Albert Edwards: 'Equity investors are in for a rude shock'

Thank you - but if you are going to serve gloom for breakfast - please add the

baked beans on toast

Welcome to what sone sall "deleveraging"

http://www.accountingweb.co.uk/blogs/jefflcbba/mad-lemming/deleveraging-process

I think!!!!

It is tooooooooooooooooooo early in the morning for touch typing without checking----read "some call" for "sone sall" :-)

Total nonsense-the bond market is in a bubble that will explode shortly. I see inflation written all over, once you start the printing press it is very difficult to stop it.. Goverments cannot allow deflation to take hold, it's simple as that. We are entering into an era where inflation will take hold

Ho hum!

I awoke two days ago and realised that maybe I should sell everything except physical gold, maybe the guy is right, I just don't know.

If I do go totally liquid what on earth do I do with all the cash?

Also how does he do his job if he is a perma-bear?

Does Soc Gen actually own any stock or are their funds just 'bear-funds' or what?

Deflation is rather bad news when thre is all that debt to pay off.

No, I don't really agree with this guy - to me, profits are holding up, costs are eing hammered, we are in thin summer volumes, so people will come back from teh beaches, things will crank up again, and - maybe after a final shake-up - w'll be into positive territory for Christmas

In reality, valuations are OK. Profits are doing well, inflation is falling, interest rates are low and staying low. Of course there's debt overhangs, but the question is not "how much", but "can we keep up the repayments & are returns on debt worth it?".

So best to go for low debt companies (30%), low P/E (15 say max) and good dividends - over the 10 year.

And best to pay attention to market timing, the entrey and exit points do make a big big difference.

Cape Town is right - a good Christmas run-up beckons, starting late next month.

load of nonsense

This is what is wrong with the markets in general, at the moment many/most of the ftse are doing very well and recovering nicely. Yet Uber-bears such as old Al are looking for the slightest sign of weakness and causing many of us to panic!

If you've invested in good companies then you should do well, but unfortunately when there is good news, there always seems to be worse news just round the corner!

Good point from Stormdog re our Albert and Soc Gen. What do they do with clients' assets ? Bet he's real fun to have around the office.

"Goverments cannot allow deflation to take hold, it's simple as that."

Yes, and governments are always so good at everything they tackle, aren't they?

Makes you wonder why they ever allowed the London market to remain persistently and substantially cheaper than it was, er, eleven years ago. Or why they permitted half the British banking sector to go bust.

A "structural bear market" can, as in the late 1960s to early 1980s period, consist of prolonged failure to progress on the upside, interspersed with some severe downdraughts. So far, this is more like what we seem to have been experiencing since 2000, and of which we have probably not yet seen the termination. But, if, like Edwards, you adopt an extreme bear position, you are liable to crying wolf at every juncture, whether or not justified.

I think this is somewhat gloomy and overstated however I do not think either equities or bonds are attractive at the moment. I do believe gold stocks will hold there own or rise over the next 9 months. That the developed economies will fail to control their budget defecits, they may bring the percentages down a little but will get nowhere near balancing the books. Quantum Easing has merely delayed the inevitable and moved the problems, the problems for the UK will not be solved until public sector pay and pensions are massively reduced alonside numbers working in the public sector and house prices fall by at least a further 20%. That is a lot of pain to go through which will be reflected in the stock market, look for 4000 as a level to start buying into again, but only once the two factors stated above are moving swiftly in the right direction.

If the USA embarks on more QE will the markets have a mega rally again? I think Edwards is right about America's financial position but its been in a mess for years.

What is Edwards success rate in predicting the markets?

Economists and politicians may use CPI stats for headlines, but trading investors rarely do, for very simple reasons. Inflation is always present, it is simply the length of the cycle that we have difficulty in predicting.

The dominance of the impact of commodity price volatility - applied all the way through to the prices of all products - means that short term predictions are pointless. When we have firms such as the Vampire Squid funding oil speculators up to $147 a barrel there will always be a spike (for several months) in the price of everything, but that is market-price inflation (v short term) and not economy inflation (which is what CPI is trying to measure).

Timing is all, and it is noticeable that all economic comment from the great and good comes with no defined time parameters. That's just useless, of no value to an investor. Inflation guarantees the FTSE100 will double, trouble is we can't tell you when - might be 7 years, might be 107 years. The crucial information is that which is relevant to my investment timescale, everything else is pointless.

'It will rain' - correct, so I should carry a brolly every day?

