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For Albert Edwards This Is The One Definitive Measure That "We Are Now In A Bear Market"
Over the years, Socgen's Albert Edwards has repeatedly expressed his skepticism of both the economy and the market (the longest US equity "bull market" since 1945) both propped up by generous central banks injecting liquidity by the tens of trillions (at this point nobody really knows the number now that the 'black box' that is China has entered the global "plunge protection" game) and yet never did he have as "conclusive" a call as he does today. As the following note reveals, when looking at one particular indicator, Edwards is now convinced: 'we are now in a bear market."
First, Edwards looks east, where he finds nothing short of China's central bank succumbing to the "wealth effect" preservation pressures of its western peers:
After holding firm last weekend and resisting pressure to give the market what it wanted namely a cut in interest rates and the reserve requirement ratio - the PBoC caved in, unable to endure the riot in the equity markets. In giving the markets what they want China is indeed acting like a fully paid up member of the international financial community. I am not thinking here about freeing up their capital account and allowing the renminbi to be more market determined. I?m thinking instead of China?s replicating the failed US policies of ramping up the equity market to boost economic growth, only to then open the monetary flood gates as equity investors turn nasty.
We disagree modestly with this assessment because as we described first on Tuesday, the RRR-cut had much more to do with unlocking $100 billion in much needed funding so that China could continue to intervene in the FX market by dumping a comparable amount of US Treasurys since its August 11 devaluation, something which as we reported earlier today, China itself has also now admitted. But the reason why we do agree, is that while the RRR-cut may have had other "uses of funds", today's dramatic intervention by the PBOC in both the stock market, leading to a 5.5% surge in the last hour of trading, as well as a dramatic intervention in the FX market, it is quite clear that the PBOC will do everything in its power once again to prevent any market drops.
Edwards, then goes on to observe something which is sure to anger the Keynesians and monetarists out there: no matter how many trillions central banks inject, they will never replace, or override, the most fundamental thing about the economy: the business cycle.
Despite deflation fears washing westward and US implied inflation expectations diving to levels not seen since the 2008 Great Recession, there remains a touching faith that the US is resilient enough to withstand further renminbi devaluation. And if it isn?t, why worry anyway, because QE4 will be around the corner. But let me be as clear as I can: the US authorities CANNOT eliminate the business cycle, however many QE helicopters they send up. The idea that developed economies will decouple from emerging market turmoil is as ridiculous as was the reverse in the first half of 2008. Remember EM and commodities had then de-coupled from the west?s woes?until they too also crashed.
Which brings us to the key point - the state of the market, and why for Edwards the signal is already very clear - the bear market has arrived:
Although I am a bear of very little brain one thing I have learned is that most investors only realise the economy is in a recession well after it has begun. The same is true of an equity bear market. We need help before it is too late to react. Hence when Andrew Lapthorne shows that one of his key predictors of a bear market registers a 99.7% probability that we are already in a bear market, there might still be time to act!
... one feature of the market ?internals? in recent months has been the incredibly strong performance of high quality stocks (as defined by a variety of mainly balance sheet measures). This strength is now leading to price momentum and quality strategies becoming closely linked, with a 90% correlation (see chart below). Quality is now essentially price momentum and history tells us when these two strategies collide the omens are not good as it is a phenomena associated with equity bear markets. This becomes even more evident when we plug this data into one of our six bear market indicators, which now shows a 99.7% probability we are in a bear market.
So if we are then what? "In a secular bear market being wedded to hope destroys portfolios as the bear slashes to ribbons the hard-fought gains of the previous bull market. Gains that have taken years to accumulate are gone in months."
Ah yes, but not before central banks, which as Albert also correctly implies, are all in do everything in their power to prevent even the most modest market drop, because if there is anything first Bullard's comments in October, and then NY Fed president Bill Dudley's yesterday have shown, is that for the Fed none of the economic data actually matters - the only thing that does is the S&P500, and worse: even a modest 10% market correction is enough to lay total destruction to the Fed's best laid plans of an "imminent" rate hike, and even hint at QE4.
At the end of the day, this will be the most epic fight between what little "free market" forces are left, and the biggest and coordinated printing fest ever witnessed in modern economic history. While the ultimate outcome is clear to all, it is the process how we get there that everyone is fasctinated with. Our guess? First the central banks will take out all the bears, then take out all the bulls, until finally just the HFTs algos are left trading with themselves, in a "market" where the only signal is whether other algos are buying, or - Fed forbid - selling.
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Nice
Everyone thats anyone is long so the indexes will not go down
Stocks however will
Rate Hikes and QE...Simultaneously?!? Actually, Yes!!!
http://econimica.blogspot.com/2015/08/rate-hikes-and-qesimultaneously.html
All the EM countries are burning up their FX reserves and whether it's China or Saudi Arabia, sooner or later they are going to run out of bread and circuses, but the smaller countries will start to default soon, so prop that market up And get ready for the FED to begin "monetary stabilization" and the banks to begin capital controls followed by bail-ins.......
who cares about Albert Edwards...just keep me posted on Gartman...cha-ching !!
