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Snugglybear

Albert Edwards On China

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Don't know whether anyone has posted this.

I got the story from the Guardian website http://www.guardian.co.uk/business/2011/jan/03/albert-edwards-socgen-bear

"Stock markets ended 2010 on an upbeat note. The FTSE 100 index reclaimed the 6000 mark before slipping back, but still registered a 9% gain, while the S&P 500, the most widely watched US index, has regained the level seen before the collapse of Lehman Brothers.

There is an air of optimism among investors and a confidence among economists that a much feared double-dip recession has been avoided. A tough moment, then, to be bearish?

Not for Albert Edwards, the best known and longest-standing bear in the City. He has seen nothing to dent his Ice Age thesis – the term he coined as long ago as 1996 to describe the relative decline of equities versus bonds. He thinks there may still be another Japanese-style economic "lost decade" to endure. "Big structural bear markets take 19 years on average and have four recessions," he says. "We've had two."

Edwards is thus sticking to two eye-catching predictions. Stock markets will revisit their March 2009 lows (3512 for the FTSE 100). And, despite the hints in recent months of a return of inflation, gilt yields will fall below 2% (from 3.5% today) as deflationary forces reassert themselves. Oh, and for good measure, prepare for the hard landing in China and the crash in commodity prices.

Ridiculous? Well, remember that Edwards' Ice Age call in 1996 has proved to be a winner: even if you include the stock market's dotcom bubble years at the end of the 1990s, equities are still a long way behind bonds since 1996.

Remember, too, that Edwards' forecasts were generally rubbished at the time. His dismissing of the supposed Asian Miracle in the mid-1990s as "Noddynomics" was resented – until the Asian currency crisis of 1998.

To Edwards' amusement (he includes selected "fan mail" in his latest research pack), correspondents to his employer were still trying to get him sacked in 2000. "Send this old, sclerotic and dangerous man into pension or – this would be much better – take him to prison," said one. "He's obviously ill and not qualified to be chief strategist of Dresdner Kleinwort. I hope his prophecy will destroy his career for the next thousand years."

In fact, the Ice Age prophecy has been the making of Edwards' career. He started out in the Bank of England's economics department, spend three years in fund management and then had a 19-year stint at Kleinwort until 2007.

He and his colleagues (at the French bank Société Générale) have been the top-rated analysts in the "global strategy" category for seven consecutive years, despite being too quick out of the blocks with some of their predictions.

"Often the call is right but it is early and the clients know that," says Edwards, 49. His research is also a model of brevity (others produce 100-page tomes; SocGen's strategists regard 10 pages as a long read) and throws punches – especially at the "criminally negligent" central bankers in the US and UK who allowed house prices to escalate and ruinous levels of debt to accumulate.

At times, though, during the great banking bust, Edwards' views have come dangerously close to becoming consensus wisdom. The same cannot be said about his view on China. "The biggest risk to market valuations and to sentiment generally is a China hard landing," he says. "In reality, China is a much more potentially volatile economy than people think.The Chinese situation is the one that could come out of nowhere because people are not considering it as a serious possibility."

But hasn't China been gloriously unaffected by the turmoil in the west, producing growth of 10% or so with little difficulty? Edwards' argument is that "when you have a good crisis, success can become a curse". Japan, he points out, sailed through the 1987 stock market crash. Similarly, the US economy escaped with a shallow recession after the bursting of the dotcom bubble; house prices started to rise as the authorities declared a period of stable inflation and "great moderation" to be under way.

"Then what happens is that housing and credit bubble goes out of control," argues Edwards. "You tap your foot on the brakes and the whole thing starts crashing and you can't control it on the downside," he says. "China is exactly the same. It had a very good crisis in 2007, opened the credit floodgates, got a house price bubble going, and they're now trying to tap their foot on the brakes."

In Edwards' view, China is a "freak economy"; its investment-to-GDP ratio is off the scale in terms of size and endurance. "In development history, Korea is the only one that got close. It then collapsed. China is basing a growth model on the most unstable part of GDP. The Chinese authorities have recognised this and are trying to steer the economy over to consumption – which is fine, but it will take a long time."

The danger, he suggests, is that China has produced such strong growth for such a long time that investors assume the process will last indefinitely. "There is too much confidence in the lack of volatility. If you get a zero or a small minus for Chinese GDP, in the great scheme of long-term development it's not a great problem. But it's a bit like investing in Nasdaq stocks in 2000 – there would be a big adjustment in price. There is an investment edifice built on the idea that China is the new growth engine of the world."

