Thursday, December 16, 2010

Corrected: Société Générale's Albert Edwards "This Will End in Tears-Again" (December 15, 2010)

And to think they called Heraclitus the Weeping Philosopher.
Here we have Albert going from verbose to morose and now lachrymose.

The quick and dirty of our current wretched state:
We are seeing deflation in things bought with credit (houses)
We are seeing inflation in things bought with cash (food, gasoline)
This blog started babbling about deleveraging in September 2008*, about the time that Mr. Edwards made one of the most spectacular market calls ever:
September 5, 2008
"Meltdown"-Société Générale
Within ten days: Fannie Mae and Freddie Mac were in receivership, Lehman was bankrupt, Merrill sold, AIG an 80% subsidiary of the U.S. Treasury. Within 10 more days the largest thrift, WaMu, seized and five days later Wachovia gobbled up.
Good on ya, Albert.
From ZeroHedge:
Sometime we wonder if we are the only ones who are stunned by the ridiculousness coming out of the stock market on what seems a daily basis. Luckily, there is at least one other person out there who, like us, take a bemused approach to the endless insanity. As Albert Edwards says in his latest note: "I’ve been doing this job long enough to recognise when the markets are entering a new phase of madness that leaves me scratching my head with  bemusement. The notion that we are in a sustainable economic recovery is as ludicrous as it was in 2005-2007. But investors are back on the dance floor, waltzing their way towards the next, inevitable implosion – yet another they will no doubt claim in retrospect was totally unpredictable!"
In that vein, it is not surprising that Edwards shares our disdain toward the Chairman:
Very little surprises me anymore in this business. But even I was surprised by Ben Bernanke's comment on CBS's "60 minutes" that he has "100% confidence" that he can act quickly to stop inflation getting out of control. Surely if there is one thing Ben Bernanke should be 100% confident about, it is his own fallibility. Remember this is the man who was not only adamant that US house prices would not decline, but refuted the very notion that there was even a house price bubble in the first place! I realise these guys have to pretend that they know what they are doing, but you would have thought that, having been at the epicentre of the biggest economic and financial crash since the 1930s, he would show a little humility and uncertainty. Apparently not.
But when the entire system, the whole global ponzi pyramid, knows it has no choice but to continue ploughing ahead, as otherwise the consequences would lead to the end of the financial system as we know it, what can one do but join the banks...
In July 2007, the then CEO of Citigroup, Chuck Prince, told the Financial Times that global liquidity was enormous and only a significant disruptive  event could create difficulty in the leveraged buyout market. "As long as the music is playing, you've got to get up and dance," he said. "We're still dancing?. This of course was a variant on the Japanese saying "When the fools are dancing, the greater fools are watching." Well, I suppose if  Bernanke is specifically targeting the equity market with QE, who but the most curmudgeonly bear would not be gyrating their hips in time to the music?

Unlike Ben Bernake, I like to retain some sense of humility. And it?s at times like these that I really start to think I haven?t got a clue what is going on anymore. It really is a mad, mad, mad world. Although on the sell-side I think I remain a lone voice of bearishness, there are other commentators who share my extreme scepticism of the current situation.
You are correct Albert, even though in this case you refer to another Zero Hedge long time favorite, Fred Hickey of the High-Tech Strategist.
In his last missive he makes the very simple point that we have seen the current pattern of behaviour before. We saw it in 2005-2007 and in 1999-2000. In both cases easy money conditions led to asset bubbles and reckless investor behaviour. Now we are seeing it again even more blatantly, egged on openly by the Fed. Without wanting to sound as over-confident as Ben Bernanke, I do not really have one scintilla of doubt that this will all end in tears ?- again.
What is the primary driver of Albert's scepticism? Deleveraging, deleveraging, deleveraging....MORE
*Here are some of the deleveraging posts:
June 27, 2008 
Magnus: Deleveraging and its two big deflationary forces
September 15, 2008 
Credit Contraction, Deleveraging and the Coming Interest Rate Cut
September 15, 2008 
Fed Adds Most Reserves Since 9/11 Attacks as Banks Hoard Cash
The credit contraction we've seen and will see is massive. The credit card companies are already cutting limits, prime brokers are pulling in unused lines from hedge funds, upside down mortgages that have to be written off, it's in the Trillions, maybe tens of trillions. The Fed, the Treasury, the Bureau of Engraving can't reliquify as fast as we're contracting.
September 25, 2008 
The Great Deleveraging (and what it means)
October 14, 2008 
Commodity funds gird for more deleveraging
November 1, 2008 
What De-leveraging Means