Market strategist: Policymakers are “one-dimensional, short-termist, bereft of courage”

posted at 9:15 pm on February 20, 2012 by Tina Korbe

Nomura market strategist Bob Janjuah has just released a market analysis so flush with memorable lines that it was difficult to choose which to highlight in the headline. The Blaze chose a different quote: “Why are our leaders trying to resurrect communism?” And The Daily Caller yet another: “Markets are so rigged by policymakers that I have no meaningful insights to offer.”

Janjuah is known for being bearish, but this might be his most depressing analysis of all. Here he is on the failure of policymakers to learn any meaningful lessons from 2008:

First, I am simply stunned that our  policymakers seem so one-dimensional, so short-termist, and so utterly bereft of courage or ideas. It now seems obvious that in response to the financial crisis that has been with us for five years and counting, we are being “told” to double up on these same policy decisions. The crisis was caused by central bankers mispricing the cost of capital, which forced a misallocation of capital, driven by debt/leverage, which was ultimately exposed as a hideous asset bubble which then collapsed, destroying the lives and livelihoods of tens of millions of relatively innocent people. Well now, if you listen to the latest from Bernanke and Draghi, it seems that the only solution they can offer up  is to yet again misprice the cost of capital, in the hope that, yet again, through increased leverage/debt, we are yet again “greedy” enough to misallocate capital, which in turn will lead to yet another round of asset bubbles. Such asset bubbles are meant to delude us into believing that we are now “richer”. When – as they do by definition – these bubbles burst, those who have been suckered in will realise that their “wealth” is instead an illusion, which in turn will be replaced by default risk.

Secondly, I have clearly underestimated the ‘market’s’ willingness, nay desperation, to go along with this ultimately ruinous policy path. Personally, I think this is extremely worrying – the number of clients who tell me that they know they are being forced into playing a game that will end in disaster, but who feel they have to play along and who hope they will get out before it turns, is a depressingly familiar old tale. Some such folks hang onto the idea that Draghi/LTRO changed the asymmetry of risk from deeply negative to positive. Yet even these folks know that printing more money/more liquidity/more debt/more leverage is not a viable solution to our ills, and in fact will mean true supply side reform and the search for true competiveness and sustainable growth will be further cast aside, as the focus will be on the “easy gains” to be made in markets.

In other words, we’re doomed.

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In other words, we’re doomed.

What was your first clue?

ShainS on February 20, 2012 at 9:19 PM

Wealth is an illusion. The sooner we realize that the better off we are.

egmont on February 20, 2012 at 9:20 PM

In other words, we’re doomed.

There ,Tina stole allahpundits job.

the_nile on February 20, 2012 at 9:24 PM

doomed…doomed….whatever…wake me when it’s over

thedevilinside on February 20, 2012 at 9:24 PM

“The crisis was caused by central bankers mispricing the cost of capital,…”

Ummmmmm…. Tina?

… You forgot one little point.

“At President Clinton’s direction, no fewer than 10 federal agencies issued a chilling ultimatum to banks and mortgage lenders to ease credit for lower-income minorities or face investigations for lending discrimination and suffer the related adverse publicity. They also were threatened with denial of access to the all-important secondary mortgage market and stiff fines, along with other penalties.”

But you are right…

… Since the actual cause has never been properly addressed, and only more government interference has been the answer, we are truly doomed.

Seven Percent Solution on February 20, 2012 at 9:25 PM

so glad i was born poor, less to worry about.

trailortrash on February 20, 2012 at 9:26 PM

2 – I am staggered at how easily the concepts of Democracy and the Rule of Law – two of the pillars of the modern world – have been brushed aside in the interests of political expediency. This is not just a eurozone phenomenon but of course the removal of elected governments and the instalment of “insider” technocrats who simply serve the interests of the elite has become a specialisation in Europe. Many will think this kind of development is not a big deal and is instead may be what is needed. Personally I am absolutely certain that the kind of totalitarianism being pushed on us by our leaders will – if allowed to persist and fester – end with consequences which are way beyond anything the printing presses of our central banks could ever hope to contain. Communism failed badly. Why then are we arguably trying to resurrect a version of it, particularly in Europe? Are the banks so powerful that we are all beholden to them and the biggest nonsense of all – that defaults should never happen (unless said defaults are trivial or largely meaningless)?

the_nile on February 20, 2012 at 9:32 PM

egmont on February 20, 2012 at 9:20 PM

Wealth is not an illusion. Wealth accumulated via risky schemes and predicated on a continuing flow of debt is illusory. There’s a difference there.

