Dow Record ‘Eerily Similar’ to 2007: SocGen
The Dow's record high feels "eerily similar" to the market's peak in mid-2007 before the global financial crisis, Albert Edwards, the London-based global strategist at Societe Generale, known for his famously bearish stance on equities, said on Thursday.
"Exactly the same jitters abound of a bond bear market and true to form (Federal Reserve Chairman) Ben Bernanke is making the same complacent comments,", Edwards wrote in a note to clients on Thursday.
On Wednesday, the Dow hit another all-time high closing at 14,296 after briefly crossing above 14,300 for the first time earlier in the session. The four-year old bull market has been helped by plenty of liquidity from the Federal Reserve.
"The great thing about Ben Bernanke appearing before Congress is that it gives us loads more ludicrously complacent quotes to store away until after this pyramid of jelly melts," Edwards said. "A bit like his famous July 2005 quote rejecting any impact on the economy of a bursting of the U.S. housing bubble by saying ‚ "Well, I guess I don't buy your premise. It's a pretty unlikely possibility. We've never had a decline in house prices on a nationwide basis." Classic!"
Speaking before Congress last month, Bernanke defended his inflation record and said the Fed could exit its bond buying program without doing damage to the economy. Other Fed officials have voiced concerns about the on-going bond purchases and have favored ending the program.
But while Edwards sounded a bearish note on the U.S. stock market rally, he was much more hopeful about Italy, which is in the midst of a political and economic crisis.
According to the strategist, Italy is in a "totally different economic place" to the other peripheral nations such as Greece, Ireland, Portugal and Spain, which all experienced huge credit growth, domestic demand booms and big trade and current account deficits.
Edwards said Italy's 125 percent debt to GDP ratio isn't that bad if the unfunded liabilities of the U.K., U.S., France and Germany are taken into account. In fact, he said Italy's headline budget deficit is expected to be just 2.1 percent in 2013, lower than Holland and France.
"Italy's headline public sector budget deficit barely rose in the run-up and immediate aftermath of the 2008 crisis," Edwards said. "The heavy lifting has been done in Italy. They are, as we say in the U.K., done and dusted."
According to Edwards, European stocks are cheap based on cyclically adjusted price to earnings and price to cash flow ratios.
"As our European Strategist, Paul Jackson showed recently, Italy is much cheaper than most other countries in a cheap region. Dylan (Grice, who used to work with Alberts) used to say there is no such thing as toxic assets, only toxic prices. The situation in the euro zone is indeed toxic and it will get worse. That is the opportunity. Buy Italy."