Global economy to 'sink below the icy waves', says SocGen's Albert Edwards
Never one to mince his words, Societe Generale strategist Albert Edwards predicted more doom and gloom this week, saying the weak dollar should be seen “as merely a shuffling of deckchairs on the Titanic before the global economy sinks below the icy waves”.
In his weekly Global Strategy note, notorious uber bear Edwards pointed out that until this week, equity and commodity markets had embraced the week greenback “as the elixir to solve all their ills”. However, that relief has proved fleeting as fear of weak economic activity has reasserted its influence on investors.
He said risk assets were once again focusing on the increasingly dismal prospects for global growth rather than the short-term relief of dollar weakness.
“The US remains the main concern, although the rapid unravelling of Abenomics in Japan and a likely imminent tightening of monetary policy in China to snuff out yet another housing bubble in the major cities also feature high on investors’ worry list.”
Edwards said US growth concerns were the most intense, with renewed weakness in the manufacturing ISM following on from the “moribund” 0.5% quarter-on-quarter first quarter GDP outturn.
Edwards suggested the market has cottoned on that the Fed does not care about global risks but rather the impact on the S&P.
“All the Fed’s loosey goosey will prove irrelevant as the cycle ends. Get ready to suck it up as the inevitable recession demonstrates the Fed’s total impotence,” he said.
Edwards pointed out just how detached US stocks have become from earnings, adding that the situation is even worse in the Eurozone, where earnings remain dead in the water and PE expansion makes up well over 100% of rise in equity indices.
“Let me tell you how all this ends. It ends with investors accepting that they can pretend no longer and profits are sliding into recession. It ends as the equity market spirals into a deep bear market as company management reach the end of the road in the face of the recessionary conditions and kitchen sink years of EPS manipulation,” said Edwards.
“It ends as corporate bond spreads explode as years of excess debt accumulation lead to widespread corporate bankruptcies, making the recession much deeper. It ends with social unrest and double digit budget deficits (again). It ends with investors losing faith with the Fed as the resumption of QE proves ineffective in reviving the economy. It ends in deeply negative interest rates, currency and trade wars, helicopter money and ultimately inflation. In a nutshell, it ends badly.”