Friday, September 10, 2010

"Société Générale's Albert Edwards: 'Equity Investors Are In A Vulcan Death Grip And Are About To Fall Unconscious"' (September 2010)

UPDATE: "Société Générale's Albert Edwards: The descent into global C-H-A-O-S (September 20, 2010)"
Original post:

I mentioned earlier that Ambrose Evans-Pritchard was one of my favorite doomsters ( "his writing runs the gamut from despondent to suicidal").
Here's our other favorite: SocGen's Albert Edwards, via ZeroHedge:
Sheer poetic brilliance from the world's greatest realist, Soc Gen's Albert Edwards: "The current situation reminds me of mid 2007. Investors then were content to stick their heads into very deep sand and ignore the fact that The Great Unwind had clearly begun. But in August and September 2007, even though the wheels were clearly falling off the global economy, the S&P still managed to rally 15%! The recent reaction to data  suggests the market is in a similar deluded state of mind. Yet again, equity investors refuse to accept they are now locked in a Vulcan death grip and are about to fall unconscious."
In fact, Albert Edwards and Alan Greenspan should get together in a cage match to the death. It is now well known that the former Fed governor was manipulating the stock market on a day to day basis, as his statement that "if the stock market continues higher it will do more to stimulate the economy than any other measure we have discussed here" makes it all too clear that the Fed does not care about inflation or unemployment but merely Dow 10,000 hat sales, and will do everything in its power, even if that means collaborating with Chicago hedge funds in dark pools, to get stocks to go up. Yet how long until investors finally realize that stocks are not only a lagging indicator but a manic-depressive one at that:
The notion that the equity market predicts anything has always struck me as ludicrous. In the 25 years I have been following the markets it seems clear to me that the equity market reacts to events rather than pre-empting them. We know from the Japanese Ice Age and indeed from the US 1930's experience, that in a post-bubble world the equity market merely follows the economic cycle. So to steal a march on the market, one should follow the leading indicators closely. These are variously pointing either to a hard landing or, at best, a decisive slowdown. In my view we are poised to slide back into another global recession: the data is slowing sharply but, just like Japan in its Ice Age, most still touchingly believe we are soft-landing. But before driving off a cliff to a hard (crash?) landing we might feel reassured when we pass a sign that reads Soft Landing and we can kid ourselves all is well.
So yes, the slump is coming and the catalyst will appear loud and clear when the next stage in the analyst downgrade game begins: note - everyone already took down their GDP estimates. Guess what comes next. And yes, those sky high gross profit margins that everyone is touting are a two-edged sword - corporate America has taken advantage of the good side, soon, however, the time to pay will come.
I read an interesting article recently noting the equity market typically does not begin to slump until just AFTER analysts begin to cut their 12m forward EPS estimates (for the life of me I can't remember where I read this, otherwise I would reference it). We have not quite reached this point. But with margins so high, any cyclical slowdown will crush productivity growth. Already in Q2, US productivity growth fell 1.8% - the steepest fall since Q3 2006. Hence, inevitably, unit labour costs have begun to rise QoQ. This trend will be exacerbated by recent more buoyant average hourly earnings seen in the last employment report. Whole economy profits are set for a 2007-like squeeze. And a sharp slide in analysts' optimism confirms we are right on the cusp of falling forward earnings (see chart below).
Edwards get downright hostile when discussing recent economic data out of US. We understand - the ever more acute manipulation of data by the BEA drones is getting infuriating. (bold below is Albert's)...MORE
You can keep your Roubinis and Rosenbergs, I'll cage match my two against anyone.
Some of our favorites:

Société Générale's Albert Edwards: "The Leading Indicator Is Already Back Into Recession Territory And Why The Japan "Ice Age" Is Coming" (August 2010)

Société Générale's Albert Edwards: We are all Japanese Now (July, 2010)

May 25, 2010 
Société Générale's Albert Edwards: "Europe Is On The Edge Of A Deflationary Precipice..."

April 16, 2010 
Société Générale's Albert Edwards: "We Are Now Only One Cyclical Downturn Away From Outright Deflation"

Feb. 24, 2010
Société Générale's Albert Edwards: "Stocks Face ‘Ice Age’ Drop as Indicators Peak..." Euro to $1.25; We're all Doomed

Jan. 25, 2010 
Albert Edwards, Societe Generale: "Theft! Were the US & UK central banks complicit in robbing the middle classes?"

Jan. 11, 2010 
Société Générale's Albert Edwards on Employment and Market P/E

And the 2008 series in which he foretold the future and made some of the funniest headlines of the financial crisis:

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
September, 2008
Société Générale: Prepare for the Great Unwind, part Deux