Dylan Grice recently suggested that investors might want to nibble at stocks in the wake of QE2. But don’t worry, says his colleague Albert Edwards, the team at SocGen is still wildly bearish.
His defence: Look it’s simple, if there’s money to be made, we’re in, even if it doesn’t fit our long-term thesis.
Or, less adroitly (emphasis ours):
Dylan Grice and my erstwhile colleague James Montier have one key point in common when it comes to their investment approach – namely they both recognise the futility of economic forecasting. Dylan’s mantra (apart from “make the tea Albert”) is there is no such thing as toxic assets, only toxic prices. Hence, like James, he is happy to invest if the asset is cheap enough. This approach also applies to insurance. Where there is a credible risk and insurance IS CHEAP, then one should buy that insurance. Hence his recent note on the high risk of runaway inflation in Japan sending the Nikkei to 63,000,000 in 15 years came to the conclusion that insurance is cheap and it is available.
So, right now there is money to be made in some bets that don’t see equity prices collapsing. But don’t worry, they’re still going to, in the most crushing deflationary recession to date. The trigger? Emerging markets tightening:
The simple fact is that if, as I expect, QE2 fails and fiscal tightening sends the fragile western economies back into recession, we will see the unfolding liquidity driven EM and commodity bubble burst just as violently as it did in the second half of 2008.
His reminder: This has happened before in 2008.