Prepare for flash crash II and $10 trillion of QE

Bob Janjuah, the RBS strategist

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Policy makers need to realise that YES, you can fool some of the people some of the time. But NO, you can’t fool all the people all of the time. It seems pretty clear that the market is beginning to figure out how ridiculous the consensus view is for global growth and earnings, and instead is BEGINNING to price in the kind of multi-yr global growth outcome that Kevin and I have been talking abt – closer to 2.5% pa global, rather than 4.5% global.
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All that’s now left, as I have said before, is for the Fed to shift to a USD5trn or so new QE programme, likely in co-ordination with a bunch of other central banks, which in total may give us USD10trn or more of new QE. But this isn’t happening until much much later this yr or, more likely, next yr.
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At the outset I said that there was no chge in view. This applies Strategically where, on a 3/6mths I remain v bearish risk (equities, credit, EM etc) and bullish USTs & the USD. And Tactically, I still think the real fireworks and nastiness will be a July/Aug/Sept phenomena. HOWEVER, shrt term the key zone is, in S&P cash speak, 1040/1020. A clear break below this zone would indicate that a MAJOR sell-off is coming sooner rather than later, down to the mid-800s. It also seems to me that as part of this move, we are building up the pressure for a huge one/two day move where global stocks drop well over 5%, maybe up to 10%. This last ‘call’ is based on nothing more than my (ample!) gut-feel. But I know I am not alone in this regard. Let’s see, but I am preparing for Flash Crash 2…sadly the excuses used to play down Flash Crash 1 have been exposed as bogus, so I wonder what the next set of excuses are – its been a while since we used the old ‘rogue trader’ excuse so my money is on that horse.

http://ftalphaville.ft.com/blog/2010/06/08/254581/prepare-for-flash-crash-ii-more-qe-and-the-sp-at-850/

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