Summary of Albert Edwards' latest...

Via ValueWalk. And just in case readers haven't read them yet, SocGen put out collections of Albert Edwards' and James Montier's letters from 2008 a few years ago, and then also put out a collection of Dylan Grice's letters from 2009-2012. I think they are some of the best combinations of getting both a top-down and bottom-up picture of the 2007-2012 crisis period as it unfolded, and as it continues to unfold.

The emerging markets ‘story’ has once again been exposed as a pyramid of piffle. The EM edifice has come crashing down as their underlying balance of payments weaknesses have been exposed first by the yen’s slide and then by the threat of Fed tightening. China has flipflopped from berating Bernanke for too much QE in 2010 to warning about the negative impact of tapering on emerging markets! It is a mystery to me why anyone, apart from the activists that seem to inhabit western central banks, thinks QE could be the solution to the problems of the global economy. But in temporarily papering over the cracks, they have allowed those cracks to become immeasurably deep crevasses. At the risk of being called a crackpot again, I repeat my forecasts of 450 for the S&P 500, sub-1% US 10y yields and gold above $10,000.

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My outlook remains the same. I see the current EM FX turbulence leading to a renewed global recession, with waves of deflation flowing to the west from Asia as China is ultimately forced to devalue in the face of an unrelenting loss of competitiveness, most especially against its EM rivals. The structural US equity valuation bear market will then embrace the third major leg in its long and volatile Ice Age journey. With fiscal firepower essentially spent, QE will be ramped up exponentially as the Fed doves coo in universal reassurance that they can still save the world. In fact, as Marc Faber says, they will destroy it. Ultimately I expect a new phase of aggressive QE will lead to inflation that is unlikely to be containable. Policymakers have no idea how much QE is too much, other than by looking in the rear-view mirror. But, until this unfolds, I remain resigned to being Rabbi Riskin’s proverbial crackpot.