Noted bear Steen Jakobsen, chief investment officer of Saxo Bank, is piling his investment money into bonds, headed for 90 percent exposure, and sees a wrenching downdraft in U.S. stocks before the end of 2014.
In an interview on the
Peak Prosperity blog, he said central banks have failed to boost broad economic growth, with the true engines of growth and jobs, small- to medium-sized enterprises, being left out of the benefits of so much money printing.
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The ultra-loose monetary policies have forced financial asset prices up too high, which he believes is bound to lead to a decline in equity prices of about 30 percent before the year is over.
“In a world that cannot restart itself, in a world that believes in 'extend and pretend,' you will not have any activity. You don’t have any move towards a mandate for change. So that means that history tells us the only way we get change is through the system failing,” he told Peak Prosperity. “I’m not talking about a systemic failing. I'm talking about people owning up to the fact that we need to activate the SMEs. So I think we’ll see a progression towards helping the SMEs."
In terms of stocks, he said he is lifting his current exposure in fixed income from 70 percent to 90 percent of his portfolio.
“Not because I’m afraid of 'doom and gloom' but simply because I think you can have a huge amount of leverage into the fixed income market here when everybody seems to believe that interest rates cannot go lower. The world is simply starving because the world is rebalancing."
He noted the U.S. current account deficit is shrinking, while Asia (including China) is rebalancing from nominal growth toward quality growth.
“Again, the first derivative of that is lower growth, deflation, exported to the rest of the world,” he said.
He predicts the global economic low will come in the first half of 2015, but that the S&P 500 will top out in 2014 in the 1,900-1,950 range followed by a big drop in the second half of this year of about 30 percent.
Street Authority’s Jimmy Butts wrote that emerging markets are expected to see especially large gains in GDP this year of about 6 percent, compared with an estimated 2 percent in the U.S.
“After the U.S. market's historic 30 percent rally in 2013 and with U.S. indices trading at all-time highs, U.S. stocks are starting to look expensive. Investors are beginning to look elsewhere, and the one place that's especially ripe for growth is emerging markets. It may be just the right time to jump back in,” Butts said.
From a technical standpoint,
MarketWatch columnist Michael Ashbaugh said the U.S. stock picture is not so bleak. He noted the S&P 500 has confirmed an uptrend in direction with its recent break into record territory.
“But perhaps more notably, the Nasdaq Composite has cleared significant resistance, and its resurgence strengthens an already-bullish market backdrop,” Ashbaugh wrote.
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