a couple of months back. Totally agree that the elephants in the room are government debts. When QE is reversed (if) or stopped then whose going to buy all that government paper.A cut in public expenditure of 20% (see AEP article on Ireland) will lead to a reduction in GDP of 8%. That's why I`m selling stocks and buying EFTs shorting the FTSE and sticking with gold.

    Mansfield Moron
    on August 13, 2009
    at 10:57 AM
  • Are the markets possibly currently correcting for an over reaction earlier when they fell more than they needed/should have due to blind panic.

    Will we reach a peak (correction) fairly soon, and then stay there until the whole situation resolves fully in 3 - 4 years time?

    Ian of Bedfordshire
    on August 13, 2009
    at 10:57 AM
  • Germany and France ended recession and reported 0.3% GDP growth, today. I guess this means very little and comes as somewhat of a complete shock to the crisis driven intelligentsia. Those of us still left in the real world just get on with work. The efforts of millions of people getting on with it and working away through the intelligentsias collective neurosis and somewhat hallucinations is going to be proof in the pudding on just how strong and robust our economies are going to be.

    on August 13, 2009
    at 10:57 AM
  • Russell Napier's "it is dangerous to be in cash" is probably the more stupid comment i have ever seen ...

    Tom Stokely
    on August 13, 2009
    at 10:25 AM
  • Forsaken2, You say:

    "The alternative for the USA might be to stop the wars and sack tens of millions of employees."

    I say they will probably start another war. or should I say, enter another war (since they would not start one would they, of course not).

    If you still have Dollars in a few weeks time then you risk losing all the value which they represent.

    This fiat system has run its course. The actions of both US admins and the other governments have lead to accelerated decrepitude. The question should be 'Why?'. To what end?

    We will all see soon enough when they propose their plan of action/solution. The tin hat wearing one world government, new world order, illuminati theory exponents will be proven correct beit intentionally or unintentionally.

    Paul C
    on August 13, 2009
    at 10:03 AM
  • A side from the parabolic blow-off of the NASDAQ from 1998-2000, what US market index has ever moved 170 percent in 13 months? I've looked over the past 40 years and can't find anything to back up Morgan Stanley's claim. Could someone else please explain?

    Stump Barnes
    on August 13, 2009
    at 09:53 AM
  • This is an interesting article in the fortune magazine, that might be a possible cause for the stock market run up:

    on August 13, 2009
    at 09:40 AM
  • Getting past the obvious prejudices against some of these failed banks, what this analyst is saying does make sense. The stock market has really got ahead of itself, given the economic fundamentals, I would conjecture that he is right, the P/E's for a lot of these companies are much higher than the mean and given the bigger macro-economic picture would further vindicate it.

    on August 13, 2009
    at 09:32 AM
  • Ambrose,

    How can there be an end to QE the states that have resorted to it do not have the cash to pay the house keeping.

    The alternative for the USA might be to stop the wars and sack tens of millions of employees.

    Or find a ready market for trillions of further debt.

    I shake my head also but side with Janjuah he cannot be blamed for all RBS executive decisions as an analyst surely.

    He may be talking the market but only in the direction it is headed I fancy.

    on August 13, 2009
    at 09:27 AM
  • you're on the narrative ride - feedback tale with one ending - it's ok to fail

    Mr Useless
    on August 13, 2009
    at 09:22 AM
  • The finest minds. Pah. I am in agreement with that AEP. I have realised over the past 5 years that if I'd listened to the finest minds I would have lost a bucket load. Now I rely on looking at live data myself (shipping indices, unemeployment figures, trends, peoples buying habits, savings ratios etc) and whats happening on the ground gleaned from internet forums from around the world where real people discuss real everyday issues. Quite simply the answer currently is 'it looks grim'. There is no doubt in my my mind that there will be a major downturn in stocks. There is to much capacity , people have stopped been media led consumers and have started to look at thier real needs. This will be reflected in profits over the next year . Layoffs will continue. There probbaly will be another financial crash although personally I think this will be March time just when people start to take thier eye off the ball and think all is well. Unless of course there is a Black Swan moment and then everything will change much more rapidly. The consumer isn't stupid, they know they are going to get hit by rising taxes to cover the bail out or possibly lose thier jobs. The fear levels are high and they are preparing themsleves in the only way the way they can. And that is by cutting back. This is why unemployment is now on a slightly tilting platform which levels occassionly with the populous bieng buffetted towards the cliff edge every now and again. The numbers near the cliff edge currently remain constant but incresingly the safe jobs are dispappering and moving into the centre. When critical mass is reached the platform will tilt and we'll see a further avalanche of people fall over the cliff into the unemployment pile. The platform will then rebalance and wobble for a long time probably with a lost generation of people who will struggle to make ends meet over the next 20 years not having had the start in life many of the last generation were fortunate eneogh to partake in. Easy money has come to an end and there are many businesses out there that would not have existed without the easy cheap money that was available to a large proportion of consumers that never earned it but stillneed to pay for it. Capitalism is dead, long live live democracy!

