Thursday, May 26, 2011

SocGen Albert Edwards - S&P @ 400 sub-2% US bond yields?

Albert Edwards talks about his expectations of massive private debt being transferred to governments' balance sheets to cause another deflationary period. I agree with him. The just out US 1Q11 GDP numbers were pretty bad. And that is on the back of never-seen-before fiscal and monetary stimulus GLOBALLY.

So back to Edwards, a realist in my opinion.

Deleveraging will take place and ultimately risky-asset prices will come down causing another recession, deflation and then rising bonds prices.

He disagrees with Russell Napier, CLSA, that argued weeks ago that the market would collapse with rising bonds yields. That rising yields would be the cause of the collapse. Back then I mentioned that I didn't understand his point, therefore disagreeing.

I am on Edwards's camp.

Edwards believes bond yields will only rise AFTER the bust, when governments are forced to print massively to save the world.

Despite fully acknowledging the ruination of the government balance sheets as years of excess private sector debt are transferred to the public sector, we still expect to suffer another deflationary bust that will take government bond yields to new lows BEFORE government profligacy and the Fed's printing presses take us back to both double-digitinflation and bond yields. For now, we remain heavily overweight government bonds.

SocGen Alternative View - 2011 05 25 - Albert Edwards - Let Me Re-emphasize Our 400 S&P Forecast With S...

*Disclaimer: charts and data are presented as I receive/see them. Sources are usually not checked for validation and my own calculations are of 'back of the envelope'-type. I am aware that some math that I do myself might be wrong and/or misleading to some extent. In financial markets the rate of change of economic data is often more important than the actual level and the perception of 'what is priced in' is more important than 'what is actually going to happen'. This is actually the way people pick entry and exit points. So... yes, sometimes you might say 'This guy is an idiot, this is way wrong!' with a high conviction, being right. Not to worry. Markets are made of expectations and the clash of conviction between its participants. Portfolio managers know that being an idiot is sometimes profitable and being smart is often a bad choice. It is all reality, sometimes good, sometimes bad. By the way: corrections to my analysis and intelligent debate is welcome. theintriguedtrader AT gmail do com

No comments:

Post a Comment