The accumulation of wealth is the reason that we’re not living in hovels, shoveling s**t out of our front doors because we’ve brought the farm animals inside for the winter.

Wealth is the reason Hot Air exists. It is the reason that the concept of web sites is something you’ve heard about rather than some academic experiment in a Swiss lab.

The undervaluation of true wealth is part of what has caused our problem. Too many people believe it’s based on money, and accumulated only at the expense of other people.

And if the Democrat Party of the United States has its way, “wealth” will be extremely limited in the future.

So try to enjoy it while you can.

apollyonbob on February 20, 2012 at 9:33 PM

“Why are our leaders trying to resurrect communism?”

A rather daft question, really. Communism allows for total control, free enterprise doesn’t.

OldEnglish on February 20, 2012 at 9:33 PM

I can understand why Janjuah would feel this way, but his thinking (if this is indeed the whole of his analysis of the situation) is trapped within the parameters of a financial analysis.

There are many, many wild cards left to be played. A couple that have occurred to me:

1) The revolt of productive states, and to a somewhat lesser extent localities against the confiscation of their residents’ resources by the federal taxation system. Why should they continue to make transfer payments to Fedzilla when their own balance sheets could benefit from just a bit of that revenue? Rather than going along with federal mandates in order to get federal “cash” (which appears less and less likely to fund said mandates), I think more and more states are going to say, “Screw the mandates, we’re going it alone, and oh, by the way, we’re organizing a state-wide tax protest.”

2) The Tea Party is doing a great job of taking over the moribund state and local GOP structure, and I think within the next 4 years, we’ll really begin to see more fiscal conservatives lined up to replace establishment bench-warmers. Look for Paul Ryan’s PAC and similar organizations to be real players on the federal level.

3) Mathematically, the welfare state cannot continue. It’s an impossibility. I truly believe we are close to a tipping point in the national consciousness regarding the unsustainable nature of liberal/progressive governance. Look at the conservative talent of people like James O’Keefe or James Mattera, contrasted with the dullards of the MSM. We are nimble and responsive, where they are the epitome of a dessicated, dogmatic establishment. Look at the meteoric rise of a wonk like Paul Ryan as a national leader. I honestly believe 30 years from now, the conservative long march will be almost complete, and the progressives will be in the gutter wondering what hit them.

Nom de Boom on February 20, 2012 at 9:36 PM

In other words, we’re doomed.

DOOMED!

jaime on February 20, 2012 at 9:37 PM

The two predominant causes of the meltdown were fraudulent mortgage securitization and to a lesser degree, the repeal of Glass/Steagal. The toxic paper couldn’t spread to the degree necessary to bring down ours and the global economy without fraudulent securitization. And fraudulent securitization would have been much more difficult if not impossible without the repeal of Glass Steagal.

Everything else is relatively insignificant.

voiceofreason on February 20, 2012 at 9:38 PM

We can decide not to do all of these bad things. The question is what it will take to get enough of the people to wise up.

Nom de Boom, I agree with your analysis of what is happening, what can happen, and what has to happen. I think one of the most important factors will be a recognition by people in the younger generations that life will be better and they will be happier if government does not continue on its current basis.

J.E. Dyer on February 20, 2012 at 9:41 PM

Wealth is an illusion.

egmont on February 20, 2012 at 9:20 PM

Life is an illusion. Make your saving throw.

/D&D nerd

malclave on February 20, 2012 at 9:46 PM

Well duh …Zero Hedge should be a required daily read.

That is if you’re not suicidal.

In that case I would recommended sticking to Yahoo’s main page.