    on August 13, 2009
    at 08:14 AM
  • If America and/or the USD survives the current storm of steel there is no guarantee that Britain will follow suit. Britain not joining the euro our main trading partner becomes another flank exposed that we dont really need.
    Competitive devaluations dont work in this environment.
    Pity Britain persists in its ignorance/obstinacy that its currency is immune from external attacks by speculators.
    Investing in Britain is now to be avoided by European companies.
    What is the inward investment figure for the UK this year?

    on August 13, 2009
    at 08:13 AM
  • Ambrose, you really are spoiling us. Two bearish posts in as many days. Thankyou.

    J Jenkins
    on August 13, 2009
    at 07:12 AM
  • The valuation of the US market is back to a PE ratio of 24 - way above its historical average and in overvalued territory. The reason is the massive amount of money pumped into the financial system by the central bank which has to find a home somewehere. Unfortunatley it has nothing to do with the health of company earnings or the economy. I fear we are in for another leg of the bear market as the commercial property market collapses and unemployment surges.

    on August 13, 2009
    at 07:10 AM
  • If you are going to persist with the current jounalistic fad of using the German word "�ber" to describe something as extra, or excessive, then kindly use the umlaut or, if you can't find the umlaut key, chuck in an "e" so it reads ueber.

    to Tom W:
    Bob Janjuah doesn't seek media exposure...his client notes are not supposed to be forwarded. It's scarcely his fault that Goodwin and his poodle McKillop destroyed his employer.

    Jack Roob
    on August 13, 2009
    at 07:10 AM
  • Maximum bullishness signals the peak of the market. If the comments here are any guidance, then there shall be blood!

    on August 13, 2009
    at 07:09 AM
  • That's an awful lot of vitriol (in the comments) to toss at someone simply because you think their outlook is foolish.... you must be way long.

    If forced to initiate a new position today, it would be a net short position... indeed, I'm pretty close to market neutral and planning to get net short as the rally continues (if it should).... you may think I'm foolish, but why get upset about it?

    Tusser tells us that a fool and his money are soon parted.... and you need the 'foolish' sellers if you are to obtain shares. Just be happy that you'll be able to pick up some profits from us fools...

    Of course, I expect a different outcome, but I'll not get angry about the 'green shoots' and 'new bull market' crowd. I need you to buy while I'm selling!

    on August 13, 2009
    at 06:31 AM
  • I don't understand how these analysts keep looking back over the last century. As Ambrose said, we are in unchartered waters. They should be analysing the mess that has been and is still being created from the behemoth of financial toxic slime that is currently kept off the books of these multi-national banks and that will continue to affect the global markets. Not look back at a situation that happened 80 years ago

    on August 13, 2009
    at 06:27 AM
  • what Tom said - analysis of charts is interesting - but FFS - they tell us "past performance is no guarantee of future performance"

    Chart analysis is for mugs

    on August 13, 2009
    at 06:27 AM
  • Ambrose, where did you get your little fable about 170% rise in US markets in 1993? The chart shows 40% rally at most. Did Morgan Stanley supplied you with this load of utter bullcrap? Shouldn't you doublecheck everything that comes from these bozos?

    on August 13, 2009
    at 06:18 AM
  • We all know that you can never trust these analysts who always take the contra position because that is what makes them the most money. As for him calling the last bear market, if you call it early you will always call it because it will happen eventually.

    Look at the banking analyst at Panmure Gordon, always saying sell Barclays but they have outperformed the market.

    The only reason for the market to reverse is if it moves past its true value, which it has not done yet.

    on August 13, 2009
    at 12:11 AM
  • I would suggest a a "parabolic spike up" up his fundamental orifice if the record of RBS is anything to go by.

    WTF do these people get media exposure for Heaven's sake?

    Tom W
    on August 13, 2009
    at 12:11 AM
  • Where was Janjuah when RBS bled the City dry to finance its madness with ABN? Who did Sir Fred turn to when he wanted advice on where the shredder goes next?

    While Janjuah has an eminent past, one can never forget the RBS penchant for talking its own market, for the benefit of none but RBS.

    on August 12, 2009
    at 11:16 PM

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