I would hope so.
Just the rest of the world doesn't agree...
"Confidence restored" and so on...
http://www.denk-bubbles.com/confidence
There are plenty of dumbasses left to shear by the powers that be.
Whose money do the algos eat then, or do they all become, if they aren't already, part of central bank infrastructure. The FED will be printing debt onto the citizens and handing it to the banksters at ever increasing rates.
Glad I don't have cnbc in my new place....no more yammering on by the twerks and dorks on there and cheerleading this casino....
As for Edwards.....thanks for telling me what I already know
Heck of a rebound for a dead cat. Time will tell. If we can't get to NFATH here there might be a bear out. I guess a lot of retail got fleeced the last few days and if they are tapped out and don't come back, who will hold the bag in the end?
Looks like someone suckered a bunch of buyers with that fake momentum ignition in the S&P around 12:15. Talk about loading up a large short position at lovely price levels.
So then, why is it that the S&P (as proxy for postive public sentiment regarding the economy as a whole) so important to the Fed...? Shall we just cut through the Bullshit and lay it out in blunt terms?
Because nothing less than the socio-politico-economic 'order' is at stake, should a true market clearing event be allowed to take place. The irony of course, is that it will take place anyway, but on much harsher terms, so it's Lose/Lose in any case.
Sorry but QE4 is dead and plan on rate hikes in fall regardless of any market corrections........China selling treasuries seems to be sealing that deal.
Since real GDP has been negative for 7/8 years, welcome to the party.
Impossible. There are no markets, therefore no bear markets. There is only a casino run by central banks, HFT firms, and various other banksters rigging commodity prices and interest rates. The so-called markets are in a constant bubble-correction cycle since 1995 and have been losing real value since 1999. It's disgusting. House wins, muppets lose. The masses are being fleeced and don't even know it. Fuck "markets", we are headed toward a global economic depression. I have no idea when, but it will be painful.
Keep hanging onto hope that fed goes ahead with Rate Hike, which indicates that even the fed "gets it" and is trying to kill the monster they created.
Whateva...
According to Guggenheim Partners:
http://www.guggenheimpartners.com/perspectives/media/the-monetary-illusion
As economic growth returns again to Europe and Japan, the prospect of a synchronous global expansion is taking hold. Or, then again, maybe not. In a recent research piece published by Bank of America Merrill Lynch, global economic growth, as measured in nominal U.S. dollars, is projected to decline in 2015 for the first time since 2009, the height of the financial crisis.
In fact, the prospect of improvement in economic growth is largely a monetary illusion. No one needs to explain how policymakers have made painfully little progress on the structural reforms necessary to increase global productive capacity and stimulate employment and demand. Lacking the political will necessary to address the issues, central bankers have been left to paper over the global malaise with reams of fiat currency.
With politicians lacking the willingness or ability to implement labor and tax reforms, monetary policy has perversely morphed into a new orthodoxy where even central bankers admittedly view it as their job to use their balance sheets as a tool to implement fiscal policy.
One argument is that if central banks were not created to execute fiscal policy, then why require them to maintain any capital at all? Capital is that which is held in reserve to absorb losses. If losses are to be anticipated, then a reasonable inference is that a certain expectation of risk must exist. Therefore, central banks must be expected to take on some risk for policy purposes, which implies a function beyond the creation of a monetary base to maintain price stability.
What kinds of risk are appropriate for a central bank? Well, the maintenance of a nation’s banking system would plainly be in scope, given the central bank’s role as lender of last resort. The defense of the currency as a store of value and medium of exchange is another appropriate risk. This was the apparent motivation of Mario Draghi, European Central Bank president, for his famous promise to defend the euro at all costs in the summer of 2012. The central bank balance sheet has proven a flexible tool limited in use only by the creativity of central bankers themselves.
In response to those who argue against the metamorphosis of monetary policy into fiscal policy, one need only point toward the impact of quantitative easing (QE) on interest rates. The depressed returns available on fixed-income securities, largely as a result of QE, are acting as a tax on investors, including individual savers, pension funds, and insurance companies.
Essentially, monetary authorities around the globe are levying a tax on investors and providing a subsidy to borrowers. Taxation and subsidies, as well as other wealth transfer payment schemes, have historically fallen within the realm of fiscal policy under the control of the electorate. Under the new monetary orthodoxy, the responsibility for critical aspects of fiscal policy has been surrendered into the hands of appointed officials who have been left to salvage their economies, often under the guise of pursuing monetary order.
