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
TINA – there is no alternative.
What a bunch of crap. Just a sales pitch. Nothing else. Designed for the weak minded who depend on experts to do their thinking for them. The experts are not experts, FYI. They’re hucksters, some of whom believe their own sales pitch. The ones who aren’t hucksters are flunkies.
It’s not even a bear market, secular or otherwise. His own chart shows stocks at all time highs. That didn’t happen in his other examples.
Anyone who pretends to be able to predict the future may deserve the name huckster. This one doesn’t even understand basics.
Nobody is wrong about the mess. But my scenario is different. One a recession has started there will be the mother of all stimuli both deficit spending, QE, and helicopter money. This will save us one last time, in my scenario.
That makes sense… The big money gets to print as much as they want and the only thing they aim to do is to keep their dominant position at all costs.
Re deficit spending
Republicans control both Houses (for now) … and they belly ached mightily about ARRA in 2009 as a waste of money (initially about $800 billion with a third of that in tax cuts).
Fedgov outlays
FY2007 $2.728 trillion
FY2008 $2.982 trillion
FY2009 $3.517 trillion
FY2010 $3.457 trillion
FY2011 $3.603 trillion
FY2012 $3.537 trillion
FY2013 $3.454 trillion
FY2014 $3.506 trillion
FY2015 $3.688 trillion
As you can see fedgov spending ramped up (the Budget Control Act “sequester” hardly made a dent) and never came down. The deficit has shrunk (something north of $500 billion for FY2016) due to tax increases.
More spending? I think the deficit will explode next recession … but due to collapsing revenue …. a $trillion deficit wouldn’t surprise me … and that WITHOUT any increase in spending.
Congress cornered? Would Republicans sign onto a $1.5+ trillion budget deficit?
All I know … we’ll find out
“Would Republicans sign onto a $1.5+ trillion budget deficit?”
The RINOs would for sure, while pretending to be against it.
Hilary would for sure go along with it.
Trump? Not so much, I think.
Maybe it’s time to coin a new phrase, “The Shiller Thriller”, more exciting than any other man made rollercoaster.
Ponzi operators by definition (entities that meet current obligations only by selling assets) do not have a legal right to print money. Banks also legally print money when they lend. So governments and their central banks are not Ponzi because they are never forced to sell assets if they can print. Greece must sell assets because they cannot print Euros. Big mistake. The ponzi are everybody else; cities, states, insurers, pension funds, over indebted corporations, and individuals who cannot borrow, cannot raise money from investors, and have insufficient earnings to meet current obligations. When the tides of financial history change, governments act to cushion the blow. They stem the tide they do not reverse the tide.
Just like the first Great Depression sovereign governments will print a little, preside over corporate and personal bankruptcy a little, reneg on pension obligations a little, reduce services a little, raise taxes a little, and generally muddle through. Very likely this will go on for decades just like Japan and just as there investors will find few places to hide. Oh, and then maybe a war.
I’ll beg to differ on the definition – banks, by expanding money supply, are selling the value of currency as an asset, and are currently doing so to help keep their own accounts afloat.
Money is an asset, whatever form of it is used. In modern banking it is also someone else’s liability. By increasing both assets and liabilities equally is not equal, for the simple reason that the consequent increase in money supply devalues existing currency.
Some might say that this ‘management’ supports the economy that the existing value of fiat lays claim to. However to redistribute valuations as is being done, well who is to judge, when the ability to do so is in the process denied?
So maybe you are right, and it is not a ponzi but a mutualized socialization of money, but if so we are all paying to keep it going, to the eventual point of rationing supply maybe. At that point a select few will have ‘won’ , and the rest will be expected to be thankful that they are not allowed to lose. Maybe someone will have some explaining to do when productivity falls through and society rebels though.
The only difference, really, is that bankruptcy by mathematical accounting may not take place, people will be paid with money that has no real value instead, though they are likely to declare the process bankrupt long before that, and by doing so would remove the implied values as false, instead of being subjected to them.
So a ponzi after all , built on the credibility conned off the public.
Government can sure as hell create inflation by printing. And they can hand out printed money to all the ponzi in the economy turning them into non Ponzi who can now pay their obligations in the deflated currency. So in that context the bad idea is turning half your economy into Ponzi. The damage is really done at that point. Solving the problem by handing out printed money is a lousy solution but so is mass bankruptcy of the Ponzi actors. That’s where we are. Pick your poison (cure). Foolish bank lending created these Ponzi walking dead and now they are everywhere. It’s just semantics but I think it’s important to say CBs are not Ponzi. They are one of the possible painful cures to fix the Ponzi infestation by providing the capital to repair broken balance sheets.
Inflated currency. Oops.
Why is mass bankruptcy of Ponzi actors a bad solution? It is the best possible outcome – the effects are localized to participants only. A govt bailout pulls everyone into it – why CBs should not exist.