The Ugly American on February 20, 2012 at 9:47 PM

I would say he hit the nail on the head.

http://www.youtube.com/watch?v=lwx2ce_AyOE

Wigglesworth on February 20, 2012 at 9:48 PM

Nom de Boom, I agree with your analysis of what is happening, what can happen, and what has to happen. I think one of the most important factors will be a recognition by people in the younger generations that life will be better and they will be happier if government does not continue on its current basis.

J.E. Dyer on February 20, 2012 at 9:41 PM

Thanks, I consider that high praise coming from you. Being a youngish person myself, I can definitely say that there is a growing undercurrent of resentment among my peers regarding the abject failure of our leaders to deal with what Ryan has properly named “the most predictable economic crisis in our history.” Anyone with half a brain can see it coming. I know several who are making plans to leave the country, but I don’t think that will be necessary.

Nom de Boom on February 20, 2012 at 9:49 PM

Ahh..I’ve put a face on “Monty” at Ace’s place….

BigWyo on February 20, 2012 at 9:52 PM

What a life, I went from being born in the greatest, freest nation on earth to being subject of the most corrupt, lying oligarchy ever instituted. Our markets are totally phony. When this reality dawns on the rest of the world collapse is too mild a word to describe the result.

We deserve it. This is the world our luxury and sins have built. All you “moderates” are more to blame than anyone. You keep thinking you don’t have to take sides between right and wrong; freedom and subjugation. Cowards.

rcl on February 20, 2012 at 9:53 PM

The sad thing is the policy makers walk away with millions and its both parties.

ldbgcoleman on February 20, 2012 at 9:54 PM

The Federal Reserve wants inflation because Bernanke is an “expert” on the Great Depression which was marked by deflation so he is creating the inflation before the deflation occurred. This has caused asset prices to rise helping those awful wealthy that liberals despise while destroying the middle class as only inflation can. The elderly are being impoverished by higher health care costs, higher gas and food prices and no change in Social Security and low interest rates that destroy their savings based income. The morons in Washington don’t realize the only way to stop this is a clearing of the housing market and a halt to printing money. Prop up the banks so the lending system continues and let housing prices collapse. People will purchase houses at one third the cost but it will restart a boom. Cut regulation and make the tax system more sane – couldn’t get more insane with Swiss Bank account Romney paying a lower rate than me – and most of the problems of the economy will solve themselves.

Smedley on February 20, 2012 at 9:54 PM

Wealth is not an illusion.
The undervaluation of true wealth is part of what has caused our problem.
apollyonbob on February 20, 2012 at 9:33 PM

Which is it?

egmont on February 20, 2012 at 9:56 PM

I honestly believe 30 years from now, the conservative long march will be almost complete, and the progressives will be in the gutter wondering what hit them.

Nom de Boom

To quote Buzz Lightyear, “I like your thinking, Woody!”

But, b/c of the short term thinking & planning Janjuah has an issue with, I agree w/him. At least in the short-term, we are doomed. This may have to happen in order to bring about the renaissance of thinking and conservativism you describe.

It is going to be an “ouch” like no other.

JAM on February 20, 2012 at 9:56 PM

I’m steadily going to cash and will only allocate funds to a handful of can’t fail big oil companies and big pharma.

MJZZZ on February 20, 2012 at 9:57 PM

I was born with nothing and still have most of it. Thanks to government policies I will soon have more.

gbear on February 20, 2012 at 9:58 PM

He’s absolutely right about gold investments …though in-ground assets would be highly recommended.

At this point in time a working mine is much safer than any vault.

The Ugly American on February 20, 2012 at 10:03 PM

He’s absolutely right about gold investments …though in-ground assets would be highly recommended.

At this point in time a working mine is much safer than any vault.

The Ugly American on February 20, 2012 at 10:03 PM

Can anyone recommend a good primer on small investor depression investment strategies, btw? I’m not talking about a Kitco brochure either.

Nom de Boom on February 20, 2012 at 10:08 PM

Nom de Boom on February 20, 2012 at 9:36 PM

Do you have a lifetime supply of nitrous oxide or do you actually believe that nonsense?