'It will rain on Friday' - now that information is of use as I now know when to pinch my wife's umbrella.

To me, the core measure is unemployment - clever chaps can magic profits & balance sheets to disguise real business flows, but competent management will always quickly cut down the size of payroll in line with their near term business forecasts. People can be hired again almost at will. I see no long term downsizing en masse, the BBC has long ago scrapped its 'Job Loss Monitor', unemployment appears stable. With the loss of the union-strong arm, most employees appear to recognise that it is better to enjoin a cut in pay/benefits, rather than force fellow workers to be made redundant.

If the core of the economic foundations to our listed firms is our home consumers, then I see no assessable explanation of Mr Edwards headline. However, the equity markets - IN THE NEAR TERM - having little to do with the fundamental health of our economies, the volatilities are manufactured by short term traders (daily to 3 month contract expiries) and pre-set trading patterns. There are significant opportunities for the market controllers (investment banks & funds) to make vast profits by pushing equities iver the edge.

Soc Gen. is an investment bank, n'est-ce pas?

ANALysts are named as such for good reason

Goodbye cruel world........aaaaaaaaaaaaaaaaaaaaah!

The general view is that we are in a secular Bear market which is lasting a number of years. Naturally there are large ups and downs within this long term trend. As I see the current situation much of the profits companies have come up with has been through heavy cost cutting. This is not repeatable 'as such' and is also anti-growth. When everyone is scaling back the economy must be shrinking back also. Austerity measures must also cause the economy to shrink also. You cannot cut spending and expand at the same time, it is simple common sense. The stimulus did not and cannot cause economic growth because it is borrowed money. It gives a temporary appearance of growth, but because it has to be repaid, the negative effects are futurally greater. Sadly if the vast debts our great leaders have saddled us with are to be paid down, then we will fall back into recession. Whilst everyone is worrying about a double dip recession it misses the point that what we really need are solid foundations to build on. The delevaraging process has to happen and adding stimulus in any form just prolongs the agony greatly.

There are some real savings that the government can make. Pushing MOD projects that waste Billions into the far future are the most obvious places to start. Why are we wasting money on a replacement for Trident, when we don't even want to fire the damn things? Supporting our farmers, digging out our own coal and generating productive industries. Becoming more self relyant instead of importing stiff we can make and export our selves. All the things that Thatcher killed off. If our governments really want our economies to recover then they need to change their way of thinking. Electricity generation through wind farms. How many wind generators can you have for the cost of one nuclear power station (including decommishening cost)? We should be pushing forwards with study into Nuclear Fusion as the alternative. Solar farms should be built in places like the Atacama desert. If we can pipe gas across Russia to the UK we can surely build electrickery pilons across these distances, or even just wires in the ground? Solar farms could also provide the means for agriculture underneath them where the shelter the panels provide would create more amicable environment for plant growth. This is a double edged sword! Sustainability is already with our grasp, but it takes political will to truly drive it forwards. That, it seems is always sadly lacking. It is no good gearing for war in bids to grab dwindling resources because ultimately these are short term solutions to long term problems.

It doen't matter what you think about the markets they will do their thing, the only thing to do is try and navigate the storm. If you believe the market is going to crash, then you should be out of it in cash or physical Gold. You may feel that shorting the market is the right course at the moment? Main thing is tread carefully and don't lose your shirt! I still think the markets are going to tank again, my best guess was a bottom by February or so. Still what do I know??? It does seem that things will have to get worse before they get better. So don't sweat it, just do the right thing for you.

Thank you Doug Brodie..... timing is everything in the market, and what a fantastic place the market is.

We live between two parallel forces; financial strength and fiscal control.

In the financial world the term value has become almost meaningless. Fiat currency has been transformed into rows of electronic digits which can be manipulated to produce whatever values are desired.

However both rely on the fluid dynamics of production and human endeavour. The problems which are emerging stem from the direction that these flows are taking. The volume of manufactured goods flowing east to west has reached a dangerous level. The west cannot continue to print money to pay for them indefinitely. The question is which side will make corrective measures. China has the ball in its court. If it allowed its currency to float against the dollar the renminbi would revalue overnight and end its pecuniary advantage.

If however China decides to let things drift, America and subsequently Europe will be forced to introduce tarrifs and quotas.

Either way, the west will have to learn make do with less or produce more itself.

I don't profess to be a financial genius so I'll watch from the sidelines and let George Soros, Warren Buffett, John Poulson etc, get on with playing the markets.

The equity market signals have said SELL since May so I am now 5% equities and 95% sovereign bonds.

