There are cynics, there are doomsayers, and then there’s Albert Edwards, the Societe Generale economist who is in a league almost of his own.
Edwards is probably the most notoriously bearish analyst in the world of finance, and is given to grand proclamations about the state of the world.
So far this year he has predicted a “tidal wave” of corporate defaults in the US, argued that central bankers are going to destroy the global economy and plunge the world into chaos, and said that we could concrete over the whole of Britain and house prices would keep rising.
Edwards’ latest gloomy prediction, in Societe Generale’s weekly Global Strategy note to clients, is that the global economy is, like the Titanic, about to “sink below the icy waves.”
Edwards says that US companies are using the recent weakening of the dollar to paper over serious problems in their businesses and it’s akin to “a shuffling of deckchairs on the Titanic before the global economy sinks below the icy waves.” In other words, mindless busy work before a massive crash.
Here’s what Edwards has to say on the falling dollar (emphasis ours):
The dollar’s recent rapid slide has been accompanied by a constant backdrop of dovish cooing from the Fed. Until this week, both equity and commodity markets had embraced the weak dollar as the elixir to solve all their ills. That relief has now proved fleeting as fear of weak economic activity has reasserted its influence on investors. The weak dollar should be seen as merely a shuffling of deckchairs on the Titanic before the global economy sinks below the icy waves.
The dollar index, which tracks the greenback against a basket of the world’s most important currencies, has slipped nearly 5% since the start of March, falling rapidly after a period of immense strength. That weakness buoyed investors, pushing up commodity prices and stocks across the board.
However, in recent weeks, markets have started to stutter thanks to the “fear of weak economic activity” Edwards mentions in his report.
Here’s the perma-bear once again:
Risk assets are once again refocusing 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.
But it is in the US that growth concerns remain most intense, with renewed weakness in the manufacturing ISM as we move into Q2 following on from the moribund 0.5% qoq Q1 GDP outturn.
Edwards also rounds on the US Federal Reserve, asserting that it doesn’t actually care about global risks, but is more concerned about preserving the strength of the S&P 500. Edwards also calls the central bank “impotent”:
The sad thing is that … the Fed has boxed itself into a corner, for surely it is clear to all in the markets by now that it’s not “global risks” that worry the Fed but the impact on the S&P. But 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.
And here’s the chart Edwards says proves it, showing that the Fed has said it is “concerned” about global risks during all recent troughs on the S&P, and not concerned, when it’s doing well:
Edwards ends his note in typically dramatic fashion, saying that the “game” central banks, the Fed included, are playing with markets will end in disaster.
“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.”