Name one action taken by the Tea Party, the GOP or any other political power that rolled back ANY theft of the public treasure or any abuse of our Liberty? With the gale force of the 2010 victories at their back our side totally sold out to The State.

Now, list all the illegal, unconstitutional seizures of property, treasure and rights your “representatives” have pressed upon you and your neighbors.

Grow up. You’re opinion is childishly naive. We’re being thrashed mercilessly and have virtually no allies with any will to fight back.

rcl on February 20, 2012 at 10:09 PM

The sad thing is the policy makers walk away with millions and its both parties.

ldbgcoleman on February 20, 2012 at 9:54 PM

I don’t know who you are…but you are right!

KOOLAID2 on February 20, 2012 at 10:13 PM

i was naive enough in 2010 to believe we’d turn it around, but no more.

despite the instant information age, we will have a real crash or default most likely within the next 10 years. then, the US will fly right again. despite how far the democrats and some republicans have taken us; the US still has the most independent, hard working and self responsible people.

i advise highly reading manias, panis and crashes. hstory shows over and over, societies loose all fiscal displine at some point and have to face reality harshly.

cougar on February 20, 2012 at 10:16 PM

I know several who are making plans to leave the country, but I don’t think that will be necessary.

Nom de Boom on February 20, 2012 at 9:49 PM

I hope they won’t. I know plenty of people in their 40s and 50s — my contemporaries — who are really hunkered down right now, trying to be ready to emigrate if they have to. But those people and the ones you know are exactly the people America needs to stay.

We can’t recreate America anywere else. We can only restore her here. I believe it will be worth the effort.

J.E. Dyer on February 20, 2012 at 10:16 PM


The undervaluation of true wealth is part of what has caused our problem. Too many people believe it’s based on money, and accumulated only at the expense of other people.

apollyonbob on February 20, 2012 at 9:33 PM

Very good post.

AZfederalist on February 20, 2012 at 10:17 PM

Please vote for Ron Paul and turn away from the failed status quo. Don’t let the ruling elites condemn our children to a life of poverty, buried under a mountain of debt by greedy, foolish politicians. When the government has the power to generate bubbles and insider-trade off that information, it’s no wonder that the income disparity grows ever wider; just like how the government and corporations always get bigger and cozier.

American’s should turn their backs on the European socialist/corporatist model and go back to being plain old Americans with a limited government. Capitalism is good and worthy of defending, but not big-government corporatism. Not socialism. If that is the choice, let’s chose what’s behind door number three for a change and go back to a model that actually worked before we turned onto the path of ruin.

FloatingRock on February 20, 2012 at 10:19 PM

voiceofreason on February 20, 2012 at 9:38 PM

You seem to be missing the critical catalyst of the CRA, Freddie Mac and Fannie Mae. The things you describe are merely the market’s response to being forced by regulation and government threat to make loans to people that would never be able to pay for those loans. Securitization and spreading of the risk was merely a response. The forcing function goes straight to Bill Clinton, Janet Reno, Barney Frank, and Chris Countrywide Dodd.

AZfederalist on February 20, 2012 at 10:22 PM

The crisis was caused by central bankers mispricing the cost of capital

Incorrect. The crisis was caused by government slimeballs who forced the mispricing of debt. The central bank was late to this game.

ThePrimordialOrderedPair on February 20, 2012 at 10:26 PM

Yes, this entertaining and well-phrased, and yes, he may be proven correct.

But, remember that this article is the work of a guy with one job – to call the market direction. It’s clear he stayed bearish too long, and he is blaming everyone else. A market strategist is supposed to factor in politics.

johnboy on February 20, 2012 at 10:29 PM

Nom de Boom’s analysis may be right, if only b/c people in bankrupt states will leave by necessity if things get worse. This will add to the crisis in NY and CA and states like WI may object. Already many states have refused federal money for high speed rail. It could happen on a bigger scale, no?

