The perfect riposte to Monday’s equity market rally has arrived: the latest Global Strategy Weekly from Soc Gen’s Albert Edwards.
And while the headline rather gives things away, here are some selected highlights for all the bears out there.
(NB Edwards has just returned from a two week trip to Asia).
I think the next 18 months will see major ructions in the financial markets.The consequences of a double-dip back into recession next year require some lateral thinking. If the carry trade unwind results in a turbo-charged dollar, any collapse in the China economic bubble will be doubly destructive to commodity prices. A surging dollar, coupled with China moving into sustained trade deficit through 2010, could prompt the Chinese authorities to acquiesce to US pressure for a more flexible exchange rate. But why does no-one expect a yuan devaluation?Imagine we are in the middle of 2010. Imagine the western economies (plus Japan) are sliding back into recession as the lack of additional fiscal stimulus reduces 2010 GDP growth back to its weak underlying rate (deficits need to widen to boost the economy). Imagine also that in 2010 the Chinese economy is beginning to roll over. China’s vulnerability is perhaps far higher than the bulls suppose, having engaged in the same sort of recession defying stimulus as the US in 2003....MORE
Monday, November 23, 2009
Société Générale's Albert Edwards: "Deep 2010 downturn could yet trigger trade war and yuan devaluation"
I wondered where Albert was. From FT Alphaville: