That last bit is the reason we are giving Albert pixel time on this pre-holiday Friday.
He has been one of the few analysts to correctly call rates. Unfortunately for SocGen's equity customers he, like Rosenberg and a few others, did not understand the old saying "Don't fight the Fed".
Plus, the S&P target is actually bullish compared to one he put out a couple years ago.*
It has been a while since Albert Edwards updated the world on his macro and market thoughts. He finally does so today with a tour de force on the crash in the emerging markets, which for him exposes the "idiocy of one of the key investment themes since the 2008 Great Recession – namely that with developed economies burdened with excessive debt and in the throes of multi-year deleveraging, investing in emerging markets would not only produce superior returns but was also less risky. Regular readers will know we have long railed against this idea, having dubbed the BRIC story a Bloody Ridiculous Investment Concept."
He links what is happening now to his "call at the end of last year that the EMs were heading for a balance of payments crisis and would see a currency debacle similar to 1997 was met with total indifference. We still find the same disregard to our call for a renminbi devaluation."
Continuing the litany of vindication, Edwards next observes that the "global economy and markets have been far, far more vulnerable to a resumption of the 2008 crisis than the happy-clappy consensus would have us believe. At the moment, investors think that problems are isolated to a few EM countries that have allowed their current account deficits to get out of hand. I see this as the beginning of a process where the most wobbly domino falls and topples the whole precarious, rotten, risk-loving edifice that our policymakers have built."
Naturally no crash prediction will be complete without some fond reminiscences on the most historic crash of all: 1987.Previously:
And while Albert delves much deeper into the EM story, one extensively discussed here, it is the "next shoe" that concern Edwards the most. Namely China....MOREThe fabulously entertaining Zero Hedge website keeps running the charts showing that the evolution of bond yields and equity markets this year resembles closely what happened in 1987 (see below). Now we should all take these comparisons with a pinch of salt, but what if…
I remember the 1987 crash well. I was working at Bank America Investment Management as an economist/strategist at the time. Of course, the immediate trigger for the equity crash was the fear of US recession caused by the fear that the US would have to hike rates sharply to defend the dollar. Those fears were triggered by Germany raising rates at a time when the G6 had recently agreed to stabilise the US dollar at the February 1987 Louvre Accord, after two years of sanctioned dollar weakness. Investors got into a tizzy about recession, jumping many steps ahead of the game. But, in the wake of a run-up in US bond yields that year, equities were richly priced and so very vulnerable to recession fears, however unfounded. And then the machines took over. That couldn’t possibly happen again, or could it?
Therein lies one of the key lessons I learnt in my 30 years in the markets. It is not just to try to predict what will happen, but to second-guess what the markets fear might happen. Indeed a recession did not ensue and the 1987 crash turned into a tremendous buying opportunity.
Société Générale's Albert Edwards on Copper: We Are Doomed (and that's the good news)
Société Générale's Albert Edwards: "Many Think I am Mad..." (sub 2% Treasuries, S&P at 400 etc.) May 25, 2011
Hey, Société Générale's Albert Edwards is Still Alive and Still Looking For the S&P to Trade at 450 (and gold at $10,000)
Société Générale's Albert Edwards: "S&P Fall to 400 Is ‘Inevitable’" (Sept. 29, 2011)
And the string of calls he made in 2008:
June 26, 2008
Société Générale: “We see a y-shaped global recession. We are going down before looping backwards”
May 8, 2008
This Week’s Advice: Canned Food, Guns and a Ham Radio
On September 5, 2008 we posted "Meltdown"-Société Générale" which linked to Albert's research note of a couple days earlier:
***Alert****Economic and equity market meltdown imminent****Alert***A good call.
On September 7, 2008 Fannie Mae and Freddie Mac were placed into conservatorship.
On September 14, 2008 Merrill Lynch agreed to be acquired by Bank of America.
On September 15 Lehman filed their bankruptcy petition.
On September 16 AIG became a 79.9% subsidiary of the U.S. Treasury.
Within 10 more days the Nation's largest thrift, WaMu was seized and five days later Wachovia gobbled up.
Good times, good times.