Cover of MoneyWeek issue no 503

Our most precious resource

10 September 2010 / Issue 503

How to profit from water


  • Buy this dirt-cheap food producer now
  • Have the baby boomers ruined Britain?
  • The anger driving Bob Geldof


We are all deflationists now

Regular readers will remember how irritated we at MoneyWeek got in 2008 and 2009 when stockmarket bulls kept telling us to “look through the valley”. The stockmarket was such a brilliant forecasting machine that we shouldn’t fret about deflationary depression and the like, they said – that was already more than discounted. We should be looking beyond it, as the market was, and pricing in the coming recovery.

We didn’t buy this. First we were never entirely sure that the market did work as a forecasting machine. Second, if it did, we didn’t think that it ever did a good job. Let’s not forget that the stockmarket continued to hold up – forecasting a rosy future – for months after the US housing implosion kicked off. And let’s not forget that the sustainable recovery the market has been forecasting for the last year and a half has yet to materialise.

So it’s nice to see that the latest note from Albert Edwards at Société Générale seems to debunk the “ludicrous” idea “that the equity market predicts anything”. In a post-bubble world, says Albert, the market “reacts to events rather than preempting them”: it doesn’t offer any clues to the future, it just follows the economic cycle. So to steal a march on it you just have to keep a close eye on the global economy’s leading indicators.

What are these telling us now? That we’re set for either a hard landing or, “at best, a decisive slowdown”.

• Read the full editor’s letter here:
We are all deflationists now

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