I found out this weekend how truly doomed the RE market is. Looked at condos. Prices have come way down. Why? My take: you have 4 or 5 abandoned condos in one development due to foreclosure. Another 3-4 get nervous and walk away if they are under water. That means the HOA is not getting paid. Sometimes the bank will pay for the time they hold title, sometimes they dun the new buyer. Maintenance is deferred, the complex deteriorates.

IMO, the next shoe to drop will be that HOAs will go bankrupt and have to reorganize. Condo prices will hit rock bottom when the owners left are assessed huge dues and special assessments to fix the places up.

PattyJ on February 20, 2012 at 10:35 PM

I think this is extremely worrying – the number of clients who tell me that they know they are being forced into playing a game that will end in disaster, but who feel they have to play along and who hope they will get out before it turns, is a depressingly familiar old tale.

Because, as with the real estate bubble, NONE of the vaunted and overpaid CEO’s had the balls to say “This is WRONG and I’ll have no part of it!”

So the rabble continue to follow “leaders” who are blinded by ideology and want to roll the dice one more time.

GarandFan on February 20, 2012 at 10:37 PM

Of course he’s going to be interviewed by NBC, CBS, ABC, CNN, NPR, MSNBC, and Fox Business tomorrow, right??

bflat879 on February 20, 2012 at 10:53 PM

Wealth is an illusion.

Wealth is real. Money has become an illusion.

Just about every non-Marxist has come to accept the fact that price controls do not work. Unfortunately, relatively few people realize that interest rates and wages and benefits are actually other names for prices.

My first step would be to let interest rates find their own level. My second would be to get rid of capital gain taxes; in a bad economy, the revenue generated by gains are more than offset by the deductions for looses. Reward people who create wealth by letting them keep it; limit the taxes on gains to just the planned inflation imposed upon us by the Fed. There is no reason to subsidize people who make bad investments by lowering their taxes.

Laurence on February 20, 2012 at 11:17 PM

After reading “Throw Them All Out“, I came to the conclusion that one of two things happened some 15 to 20 years ago. Either members of Congress totally sold out for personal gain to begin with, or they realized that the problem was too big for any group to correct, and they decided that they may as well get what they could for themselves and their families and to hell with the country.
We are still breathing but our nation is in fact doomed. It’s not over yet, but it will end.

JeffinOrlando on February 20, 2012 at 11:42 PM

Good Lord, what a bunch of whiners. This isn’t even the biggest crisis our country has faced in the last 100 years, and some of you are ready to throw in the towel? It’s one thing to be realistic. It’s quite another thing to be so freaking pessimistic that you depress everyone around you, effectively ensuring that your prophecies of doom do, in fact, become self-fulfilling.

We owe it to the veterans of Valley Forge to keep fighting.

We owe it to the abolitionists and escaped slaves to keep believing.

We owe it to the boys, the boys who charged out of those landing craft onto the beaches at Normandy and Tarawa.

We owe it to people like Rosa Parks and thousands of other civil rights activists who refused to accept racism as a fact of life.

I owe it to my grandparents, who weathered the Great Depression and sent my parents to college.

I owe it to my grandfather, who crawled through the Battle of the Bulge with a knee full of shrapnel.

We all owe it to someone–past, present, or future–to never give up, not even in the face of a culture that is rotting, a populace that frequently is clueless, a monetary policy that is insane, and politicians who serve themselves first, last and always. We can do this!

Now suck it up!

Nom de Boom on February 21, 2012 at 12:50 AM

Meanwhile, Bob Beckel was on Hannity complaining that “unfettered capitalism” had brought about the current crisis.

So much of our society is run by people who believe in ridiculous, transparent lies that I think the whole thing will have to melt down before it can be rebuilt. People are still unwilling to face even the most obvious truths and nothing less than collapse will force them to do so.

Django on February 21, 2012 at 2:19 AM

And fraudulent securitization would have been much more difficult if not impossible without the repeal of Glass Steagal.

Everything else is relatively insignificant.

voiceofreason on February 20, 2012 at 9:38 PM

The repeal of Glass Steagal was basically meaningless. It hadn’t been followed for years. But more importantly it wasn’t commercial banks holding our assets that was the problem. Except for Bank of America the commercial banks were barely involved but were hurt by the fallout from the crash.

