Albert Edwards On Rolling Over Leading Indicators

Tyler Durden's picture

What comes next should be no surprise to anyone. What we have been discussing for the better part of 2011: namely that this year is a spitting image of 2010, to the debt ceiling debate, to the Q1 market spike and subsequent drop, to an insolvent Europe, to the various allegations of bank impropriety, to the debt monetization, and pretty much to the dot, is captured best by SocGen's Albert Edwards who shows that various leading indicators have now rolled over, and absent some "exogenous" push (wink wink Chairsatan), the rollover now, just like a year ago, means the fun for the Hamptons crew is over for now, absent some very heated discussions between Hatzius and Dudley at the Pound and Pence.

From Albert Edwards:

Durable goods orders posted a better-than-expected 2.9% rise in March as did ?core? orders ? excluding the volatile defense and aircraft components. Yet despite March?s strength, both the yoy and sixmonth change in core orders has slowed sharply in recent months (see left-hand chart below).

Why might capital goods orders be slowing at exactly the point in the cycle when most commentators expect it to be making a greater contribution to overall growth? Well, contrary to most of the hype we are hearing in this reporting round, profits have not been doing so well recently (for a fuller explanation of this most recent spate of report round earnings manipulation, please contact my colleague, Andrew Lapthorne).

Economists tend to look at national accounts measures of profits which, to the surprise of many, often tend to lead stockmarket profits. The right-hand chart above shows that the surge in profits from their nadir has actually flattened out over the last six months (we have always preferred to use pre-tax domestic non-financial profits with inventory profits removed and depreciation put on an economic rather than a tax basis). Although the rate of profitability remains high, it is the growth of profits that tends to be the largest determinate of investment growth. So the slowdown in capital goods orders makes total sense in this context.

The level of analyst optimism also seems to be turning down (albeit from high levels ? red line in chart below) and the change in optimism, which we show on the front cover to be a good leading indicator has also thus fallen away (dotted line in chart below).

With valuation unattractive and now EPS momentum slowing (even before QE2 ends), this is the point in the cycle when investors should be becoming more cautious (see chart below).




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CrashisOptimistic's picture

It's not 2010.  There is a year less oil left.

css1971's picture

Cool. Same demand, reduced supply. I'll buy that.


Unless demand gets crushed of course.

BTW, did you also see the whale oil charts on The Oil Drum?

EscapeKey's picture

Another day, another Fed president spewing bullshit. Apparently, running (and monetizing) $1.7tn deficits IS sustainable, in sharp contrast with all historical evidence.

WASHINGTON (MarketWatch) - The economy is not at risk of runaway inflation, said John Williams, the new president of the San Francisco Fed Bank on Wednesday. In his maiden speech about monetary policy to a business group in Los Angeles, Williams came down squarely in the camp of Fed chief Ben Bernanke, who has said that commodity price gains will be transitory. The economy has enough forward momentum that it will rebound above a 3.0% growth rate in the second quarter after a disappointing 1.8% rate in the first quarter, he said. The pace of job growth should also pick up as the year progresses, he said. Given this forecast, the Fed is preparing its exit strategy, he said. The timing of the plan will be dictated by the course of the recovery, Williams added. If the Fed sees signs that a sustained period of high inflation is developing, the Fed will act quickly to squelch it, he said.

MaxFrost's picture

"the Fed is preparing its exit strategy."

Truer words were never spoken...

topcallingtroll's picture

You are just mad you are stuck in colombia and cant get an immigrant visa.

Ted K's picture


Regurgitating what Rupert Murdoch throws the the retail investors (i.e. dumb money)???  Wow.  I see the campaign to cure illiteracy in America is really "paying off".....

duo's picture

Why invest capital to grow your business when you don't know what...

a dollar will be worth

what new regulations you will be saddled with

what new health care costs you will be saddled with

what the true impact of Japan/Fukushima will be when the lies are exposed

whether you can sell anything but food a year from now?

kengland's picture



Bring a chartist back in the fold. I enjoyed Nick even though he was getting beat down

LRC Fan's picture

I know you're extremely busy, Tyler, but can you look into the earlier flash crash in AAPL?  Also, Sony is now blaming Anonymous for their security breach.  Great work as usual. 

nobusiness's picture

Investors "should be becoming more cautious"

Can't anyone just say the truth.  Investors should sell stocks.

Was that so hard.

Ruffcut's picture

Investors are in all shapes and sizes.

IF they go for dividends, then how do they sell? They live on em'.

Investors don't want to be traders, they are too lazy and even if you try to learn you may worse off.

In this environment, for many years, investors should always be cautious.

carbonmutant's picture

Lessons in boiling a frog... do it slowly.

lizzy36's picture

So, ISM non manufacturing new orders dropped off 11.4% in one month (largest m/m drop off ever recorded, including after 9/11), gasoline demand is at a 7 year low (EIA this morning), the USD, is moving from 3 ply towards 1 ply in a single leap, and we are all focused on a OBL photo porn.

Fundamentals, ain't what they used to be..........but then neither is America.

RobotTrader's picture

As usual, the lemmings are fleeing into the U.S. Treasury market.

buzzsaw99's picture

I supose you think you can do better? :roll:

topcallingtroll's picture

Always do the opposite of bill gross regarding usa treasuries.

sabra1's picture

Obama Bin Lyin! that's a good one!

