Soc Gen’s global strategist warns on US ‘recovery’

The downturn in US profits is accelerating, warns Albert Edwards

Soc Gen’s global strategist warns on US ‘recovery’

Albert Edwards, global strategist at Societe Generale, has warned that investors are ignoring a “savage deterioration in US profits” as they send equity markets to record highs.

In his weekly strategy newsletter, published today, Edwards wrote: “With equity markets galore hitting record highs clearly I must be missing something big! We are at that stage in the cycle where I begin to doubt my own sanity. I’ve been here before though and know full well how this story ends and it doesn’t involve me being detained in a mental health establishment (usually). The downturn in US profits is accelerating and it is not just an energy or US dollar phenomenon – a broad swathe of US economic data has disappointed in February. One of the positive surprises, payrolls, is a lagging indicator. The $64,000 question is not if, but rather when will investors realise what is going on?”

As proof of this he cited what he called a “savage deterioration” in US corporate profits and explained that the February IBES data shows the decline has accelerated. He commented: “It may be that investors are ignoring the data this time around as they attribute the profits decline as primarily driven by the energy sector and that other sectors will actually benefit from the lower oil price. This may work in theory but it doesn’t seem to work in practice as the strong dollar rips through non-energy company profits.”

Unfortunately, investors are focusing on the wrong area, fixating as to when the US Fed will raise interest rates and ignoring the fact that asset bubbles are likely to pop before rates rises occur.

As to when investors are likely to wake and smell the coffee? He comments: “In terms of the US economic data surprises this is the worst start-of-year since 2009…Typically the data starts deteriorating rapidly from March onwards and if that familiar pattern is repeated again this year then I would be amazed if the markets didnt react violently to the reality of the situation (rather than the Feds pillow talk).”

Learn more

If you’d like an explanation as to why the US stock market will soon crash from one of the world’s most insightful economists, watch this interview with Professor Steve Keen.

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Christopher Menon

Every Investor Editor Chris Menon is a financial journalist who has written regularly for national newspapers, magazines and websites about personal finance, with particular emphasis on investing.