Home » Posts tagged 'SocGen'

Tag Archives: SocGen

In his latest note published last week, SocGen’s Albert Edwards – never at a loss subjects that inspire his outrage – rages on the topic of Brexit, and specifically the often repeated assertion (discussed here as well), that post-Brexit referendum UK has lost 2% of its GDP output, or about £800m a week.

We won’t dwell on that for a simple reason: as UBS’ chief economist Paul Donovan put is best last week, “A few things have happened in the EU-UK divorce. Does anyone care? No, they do not.”

Another reason why Brexit is largely meaningless despite resulting in countless, pound-moving newswire headlines each hour: the final outcome is clear – with Theresa May a remainer, and with both sides seeking to perpetuate the status quo by delaying and delaying and delaying some more until it appears that it’s the public’s desire to reverse the outcome of the 2016 referendum, it is just a matter of time before the entire idea of Brexit is scuttled.

Instead we will focus on an anecdote that Edwards brings up in relation to his now 30-year-old son, Newcome, who was 10 back in 1999, and was reportedly stealing Albert’s Financial Times “to look at Nasdaq share prices:”

It was at that point that I realised the tech bubble was really getting out of hand (I have reproduced part of this weekly explaining what happened, at the end of this note).

As Edwards further explains, “discovering my 10 year old son looking at Nasdaq share prices alerted me to the extent of the madness that had gripped the markets by end 1999. Similarly there are moments in this job when something you hadn’t been following particularly closely is highlighted to you and you stagger back in shock. At that point you realise that something has gone very wrong.”

…click on the above link to read the rest of the article…

Albert Edwards: “Equity Investors Are Facing The Four Horsemen Of The Apocalypse”

October 11, 2018

Albert Edwards: “Equity Investors Are Facing The Four Horsemen Of The Apocalypse”

Even SocGen’s Albert Edwards was surprised at how quickly his latest predication was validated.

Recall that 3 weeks ago with the 10Y yield at 3.10%, with Edwards looking at the surge higher in 10Y Yields the SocGen strategist pointed out that the break in the 10y above 2.8% was not the key level that could mark the end of the secular bull market, but rather it was the 3.05% zone as shown in the chart below.

Commenting on this breakout, he said that rates might surge further and addressed whether this would mean the end his “Ice Age” thesis. As he noted, if investors “get the wrong side of a new multi-year bear market in government bonds, all investment portfolios will be shredded to ribbons as bonds are the cornerstone of most equity valuation models”.

Fast forward to today when in his latest note he writes “let me be totally honest: I was most surprised that the US 10y yield managed to smash through its multi-decade downtrend last week, mainly due to the fact that the CFTC data showed that speculators had already built unprecedented large short positions. It seemed that every man, woman and child was already bearish and so who was left to sell? Well clearly someone was! One thing that helped tip bond prices over the edge and take yields up to 3¼% was the fundamental support from stronger than expected economic data (see chart below). ”

Another factor for the latest breakout in yields which pushed the 10Y interest rate to fresh 7 years highs was the previously discussed economic exuberance by Fed Chair Powell who managed to convince markets that they were still too sanguine on their expectations on interest rates, “and the futures strip ratcheted up another notch towards the Fed dots.”

…click on the above link to read the rest of the article…

Albert Edwards: Why The Next Recession “Might Only Be Six Months Away”

September 20, 2018

Albert Edwards: Why The Next Recession “Might Only Be Six Months Away”

SocGen’s Albert Edwards is out with a new note today – one which he says he wasn’t going to write – but felt compelled to do so anyway due to the ongoing rout in the US bond market, which has prompted the following question that Edwards tries to answer: Is the Ice Age over?… of as he elaborates:

“As the bond rout continues, the biggest call investors have to make is whether the break of the multi-decade downtrend marks the end of the secular bull market. This is the big one. Get on the wrong side of a new multi-year bear market in government bonds and all investment portfolios will be shredded to ribbons, as bonds are the cornerstone of most equity valuation models.”

