Société Générale's Albert Edwards: "Pay Attention To “Explosive” Situation In The Eurozone"
From ValueWalk, April 6
The Dow Jones and S&P 500
are rallying today, so many believe a market bottom has already been
reached. Investors and traders have been looking for a market bottom for
some time, but analysts are split on whether it will happen imminently
or whether the coronavirus-driven economic downturn will last longer.
Societe General analysts believe the downturn is only just beginning.
In fact, they argue that the global economy wasn’t even on solid
footing when the COVID-19 pandemic hit.
Certain economic policies are no longer unheard of
Last week in his Global Strategy Weekly report entitled
"Transitioning from 'The Ice Age' to 'The Great Melt,'" Societe Generale
analyst Albert Edwards said extreme policy actions that were previously
unheard of are now being considered. He said those extreme policy
actions are facing off with "the forces of Secular Stagnation and The
Ice Age, which will ultimately give way to a new secular phase in
financial markets."
Many economists and analysts thought central banks would run out of ammunition when the next economic crisis
hit. However, Edwards never thought they would. He said the last decade
has brought "the unthinkable" in central bank policies. Now
policymakers are enacting full-scale monetization with budget deficits
of 15% or more.
He believes the coronavirus pandemic has sped up the transition in monetary policies and made them less controversial.
"The previously unthinkable is not only being thought, it is being implemented," he wrote.
Doing the unthinkable
Edwards noted that former European Central Bank President Mario
Draghi recently called on the public sector to permanently run much
higher deficits. He also called for debt in the private sector to be
canceled.
Former Bank of England Deputy Governor and Chief Economist Charlie
Bean is calling for the central bank to buy government debt directly in
the primary market. He added that just a few years ago, this would have
been considered "heresy," but now it's being discussed openly.
He added that for now, central bank stimulus is pushing against "an
immovable (recessionary) object." Although he believes it may be clear
what will happen in the medium term, the big question now is where the
market bottom will be.
Hope for a market bottom and V-shaped recovery
He added that many have been writing about how well extraordinary
stimulus will be able to dig the world out of the ongoing collapse. He
said the answer to that question depends on whether you believe the
global economy was on firm footing before the coronavirus pandemic set
in....
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