Albert Edwards of SocGen says loss of top quarterback is a market signal

There are contrarian indicators and contrarian indicators – and then there is Albert Edwards, Societe Generale's pessimistic market badyst who thinks that his disgrace as a senior adviser in an investigation is a sign that investors must monitor.

In a cheeky and self-deprecating badysis, the long-time market bearer regrets its loss of reputation after 15 years of success in the European Extel survey and believes this means that the bull market, which is beating all the records, is coming to an end. The Edwards team at SocGen has lost first place in global strategy to a JP Morgan team led by Mislav Matejka.

In a note addressed to his clients, Edwards said that he was taking his defeat "in a positive manner," believing that "the reversal of this bearish uber from his perch must surely mean that the bear market of stocks has begun."

He points to other upsetting points, such as the cover story of the 1979 Business Week entitled "The Death of Equities" which came out just before the start of the bull market of the 1980s. These are also indicators similar to an unexpected market reversal. He also told a story in 2009 in which he made a presentation in front of a movie theater on Broadway, just before the start of the current bull market.

"These contrary anecdotal indicators are sometimes worth far more than the hundreds of millions of dollars spent on basic macroeconomic research," writes Edwards.

"So we need to celebrate the loss of my first place – more than any other sophisticated leading indicator, it is clear to its clients that this cyclical bull market in equities has come to an end and that the recovery of the secular bear market has begun. deep and deflationary unfolding, "he continued." Of course, the fact that I get fired would be a 100% slam-dunk signal, but it has not happened yet … for the moment "

Becoming more serious, Edwards said that there were legitimate signs that the bull market was winding down.

One of the most important he quotes is a reverse yield curve following monetary tightening by the US Federal Reserve, which was much more severe than the current central bank reference rate of 2 suggests. , 25% to 2.5%. In fact, the Fed was tightening against real rates of -3%.

"Being a simple soul, I think the inversion of the yield curve tells us that the Fed has raised interest rates considerably." This often coincides with a reversal, especially when the bond market starts to feel the sickly odor of an economy falling into a recession, "he wrote.

"Investors may have underestimated how long the yield curve has been reversed and, therefore, how much the recession is imminent," added Edwards.

Stocks have rallied in the past two days since Fed Chairman Jerome Powell and others have made comments interpreted as indicating an imminent rate cut. Edwards advised to watch the signs and watch closely when the Fed actually acts.

"Is it too late to sell?" he wrote. "Stocks are likely to recover at the Fed's first rate cut, but this could prove to be the last chance to sell before the recession crushes the Dow."