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.