Friday, March 17, 2017

Société Générale's Albert Edwards: Winter Is Coming

Yes, Albert has been forecasting the arrival of the economic ice age since at least 1996 (our links go back to 2010 and probably earlier), but the House Fed has thwarted his House Stark at every turn.
Now he's getting ready to roll but it may be too late for him.
"I fought. I lost. Now I rest. But you, Lord Snow… you'll be fighting their battles forever."
Albert addressing another standing room only investment conference crowd

Okay, that's enough Game of Thrones references for now.
From Citywire's Wealth Manager, March 16:

Is pussycat Fed set to morph into a leopard?
Albert Edwards has been waiting for this moment for a while.

However, SocGen's strategist does not believe the Federal Reserve's hike in rates last night marks a significant change in tack from the central bank.

'So finally the Fed has got its ‘a’ into ‘g’ and raised rates' Edwards told investors in his latest note.
'Although this will be the first of many rate rises in a move to normalise rates, the Fed’s lack of verbal assertiveness means the market still cannot bring itself to believe the Fed’s own projections for interest rate hikes.'

Edwards draws on comments made by his colleague Kit Juckes to sum up his own feelings.
Juckes said: 'The Fed's reluctance to send an aggressive tightening signal, instead preferring to again shuffle upwards its dots just slightly, has disappointed markets.

'But to be fair, the problem isn't really with the famous dots. It's with the market, which just doesn't believe the Fed will tighten as fast as they say they plan to (see chart below).
'If the market took the Federal Open Market Committee (FOMC) at their word and discounted a 3% Fed Funds rate at the end of 2019 and beyond, then we'd probably have a 3% nominal 10-year Treasury yield by now.'

Edwards questioned whether the dovish Fed can ever really change its spots.

He refers to Juckes analysis again: 'After spending the 1980s defeating inflation, the Fed has allowed rates to spend progressively longer and longer below the nominal growth rate of the economy (see chart below).
'Trend nominal growth is only a first estimate of where the natural rate
of interest might be and it’s definitely been dragged lower than that in recent years –but depressed market volatility, and the strength of asset prices [are] a result of low rates.'

'And nominal GDP growth is at 3.5% while the FOMC’s range for the dots in 2019 was 3% wide, from 0.9% to 3.9% with a median at 2.9%.'

Ultimately it is the reluctance to damage stockmarkets which will prevent the Fed from escalating the pace of rate hikes, according to Edwards.

'One reason why the market doesn'’t believe the Fed dots is that investors cannot conceive of Fed tightening to the point that it causes the stockmarket any serious damage,' Edwards concluded....MORE
A quick search of the blog returns:
February 2010
Société Générale's Albert Edwards: "Stocks Face ‘Ice Age’ Drop as Indicators Peak..." Euro to $1.25; We're all Doomed
August 2010
Société Générale's Albert Edwards: "The Leading Indicator Is Already Back Into Recession Territory And Why The Japan "Ice Age" Is Coming" 
August 2011
From Ice Age to Hyperinflation With Société Générale's Albert Edwards (Aug. 19, 1011) TLT
February 2012
Société Générale's Albert Edwards: "The Ice Age only ends when the market loses hope: there is still too much hope" (Feb. 23, 2012) 
November 2014
Société Générale's Albert Edwards: "Are We Entering Final Stage of the Ice Age?"
August 2015
Music For Albert Edwards. On A Cold Day. In February

We have dozens more posts on Mr. Edwards (join the cult by March 31, get the calendar for free!) including the contemplative Albert:
Société Générale's Albert Edwards: "Many Think I am Mad..." (sub 2% Treasuries, S&P at 400 etc.)
Société Générale's Albert Edwards: "I Have Been Wrong – I’ve Been Too Bullish"