The SocGen strategist says the West is about to be hit by a wave of deflation from emerging market economies and that central banks were unaware of the disaster about to hit them.
“I realize most people think I am talking utter garbage but I’m used to that. And maybe I am! But the truth will come out in the next recession which may be pretty close now,” Edwards says.
“The previous bear market low was in March 2009 when the S&P reached 666. I think we’ll go below that within this bear market.
“Developments in the global economy will push the U.S. 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.
“Emerging market currencies are still in freefall. The U.S. corporate sector is being crushed by the appreciation of the dollar.
He says the U.S. economy is in far worse shape than the Fed realizes: “We have seen massive credit expansion in the U.S. This is not for real economic activity; it is borrowing to finance share buybacks.”
Edwards attacked the “incredible conceit” of central bankers, who had failed to learn the lessons of the housing bubble that led to the financial crisis and slump of 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.”
Note: Edwards's "Ice Age" thesis goes back to Aug. 2008, and was reiterated in Dec. 2009, Sept. 2011, and May 2012.
JPM strategists note that earnings expectations have been managed aggressively going into earnings season. Four months ago, the "hurdle rate" for S&P 500 stocks was +5% Y/Y; now it's -4% Y/Y. “If this were to materialize, it would be the weakest quarter for EPS delivery so far in the upcycle.”
Energy sector earnings consensus signals only single-digit losses, while oil prices are 36% below the 21015 average.
Sees euro-zone earnings outperforming U.S. for second year running.
Overall, firm says risk/reward for stocks is poor. Use bounces as selling opportunities.
Russell Investments is planning its annual index realignment today, affecting more than $5T in assets. Credit Suisse estimates $42B will trade as a result of the adjustment, resulting in one of the biggest trading days of the year in terms of dollar volume.
Asset managers and investors will have to realign their portfolios to match up with the new shifts in indices such as the Russell 2000 and the Russell 3000.
Due to the expected surge in volume, exchanges are now busy preparing for possible technical issues occurring over the course of the day.
Yesterday, the London Stock Exchange said it will acquire Frank Russell for $2.7B.
London Stock Exchange (LDNXF) has announced that it is buying the asset-management and stock index unit Frank Russell for $2.7B. A large chunk of the funding for the acquisition will be based off a $1.6B rights issue to be issued in September.
The stock-index operations of Frank Russell include the Russell 2000 barometer of small-cap stocks, while the investment business has $256B in assets under management.
London Stock Exchange (LDNXF) is in exclusive negotiations with Northwestern Mutual Life Insurance to buy the latter's asset-management and stock index unit, Frank Russell, which the WSJ reports could be worth $3B.
The stock-index operations include the Russell 2000 barometer of small companies, while the investment business has $260B of assets under management. (PR)