Why another recession may be inevitable
Corporate profits started declining late last year. That's likely to lead to a slump in business investment, one analyst says.
Albert Edwards, Societe Generale's uber-bearish strategist, has once again taken aim at economists bullish on the U.S. economy, highlighting a contraction in corporate profits that could leave the country exposed to external shocks and an "inevitable" recession.
Edwards said economists used "dodgy" metrics to gauge profit and pointed to the MSCI Operating Profits Indicator -- as the one measure that investors should watch.
This indicator -- which tracks trailing U.S. company profits for the last 12 months -- highlights the rate of corporate growth and is favored by Edwards over any outright profit level, rate of profitability or profit margin level indicator.
Its recent readings paint a gloomy picture ahead for the U.S. economy, according to Edwards. He said profits started declining in the fourth quarter, according to the MSCI definition, and that this was likely to lead to a slump in business investment.
"U.S. profits have begun to decline on a MSCI trailing basis," he said in research note released on Tuesday. "A decline in profits is inevitably followed by recession shortly thereafter, as investment, the most volatile of all GDP (gross domestic product) components, is cut."
Edwards downplays other economic indicators for being too favorable and said any healthy rise in profits could be put attributed to company-specific write-downs made back in 2012.
He also criticized "pro-forma", or projected, earnings numbers as "artificially inflated" and designed at steering attention away from the "bad stuff". Edwards saw a growing gap between these pro-forma numbers and the MSCI reported profits indicator and said this was an indication that the quality of earnings was deteriorating.
"It will be extremely difficult for the U.S. economy to escape its Great Recession hangover with this poor profits backdrop. Indeed it leaves the economy extremely vulnerable to adverse shocks," Edwards said.
One of these adverse shocks could be a Asian and EM (emerging market) currency devaluation releasing surplus capacity onto the West, and crushing pricing power further, according to Edwards. This topic has formed the backdrop of most of his research notes since August last year.
It's also not the first time that Edwards has made bearish predictions about the U.S. economy, warning about a downturn in productivity and profits at the end of 2013.
Back in September 2012, he said the U.S. had already entered a recession and it wouldn't be long before the equity market reacted. He also warned about the "ultimate" death cross for the Standard & Poor's 500 Index ($INX) -- where the 50-month moving average falls below the 200-month moving average. However, since that call, the S&P 500 has risen nearly 40 percent.
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The recession has never ended for 95% of Americans. In 2000 the average American made just $55,000. Twelve years later the average American made just over $56,000 or a $1,000 raise over 12 years. The cost of living has gone up by 33%. Taxes have gone up. The Average American is so much poorer than in 2000.
Please do not mention a recovery that 95% of Americans never took part in,
The Billionaires are looting our country and by buying off Congress. No one else hs come out of the last recession. The Corporate owned media / Network news doesn't report on the massive looting of our country by evil billioniares like the Koch Brothers and Carl Icahns. These greedy jerks want to own us all like slaves. Well congratulations you have acheived this.
Congress and Billionaires that own Congress have destroyed the way of life for Americans. Congress and their Billionaire owners are the face of evil.
I do not ever worry about Al; Quida, China and Russia. When you have Congress dismantling every aspect of your standard of living terrorist seem like a joke. Why spend $800 Billion a year on Defense when the greatest destruction done the U.S has been 100% completed by Congress and their evil Billionaires.
Well... I am shocked!!! Shocked, I say!!!! Just shocked!!! The media and the politicians have been telling us that everything is okay. So what happened since yesterday??
I'm just shocked!!!
YOU Know you can Fool Some of the People Some of the Time BUT You Cant Fool ALL of the People All of the Time !?
Maybe there's "HOPE" ?
Pity -- ONLY DC had a Recovery !
Bush left Office the following was true
This is the crucial part of the article:
Back in September 2012, he said the U.S. had and it wouldn't be long before the equity market reacted. He also warned about the for the Standard & Poor's 500 Index () -- where the 50-month moving average falls below the 200-month moving average. However, since that call, the S&P 500 has risen nearly 40 percent.
Wait, did we go into recession in Q4 2012?
Will there be another recession at some point?
Almost assuredly yes.
Would I trust this guy to make the call on when it's going to happen?
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As geopolitical tensions threaten to spin out of control, investors are wondering how best to position their portfolios for the global turmoil.
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