To Edwards this is a familiar question because as he explains, it is “exactly the same bold heading box I wrote in my Global Strategy Weekly of 13 June 2007.” As he recalls, “the rout in the bond market back then was even more savage than it has been in recent weeks, with the 10y yield rising from 4¾% in mid-May 2007 to the 5¼% peak on 12 June, just one day before I wrote the words above, pondering the possible end of the secular bull market for Government bonds.”

Furthermore, just like now, yields were also set to break out above the secular downtrend and respected bond investors such as Bill Gross were, just like now, calling for the end of the secular bull market. Referring to a chart from SocGen’s head of technical analysis, Edwards points out that the break in the 10y above 2.8% was not the key level that could mark the end of the secular bull market, but rather it was the 3.05% zone as shown in the chart below. Indicatively, earlier today the 10Y hit 3.09% after reaching as high as 3.11% yesterday.

…click on the above link to read the rest of the article…

“The Nightmare Scenario” Revisited: Albert Edwards Lays Out The Next “Black Monday”

October 27, 2017

“The Nightmare Scenario” Revisited: Albert Edwards Lays Out The Next “Black Monday”

Is it the onset of a recession or the fear of a recession that causes a crash? That is what SocGen’s bear (or, as he calls himself this time, wolf) Albert Edwards contemplated on the 30th anniversary of Black Monday, before reaching the conclusion that it’s the latter. Having taken several weeks off from publishing his ill-named global strategy “weekly” report to meet with clients, Edwards finds that most clients “seem to harbour similar fears as I, namely that the QE-driven bubble will burst at some stage and lay low the global economy, just as it did in 2007.” Yet where clients differ, is on the timing of said burst:

“despite my bearish (or is it wolfish) howling, virtually no clients think the denouement will come any time soon and that the equity bull market should have at least 12-18 months left to run. Most can see nothing on the immediate horizon that might burst this bubble.”

So, doing his public service to boost the overall sense of dread, and perhaps fear, Albert takes it upon himself to reprise recent discussions with clients, and in his latest letter explains “what might catch them out in the near term.” To do this, Edwards focuses first and foremost on the catalysts behind the abovementioned 1987 “Black Monday” crash.

A retrospective macro-narrative was inevitably wrapped around the ?Black Monday? 19 October 1987 equity market crash. My 30-year recollection is pretty good: 1987 saw a buoyant equity market rising briskly through most of the year as the oil price recovered from the previous year?s collapse (from $30 to $8, see chart below). After a year in the doldrums the US economy started to accelerate notably through 1987 as the impact of 1986 interest rate cuts and a lower dollar worked.

…click on the above link to read the rest of the article…

Mobs of Angry Investors Fight Market Rigging, Maul Deutsche Bank in Class-Action Lawsuit, other Banks Next

April 18, 2016

Mobs of Angry Investors Fight Market Rigging, Maul Deutsche Bank in Class-Action Lawsuit, other Banks Next

Since none of the criminal bankers responsible end up in prison…

Prior to last week, Deutsche Bank made headlines for a string of huge losses and massive exposure to risky derivatives. The last time the firm’s shares traded at prices this low, the world was in the midst of 2008’s financial apocalypse.

Deutsche Bank didn’t need more bad news, but a group of investors who brought suit against the massive German bank for cheating them by rigging the London “fix” price for gold and silver certainly must be smiling. Last week, the bank offered to settle their class action suit for an undisclosed amount.

Perhaps more importantly, DB promises to provide evidence to help the plaintiffs in their suit against the other banks who participated in manipulating the fix: Bank of Nova Scotia, Barclays, HSBC and SocGen. In a letter to U.S. District Court Judge Valerie Caproni, the plaintiff’s attorney said, “In addition to valuable monetary consideration, Deutsche Bank has also agreed to provide cooperation to the Plaintiffs, including the production of instant messages and other electronic communications, as part of the settlement.”

If the information DB provides is incriminating, as the plaintiff’s expect, it won’t be the only recent example of bankers getting caught talking smugly amongst themselves about swindling investors and clients. A year ago Citigroup, JPMorgan Chase, Barclays, and RBS pled guilty to criminally rigging the foreign exchange markets following the leak of some embarrassing communiques.

That case rested, in large part, on logs from an exclusive chat group participants dubbed “The Cartel.”

Here is a good example of the type of conversations contained in those logs. The banker representing Barclays “mentors” another member:

…click on the above link to read the rest of the article…

SocGen: “Now We Know Why The Fed Desperately Wants To Avoid A Drop In Equity Markets”

April 12, 2016

SocGen: “Now We Know Why The Fed Desperately Wants To Avoid A Drop In Equity Markets”

With the ECB now unabashedly unleashing a bond bubble in Europe of which it has promised to be a buyer of last resort with the stronly implied hint that European IG companies should issue bonds and buy back shares, and promptly leading to the biggest junk bond issue in history courtesy of Numericable, it will come as no surprise that the world once again has a debt problem.

For the best description of just how bad said problem is we go to SocGen’s Andrew Lapthorne, one of last few sane analyzers of actual data, a person who first reveaked the stunning fact that every dollar in incremental debt in the 21st century has gone to fund stock buybacks, and who in a note today asks whether “central bank policies going to bankrupt corporate America?”

His answer is, unless something changes, a resounding yes.

Here are the key excerpts:

Sensationalist headlines such as the one above are there to grab the reader’s attention, but the question is nonetheless a serious one. Aggressive monetary policy in the form of QE and zero or negative interest rates is all about encouraging (forcing?) borrowers to take on more and more debt in an attempt to boost economic activity, effectively mortgaging future growth to compensate for the lack of demand today. These central bank policies are having some serious unintended consequences, particular on mid cap and smaller cap stocks.

Aggressive central bank monetary policies have created artificial demand for corporate debt which we think companies are exploiting by issuing debt they do not actually need. The proceeds of this debt raising are then largely reinvested back into the equity market via M&A or share buybacks in an attempt to boost share prices in the absence of actual demand.

…click on the above link to read the rest of the article…

Japan Goes Full Krugman: Plans Un-Depositable, Non-Cash “Gift-Certificate” Money Drop To Young People

March 23, 2016

Japan Goes Full Krugman: Plans Un-Depositable, Non-Cash “Gift-Certificate” Money Drop To Young People

The Swiss, the Finns, and the Ontarians may get their ‘Universal Basic Income’ but the Japanese are about to turn the Spinal Tap amplifier of extreme monetary experimentation to 11. Sankei reports, with no sourcing, that the Japanese government plans to unleash “vouchers” or “gift certificates” to low-income young people to stimulate the “conspicuous decline” in consumption among young people. The handouts may not be deposited, thus combining helicopter money (inflationary) and fully electronic currency (implicit capital controls and tracking of spending).

Since Ben Bernanke reminded the world of the existence of government printing-presses, echoed Milton Friedman’s “helicopter drop” solution to fighting deflation, and decried Japan for not being as insane as it could be… it has only been a matter of time before some global central bank decided that the dropping of cash onto the populace was the key to economic recovery. Having blown their wad on QQE (and been left with a quintuple-dip recession) and unleashed NIRP, it appears Japan has reached that limit.

As Bloomberg reports,

The Japanese government plans to include gift certificates for low-income young people in its fiscal 2016 supplementary budget, Sankei reports, without saying who provided the information.

Recipients would be able to use them for daily necessities.

The government sees gift certificates as more effective in stimulating consumption than cash handouts, which may be deposited.

As Sankei reports (via Google Translate),

The government 23 days, as the centerpiece of the 2016 fiscal year supplementary budget to organize because of the economic stimulus, cemented the policy to include the low-income measures for young people. To examine the distribution of vouchers to be devoted to the purchase of such daily necessities.

