Soc Gen’s global head of research, Patrick Legland, has gone on record, according to a MarketWatch article yesterday as saying that the selloff in developed equity markets has gone too far, and he provides reasons to support his claim. First, he suggests the Chinese market rout has further to go but believes the fallout will be limited to EM and commodities. Second, Legland believes that the US and other developed nations are protected by “well-armed central banks” evident by the 3.7% economic growth and the 5.1% unemployment rate and the Eurozone’s 3 year low unemployment. Lastly, he suggests that due to central banks having created a bond market bubble bonds are no longer a safe haven and thus no longer a viable alternative to equities. I will point out that Leon Cooperman also discussed on CNBC yesterday morning the fact that there are no viable alternatives to equities anymore and so equities remain in the secular bull.
Let me explain this to Legland like he is an 8 year old.
Ok like he’s 5.
While I admire Legland’s optimism I simply do not accept his claims. They are full of tragic flaws. Allow me to colour code this for all those market ‘pros’ and PhD ‘economists’ who haven’t been able to follow the premise over the past several months.
The chart depicts that this rout has just begun. As EPS rolled over in the first half of this year, it signaled that ‘The Tide has Finally Turned‘ as I explained in a recent piece published Aug 2nd (just weeks before the selloff began). In that research piece I told readers to “prepare for an imminent equity valuation reset” and explained why it would occur. The above chart provides an explanation as if we are a 5 year old.
…click on the above link to read the rest of the article…
