Thursday, August 31, 2017

Société Générale's Albert Edwards: I Was Wrong, I Have Been Too Optimistic

Shades of "Société Générale's Albert Edwards: "I Have Been Wrong – I’ve Been Too Bullish" (Jan. 17, 2011)".
And since we're strolling down Memory Lane I'll reprise the intro from another post on Albert and save myself some typing:

Analyst Olympics: Watch Albert Edwards Perform the 1 1/2 Twisting Straddle (Jan. 15, 2013)
For shame. Of the dozens of Albert posts (join the cult by Jan. 31 and get the calendar for free!) that have graced our pages this is the least entertaining, the least self-aware and the least despondent in a long while.

And without at least one of those  attributes what's left? Rosenberg?
Today's installment via ZeroHedge:

"I Was Wrong": Albert Edwards Finds Something That Has Never Happened Before
At the start of the year, we were surprised when SocGen's Albert "Ice Age" Edwards, the biggest perma-deflationist on Wall Street, flipped his outlook on the US economy, and said he now expected a fast spike in inflation driven by wage growth. We did not see it, and said so, pointing out that the bulk of US job growth continued to be among industries that have little to no wage power. More than half a year later, and several months after a puzzled Edwards asked "Where Is The Wage Inflation?", the SocGen strategist has finally thrown in the towel, and in a note released this morning, admits he was wrong, or as he puts it "I was too optimistic", to wit:
At this point in the US economic cycle a tight labour market would normally be producing a notable upturn in wage and CPI inflation. This would usually prompt the Fed into a tightening cycle that would typically end in a surprise recession. This is exactly what I expected to occur at the start of this year and I thought it would be that recession that would tip the US into outright deflation ? but I was wrong. I was too optimistic!
And while there has been a modest improvement in average hourly earnings according to the BLS, if not according to the BEA's wage data, which according to the just released Personal Income data showed another drop in both private and government worker wages...
.. broader inflation trends continue to disappoint.

Furthermore, when digging through the recent CPI data, Edwards noticed something unexpected: as he writes, although wages have accelerated due to the tight labor market, the last six months has seen consistent downside surprises. And then this: "this has come hand-in-hand with an unprecedented slump in underlying US CPI inflation into outright deflation - in stark contrast to the eurozone where core CPI inflation has decisively risen."

Putting the finding in context, the "wrong, too optimistic" Edwards writes that never since the mid-1960s, when records began, has core CPI (less food, energy and shelter) declined over a six-month period, as demonstrated by the red line in the chart below.