SocGen Sees Contracting Corporate Profits as A Signalling Recession

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.

It’s 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.”

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza