SocGen’s Albert Edwards is worried about an alarming rise in US pedestrian fatalities.
Specifically, he was recently “shocked” to discover that 2016 and 2017 were the most “deadly years for US pedestrians” in more than a quarter century. Fatalities among people just wandering around have apparently jumped more than 25% since 2012.
What accounts for this rather disconcerting phenomenon which, taken at face value, appears to suggest that walking down the street is significantly more dangerous for Americans than it was just five years ago?
Well, according to Albert’s summary of something called the “Spotlight on Pedestrian Traffic Fatalities” (an annual report which you can read for yourself here) “the US is gripped by an epidemic of stoned pedestrians stepping into traffic.” Here’s Edwards:
I found the aforementioned report into US pedestrian fatalities really quite shocking most especially because of the very clear evidence that the surge in fatalities is primarily due to the legalisation of marijuana in some states. Because most pedestrian fatalities occur in urban areas, the study also examined changes in the number of pedestrian fatalities for the 10 most populous U.S. cities. In the largest city, New York, deaths were unchanged yoy. But in the USs second biggest city, Los Angeles, deaths rose 50%, while they fell 10% in the third largest city, Chicago. There is a clear causal relationship between surging fatalities of pedestrians and legalising marijuana.
Edwards goes on to provide some anecdotes about his travels, as he’s wont to do. He mentions that on his last trip to San Francisco, he was surprised that folks were blowin’ on that loud in public. To wit:
I was really quite shocked by my visit last year to San Francisco by the sheer quantities of men (yes it is virtually 100% men) who were clearly off their heads on drugs (and drink) and putting both themselves and other road users at risk. I have been a regular visitor to San Francisco for 30 years and maybe it is because I only visit once every couple of years that I notice the change. Most surprising was the pungent smell of cannabis skunk that pervaded the streets almost everywhere.
What, you might fairly be asking at this point, does any of that have to do with cross-asset strategy? Well, Albert uses that to make the point about central banks running an addiction liability, something we’ve discussed at length here over the past couple of weeks in the wake of the global dovish pivot set in motion by Fed rhetoric, enshrined in official policy by the January FOMC meeting and perpetuated since by the RBA’s Lowe, the RBI, the BoJ’s Kuroda and so many hints about an ECB relent that it’s now impossible to catalogue them all.
Edwards flags the U-turn in global equities (which swerved from the worst December since the Great Depression to the best start to a year since 1987 in January), noting that “what we see is a market zig-zagging down the street in befuddlement after being given yet another quick fix by the Central Bank dealers in easy money.”
Here’s a chart from his colleague Andrew Lapthorne which shows that while 90% of the MSCI World fell in December, 88% of global stocks rose in January, a 20-year record.
Albert then reiterates the oft-used drug metaphor. “Having got the investment community hooked on monetary opioids, the Central Banks are making it clear that they will be there for the addicts if the withdrawal symptoms get too severe”, he writes, adding that “free money is now the drug of choice and the central banks have basically declared it legal and readily available.”
The problem, he warns, is that “investors are now becoming detached from the reality of their surroundings, which could easily prove fatal.”
Edwards reminds you that payrolls are generally a lagging indicator and flags the creeping up of initial unemployment claims as worrisome. He also delivers the obligatory nod to David Rosenberg, noting that if you ask Rosie, that 1.2% plunge in retail sales in December wasn’t an “aberration as it ties in with the recent drop in retail hours worked from the employment report.”
In any case, we generally wouldn’t quibble with most of this and as ever, the world owes Albert a debt of gratitude for the comic relief inherent in his colloquial style and the extent to which his strategy pieces double as a travel diary.
What we would note, however, is that there is a profound difference between weed smokers and opioid addicts, so we’re not quite sure the analogy holds here.
Still, it doesn’t make Edwards’ latest any less entertaining and on that note, we’ll leave you with one last quote from Albert:
The point we began to make on the front page is that investors, like marijuana users, are high once again on the promise of renewed monetary injections. But with their senses now numb to the reality around them, investors could miss the fact that the economic cycle is deteriorating sufficiently rapidly that it is about to crush their equity portfolios.