Well known permabear Bob Janjuah of Nomura has been vindicated (to some extent) over the last few months as the global recovery has floundered and double dip fears have re-emerged. But Janjuah is even more bearish than you might think. He says the Dow could hit a 1:1 ratio. Yes, that involves an 85% decline in the Dow or some combination of a massive rally in gold and a collapse in the Dow (a 100% rally in gold in the coming year would still require a 70% collapse in the Dow). In fairness, he does say his S&P 500 target for 2012 is 800/900 (a ~30-35% decline), but if you know anyone who wants to buy a boatload of Dow 2012 1,700 puts, please let me know. Janjuah details his thoughts:
“In terms of the secular outlook, I wanted to do something different, so I have included below a classic Greed & Fear chart. The chart looks at a 90 year history of the Dow, rebased in terms of the price of an ounce of Gold. I am not including this chart to specifically support my secular bullish Gold view or my secular bearish equity view.
Rather, for me, this chart speaks to long-term trends and turns in the Greed & Fear equation, which is a principle driver of market returns. I find this chart stunningly clear and simple in its message: Over the next year or so the Dow can, in Gold terms, hit a ratio of 1. Think about that. Of course I know many folks dismiss such ‘chartlology’ (I have too much respect for the world‟s technical analysts to call my work technical analysis), and I know many folks look at Gold as some barbaric relic. So readers should feel free to dismiss the message from this chart. Personally I think this chart is telling us something very profound – and worrisome. Especially if one shares my view that the latest eurozone ‘solution’ simply clarifies one thing – that full fiscal union in an immediate time frame is OFF the agenda. As a result of which, eurozone policymakers are now all-in and have merely succeeded in giving us an extremely worrying outcome whereby the future of the eurozone now becomes a binary bet on survival vs. breakup/shrinkage. I am convinced markets will soon reach the same conclusion, so this latest plan had better work, because if it doesn’t there is no more credible policy response left. All proposed ‘solutions’ so far are internally inconsistent and unviable as sustainable fixes in my view. The only sustainable fixes are proper default/restructuring and the ejection of some existing members, thus leading to the creation of a neueeurozone (which seems to be not on the cards for now), or full and immediate fiscal union, which for now only remains a distant ‘hope.'”
Source: Nomura
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.
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