ALBERT EDWARDS: Stocks Will Take A Bath Like The Bath I'm Taking In This Photo
Societe Generale Albert Edwards, the bearish strategist at Societe Generale, has never had problems using words to paint his dark pictures for the markets.
But he takes his latest Global Strategy Weekly to the next level with this photo.
From his note:
My wife has just purchased the bath on the front page for our new house. I did ask her if we really needed a bath with that much cast iron content (not to mention the expense, which might be why I look so glum), as I only ever have showers. But she put the order in and it seems to have led to Septembers pop in iron ore prices.
Edwards included this picture because he thinks stocks are about to take a "bath."
Why?
Despite evidence to the contrary, he's convinced that we'll get hit by deflation before inflation. This will hit stocks. And as such, he is cutting his recommended allocation to stocks for the first time in over four years to 30% from 35%.
From his note:
Okay, I know some of my writing is pretty insane, but when I read direct quotes and commentary about Bernankes policy of driving up asset prices in general and equity prices in particular, I almost want to cry over the ludicrousness of this position.
...
Although I agree that Ben Bernankes ruinous polices will ultimately take us down the road to rapid inflation, I still think we will travel there via another visit of outright deflation fear.
...
I expect US inflation expectations as measured by the bond market to decline and fall into line with 5-year consumer expectations as measured in the Michigan Survey.
Societe Generale
For I have long held to the view that the primary determinant of US implied inflation expectations is the economic cycle (see chart below). The recent divergence is highly unusual. The last time this occurred was .wait for it .. the first quarter of 2008, just before we last reduced our equity weighting to 30%! Bath time anyone?
Societe Generale
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