Thursday, May 31, 2012

Albert victorious

IF THERE is one person who is pleased at recent events, it is Albert Edwards, currently the Societe Generale strategist but previously at Dresdner Kleinwort. He has been plugging his Ice Age thesis since 1996, arguing that much of the developed world would follow Japan in seeing both equity valuations and bond yields decline. And he has been sceptical throughout this rally, proving rather better at assessing events last year, for example, than the bulls at Goldman Sachs.

“As 30 year German bund yields slide below 2% and rapidly converge towards Japanese rates, we have a taster of what is to come in the US and UK in the months ahead. We still see US 10 year yields - even now making new all-time lows - falling below 1% as hard landings occur in china and the US. The secular equity valuation bear market began in 2000 and renewed global recession will be the trigger to catalyse the third and hopefully final, gut-wrenching phase of valuation de-rating. Expect the S&P 500 to decline decisively below its March 2009, 666 intra-day low. All hope will be crushed.”
“Amid the chaos, there is opportunity. The European cyclically-adjusted PE (CAPE) is back down to rock-bottom valuations, consistent with the bottom of previous long-term valuation bear markets and lower than that seen in March 2009. Investors are reluctant to invest amid all the ongoing chaos in the eurozone. But the macro backdrop ALWAYS looks awful when the market is this cheap. There are no such things as toxic assets, only toxic prices.”