SocGen's Albert Edwards says real 'bear market' has yet to start
By Alexander Bueso
Date: Thursday 09 Apr 2020
(Sharecast News) - Economic authorities are likely very right in their move towards massive relief measures to limit the hit to economic activity from the Covid-19 pandemic, one of the market's best known bears predicted.
In the opinion of SocGen equity strategist, Albert Edwards, the current rally on Wall Street is no more than a so-called 'bear market' rally that will eventually give way to a more protracted, even if slower, grind lower as the bear market takes hold.
"The equity market rally is raising hopes among investors that the worst of the bear market is over - already! We, like many others, suspect this is nothing more than an early stage, bear market rally - before the real bear market begins," Edwards said in a research note sent to clients.
He also highlighted how the sheer cost of economic support measures were already sharply overshooting initial forecasts.
By way of an example, the UK government's initiative to pay 80% of furloughed private sector workers' wages could end up costing ?30-40bn if extended to the nearly one third of employees that recent estimates suggest.
That would be roughly three times what had been expected and at a cost of roughly 7% of gross domestic product.
"That is extraordinary," he said.
Nonetheless, he cited recent remarks from prominent economists such as Willem Buiter defending the need for governments to act.
"The decade since Lehman's collapse has already seen central banks break many taboos, but they must now cross the Rubicon of monetary financing. The case for them to do so has never been stronger, and in fact it may be irresponsible for them now not to do so."
Even so, Edwards ended by pointing out how typically bear markets typically progress, starting with a swift decline, followed by an oversold bounce and finally the "longer-term decline then continues, at a slower and more grinding pace, as the fundamentals deteriorate".
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