Albert is a bit severe- 50% equity collapse- but it really does amaze me how people sleep at night holding equities while we slide smoothly into the double dip........interest rates at 2% will trigger massive balance sheet liability problems for property companies with fixed rate debt and as they are forced into a fire sale the true depth of the banks' over exposure to over priced property will out.

Why do we give such people so much air; this guy was born with the wrong genes; so what! Clearly he wants to share with us his pain in the ar*e

I live in France and have had SG products in my portfolio for years just as a benchmark and I have never made any money with them. The so called experts seem to be very poor at their job.

Interesting article. The truth is that no one really knows what is going to happen but I have some sympathy for bearish sentiment in the next quarter at least. US fundamentals need to show solid positive consistent improvement and at the moment there are too many contradictory signals.

UK and EU debt positions remain high and unstable in a number of countries and there is huge pressure to reduce government spending in the UK with the inevitable impact this will have on both private and public sector jobs and of course the economy.

If the FTSE 100 closes lower at the end of August than July and the bears look to be in charge, then I am bettting that September will hold its 100% record of being a month for shorting.

somebody ought to do something

I feel very uneasy about the stability of markets.

Things have got to break one way or the other and I believe that panick could take a hold of markets.

Theres so much uncertanty economic,political etc etc things could get very nasty.

Upside potential returns are minimum and the downside could be bad..its going to be very easy to loose money...hard to make it and keep it.

A lousey investment senario.

When everyone is rubbishing cash it might just be the best place to be in the short term.

At the moment, I have about 65k in high yielding defensive equities , food retailers , pharmacuticles etc. If the overall portfollio dips in value at any time by 10% to 58.5k or there are any imminent warning signs of a share price crash, then I will sell the lot & put the cash into the highest yield easy access account available at the time. Currently about 2.75 % is available. Don't want to do this because at the moment I am sitting on a reasonable proffit and I have a very good yield from the portfolio at present which pays for much of my annual holidays. But , it is better to be safe than sorry . Could see much higher intrest rates in the short term now, higher inflation and a significant dip in share prices? Do we keep our fingers on the button for the get out clause or do we sit tight andride the storm ?. The former for me I think.

Chas

That really is the big question.

I am in cash at the moment, ( I hate it ),but what do I do ?If I was fully invested a 10% drop would cost me 70K plus.

If you look at some top managers who have total portfolio discression like jupiters Gibbs they are or recently have been very heavily in cash,( eg Jupiter second splits investment trust ,(in which he has his own money invested )).

Im confident that buying opportunities will come over the next 12 months but for now Im not investing .

As for buttons and stop losses you could end up with repetative strain.

Its a traders market and not one for investors

Good luck.

QE may be the only way out provided…

Today tributes are offered to Mary Shelly on the 213th anniversary of her birth day. The bit in Wikipedia on this lady also include a link on The Age of Reason and Enlightement-they regarded reason to be the primary source of legitmacy and authority.

I do not have sound knowledge of economic to discus the above topic, but what I have read about it does make sense to me (is reasonable).

Business borrow money and it is well used to expand the business. It means that if all concerned with the government of the economy were to run a country as if it was business, borrowing will help: businesses will start growing, employing people, personal and public income would be created and of course debts will be paid out as it were on instalment basis. What is wrong with it?

People who support QE have suggested QE was misused. For one thing its returns were squandered instead of chanelling them on the growth of the economy.

The fact is great powers seem to have vested interests at times in making destuctive choices-no fault of QE.

You dismiss what this very sensible, very thoughtful analyst writes at your peril and I fear you will live to regret it.

The very fact that such useful insight is rubbished by so many adds to my conviction that he will, in due course, be proven to have been correct. In my book ( and I was lucky enough to short the beginning of the end of the housing bubble and the collapse in banking shares ) Mr Edwards is one of the few with the prescience and understanding to grasp the enormity of what will prove to be the worst balance sheet recession in history something akin but probably worse than what has befallen Japan since their equity market topped out in 1989.

Wipe yourself out if you wish but take great care if you have family responsibilities

I fully agree with Mr Edwards that we are in for another shock.

We are in a long term bear market that began in 2000. History suggest that we may only be halfway through the process of unwinding the excesses of previous decades. Austerity, retrenchment and prudence have arrived in the UK, and we are awaiting drastic Autumn cuts which will have huge impacts on 2011 and onwards.

Steven Dotsch

Editor

www.Early-Retirement-Investor.com