Tuesday, April 27, 2010

Société Générale's Albert Edwards: "Global economy to roll over in six to nine months’ time; bearish for shares"

We are fans.*
From Credit Writedowns:

SocGen’s Albert Edwards was out with a note today which is in line with my calls for a marked slowing of the economy toward the end of this year. He indicates that the rate of change in leading indicators in the real economy and in markets is rolling over right now. Edwards writes that this suggests softness in six-to-nine months (hat tip Scott).

I like his analysis because it depends on first derivatives or the rate of change rather than absolute levels which are misleading at turning points (see Has the increase in U.S. jobless claims peaked? from March 2009 for an example of first derivatives presaging the end of recession). Remember, a recession begins from a cyclical peak in economic activity. So, the economy is rising until that point. Analysts looking at absolute levels only will miss the slowing in the rate of change.

Edwards writes:

I have had a few e-mails recently about some of the key leading indicators reaching new cyclical highs last week, and what this means for our view. To be sure, the latest weekly reading for the Economic Cycle Research Institute (ECRI) key lead indicator reached a 99 week high. That, at first sight, looks very bullish for the continuation of this cyclical upturn. However, as with all of these lead indicators, it is the rate of change that is important. The ECRI also report a smoothed annual change in their index. Last week that slipped to +12.5% yoy, which is a 37-week low (see chart below). Now one doesn’t want to be too armageddonish at this stage, but this is clear evidence that in 6-9 months time there will be a discernible slowdown in the economic recovery from its recent moderate pace.


The same dynamic is true for the OECD and Conference Board leading indicators as well – as it is for the change in analysts’ global EPS optimism, which is rolling over and leading the OECD indicator down....MORE

*Mr. Edwards is one of our favorite gloomsters.

Our most recent visit was April 16th's "Société Générale's Albert Edwards: "We Are Now Only One Cyclical Downturn Away From Outright Deflation"'

Previous to that was the Feb. 24 "Société Générale's Albert Edwards: "Stocks Face ‘Ice Age’ Drop as Indicators Peak..." Euro to $1.25; We're all Doomed"

He, unlike fellow depressives Roubini or David Rosenberg Albert is amusing as he shares his despondent vision. And often right.

The following three calls were almost uncanny:

May 8, 2008
This Week’s Advice: Canned Food, Guns and a Ham Radio

June 26, 2008
Société Générale: “We see a y-shaped global recession. We are going down before looping backwards”

September 5, 2oo8
"Meltdown"-Société Générale

If you note the date of that last one, it came out two days before the government seized Fannie and Freddie, nine days before Bank of America bought Merrill Lynch for a song, ten days before Lehman Brothers filed for bankruptcy, eleven days before the first $85 Billion in bailout loot went to AIG and 21 days before $307 Billion in assets Washington Mutual was seized by the FDIC.

Finally Mr. Edwards introduced us to a possible graphic for the economic recovery in our June 4, 2009 post "Société Générale's Albert Edwards, über Bull":

An Armenian K:

See full size image