Sell Everything

By M-ole on Wed, Jan 13, 2016 - 7:11pm

By now many of you may have seen this article:


Here is someone else chiming in with an ominous outlook (although, admittedly, he appears to be an uber-bear) -
Albert Edwards is back again calling for a breach of 2009 lows
- The SocGen strategist says the West is about to be hit by a wave of deflation from emerging market economies and that central banks were unaware of the disaster about to hit them.
- “The previous bear market low was in March 2009 when the S&P reached 666. I think we’ll go below that within this bear market.
- “Emerging market currencies are still in freefall. The U.S. corporate sector is being crushed by the appreciation of the dollar.
- U.S. economy is in far worse shape than the Fed realizes: “We have seen massive credit expansion in the U.S. This is not for real economic activity; it is borrowing to finance share buybacks.”
- Edwards thinks the "Yellen Fed will go down in infamy as deliberately stoking up yet another massive financial bubble. But unlike the start of the last tightening cycle in 2004, this time the corporate bond market is already severely stressed and it may take just a tiny pin-prick to burst open the putrid excess."
> US corporate net debt has exploded and massively exceeds EBITDA
> Share buybacks are mainly funded by debt
- But it's not just the use of debt-funds. The problem is that as debt built up, it did not create incremental cash flow, and as Edwards observes, key metrics such as EV/EBITDA show stock market valuations back to all time highs "and well in excess of PE measures." The take home: "it is very difficult to find any cheap stocks."
- Recent cardiac arrest of the junk bond market:
> The bond market is saying two things: "the party's over and bond investors who always tend to be more sober types, realize this and have headed for the exits whereas equity investors are so intoxicated they haven't realized that the music has stopped. Equity investors are still gyrating around the dance floor - just as in 1999 and 2007.
Quants also seem to be switching from "buy the dips" to "sell into rallies" -
Seems like at least a time to take some chips off the table.



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