…click on the above link to read the rest of the article…

Citi On Why Negative Rates Are Like Potato Chips: “No One Can Have Just One”

January 31, 2016

Citi On Why Negative Rates Are Like Potato Chips: “No One Can Have Just One”

Now that Japan has let the negative rates genie out of the bottle, or as DB put it, ‘opened the Pandora’s Box‘ and in the process unleashed the latest global “silent bank run” and capital flight, prepare to hear a whole lot more about NIRP in the coming weeks because as Citi’s Steven Englander put it, “Why are Negative Rates like Potato Chips? No one can have just one.”

This is what else Englander said:

You can admire the policy boldness of the BoJ move into negative rates, and recognise its powerful asset market effects – positive for equities and negative for JPY. Experience in other countries that have entered into this territory should sober you up on the likely economic and inflation impact. No country that has gone into negative rates has experienced major shifts in its growth and inflation profile – minor, yes; major, no. As a consequence every dip into negative rates has been followed by additional moves.

Negative rates are a powerful inducement for cash to leave the banking system, but there is little evidence that investors take the cash and build steel plants with it. They buy foreign and financial assets, which is probably more than enough for the BoJ.

Some further thoughts from Citi’s FX desk, and why the BOJ ultimately shot itself, and other central banks, in the foot:

As the dust settles on the BoJ reaction, USDJPY is somewhat higher and risk currencies have begun to rebound following an initial dip. However, the price action has not been one-sided. Partly this seems to reflect the tendency of many investors to dismiss the rate move as diluted given its tiered implementation. Of the investors I have spoken to since the decision, a significant majority were inclined to poke holes in the decision.

…click on the above link to read the rest of the article…

Helicopter Money Arrives: Switzerland To Hand Out $2500 Monthly To All Citizens

January 29, 2016

Helicopter Money Arrives: Switzerland To Hand Out $2500 Monthly To All Citizens

With Citi’s chief economist proclaiming “only helicopter money can save the world now,” and the Bank of England pre-empting paradropping money concerns, it appears that Australia’s largest investment bank’s forecast that money-drops were 12-18 months away was too conservative. While The Finns consider a “basic monthly income” for the entire population, Swiss residents are to vote on a countrywide referendum about a radical plan to pay every single adult a guaranteed income of around $2500 per month, with authorities insisting that people will still want to find a job.

The plan, as The Daily Mail reports, proposed by a group of intellectuals, could make the country the first in the world to pay all of its citizens a monthly basic income regardless if they work or not. But the initiative has not gained much traction among politicians from left and right despite the fact that a referendum on it was approved by the federal government for the ballot box on June 5.

Under the proposed initiative, each adult would receive $2,500 per months, and each child would also receive 625 francs ($750) a month.

The federal government estimates the cost of the proposal at 208 billion francs ($215 billion) a year.

Around 153 billion francs ($155 bn) would have to be levied from taxes, while 55 billion francs ($60 bn) would be transferred from social insurance and social assistance spending.

That is 30% of GDP!!!

The action committee pushing the initiative consists of artists, writers and intellectuals, including publicist Daniel Straub, former federal government spokesman Oswald Sigg and Zurich rapper Franziska Schläpfer (known as “Big Zis”), the SDA news agency reported. Personalities supporting the bid include writers Adolf Muschg and Ruth Schweikert, philosopher Hans Saner and communications expert Beatrice Tschanz. The group said a new survey showed that the majority of Swiss residents would continue working if the guaranteed income proposal was approved.

…click on the above link to read the rest of the article…

It Begins: Desperate Finland Set To Unleash Helicopter Money Drop To All Citizens

December 7, 2015

It Begins: Desperate Finland Set To Unleash Helicopter Money Drop To All Citizens

Over the last few months, in a prime example of currency failure and euro-defenders’ narratives, Finland has been sliding deeper into depression. Almost 7 years into the the current global expansion, Finland’s GDP is 6pc below its previous peak. As The Telegraph reports, this is a deeper and more protracted slump than the post-Soviet crash of the early 1990s, or the Great Depression of the 1930s. And so, having tried it all, Finnish authorities are preparing to unleash “helicopter money” to save their nation by giving every citizen a tax-free payout of around $900 each month!

Just over two years ago, when the world was deciding who would be Bernanke Fed Chair replacement, Larry Summers or Janet Yellen (how ironic that Larry Summers did not get the nod just because a bunch of progressive economists thought he would not be dovish enough) we wrote about a different problem: with the end of QE3 upcoming and with the inevitable failure of the economy to reignite (again), we warned that there remains one option after (when not if) QE fails to stimulate growth: helicopter money.

While QE may be ending, it certainly does not mean that the Fed is halting its effort to “boost” the economy. In fact… the end of QE may well be simply a redirection, whereby the broken monetary pathway, one which uses banks as intermediaries to stimulate inflation (supposedly a failure according to the economist mainstream), i.e., “second-round effects”, is bypassed entirely and replaced with Plan Z, aka “Helicopter Money” mentioned previously as an all too real monetary policy option by none other than Milton Friedman and one Ben Bernanke. This is also known as the nuclear option.

…click on the above link to read the rest of the article…

Presenting SocGen’s 5 Black Swans For 2016

November 24, 2015

Presenting SocGen’s 5 Black Swans For 2016

If you’re the type who likes black swans this has been the month for you.

On the political front, Portugal’s Socialists, led by Antonio Costa, formed an alliance with the Left Bloc and the Communists on the way to overthrowing the Passos Coelho government and presaging a repudiation of Berlin’s brand of fiscal rectitude. This throws the country’s austerity program into doubt and sets up not only a confrontation with the troika, but also the potential loss of access to ECB QE should a deteriorating fiscal situation prompt a DBRS downgrade.

In Spain, Catalonia is in the midst of a secession bid which, depending on Catalan political infighting and how far Rajoy wants to push things ahead of national elections set for next month, could see a fifth of Spain’s GDP separate, causing Spanish debt-to-GDP to jump by some 25%.

As far as geopolitics goes, ISIS Sinai downed a Russian passenger plane killing all 224 people on board and then, not even two weeks later, ISIS proper waged war in the streets of Paris killing 130 people. As if those two bombshells weren’t enough, Turkey decided to shoot down a Russian fighter jet this morning.

Finally, 12 month forwards for the Saudi riyal seem to indicate that the market believes the three decade-old dollar peg is about to fall under pressure from slumping crude and falling FX reserves. BofAML calls the possibility of a Saudi depeg the “number one black swan event for the global oil market in 2016.”

And those are just the black swans that have landed in the last 30 days.

In its latest quarterly Global Economic Outlook, SocGen takes a look at five political and economic black swans that could touch down in 2016 and also warns that “high levels of public sector debt, already overburdened monetary policy, still high debt stocks and on-going balance sheet clean ups in a number of economies leave the global economy will a low level of ammunition to deal with new shocks.”

…click on the above link to read the rest of the article…

How China Cornered The Fed With Its “Worst Case” Capital Outflow Countdown

August 31, 2015

How China Cornered The Fed With Its “Worst Case” Capital Outflow Countdown

Last week, in “What China’s Treasury Liquidation Means: $1 Trillion QE In Reverse,” we took a look at the potential size of the RMB carry trade, noting that according to BofAML, the unwind could, in the worst case scenario, be somewhere on the order of $1 trillion.

Extrapolating from that and applying Citi’s take on the impact of EM reserve drawdowns on 10Y UST yields (which, incidentally, is based on “Financing US Debt: Is There Enough Money in the World – and at What Cost?“, by John Kitchen and Menzie Chinn from 2011), we noted that potentially, if China were to use its FX reserves to offset the pressure on the yuan from the unwind of the great RMB carry, the effect could be to put more than 200bps of upward pressure on the 10Y yield.

