Why there’ll be no Christmas rally from Santa this year

Last week was the year's best for the S&P500. October also saw a very strong bounce-back from the late summer malaise.

I've been surprised by the recent recoveries in markets in the short term. When you pair that with the huge long-term gains we have had since March 2009 alongside my fundamental bearishness, I can't see Santa delivering any more treats for investors ahead of Christmas. Add in the uncertainty of what central banks will do in December, and I for one will be sitting on the sidelines for the rest of 2015.

Why am I bearish? The bottom line is that the developed world has been aggressively printing money for seven years and yet there is hardly any growth or inflation. Most people are pretty confident the U.S. Federal Reserve will start to raise rates in December - a highly symbolic end to the era of loose policy in the U.S. - because recent data has been relatively good.

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But, the operative word is 'relative'. In absolute terms, there is nothing to celebrate, and outside of the U.S. in Japan, Europe and the U.K., the inflation picture is pretty dire. It's very hard to see any fundamental medium- or long-term reasons for bullishness around developed markets.

There is an additional issue that was not the case immediately after the global financial crisis: Emerging markets do not look like they will pick up the slack over the next few years and boost the global economy in the way they have done for the last few.

They benefited hugely from money printing in the U.S. as countless carry trades saw money pour into their economies, as well as China's own form of printing, which came in the form of massive infrastructure projects - the immediate need for which is questionable. Those EM tailwinds are no longer present, and there are also all sorts of country-specific reasons to be wary of.

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I have outlined my caution on China before. One additional factor that worries me is the currency. Much like the shift from investment to consumption - the devaluation of the yuan is warranted, but the pain of the process is being underestimated. JPMorgan estimates that $650 billion debt sits in Chinese companies.

Devaluation may be good for some parts of the wider economy, but it will really hit many companies hard. Devaluations of around 2-3 percent are nothing. We need to see up to 20 percent before things are flushed out. The issues in the corporate sector will manifest themselves in the form of a higher number of bad loans in the banking sector than is currently being reported. The government will have to pick up the tab, which it can probably afford, but it will still be a big hit.

Brazil is another case in point. The economy will likely contract this year by 2-3 percent. I cannot see how things improve much in 2016, though it doesn't feel like the government is prepared for that. And the 40 percent decline in the Brazilian real this year makes one wonder when the government will have to step in to solve its own corporate debt problems.

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Petrobras, which is already suffering from the oil price rout and a desperate corruption scandal, has $129 billion of debt of which over 80 percent is in foreign currency. Around about one-fifth of that is due in the next two years, yet they haven't generated positive free cash flow for some eight years. This could easily become a national issue, and Brazil's pockets are much less deep than China's. The political disunity is an additional worry. Perhaps former President Luiz Inácio Lula da Silva can save that day again, but he can only come in 2017 at the earliest.

Clearly Russia has its own problems. All things considered, it is hardly surprising that Goldman Sachs Asset Management shut its BRICs fund recently.

So, I am pretty bearish. That said - I would never bet against the ability of the US to re-invent itself, nor the long-term resolve of Europe to sort itself out. There is an answer somewhere, I just cannot see it yet, and will be cautious until it materialises.

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