Albert Edwards, a strategist at Société Générale and notorious perma-bear came out of the woodwork this morning to scare the life out of you. His bold call is for the S&P 500 to fall another 550 points, which would represent a 75% decline from recent highs.
At an investment conference in London, Edwards said: "Developments in the global economy will push the US back into recession. The financial crisis will reawaken. It will be every bit as bad as in 2008-09 and it will turn very ugly indeed. Can it get any worse? Of course it can." He explained that while value of currencies in emerging markets was on the decline, the appreciation of the US dollar was crushing the corporate sector and that the credit expansion in the country was not for real economic activity, but was borrowings to finance share buybacks.
Edwards stressed that the US economy was in far worse shape than what the US Federal Reserve had realized and that America's central bank had failed to learn the lessons of the housing bubble that led to the financial crisis and slump in 2008-09. "They didn't understand the system then and they don't understand how they are screwing up again. Deflation is upon us and the central banks can't see it," he said.
The Société Générale strategist compared US with Japan and said that the dollar had risen by as much as the Japanese yen in the 1990s – a move which had then put Japan into deflation and caused solvency problems for banks in the Asian country, according to The Guardian. Regarding the euro, he said that efforts by the European Central Bank to push for growth and lower the euro would not matter in the event of a fresh downturn. "If the global economy goes back into recession, it is curtains for the eurozone," he said.
Rising unemployment that would be associated with another recession would not be accepted by countries such as France, Spain and Italy. "What a disaster the euro has been: it is a doomsday machine in favor of the German economy," Edwards claimed. He also said that the declining demand for credit in China was another sign of the crisis to come. "That happens when people lose confidence that policymakers know what they are doing. This is what is going to happen in Europe and the US."