S&P 500 Set for Big Losses -says Chief Market Strategist

Posted by Bob Janjuah - Chief Market Strategist RBS

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Voters in the US are likely to shift to the right because politicians like Ronald Reagan and Margaret Thatcher are needed to fix the world economic mess, Bob Janjuah, the chief markets strategist at RBS, told CNBC Friday. Janjuah also issued a bearish warning to investors, predicting big stock market losses, up to $15 trillion.

The golden years were the 50s and 60s then the 70s changed everything, he said about the political situation.

“Having elected people who said everything would be all right, ultimately the US and UK had to elect Reagan and Thatcher to get us back on track,” according to Janjuah.

The impact of reforms put in place by those two led to another 20 years of good times, he said. Similar action will ultimately be needed in the developed world now before he is willing to be bullish again.

“The US mid-terms will be crucial. We will see a shift to the right as the Tea Party movement demands change,” Janjuah predicted.

“There are 220 million people in middle America who are angry and believe stimulus spending has been wasted on vested interest and the banks that they believe got us into this mess,” he explained.

“For all the talk of positive growth in America, those outside of LA and New York are hurting and want cuts in government spending, not more borrowing and spending.”’

S&P 500 Set for Big Losses

As the G20 met in South Korea, Janjauh told CNBC he has no faith in institutions like the G20 or the International Monetary Fund and warned those who see positive signs in the US economy that they are living in a dream world.

“The policymakers’ response to the crisis has been new debt and this is an old game,” he said.

Over the coming months and years, this policy will have to be reversed, he predicted.

“The private sector knows this is not sustainable and is getting its act together. The consumer will do the same and sooner or later governments will follow suit,” Janjuah said.

With consensus views for growth too high in Janjuah’s view, he is calling growth over a 3-5 year time frame to be 5 percent in China, 1.5 percent in the US and flat within the euro zone as this trend plays out.

With firms, individuals and ultimately governments set to cut back on spending, growth will fall sharply across the world, according to Janjuah.

“Over the next 6 months we will see private sector deflation pushing 10-year yields down to 2 percent,” he said. “This will see the policymakers mistakenly attempt to kick-start the economy and market with a global quantitative easing program worth between $10 and $15 trillion dollars.”

With that in mind, Janjuah says Friday’s non-farm payroll number is a “complete nonsense.”

“Anyone trading today’s bogus number, well good luck to them,” he added.

Get out of Banks, Get into Gold

Like most bears, Janjuah says investors should get into gold and likes big mega cap stocks with no debt, the ability to set prices and exposure to Asia. One area he will not touch is the banks.

“We are seeing a repeat of 2007 and 2008 with the inter-bank market in trouble, people are ignoring this,” he said, adding that if he cannot see a bank’s balance sheet, he cannot make a decision to buy it.

“The S&P 500 [.SPX  1061.02     -41.81  (-3.79%)       ] is flat over 10 years, if you want to make money in stocks stop focusing on the beta and instead to your homework on the alpha, not enough people are,” he added.