The Bear Will Return In September

Bob Janjuah is a very bright guy, I have been following him for some time. Unfortuately I beleive that he is right on and that the next leg down will be much worse than last year's historic collapse. The bear market rally in stocks is very similar to the one in 1930 as for it's length and strength. The economists back then were also declaring that the worst was over and good times were on the horizon, but the next 700 days were the worst for the U.S. stock market and economy. Retail sales, consumer confidence, home foreclosures, commercial real estate defaults, unemployment, dollar debasement, bank failures, political upheaval (witness town hall meetings), geopolitical events, quantatative easing form the perfect storm for economic collapse and crashing stock markets. NOW is the time to lower stock market risk and for those who are speculators to go short the market utilizing ETFs that short the financials and SP 500. I will be honest with you, I hope I'm wrong and can say so on this blog come January. I take no pleasure in being right about the collapse of the U.S. (and world) economy, let's pray both Mr. Janjuah and I are wrong.-Lou

By Ambrose Evans-Pritchard, International Business Editor UK Telegraph

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.

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?"

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