For statistical support, he points to the OECD's leading indicator of economic activity, which measures factors such as electricity production, freight activity and money supply. In China, it is slowing rapidly, even though commodity prices are as elevated as they were in early 2008 (prices then plunged). Something has to give – and probably sooner than most people assume. The degree of "push-back" from clients to his view on China reminds him of the resistance to his bearish calls on the dotcom and east Asian bubbles.

Closer to home, the Ice Age thesis suggests disappointments for the economy are inevitable. Edwards points to Japan, which enjoyed occasional strong rallies in share prices without conquering its long decline. "During the deleveraging process in early 1990s, the economy was incredibly vulnerable to renewed recession." The lesson, he argues, is that "to avoid recession you need to stimulate all the way through the deleveraging phase". That makes Austerity UK more vulnerable to recession than the US.

But even the US, where monetary and fiscal stimuli have been greater, is "spewing money out but just kicking the can down the road for a bit". He expects the public appetite for retrenchment to fade when recessions return. The middle classes have been "totally shafted" by a house price bubble that created the illusion of prosperity. "In the US, one in eight are on food stamps. Japan was a cohesive society that shared its pain collectively. That is not how it stacks up in the US, UK, Spain, Greece etc. You have much more fractious environment to have a lost decade in. The ructions for society will be far worse."

So Edwards' answer to the question that obsesses investors at the moment – are we past the worst? – is a resounding "no". Or, as his final research piece of 2010 put it: "I've been doing this job long enough to recognise when the markets are entering a new phase of madness that leaves me scratching my head with bemusement.

The notion that we are back in a sustainable economic recovery is as ludicrous as it was in 2005-07. But investors are back on the dance floor, waltzing their way towards the next, inevitable implosion[, which] yet another they will no doubt claim in retrospect was totally unpredictable!""

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Interesting piece.

All the attention at the moment is focused on Europes obvious debt problems. There are also rumblings about the ever climbing US deficit. Most commentators expect either of these two factors to trigger the next big financial crisis. However, the real killer to the world economy would be rerun of the boom bust scenario in Asia since that would wipe out much of the wealth that has migrated from West to East in the past decade. In the 1930s it was the collapse of the worlds biggest creditor economy the USA that triggered the Great Depression not the problems of the European debtor powers after World War 1 (most of whom endured serial economic crises throughout the 1920s). As usual the sucker punch that delivers the knockout will not be seen coming by most people.

Edited by stormymonday_2011

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And, despite the hints in recent months of a return of inflation, gilt yields will fall below 2% (from 3.5% today) as deflationary forces reassert themselves. Oh, and for good measure, prepare for the hard landing in China and the crash in commodity prices.

Indeed. The question is when.

Go Albert!

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Does he give any idea when the stock market will revisit March 2009 lows or is this a general forecast that will happen sometime in the next 1,000 years.

I can't take this guy seriously - whenever I see his name mentioned I think of:

char_uncle.gif

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This bit is interesting:

For statistical support, he points to the OECD's leading indicator of economic activity, which measures factors such as electricity production, freight activity and money supply. In China, it is slowing rapidly, even though commodity prices are as elevated as they were in early 2008 (prices then plunged). Something has to give – and probably sooner than most people assume. The degree of "push-back" from clients to his view on China reminds him of the resistance to his bearish calls on the dotcom and east Asian bubbles.

They are using less power, shipping less, etc. yet commodity prices are still rocketing. A great warning sign of over-exuberant bubbletastic expectations.

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Does he give any idea when the stock market will revisit March 2009 lows or is this a general forecast that will happen sometime in the next 1,000 years.

I can't take this guy seriously - whenever I see his name mentioned I think of:

Well he's been consistently on the correct side for 2 decades. He's one of those you should take seriously.

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This bit is interesting:

They are using less power, shipping less, etc. yet commodity prices are still rocketing. A great warning sign of over-exuberant bubbletastic expectations.

Friends of mine just got back from staying with relatives in Hong Kong - the relatives are shipping brokers. They told my friends that they have never so much shipping doing nothing just floating out in the bay.

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Friends of mine just got back from staying with relatives in Hong Kong - the relatives are shipping brokers. They told my friends that they have never so much shipping doing nothing just floating out in the bay.

http://investmenttools.com/futures/bdi_baltic_dry_index.htm

Does the above make any sense? good or bad? unsure.gif

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Friends of mine just got back from staying with relatives in Hong Kong - the relatives are shipping brokers. They told my friends that they have never so much shipping doing nothing just floating out in the bay.

Last time I looked at Baltic Dry Index it was approaching 2009 lows. Hardky inflationary.

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Does he give any idea when the stock market will revisit March 2009 lows or is this a general forecast that will happen sometime in the next 1,000 years.

