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SocGen Analyst: Stocks Will Take a ‘Bath’

“Stocks are about to take a bath, says Societe Generale strategist Albert Edwards.

To emphasize his point, he placed a photo of himself in a bathtub in his latest Global Strategy Weekly.

His wife purchased a cast iron tub, even though he questioned its cost and usefulness, he mentioned in his weekly commentary, according to Business Insider. The order, he says, seems to have prompted September’s pop in iron ore prices.

Edwards, a long-time bear, believes that deflation will hit stocks in a big way before inflation becomes a problem, according to Business Insider. So, he’s cutting his allocation in stocks for the first time in over four years.

“[W]hen I read direct quotes and commentary about [Federal Reserve Chairman Ben] Bernanke’s policy of driving up asset prices in general and equity prices in particular, I almost want to cry over the ludicrousness of this position,” Edwards writes.

Although the Fed’s policies will lead to rapid inflation eventually, inflation will arrive though “another visit of outright deflation fear,” he says.

Edwards argues that U.S. implied inflation expectations have diverged from the economic cycle. The time that happened was in the first quarter of 2008, just before he reduced his equity weighting by 30 percent.

“Bath time anyone?” he asks.”

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