RobotTrader's picture

Weak economy means less demand for gold, and more demand for hip clothing.  JC Penney now printing new 52-week highs....

Internet Tough Guy's picture

Yes, a booming economy consumes lots of gold. lulz. Try harder momofader, the troll is weak in you.

topcallingtroll's picture

Use the troll luke

Feel the troll inside you.

Internet Tough Guy's picture

Momo is past his peak and he knows it. The salad days of trolling TZOO and BIDU are over.

topcallingtroll's picture

ZSL is the best trade I ever did in my life.

Well except when i arb'd some cocaine from
south america, but i am too old for that shit anymore.

RobotTrader's picture

Lots of my stocks are at 52-week highs today:  SO, ED, KFT, INTC, JNJ, and I remain fully invested.

Glad I didn't get sucked into the silver bubble and lose 30% in 4 days.....


Tyler Durden's picture

Or, alternatively, made 200% in 2 years


Cone of Uncertainty's picture

Shit, I cashed out a 125% gain since last August.

I lock in 125% rather than 140%, had I ticked the top, big fucking deal.

dexter_morgan's picture

“Gold is the money of kings, silver is the money of gentlemen, barter is money of peasants,  debt is the money of slaves, & fiat is the money of fools.” 

Internet Tough Guy's picture

That's amazing, because last month you were all in tech high flyers (which you don't talk about any more). You are killin it, momo!

buzzsaw99's picture

I was silver when silver wasn't cool. (bitchez)

Ruffcut's picture

Hey robutt, your so up on your total of 10 shares, and it still does not cover the first months payment for the used, broken scooter you have been looking at.

You can't use a scooter, you really want a power chair.

Deep's picture

let me guess Robo, you shorted it at 85, went all in at 15 right?

I used to like you, you are just lame now



TruthInSunshine's picture

RoboTard, who has given advice that has doomed his own mother to her remaining days eating Alpo & Fancy Feast, always picks the bottom and tops, especially during market booms and crashes, precisely.

And we always hear the details and see the charts mere days after his exits and entrys.

slewie the pi-rat's picture

rare form, today, RT!  i passed on the one abt getting into T's---of course, if you're losin yer ass in PMs bail into something "safe"!!!

penney's is great b/c china, india, and sri lanka will never be able to tell us with a straight face what their underpants must be worth to us now.  when we export inflation, no slap-backs!

my arms are too long for penney's.  even their socks are too short for slewie!  plus, everything is so over-decorated, these daze, doncha think?  i'm off to kohl's.  LOL

ivars's picture

Most likely there will be exogenous pull (oil prices). Does that help?

X. Kurt OSis's picture

...absent some very heated discussions between Hatzius and Dudley at the Pound and Pence.

I reiterate that P&P would be the perfect spot for a ZH masquerade on-site.  I'm sure we could get a table upstairs near the Dudley/Hatzius section... plus there's a pool table up there.

FranSix's picture



n-n-n-egative interest rates...



falak pema's picture

The fragility of the PM market, small in comparison to the bigger commodities, is evident to all. Ideal for mega manipulations and swings to be possible for the bigger a moment of their choice...A golden rule that all military strategists like Hannibal taught the world at Lake Trasimeno...always use all angles; when you are cornered and have your back to the wall. The big boys know that only too well...

Cone of Uncertainty's picture

And in other news, Apple flash crashes..yippeee

I love these fucking markets.

6 String's picture

Here's a question that came to me as I was brooding over the foul nature of the entire financial system: Could Silver be the first natural market to finally exist after decades of mass manipulation of every asset class known to mankind?

Think about it for a minute: take away marginable silver altogether, let the COMEX default on Silver delivery and therefore the bogus spot price, and let the market finally truly dicatate the real price of silver. This would essentially takeaway all the bullshit we have to deal with in these free markets everyday. Did I say free?

While, of course, real price discovery would finally exist in at least one asset: silver. Right now, we can't say this exists in any market on earth.


oogs66's picture

and least one bear didn't capitulate at the top for 'technical' reasons

TruthInSunshine's picture

$5 to $6 a gallon gas, $3 green peppers (each), doubly costly beef, pork and chicken and beer just in time for the 4th of July!

Obama/Bernanke/Geithner -

Hoped in 2008? Any Change Left in 2012?

6 String's picture

This is what I was thinking as well. As the whatever is left of middle class approaches summer with all basic necessities having gone through the roof, and now the pulling of QE on June 30th (for awhile anyway), then most of America is doubly fucked.

High prices, declining assets (again), no jobs, no money. It will be tough love all the way around.

So to get lower commodity prices, 401k's will have to be smashed into the ground, but then the third mandate efforts will suffer...thus the banks, lending, etc., and to top it all off the fucking government is beyond broke.

And there's going to be no more QE? Yeah fucking right. However, until we get Jackson Hole expect bloodshed in many markets and then the hyperinflationary depression will truly commence.

TruthInSunshine's picture

Your words beckon the graphic/digital print skills of williambanzai7:

The Bernank has 'Jackson Holed' himself, taking out many innocent civilians in the process, and putting Obama's re-election into doubt (no matter what Rasmussen claims now).

Ruffcut's picture

Beer prices going up? Them be fightin words there.

TruthInSunshine's picture

Bernanke has lit a powder keg under the price of hops. If you like stout, coffee is near all time highs, too.

Thanks, Bernankincide!