I can't take this guy seriously - whenever I see his name mentioned I think of:

char_uncle.gif

Sadly that applies to all forecasters.

Having been wrong 99/100 does not mean you are always going to miss in your predictions.

Similarly, those who are right 99/100 most of the time can still call it wrong.

The fact he is an uber bear does not mean that there are not reasons to worry about some of the signals coming out of the Asian economies.

If a lot of the money that has been sent there is the past few years has got consumed in asset speculation in things such as property then it will simply evaporate when the market heads south. My feeling is that at the moment the money pumped into the western banking system via QE has headed East to pump the commodity and property boom out there.

The warning signals are there for all to see for those who have eyes

China to Restrict Foreign Property Investments According to a Statement from the MOC

NewswireToday - /newswire/ - Singapore, Singapore, 01/03/2011 - The Chinese Ministry of Commerce (MOC) has issued a statement indicating that China will tighten its restrictions on foreign real estate investment.

According to a statement from the Chinese Ministry of Commerce (MOC), China will tighten its restrictions on foreign real estate investment.

The MOC has asked local authorities to increase supervision on property investment involving foreigners and strengthen risk controls on the real estate sector.

The statement stipulates; foreign funded developers will not be allowed to make profits through buying and reselling real estate projects.

The MOC also stated that it would strictly monitor all transactions in conjunction with the Ministry of Land and Resources and the State Administration of Foreign Exchange.

Foreign direct investment into China's property sector rose by forty eight percent to twenty billion US dollars within the first eleven months of this year, 2010.

http://www.newswiretoday.com/news/83250/

I fear that much of this speculative money may never be seen again if China goes sour. Instead it will wind up in money heaven

Edited by stormymonday_2011

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I fear that much of this speculative money may never be seen again if China goes sour. Instead it will wind up in money heaven

Agreed 100%. Forget about the other BRIC's. It's China that has become the last sanctuary of the hot money. It's this speculative money that's one of the reasons Chinas overheating. When it goes it'll wipe out a lot of investors and they'll be no safe heaven when it does.

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I fear that much of this speculative money may never be seen again if China goes sour. Instead it will wind up in money heaven

This is radical stuff- investors taking losses! What a weird idea.

Surely they'll just pull out the old 'systemic risk' rabbit from the hat and the Communists will trip over themselves to bail them out?

Or does that trick only work in' free market 'economies? :angry:

Edited by wonderpup

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One of the comments sums it up nicely:

"fraud is the biggest product coming out of this country as of late and certainly no ships are required to send that abroad."

:lol:

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Don't know whether anyone has posted this.

I got the story from the Guardian website http://www.guardian.co.uk/business/2011/jan/03/albert-edwards-socgen-bear

"Stock markets ended 2010 on an upbeat note. The FTSE 100 index reclaimed the 6000 mark before slipping back, but still registered a 9% gain, while the S&P 500, the most widely watched US index, has regained the level seen before the collapse of Lehman Brothers.

There is an air of optimism among investors and a confidence among economists that a much feared double-dip recession has been avoided. A tough moment, then, to be bearish?

Not for Albert Edwards, the best known and longest-standing bear in the City. He has seen nothing to dent his Ice Age thesis – the term he coined as long ago as 1996 to describe the relative decline of equities versus bonds. He thinks there may still be another Japanese-style economic "lost decade" to endure. "Big structural bear markets take 19 years on average and have four recessions," he says. "We've had two."

Edwards is thus sticking to two eye-catching predictions. Stock markets will revisit their March 2009 lows (3512 for the FTSE 100). And, despite the hints in recent months of a return of inflation, gilt yields will fall below 2% (from 3.5% today) as deflationary forces reassert themselves. Oh, and for good measure, prepare for the hard landing in China and the crash in commodity prices.

Ridiculous? Well, remember that Edwards' Ice Age call in 1996 has proved to be a winner: even if you include the stock market's dotcom bubble years at the end of the 1990s, equities are still a long way behind bonds since 1996.

Remember, too, that Edwards' forecasts were generally rubbished at the time. His dismissing of the supposed Asian Miracle in the mid-1990s as "Noddynomics" was resented – until the Asian currency crisis of 1998.

To Edwards' amusement (he includes selected "fan mail" in his latest research pack), correspondents to his employer were still trying to get him sacked in 2000. "Send this old, sclerotic and dangerous man into pension or – this would be much better – take him to prison," said one. "He's obviously ill and not qualified to be chief strategist of Dresdner Kleinwort. I hope his prophecy will destroy his career for the next thousand years."

In fact, the Ice Age prophecy has been the making of Edwards' career. He started out in the Bank of England's economics department, spend three years in fund management and then had a 19-year stint at Kleinwort until 2007.