Going farther, we also said that $1 trillion in FX reserve liquidation by the PBoC would essentially negate around 60% of QE3. In other words, China’s persistent FX interventions amount to reverse QE or, as Deutsche Bank calls is “quantitative tightening.”

Now, SocGen is out with a description of China’s “impossible trinity” or “trilemma”. Here’s the critical passage:

The PBoC is caught in an awkward position: not letting the currency go requires significant FX intervention that will not prevent ongoing capital outflows but which will result in tightening domestic liquidity conditions; but letting the currency go risks more immense capital outflow pressures in the immediate short term, external debt defaults and possibly further domestic investment deceleration. Furthermore, it has to consider the painful repercussions globally that could result from any sharp RMB depreciation.

…click on the above link to read the rest of the article…

Malaysia Meltdown: Asian Currency Crisis 2.0 Sends Ringgit, Stocks, Bonds Crashing

August 14, 2015

Malaysia Meltdown: Asian Currency Crisis 2.0 Sends Ringgit, Stocks, Bonds Crashing

When China went the “nuclear” (to quote SocGen) devaluation route earlier this week in a last ditch effort to rescue its export-driven economy from the perils of an increasingly painful dollar peg, everyone knew things were about to get a whole lot worse for an EM currency basket that was already reeling from plunging commodity prices, slumping Chinese demand, and the threat of an imminent Fed hike.

Sure enough, EM currencies from Brazil to South Korea plunged, and monetary authorities – unsure whether to play down the move or cry foul – scrambled to respond.

With some Asian currencies already falling to levels last seen 17 years ago, some analysts fear that an Asian Currency Crisis 2.0 may be just around the corner.

That rather dire prediction may have been validated on Friday when Malaysia’s ringgit registered its largest one-day loss in almost two decades.

As FT notes, “sentiment towards Malaysia has been damped by a range of factors including sharp falls in global energy prices since the end of June. Malaysia is a major exporter of both oil and natural gas, with crude accounting for almost a third of government revenue.” The central bank meanwhile, “has opted to step back from intervening in the market in response to the falling renminbi, unleashing pent-up downward pressure on the ringgit.” That, apparently, marks a notable change in policy. “The most immediate challenge is the limited scope of Malaysia’s central bank to step in,” WSJ says, adding that “for weeks, it tried to stem the currency’s slide, digging into its foreign-exchange reserves to prop up the ringgit and warning banks from aggressively trading against its currency.”

Surveying the damage, here’s the one-day:

And the one week:

And the one month:

…click on the above link to read the rest of the article…

“Critical” Debt “Domino Chain” Threatens To Destabilize China’s Financial System, SocGen Says

June 26, 2015

“Critical” Debt “Domino Chain” Threatens To Destabilize China’s Financial System, SocGen Says

Since the beginning of March when we first explained why QE (or at least some manner of “unconventional” monetary policy) may be inevitable in China, we’ve tracked developments around the country’s local government debt refi effort closely. For those in need of a refresher, we’ve documented the program from inception to implementation and beyond in exhaustive detail in the following posts:

While we won’t endeavor to recap the entire series of events here, note that the entire effort comes down to one simple thing: China’s local governments have managed to accumulated a debt pile worth 35% of GDP via off-balance sheet, high-cost loans which are now being swapped for low interest muni bonds in an effort to reduce debt servicing costs and extend WAM. This is part of a wider effort on China’s part to deleverage an economy laboring under $28 trillion in debt. This deleveraging effort goes far beyond local government debt, as Beijing is now moving to allow for more corporate defaults as the country moves to liberalize its financial markets.

There’s a critical link between local governments’ off-balance sheet financing (the loans that China is now working to restructure) and China’s financial system as a whole.

…click on the above link to read the rest of the article…

Tag Archives: SocGen

Content

Post categories

Economic Links

Energy/Resource Links

Environmental Links

Geopolitical Links

Liberty Links

News Links

Other Links

Survival Skills

Post Archives by Category

Latest Posts