The consequences of the new monetary orthodoxy are yet to be fully understood. For the time being, the latest rounds of QE should support continued U.S. dollar strength and limit increases in interest rates. Additionally, risk assets such as high-yield debt and global equities should continue to perform strongly.
In the long run, however, classical economics would tell us that the pricing distortions created by the current global regimes of QE will lead to a suboptimal allocation of capital and investment, which will result in lower output and lower standards of living over time. In fact, although U.S. equity prices are setting record highs, real median household incomes are 9 percent lower than 1999 highs. The report from Bank of America Merrill Lynch plainly supports the conclusion that QE and the associated currency depreciation is not leading to higher global output.
The cost of QE is greater than the income lost to savers and investors. The long-term consequence of the new monetary orthodoxy is likely to permanently impair living standards for generations to come while creating a false illusion of reviving prosperity.
We will be in a recession - food stuffs will be priced sky high. Nobody will be working. Ruots and looting abound. And the $INDU, $SPX, $COMPQ qill all be breaking records and CNBC will be cheerleading it all the way.
Beurtiful thing. (sarc/)
Did this indicator just flash its signal today? Where was he last week before the 1,500 point drop in the dow? Nobody ever wants to express their opinion anymore, for fear they'll be ridiculed. Now they have to wait for some type of 'confirmation' in order to step out on a limb. Nutless bastards.
Crispin Odey did, some months ago.. Said his fund was short EM fx - and Stocks. The consensus on here was that either he was lying and wanted to talk the market to his buy point, or that he would have his bollocks handed to him. Not that I am normally an Odey admirer, but a better call than any analyst made.
Crispin Odey did, some months ago.. Said his fund was short EM fx - and Stocks. The consensus on here was that either he was lying and wanted to talk the market to his buy point, or that he would have his bollocks handed to him. Not that I am normally an Odey admirer, but a better call than any analyst made.
Nah. This came out about a week and a half ago. See below. Everyone just shrugged if off I guess...
http://www.businessinsider.com/socgen-investors-style-bear-market-2015-8
How's this for an indicator? Q2 GDP revised up from 2.3 to 3.7. Does that fit with your chicken little narrative?
Let us know how buying up all of the excess inventory in the county goes for you. Wish I had your money.
We already know you have a little chicken. Let us know when you have something to say.
GDP was revised up largely due to increased healthcare premiums. How does that benefit anybody except the HMOs?
Edwards and Bob Janjuah; permabears who have seldom changed their tunes.
But the tune is now long overdue as a number 1 on the hit parade.
So as market predictors they have left us behind them the shrill wail of such a long Cassandra session, that I'm lost for words; but not of juice.
So I'll sing as this is ZH's fight club which also is a permabear den.
As they say : sing to the wind but never piss in the wind. The first is good for your vocal chords. The second only gives you back your own secretion. Its closed loop, you better be closed lips when you see it come.
So when hot lips speak, cold minds look behind the words to the facts. Sometimes those lips are walking where wise men never tread. Sometimes not. Time decides.
Ask Janet. She knows a lot about incontinence. She is paid to make the Fed pee.
Timing is something nobody can predict but some can delay if they be powerful.
To make a delaying game reap rewards you have to have a true solution in the pipeline. A new paradigm that repairs the past one by changing the business cycle pattern based on new propulsion.
China was supposed to play that role post Lehman first world, but based on the past hyperconsumerist paradigm. The aim was sustained global growth to wash away global debt in inflation. Inflation : the holy grail of Pax Americana's wayward Crusader trail post Lehman.
Now, we don't see that one coming true. And worse, History teaches us nobody likes to take the blame for a failed global game. Crusaders can get burned at their own MIC cleansing or bankster gambling games; whatever the dogma they serve.
Remember Acre 1291 and Paris 1314. But thats fairly tales to the current hubristic mob. Until...Now the world trembles at being reminded of another word : MAnsourah !
When thieves fall out the financial Titanic is an awesome place to be.
Have we spawned Replicants of our own concoction? Are they invading our own homelands?
Money, guns and democracy now all in the pipeline. Democracy cannot stand to face the grand replacement that this pendulum swing conjures as vision; especially if we've lost faith in the essential : our ability to make the world a better place according to our values !
And the empire in Turmoil and not just at Jackson Hole. Markets and societal values now head up a dark place.
Its time to change this sterile game of financial Cassandras looking into a mad Casino, of Templars and Jihadists killing the innocent; and to build a new paradigm across the world; not for the psychopaths but for the people and their increasingly fragile planet.
Hocus pocus! And it's gone.
To be in a bear market, don't we first need a market?
Wow! 99.7% chance of a bear market? That's almost as good as Gartman calling for a bull market.
"or - Fed forbid - selling."
Nice punchline!
Great article!
Inflation in asset prices is not a problem, unless you do not own any and try to buy some.