Albert Edwards of Societe Generale warns that the global economy is, like the Titanic, about to "sink below the icy waves."
Edwards said in a new report to clients of the Paris-based bank
that U.S. companies are hiding serious problems by blaming everything on the weak dollar. Edwards compared the situation to "a shuffling of deckchairs on the Titanic before the global economy sinks below the icy waves."
“The dollar’s recent rapid slide has been accompanied by a constant backdrop of dovish cooing from the Fed. Until this week, both equity and commodity markets had embraced the weak dollar as the elixir to solve all their ills," he said. "That relief has now proved fleeting as fear of weak economic activity has reasserted its influence on investors. The weak dollar should be seen as merely a shuffling of deckchairs on the Titanic before the global economy sinks below the icy waves,” he said.
Markets are sputtering because of "fear of weak economic activity" Edwards said in Societe Generale's weekly Global Strategy note to clients.
“Risk assets are once again refocusing on the increasingly dismal prospects for global growth rather than the short-term relief of dollar weakness. The US remains the main concern, although the rapid unraveling of Abenomics in Japan and a likely imminent tightening of monetary policy in China to snuff out yet another housing bubble in the major cities also feature high on investors worry list,” said Edwards, the Société Générale strategist who forecasts the S&P 500 will plunge 75 percent from last year’s record high,
“But it is in the US that growth concerns remain most intense, with renewed weakness in the manufacturing ISM as we move into Q2 following on from the moribund 0.5% qoq Q1 GDP out-turn.”
“The sad thing is that ... the Fed has boxed itself into a corner, for surely it is clear to all in the markets by now that it's not "global risks" that worry the Fed but the impact on the S&P. But all the Fed's loosey goosey will prove irrelevant as the cycle ends. Get ready to suck it up as the inevitable recession demonstrates the Fed's total impotence,” he said.
“It ends with social unrest and double digit budget deficits (again). It ends with investors losing faith with the Fed as the resumption of QE proves ineffective in reviving the economy. It ends in deeply negative interest rates, currency and trade wars, helicopter money and ultimately inflation. In a nutshell, it ends badly.”
Other respected economic voices also have recently warned about the dismal condition of the global economy.
Edwards isn't alone in his concern.
Famed economist Nouriel Roubini of New York University warns that the United States will continue to remain mired in a global economic funk.
“We are likely to remain in what the IMF calls the 'new mediocre,' Larry Summers calls 'secular stagnation,' and the Chinese call the 'new normal.' But make no mistake: There is nothing normal or healthy about economic performance that is increasing inequality and, in many countries, leading to a populist backlash – both on the right and the left – against trade, globalization, migration, technological innovation, and market-oriented policies,” he wrote in his Project Syndicate blog.
“Structural and market-oriented reforms are necessary to boost potential growth. But, given the timing of costs and benefits, such measures are especially unpopular if an economy is already in a slump,” he wrote.
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