He and his colleagues (at the French bank Société Générale) have been the top-rated analysts in the "global strategy" category for seven consecutive years, despite being too quick out of the blocks with some of their predictions.

"Often the call is right but it is early and the clients know that," says Edwards, 49. His research is also a model of brevity (others produce 100-page tomes; SocGen's strategists regard 10 pages as a long read) and throws punches – especially at the "criminally negligent" central bankers in the US and UK who allowed house prices to escalate and ruinous levels of debt to accumulate.

At times, though, during the great banking bust, Edwards' views have come dangerously close to becoming consensus wisdom. The same cannot be said about his view on China. "The biggest risk to market valuations and to sentiment generally is a China hard landing," he says. "In reality, China is a much more potentially volatile economy than people think.The Chinese situation is the one that could come out of nowhere because people are not considering it as a serious possibility."

But hasn't China been gloriously unaffected by the turmoil in the west, producing growth of 10% or so with little difficulty? Edwards' argument is that "when you have a good crisis, success can become a curse". Japan, he points out, sailed through the 1987 stock market crash. Similarly, the US economy escaped with a shallow recession after the bursting of the dotcom bubble; house prices started to rise as the authorities declared a period of stable inflation and "great moderation" to be under way.

"Then what happens is that housing and credit bubble goes out of control," argues Edwards. "You tap your foot on the brakes and the whole thing starts crashing and you can't control it on the downside," he says. "China is exactly the same. It had a very good crisis in 2007, opened the credit floodgates, got a house price bubble going, and they're now trying to tap their foot on the brakes."

In Edwards' view, China is a "freak economy"; its investment-to-GDP ratio is off the scale in terms of size and endurance. "In development history, Korea is the only one that got close. It then collapsed. China is basing a growth model on the most unstable part of GDP. The Chinese authorities have recognised this and are trying to steer the economy over to consumption – which is fine, but it will take a long time."

The danger, he suggests, is that China has produced such strong growth for such a long time that investors assume the process will last indefinitely. "There is too much confidence in the lack of volatility. If you get a zero or a small minus for Chinese GDP, in the great scheme of long-term development it's not a great problem. But it's a bit like investing in Nasdaq stocks in 2000 – there would be a big adjustment in price. There is an investment edifice built on the idea that China is the new growth engine of the world."

For statistical support, he points to the OECD's leading indicator of economic activity, which measures factors such as electricity production, freight activity and money supply. In China, it is slowing rapidly, even though commodity prices are as elevated as they were in early 2008 (prices then plunged). Something has to give – and probably sooner than most people assume. The degree of "push-back" from clients to his view on China reminds him of the resistance to his bearish calls on the dotcom and east Asian bubbles.

Closer to home, the Ice Age thesis suggests disappointments for the economy are inevitable. Edwards points to Japan, which enjoyed occasional strong rallies in share prices without conquering its long decline. "During the deleveraging process in early 1990s, the economy was incredibly vulnerable to renewed recession." The lesson, he argues, is that "to avoid recession you need to stimulate all the way through the deleveraging phase". That makes Austerity UK more vulnerable to recession than the US.

But even the US, where monetary and fiscal stimuli have been greater, is "spewing money out but just kicking the can down the road for a bit". He expects the public appetite for retrenchment to fade when recessions return. The middle classes have been "totally shafted" by a house price bubble that created the illusion of prosperity. "In the US, one in eight are on food stamps. Japan was a cohesive society that shared its pain collectively. That is not how it stacks up in the US, UK, Spain, Greece etc. You have much more fractious environment to have a lost decade in. The ructions for society will be far worse."

So Edwards' answer to the question that obsesses investors at the moment – are we past the worst? – is a resounding "no". Or, as his final research piece of 2010 put it: "I've been doing this job long enough to recognise when the markets are entering a new phase of madness that leaves me scratching my head with bemusement.

The notion that we are back in a sustainable economic recovery is as ludicrous as it was in 2005-07. But investors are back on the dance floor, waltzing their way towards the next, inevitable implosion[, which] yet another they will no doubt claim in retrospect was totally unpredictable!""

So, this guy's sales pitch is that he is nearly always right but nearly always too early.

Given that economics runs in cycles, "too early" is the same as saying "out of phase" with that economic cycle. In other word when you should buy, he tells you to sell and when you should sell he tells you to buy

Nice.... :lol:

For the record, I happen to agree that the current bullishness on the markets is insane and can only end very badly some way down the road.

But, hey, it doesn't take an economist to work that one out

Edited by tallguy

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  • 312 Brexit, House prices and Summer 2020

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      • down 5% +
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      • Even
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      • up 5%



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