He might have been knocked off his Extel perch by sidekick Dylan Grice, but SocGen’s dancing bear Albert Edwards is still our favourite ‘strategiste global’.
And is he loving the recent batch of weak economic data.
So much so, that’s he republishing some of his favourite Ice Age charts.
As a reminder Edwards’ Ice Age is a world of very low inflation and near deflation where equities de-rate both absolutely and relative to government bonds, which also re-rate in absolute terms. This long-term valuation bear market doesn’t end until the S&P 500 hits 400 and bond yields are below 2 per cent and there’s been a deep recession and blow-up in China.
And so on to the charts by way of a little preamble from Edwards:
In the aftermath of last week’s stunningly weak economic data the market is now beginning to acknowledge that, like last year, without a further round of QE a relapse back into economic stagnation or recession surely beckons. In the post-bubble world, economic downturns are always the most dangerous phase in the cycle – when the Ice Age blows yet another shiver of reality onto market valuations. Both equity PEs and government bond yields will make surprising new lows for a consensus totally convinced of the extreme cheapness of equities and the expensiveness of government bonds.
The post-bubble long march to Ice Age valuations seems fully intact to the naked eye. And as the economic gloom intensifies, this is the stage in the cycle when we need to revisit the Ice Age theme. For the Japanese experience shows that in the postbubble cyclical recovery, the Ice Ages impact on valuations lies dormant, only to viciously catch out unsuspecting investors as the cycle takes its inevitable turn for the worse.
Related link:
Albert Edwards and an afternoon tea-party with the Vestal Virgins – FT Alphaville