Monday, June 30, 2008

The 2008 European Bear Parade

Over the past two weeks, the commentary from Europe has gotten decidedly bearish. And none of them are talking of a run of the mill bear market. The most cheerful of the lot is forecasting a 30% global equity markets correction; the others are warning of a once-in-a-century doomsday scenario. So without further ado, here’s the European bear market parade:

The parade really started with RBS coming out with a warning about a full-fledged global stock market crash. With a call for the worst bear market in the last century, Bob Janjuah warned us that "a very nasty period" was soon to be upon us.

Next up was Morgan Stanley strategist Teun Draaisma, the guy who called the market top in July 2007. His advise was to bugger off and go goose hunting. With a call for a 10% downside over the next 6-9 months, that certainly sounded appealing. He's also called this the best shorting period since 2002(with some short screen ideas). His thoughts on the evolution of a bear market can be found here.

Barclays chimed in with this: "We're in a nasty environment," said Tim Bond, the bank's chief equity strategist. "There is an inflation shock underway. This is going to be very negative for financial assets. We are going into tortoise mood and are retreating into our shell. Investors will do well if they can preserve their wealth." I found their recommendations on yield curve steepening, shorting Asian bonds and Indian currency interesting.

The ever cheerful pair of James Montier and Albert Edwards at Societe Generale called for a decline of over 70% in the indices. “The US is leading the way, diving into deep recession as a collapse in consumer confidence induces The Great Unwind. This asset-backed economic Ponzi scheme will finally crash to earth as debt revulsion leaves interest rates impotent.” Other forecasts include oil at $60 and US 10 year bond yields at 2% There’s an interesting inflation versus deflation debate shaping up between the various market strategists.

Not to be left out, Fortis warned of a complete collapse of the US financial markets within a few days to weeks. "The situation in the US is much worse than we thought. There is starting to be a complete meltdown in the US. "

So there you have it, the great 2008 European Bear parade. It certainly seems like the unseasonal weather, massive asset write downs, and an economic slowdown has made the European strategists a moody lot. While US commentators like Louise Yamada, Grantham, Paul Desmonds and Hussman have cautioned on the stock markets, it's hard to beat the gloom and doom coming from Europe. It almost seems like a race to be out with the most bearish forecasts.

Their cheerful disposition is infectious indeed.

Full Disclosure: No positions. Wishing I was short Investment Banks back in July 2007.