By VW Staff. Originally published at ValueWalk.
As the New York Stock Exchange experiences a technical glitch, and a simultaneous outage has shuttered United Airlines and the Wall Street Journal web site experienced outages in reportedly unrelated incidents, Nomura Holdings, Inc. (ADR) (NYSE:NMR) (TYO:8604)’s Bob Janjuah has issued (well to be precise he issued this note BEFORE the latest ‘glitches’) a calm and studied risk management proclamation: “Anything can happen in the short term” and “I think a considerable risk is building of some form of mini crash.”
Mini Crash
Mini Crash – Market risks to some are market opportunities to others
This thought process has been abuzz among certain fund managers, if spoken in whispers. It might not be all bad, however, as certain types of value adjustments present value opportunities. How deep will such a value adjustment go might be the question to ask?
“Over the course of Q3 and into Q4, I think we may see a significant short, sharp but large (15% to 20%) correction,” he wrote. “My concern is not just that markets are mis-pricing Greece contagion, mis-pricing deflation, mis-pricing street liquidity and mis-pricing the (now negative) trend in corporate (US) revenues and earnings,” he wrote. “My concerns are also that markets are way too optimistic about global growth (especially the US), about China”, he wrote in a July 6th note titled “Is a flash crash imminent?”.
Janjuah says that the markets “are increasingly positioned for risk-on perfection” and “it will take much in the form of data disappointments… to trigger a significant weakening in risk assets.”
Mini Crash – Regulators predicted volatility, acknowledging market risks are a fact of life
While risks are in the market, and volatility that was predicted by U.S. regulators and Hedge Funds and previously reported in ValueWalk are all facts, expressing fear or panic has and is always the worst investment decision one could make. In fact, certain strategies and investment methods are designed for volatility. Volatility can represent opportunity. At a basic level – and long only stock investing being in this category – investing at a time when the mainstream is afraid has, in the past, rewarded market insiders.
“A significant majority of people I talk to in markets are impressed that US equities have held up so well (so far), and so are long and looking to add,” he wrote. The issue is at what time should the “addition” take place?
As far as targets go, Janjuah is “tempted to lower my equity stop loss to a ‘2135 weekly close’ for the S&P 500, and to lower my 10yr UST yield stop loss to 2.4% on a weekly close.”
Janjuah didn’t specify a buy level. That said, keeping an eye on the 1850 level might be interesting, with a fall near the 1750 being potential buy points, so long as external factors such as derivatives default don’t artificially mar the anticipated recovery.
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