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ALBERT EDWARDS: The US Economy Is The Elephant In The Room With Tusks That Will Rip Your Portfolio To Shreds (SPY)
The U.S. economy is already in a recession according to Societe Generale’s Albert Edwards.
He said the current state of the U.S. economy is the “elephant in the room” and that it has “tusks” that could “rip your portfolio to shreds over the next 12 months.”
The U.S. recovery is 36 months old, and the average length of the 30 recoveries since 1854 (barring the last three Nov ’82 – July ’90; March ’91 – March ’01; and Nov. ’01 – Dec ’01 which were long) has been 36 months. From Edwards:
“Exclude these three Fed inspired freaks of cyclical normality and the remaining 30 recoveries lasted an average 36 months. A recession now is therefore bang on cue. Indeed, given the US is a post-bubble, deleveraging economy, a recession is probably long overdue.”
The disappointing data (manufacturing, non-farm payrolls) and disappointing revenue results in the second quarter are consistent with the view that the economy has “dipped into recession”.
Edwards points out that analysts are lowering their full year revenue projections. He also notes that from March to May, nominal business sales stalled. Moreover, all the talk about profit margins is misleading because it is driven mostly by financial sector profits and by lower taxes.
“I read that the big surprise in the US Q2 reporting round is that profits have exceeded expectations despite revenue growth falling well short. Investors are marvelling that margins are continuing to expand indeed some are claiming we are on a permanently higher plane and margins will not mean-revert in a recession. Utter poppycock!”
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