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Losing Money Is "Inevitable" This Year, SocGen Warns Citing Economic "Elephant"

Tyler Durden's picture




 

The entire financial world has been fixated on two things since last Friday, Greece and, to a lesser extent, China’s collapsing equity bubble. 

Admittedly, it’s been almost impossible to turn away from the slow motion trainwreck-turned high-speed, head-on collision that is the Greek tragicomedy.

On Sunday, the world woke up to the fact that a Greek default has very real consequences. As surreal images began to circulate on social media showing ATM lines, empty grocery store shelves, and long queues at gas stations, it became apparent that Greece does in fact matter, and once capital controls were announced, the flight to safety was on and global stock markets proceeded to plunge.

This was precisely what the PBoC did not need after moving to support its flagging stock market by cutting both the benchmark lending rate and the RRR rate on Saturday (the first time the two policy rates have been cut on the same day since 2008).

Fast forward to Wednesday and capital markets are still transfixed with Greece and China, and while we’ll be the first to say that both Grexit and the collapse of China’s margin-fueled equity bubble pose very real threats to global financial markets, Soc Gen is out warning investors not to lose track of the ‘real’ problems that threaten to undermine economic growth and keep a lid on gains going forward. Here’s more:

The situation in Greece, whilst serious and concerning, is distracting us from far bigger and mounting problems elsewhere. The China A-shares market for example has seen around US$2trn wiped off its market capitalisation in a matter of weeks, and whilst the climb was equally dramatic, the excessive use of leverage always means the ride down is more painful.

 

MSCI World profits are also declining at around 5% per annum and consensus 2015 exfinancial EPS growth is currently forecast to be flat; and while US pro-forma profits are now down 5% from their peak, GAAP profits are down a remarkable 20%! The slowing global economy is the elephant in the room.

 


 

There is also plenty of the evidence that insiders are rushing for the exits. According to Bloomberg, buyout firms conducted more stock offerings in Q2 than in any previous quarter and during Q2 over US220bn of IPOs were announced, way above any prior quarter over the past 10 years. And whilst announced US share repurchases continue to hit new highs, actual executed share repurchases as viewed from company cash flow statements are on a downward trend.  

The Bloomberg reference there is to an article published earlier today which says that two years after Leon Black’s “sell everything” call, his counterparts — who are "astute" when it comes to "timing their exits" — are following him out the door. 

Via Bloomberg:

Firms including Blackstone Group LP and TPG Capital Management have been capitalizing on record stock markets around the world to sell shares, mostly in their companies that have already gone public. Globally, buyout firms conducted 97 stock offerings in the second quarter, more than in any other three-month period, according to data compiled by Bloomberg.

 

Since Black made his comments in April 2013, the MSCI World Index has gained 18 percent, stretching valuations even higher. Headwinds that threaten to rattle global equities are everywhere -- from the Greek and Puerto Rican debt crises to an eventual increase in U.S. interest rates.

 

“It’s clear that we are currently in an environment of frothy valuations,” said Lise Buyer, founder of IPO advisory firm Class V Group. “The insiders -- those with the most knowledge -- are finding this a very good time to take some money off the table.”

 

This year, private-equity firms sold $73 billion of their buyouts to the public, a record amount over a six month period, Bloomberg data show.

 

“It’s been a lot more about harvesting public positions than creating new ones through IPOs,” said Cully Davis, co-head of equity capital markets for the Americas at Credit Suisse Group AG. “The markets are open and the financial sponsors are pretty astute about timing their exits.”

Soc Gen goes on to note that "global sovereign bonds had their worst calendar quarter since the initial Fed Tapering shock in Q2 2013, [which] ranks almost as badly as the bond sell-off in Q1 1994!" 

Why? Not because investors are adopting a risk-off mentality based a perception of fundamental strength in the global economy, but rather because these assets had simply overshot to the upside:

Now although economic data has proved less disappointing in recent weeks...we doubt the abandonment of sovereign bonds and their associated equity bond proxies was down to a renewed enthusiasm for economic growth, rather simply a function of these markets having gone too far too quickly.

So with global trade "in the doldrums" (to quote BofAML) and with central banks having run out of ideas (and assets to buy) in terms of boosting aggregate demand with freshly-minted fiat currency, what does Soc Gen recommend? Simple: try not lose too much money:

So in brief investors are losing money, which strikes us as largely inevitable with asset prices where they are and economic growth and profits on a downward trajectory. Losing the least amount of money may be the best source of success this year.

 

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Wed, 07/01/2015 - 14:42 | 6259087 SilverDoctors
SilverDoctors's picture

Anybody holding dollars will lose money this year if Jim Willie's right...
The Golden Jackass just came out and guaranteed the imminent collapse of the US Dollar. 

The majority of Willie's big picture calls have been spot on over the years...  

Wed, 07/01/2015 - 15:02 | 6259115 JenkinsLane
JenkinsLane's picture

Bullshit

Wed, 07/01/2015 - 15:08 | 6259162 CarpetShag
CarpetShag's picture

"just came out" - not correct, you are flogging an article he wrote in January.
Jim's forecasting accuracy is no better than 50%. Here is a small selection:
-Murkle was supposed to be deposed as Geman Chancellor last year..
-Germany is supposed to leave the EU imminently, already decided (no date given)
-The Ukrainian government under Piroshenko was to collapse by the winter of 2014.
-the Chinese were going to triple the price of gold and silver at the (Chinese) new year 2015

We have no evidence that "the Voice" is any more than a figment of Jim's imagination, or some joker who his leading him along. Same goes for all his other "sources".

