Albert Edwards still über-bearish, calls for new lows in 2010
Societe Generale’s Albert Edwards is generally considered an uber bear, although there were times in the past year he has tactically increased exposure to equities to take advantage of oversold conditions. Now is not one of those times. In fact, Edwards chimes in with many similar thoughts we’ve posted on the fundamentals … but sticks his neck out calling for new lows in 2010.
While the belief from this blog writer is this will all end badly, knowing when and how will be the ultimate question. Without the massive intervention by central banks and governments we’d have a different landscape; and without knowing to what lengths these people will continue to go to, it’s much more difficult to predict the intermediate road ahead. But unless the basic laws of economics are repressed permanently, the ultimate destination seems no different.
As with “intellectual bears” today, the Nasdaq bears of 1999 and real estate bears of 2006 were ultimately correct; but in the interim a lot of money was made by those who ignored warnings on the upside before it all came crashing down. And specific to Nasdaq, most bears who attempted to step in front of the freight train had little equity left to actually profit from their (eventual) accurate prognostications. Irony at it’s best.
At this point many who are non believers have finally jumped on board, with everyone assuming they can jump right back out, through the same narrow door when “some day” arrives. If only it were that easy …
• Albert Edwards, an analyst at French bank Societe Generale who correctly predicted the Asian financial crisis, sees global equity markets at a new low and chances of another global recession in 2010.
• Edwards, a prominent equities bear and a long-term critic of the policies of Western central banks, is skeptical of popular opinion that extreme policy responses will safeguard the West against a repeat of Japan’s ‘lost decade’ of the 1990’s.
• “People should question the happy clappy nonsense from sellside analysts,” London-based Edwards, a global strategist with SocGen’s Corporate & Investment Banking group, told a media briefing. “We are not saying that people should not participate in the rallies — that will get you fired as a fund manager — but they should not become too convinced of the recovery,” he said. (hand raised)
• Edwards expected China to go into a recession at some point as cyclicality catches up with the economy, and called people’s excessive faith in growth stories a “sick joke”.
• He said while inflation was a concern, deflation was a bigger worry in the near term, at a time when western and Japanese governments were effectively insolvent. (print, print, print until your daddy takes the T bond away?)
• “If we get an economic downturn next year, when you have got core inflation at half a percent, I think there will be a real deflation panic, a bit like in Japan.”
• Edwards picked grains like corn, wheat and soybeans as a more secular bet on China’s growth story over other commodities and their related stocks as these have lagged the broad rally in the markets. (interestingly these agriculture commodities have lagged big time … my belief is because one can stockpile many commodities such as oil or copper with the cheap money being handed out – whereas foods spoil)
• Edwards is more worried about Japan in the near term as he expects the world’s second-largest economy to run into difficulty funding itself next year as demand for Japanese government bonds wane and bond yields rise further. The significance of higher Japanese government bond yields was that it would cause some Japanese investors, who have been investing overseas in search of higher returns, to bring that money back home, he said.
• “Equity valuations have been totally ridiculous for the last ten years but I’m less bearish than I was two years ago because we have had one round of correction,” said Edwards, who thinks the S&P 500 should have dropped to 500 points last year to hit the bottom of the valuation cycle.
Some more recent Edwards below.
1) ZeroHedge provided further Albert Edwards thought process two weeks ago here.
2) Investment Postcards blog has a blurb from September here.
Edwards concludes that the global crunch is not receding, but intensifying, stating that the unwinding of the “grotesque debt excesses” of the last decade has only just begun. “As Japan experienced before, it is deleveraging that is the problem and retrenchment takes many years, rendering the economy extremely vulnerable to rapid relapses back into recession when any reverse or pause in extreme stimulus occurs.”
3) Edwards is one the prominent bears quoted often in this piece from The Economist in early October [hit fullscreen option for easy reading].
Source: Trader Mark, Fund My Mutual Fund, November 10, 2009.
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