A trip to San Francisco and the smell of 'skunk' in his London neighbourhood inspired Albert Edwards to talk metaphorically about the health of investment markets.
In a note titled 'Stone on free Money', the SocGen strategist suggested that investors, like marijuana users, are once again dependent on monetary stimulus.
Edwards said that following a 2018 trip to San Francisco, he was still in 'shock' at the number of people he witnessed visibly under the influence.
'Most surprising was the pungent smell of cannabis skunk that pervaded the streets almost everywhere,' he said.
The smell was familiar for Edward from the streets surrounding his east London home.
'Bethnal Green, also has a heavy smell of skunk as drugs are sold and consumed openly on the streets, despite residents' best efforts to shame the authorities into action.
'The point [is] that investors, like marijuana users, are high once again on the promise of renewed monetary injections,' he added.
'[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.'
Followers of Edwards will not be surprised that he launched an attack on the central bankers feeding this drug habit.
'The US stock market’s worst December since 1931 was followed by the best January since 1987,' he said. '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.'
He notes that every major central bank has done its best to inject yet another dose of euphoria into its respective markets this year.
'The Fed has been the most visible and dominant dealer, cruising the
block and turning heads with the screeching sound of the handbrake turn it just pulled,' he highlighted.
'[But] the other key central banks also seem ready to defend their monetary turf, with ECB board members talking of resuming TLTRO (targeted longer-term refinancing operations) the Bank of Japan governor Kurodas promising Japans parliament he would deliver more QE if required, and finally the People's Bank of China allowing a record $480 billion surge in bank loans in January.'
Ultimately, Edwards is concerned that having got the investment community hooked on monetary opiods, central banks are prepared to do everything in their power to protect them from cold turkey.
'Central banks are making it clear that they will be there for the addicts if the withdrawal symptoms get too severe,' he said. 'Free money is now the drug of choice and the central banks have basically declared it legal and readily available.
'The problem with this strategy is that investors are now becoming detached from the reality of their surroundings, which could easily prove fatal.'