Wed, 07/01/2015 - 15:18 | 6259189 MFL8240
MFL8240's picture

You have ignored all the correct predictions made by Mr.  Willie.  If you want to share all your wisdom with us, please mention both sides of the issue.

Wed, 07/01/2015 - 17:20 | 6259645 Model T
Model T's picture

Well, first you have to understand what the issue is; the issue is; are Jim Willie's predictions any more dependable then flipping a coin, (50%); and the answer is no; they aren't. There is no "other side" to this issue; it's called :"Failure". Good luck with your thinking skills.

Wed, 07/01/2015 - 16:05 | 6259322 malek
malek's picture

What exactly is wrong pointing to an article he wrote in January, in which he makes predictions for year-end?

Wed, 07/01/2015 - 17:22 | 6259653 Model T
Model T's picture

Stating that a prediction "just came out" when it dates from January is wrong because it's deceptive and false.  You wonder how these people remember how to tie their shoes.

Wed, 07/01/2015 - 14:44 | 6259096 LawsofPhysics
LawsofPhysics's picture

Not for Goldman Sachs or JPM...

tick tock motherfuckers...

Wed, 07/01/2015 - 14:56 | 6259123 e_goldstein
e_goldstein's picture

Yep. Guess SocGen hasn't figured out how to suicide their employees for the insurance payouts yet.

Wed, 07/01/2015 - 15:08 | 6259159 BandGap
BandGap's picture

I think this is the appropriate time for capitalization, with perhaps some punctuation.

Tick Tock Motherfuckers!

Wed, 07/01/2015 - 14:48 | 6259107 Niall Of The Ni...
Niall Of The Nine Hostages's picture

SocGen shouldn't worry. This is their chance to expand.

For example, they're one of the biggest banks in Romania (where they do business as BRD). I'm sure the Greek banks will happily sell SocGen their Romanian assets at bargain prices. 

Wed, 07/01/2015 - 14:53 | 6259116 disabledvet
disabledvet's picture

There might not be any Banking in Europe for a while here...

Wed, 07/01/2015 - 14:52 | 6259113 JenkinsLane
JenkinsLane's picture

Is the elephant SocGen's derivatives book? Or is that the gorilla sitting on top of the elephant?

Wed, 07/01/2015 - 14:57 | 6259125 msmith9962
msmith9962's picture

The elephant is using the gorilla as a tampon.

Wed, 07/01/2015 - 15:02 | 6259141 JenkinsLane
JenkinsLane's picture

Nice

Wed, 07/01/2015 - 14:52 | 6259114 Jack Burton
Jack Burton's picture

The Poles are playing a dangerous game. Mortgage holders are in effect playing the FX markets via mortgages! A Greek panic could cause the Polish currency to fall further, making mortage holders even more vulneable to FX.                                  "as a result of Swiss central bank the frank sharply increased in relation to other currencies, including the zloty. The Polish radio foreign service reported that it was convenient to take out mortgages in Swiss franks. It meant savings for 530 thousand Polish families. However, their payments increased after the devaluation by at least 25%. The majority of mortgage holders are the core electorate of the ruling Citizens Platform (PO) which is gradually losing its popularity. The Kopacz government was facing such radical demands as "freezing" the zloty exchange rate to the frank at the pre-devaluation level, as the neighboring Hungary had done. If the zloty continues its fall and the frank grows even more expensive, the PO will face the society's wrath."

Wed, 07/01/2015 - 14:56 | 6259124 disabledvet
disabledvet's picture

Wait until their "euro notes" come due...

Wed, 07/01/2015 - 16:17 | 6259386 devo
devo's picture

How do we tell SocGen to stfu because nobody is listening to them?

Wed, 07/01/2015 - 17:15 | 6259637 Model T
Model T's picture

Excellent article that tells you exactly what you need to know; of course it's for persons with some degree of knowledge about markets and their operations; if any such should happen to stumble onto to Zero Hedge by accident.

Wed, 07/01/2015 - 18:05 | 6259819 Bobbo
Bobbo's picture

Now go wash your mouth out with soap.

Wed, 07/01/2015 - 18:21 | 6259879 AbbeBrel
AbbeBrel's picture

Hummm

http://www.advisorperspectives.com/dshort/updates/NYSE-Margin-Debt-and-t...

NYSE Margin debt went *down* wonder of wonders!!

Do we actually have a maximum in margin debt? And thusly a top in the market? Some top-callers might actually be right someday, LOL...

Thu, 07/02/2015 - 01:40 | 6261136 JoWazzoo
JoWazzoo's picture

Duh.  When you get a margin call, margin debt goes down.  Peak in margin debt in the last 2 market peaks, peaked ~ 1 - 3 months before the market peak.  Check the graphs.

Wed, 07/01/2015 - 18:45 | 6260002 AbbeBrel
AbbeBrel's picture

It is a nice time to go back April Fools evening -

.

http://www.zerohedge.com/news/2015-03-30/margin-and-those-record-highs

Do NOT follow this link or you will be banned from the site!