The Ponzi go down the banks go down so payment system goes down. Unacceptable so govt bails out the banks, again. Same banks strip assets from bankrupt Ponzi. Terrible outcome. Best way is print for everyone but debtors must pay down debt. Jubilee.
Demand soars. Ponzi earnings soar. Ponzi service current obligations from earnings. Banks shrink as debts get paid down but system survives. Fair, clever, and justice for finance sector.
Peter – think of the precedent you are setting in each case and work from there , no ?
Payment system goes down means it is no good , means time to think of a way to avoid systemic failure – individuals should be doing this now .
“Ponzi service current obligations from earnings.” means Ponzi goes full Ponzi … and banks increase debt to them , not retire it .
CB backing of fractional reserve banking is what enables the Ponzi to begin with. But since we are here, what is the best way to resolve? Cease CB interventions – let things fail that should fail. That’s capitalism. Do $&!# and $&!# happens to you. Bailouts are cronyism.
Not Ponzi while people believe in them maybe . A traditional Ponzi ends when the subscribers contributions do not support the payment of inflated dividends or debt .
The same might happen to a fiat currency when people no longer support the the notion of value attributed to it . That is to say real contributors to its existence , what you could call the real economy that is the wealth it pretends to represent , stop using it . If CBs decide to openly give currency away , history has examples of what happens . Quite easily its value is destroyed , all business calculations enter a new dimension , and people move into anything but anything that holds value compared to the currency.
I think it is very important to differentiate between what is finance (fiat is finance or credit , an asset as long as it is believed to be money, or economically valid) , and what is the economy (the business) , which is fully tangible production and service . The latter is not Ponzi , it cannot be, though it may be many other things , such as false or unprofitable , its failures will be self evident as what it demands in contribution must be directly physically justifiable, whereas finance is a fungible contribution and may be misappropriated or used to render accounting without touching the economic reality except so as to misrepresent it , something very different from a false economy .
An example :
If you eat your seed corn , you may starve later rather than sooner . That is the real economy , and a potential false economy .
If you mis-present your seed corn as production for sale so as to gain finance to be able to eat , you may starve later than sooner , and you may just have a bumper crop which repays your finance, or go broke and still starve later than sooner.
If you mis-represent your seed corn as production for sale to gain finance , and you book that finance as profits to gain more finance , and on and on , you know you will go broke , you know you will be rich , you know you might go to jail , or if you are a banker who started with an asset with no intrinsic value but agreements and the force of law , fiat , you know you may retire to a nice island because the law can be bought , because it is beholden to the existence of fiat in real terms (wages) .
Fiat is Ponzi from the get go when looked at like that , it is a credit to the future supply of goods or services, based on nothing but a reasoned extraction of future wealth so as to enforce its own parasitic concept of existence , protectionism . In theory the relationship is symbiotic , in reality it formulates a trade where there is a complicity to amplify profits or sustain accounting values for profit by degrading the publicly shared value of the currency , that by transferring part of its value into newly created fiat . Those who are in an absolute position to do this are in a position of absolute say , just as long as there is no revolt , and it matters more to them that they maintain their position, than the state of those they maintain their position over.
To me that is has all the trappings of Ponzi . They will issue you new fiat as debt that you cannot repay except by issuing more new fiat as debt , and when you cannot repay that they will issue it in the name of the public as a whole and spend it on their chosen projects , while you have to serve them so as to repay your debt , just like someone taken in by a Ponzi scheme may end up waiting at the table of whoever made off with the profits.
Ponzi Scams are fraudulent because at their essence they are a debt that can never be repaid. Pronouncing a Ponzi Scam as legal does not alter its essence therefore, legal or not, it’s still a Ponzi Scam.
Except what is going to facilitate the market crash? You have already indicated that central banks are buying stocks. That means earnings and fundamentals do not matter anymore since banks can print endless digital units to float the market. We could have a full blown depression and the market might still be at nose bleed levels.
Its really hard to draw a line between what government and coeporations are and its getting worse.
Another clown predicting disaster. Snore.
Eric hunsader tweet today…..105 stocks suddenly jumped at 12:05:38.
46 of those moved 1% or more
Each line is 1 stock
Must be central bank buying. Right!
U can say it will end but when?
U can say it’s wrong and has consequences.
The machine rolls on.
Better to be a slum lord, u bet!
Thanx for that info, D.
My question is, what happens when the central banks have to start selling the trillions invested in bonds and stocks they are accumulating to inflate the world economies?
They don’t sell to inflate because selling generally reduces liquidity. Buying nearly every bond as the BOJ has done, has also reduces liquidity since the remaining assets have more risk. Investors don’t want the risk, so they hold cash.
Bankers are successfully waging war on Jane average’s 401k. Bankers have become oppressors of the people.