Albert Edwards: Back in the bear camp

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Albert Edwards, London-based strategist of Société Générale, has always been a firm favourite among Investment Postcards’ readers. His latest research report appeared a few days ago and saw him firmly back in the bear camp after turning short-term bullish at the end of October. (See the previous posts “Albert Edwards: Turning More Bullish” [October 24] and “Market Fundamentals are Appalling” [July 5]).

Edwards’s “Global Strategy” report is sub-titled “Technicals say it is time to bail out. Cut exposure and prepare for rout. US depression looking likely. China’s 2009 implosion could get ugly.” The summary below provides the gist of his thinking.


“After increasing our equity exposure at the end of October we believe that the market is set to quickly slide sharply towards our 500 target for the S&P. While economic data in developed economies increasingly reflects depression rather than a deep recession, the real surprise in 2009 may lie elsewhere. It is becoming clear that the Chinese economy is imploding and this raises the possibility of regime change. To prevent this, the authorities would likely devalue the Yuan. A subsequent trade war could see a re-run of the Great Depression.

Economic data has been truly dreadful through the fourth quarter. Over a year ago we forecast deep US recession. As it had not suffered one since the early 1980s, we thought this outturn would shock. Yet recent data has been consistent with something far worse than deep recession. There is no agreed definition of a “depression” as opposed to a deep recession. But The Economist magazine is probably more qualified than many to take a view. They consider a peak-to-trough decline in GDP in excess of 10% a reasonable definition. We had been thinking of deep GDP declines of the order of 5% peak to trough but we are now thinking that this view might be too optimistic.

But, until yesterday, equity markets had been paddling quite happily sideways for most of the last few months. They have been broadly flat since we increased our equity weighting sharply on 23 October. Within that time the intra-day peak-to-trough rally in the S&P was a creditable 28% from 740 low of November 21, but we do not claim to have captured that. Nevertheless we feel very comfortable that the technicals at the end of October cried out to close our extreme underweight equity exposure. They now tell us to cut exposure again.

2008 was a shock for investors. But 2009 could be an even bigger shock. There is evidence that the Chinese economy is imploding. Investors should consider what would happen if China descends into social chaos. Yuan devaluation could spark a 1930’s style trade war. Do you really trust the politicians to ‘do the right thing’?”

Source: Albert Edwards, Global Strategy Weekly, Société Générale, January 15, 2009 (hat tip: David Fuller, Fullermoney).

Related post:
Cast your vote – recession or depression?


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6 comments to Albert Edwards: Back in the bear camp

  • Paul Benequista

    When you read Albert and Bennet Sedacca together, and you recognize that the math they show is accurate, especially Bennet details, you would have to conclude that they are correct. Mass media does not like to make it crystal clear because the consequences would be potentially devastating. Thanks.

  • Henry Jasen

    This is beginning to feel like a brick in a wall of worry.

  • This is really getting interesting.

    On Sunday I sent an email to a friend who wanted my thoughts on inflation. Of the issues I track, a couple I call black swans (apologies to Nicholas Taleb): depression and hyperinflation in the US. I had no real definition of a depression.

    Yesterday I sent him a link to Bennet Sedacca’s proclamation of a depression with its attendent definition. Today I get this post with another definition and the statement “US depression looking likely”.

    Are these guys smoking the same stuff?

    As I commented to my friend:

    “A year and a half ago, sources I read were starting to talk about recession. A year ago, the debate had moved front and center among analysts and the smart guys who run investment funds. Finally late last year we get official confirmation that the US entered recession in Dec. 2007. It will be interesting to see if the notion of depression follows the same path.”

  • Arch Duke Ferdinand

    I think Albert Edwards is dead wrong. If bought equities in late October then he got his ass wipe. The US stock market will explode to the upside by the 2nd quarter of 2009. Watch out for hyperinflation. At some point the bath tub will fill will all this money being printed by the central banks and the FED.

  • Simon

    Albert Edwards and a mate of his from S.G. wrote a piece about this time last year where they saw deflation as much more likely than inflation.

    I remember reading it and thinking they sound a little wacky but the way they write indicates the correct mind set for thinking ahead.

    They were right of course and if you’d correctly allocated a couple of hundred thousand based of this thesis you could have at least doubled your money or if you’d bought some financials CDO’s you’d be at least a millionair.

  • Frank W

    This statement follows in the tracks of Roubini and Grantham. But the market is still going sideways. Previously Edwards thought there would be a big rally in the market and climbed in. I really don’t think there was a big rally. Maybe the market will finally fall. He and a lot of other advisors, analysts and researchers had better hope so, otherwise they are going to look like a bunch of fools. The last time I looked the market was still going sideways!

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