Tags: US | Recession | Ice | Age

SocGen Analyst: US In Recession, Stock Market Facing ‘Ice Age’

Friday, 07 September 2012 08:24 AM

The U.S. economy has already slid into a recession and stock markets are poised to enter an "Ice Age" marked by little activity and movement, said Societe Generale strategist Albert Edwards.

Hopes that the Federal Reserve will stimulate the U.S. economy via a third round of quantitative easing (QE) have pushed stock prices up in recently, and not corporate fundamentals, as earnings have come in softer lately.

Under QE, the Fed buys assets like Treasury holdings or mortgage-backed securities from banks, pumping the economy full of liquidity to push down borrowing costs and encourage investing and hiring, sending stock prices rising in the process.

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown

The Fed has stimulated the economy twice since 2008 via QE, and once monetary policy runs its course, stocks will settle in for a long winter.

“I believe that the third leg of the Ice Age de-rating in equity markets is imminent. For this secular bear market to end, investors must voluntarily give up hope. Otherwise the vice-like grip of the bear will soon squeeze the hope from their gasping, broken bodies,” Edwards wrote in a note to investors, according to CNBC.

High-profile investors have warned that the days of hefty returns in the stock market are over, while a new era of inflation is dawning, including Bill Gross, founder of Pimco, manager of the world's largest bond fund.

Individual investors should balance their asset mixes according to their ages, with younger owning more stocks and older investors going heavier in bonds.

"If you choose an investment advisor, a mutual fund or an ETF, make sure that your fees are minimized. After all, if overall returns average 3 to 4 percent annually how can you possibly afford to give 100 basis points of it back? You cannot," Gross wrote in his September Investment Outlook.

"And be careful. The age of credit expansion which led to double-digit portfolio returns is over. The age of inflation is upon us, which typically provides a headwind, not a tailwind, to securities price — both stocks and bonds."

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown

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