In his Global Strategy Weekly email, Albert Edwards at Societe Generale warns “TINA Will Let You Down“. Edwards also warns multiple recessions are on the horizon before stocks are cheap.
One thing we constantly hear from clients is that despite equities being very expensive, they are the “cheapest“ of a very expensive array of assets, all inflated by super-loose monetary policy. Bonds (both corporate and government) and property are seen by most investors as even more ludicrously expensive than equities. So the argument goes, ‘there is no alternative’
– aka ‘Tina’ – other than to buy equities as the default option. The excellent performance of equities since the last recession, most especially US equities, has underpinned this belief. But relying on Tina, in the Ice Age, is one of the biggest investment mistakes you can make.
One thing we learnt from Japan is that the equity secular valuation bear market takes many economic cycles to unfold and ends when equities are dirt cheap. US equities did not get dirt cheap in March 2009 at a Shiller PE of 14x they just got cheap. To be dirt cheap they needed to half again from the 666 level they reached. But why should we have expected this
process to end in 2009 as it was only the second recession from the valuation peak of 2000? Historically the shortest secular valuation bear market has taken four recessions to play out.
We also learnt from Japan that each successive recession caused equity valuations to slump to new secular lows. And history shows that is exactly the case too in previous US secular valuation bear markets (with recessions shown in red on the top line above). Most investors are currently neglecting the longer-term context of this secular bear market.
If I am right (and I am on occasion), this is merely a brief interruption in the secular de-rating of equities and the next (imminent?) recession will bring devastation to Tina-loving investors.
Mike “Mish” Shedlock