Sitting at the top of it all was, wait for it, an insurance company–AIG.

MaggiePoo on February 21, 2012 at 2:30 AM

The most important skill for any policymaker is to be able to read a room, or an electorate. That’s not to say that they automatically give the people exactly what they want, but instead it allows them to adjust their policies as necessary to continue to get elected. The reason that policymakers seem to be flailing about is that we are giving too many mixed signals. The electorate is collectively demanding the impossible: “don’t cut my services, don’t take on more debt, and don’t raise my taxes”. As a result the politicians don’t know what to do, and they won’t be able to lead until We, The People decide if we really want socialism or to seriously cut spending and limit government.

fastphil on February 21, 2012 at 7:26 AM

In other words, we’re doomed.

In other words we should get rid of the FED as CATO has been advocating forever.

burt on February 21, 2012 at 7:39 AM

I think I’ll buy some Weyerhaeuser. Sounds like a good bet the way these guys are printing money.

NoPain on February 21, 2012 at 8:39 AM

We can decide not to do all of these bad things. The question is what it will take to get enough of the people to wise up.
Nom de Boom, I agree with your analysis of what is happening, what can happen, and what has to happen. I think one of the most important factors will be a recognition by people in the younger generations that life will be better and they will be happier if government does not continue on its current basis.
J.E. Dyer on February 20, 2012 at 9:41 PM

It’s the rev0luti0n against the British monarchy again

Only this time it’s the bongo monarchy

Sonosam on February 21, 2012 at 8:46 AM

Relax, we’ll survive. Eventually the party of science is going run into a wall they can’t legislate around anymore. Survival of the fittest isn’t hackneyed old cliche. It’s a law of nature.

FineasFinn on February 21, 2012 at 8:48 AM

The two predominant causes of the meltdown were fraudulent mortgage securitization and to a lesser degree, the repeal of Glass/Steagal. The toxic paper couldn’t spread to the degree necessary to bring down ours and the global economy without fraudulent securitization. And fraudulent securitization would have been much more difficult if not impossible without the repeal of Glass Steagal.

Everything else is relatively insignificant.

voiceofreason on February 20, 2012 at 9:38 PM

Mostly true, but the easy money accelerated and exacerbated the situation you describe. Glass/Steagal was repealed when, early ’90s? Securities backed by high-risk mortgages had also been around a while before the collapse. All the bad results of these policies accelerated with the easy money and crashed much quicker and bigger than they otherwise would have.

JayDick on February 21, 2012 at 10:05 AM

apollyonbob on February 20, 2012 at 9:33 PM

Nom de Boom on February 20, 2012 at 9:36 PM

voiceofreason on February 20, 2012 at 9:38 PM

AZfederalist on February 20, 2012 at 10:22 PM

Four brilliant insightful pieces! THANK YOU!

elfman on February 21, 2012 at 10:10 AM

…if you listen to the latest from Bernanke and Draghi, it seems that the only solution they can offer up is to yet again misprice the cost of capital, in the hope that, yet again, through increased leverage/debt, we are yet again “greedy” enough to misallocate capital…

This is all part of the Socialist Obamacrats’ effort to destroy capitalism.

They have realized that they can’t succeed by killing off businesses one by one in order to force us into socialism: after GM, Chrysler, and healthcare, there are few companies which can be confiscated without igniting an open revolt. So now their strategy is to destroy the dollar, which will in turn destroy the profit motive by destroying existing assets and destroying the essential mechanisms of capitalist commerce.

They have already accomplished the downgrade of the dollar, and they are continuing their destruction via continuing their enormous and historically-unprecedented irresponsible spending spree.

If continued, this spending will destroy capitalism by making all capital worthless.

landlines on February 21, 2012 at 2:13 PM

I think I’ll buy some Weyerhaeuser. Sounds like a good bet the way these guys are printing money.

NoPain on February 21, 2012 at 8:39 AM

In addition to trees, paper money has a very high rag content.

So you might also want to find investments in rag recyclers and publications which feature irony.

landlines on February 21, 2012 at 3:09 PM