Albert Edwards: “It Feels Similar To Just Before The 1987 crash”

Thursday, February 1, 2018
By Paul Martin

by Tyler Durden
Thu, 02/01/2018

Add SocGen’s grouchy permabear Albert Edwards to the growing list of bond bears.

In his latest letter, the SocGen strategist echoes what we have said earlier this week, namely that equities are wobbling as yields rise above key threshold levels, and says that he agrees “with the bond bears that US yields will continue to rise, causing more problems for equities” … with one footnote, a predictable one: “I do not believe bond yields have yet seen a secular bottom. I repeat my forecast that US 10y yields will fall below zero.”

He is right: once the current infatuation with the reflation impulse is over which has been made possible by a record drop in the US savings rate offset by a historic surge in credit card usage – a carbon copy of what happened in 2011 when the ECB went so far as to hike rates assuming the recovery was here, and unleashing the worst debt crisis in European history – central banks will revert to doing what they do best: nationalizing capital markets and crushing savers with financial repression, the likes of which have not been seen yet.

In any case, it’s good to see that despite his recent vacation to Jamaica, Edwards’ gloomy disposition is right where he left it back in gloomy London, and as he admits “I can reassure readers I am restored to my bearish best.”

Edwards’ bearish sentiment was only boosted by this week’s market performance, to which he offers the following commentary:

So used are we to the relentless rise of the equity markets, seemingly without pause, this mini-tremor actually felt like an earthquake. But maybe this is the start of something more.

Maybe indeed, because in the very next sentence Edwards goes all out: “Certainly, as we explained at our Conference, the current conjuncture feels similar to just before the 1987 equity crash. All that was missing was the slanging match over the weak dollar between the US and Europe, but we duly got that while I was away.”

Ah yes, the dollar, but before the trade wars truly begin, everyone is watching something else: the yield on the 10Y, where Edwards differs from the consensus we observed earlier, and believes that a bull market will only truly start once yields rise above 3.00%:

Every man, woman and child seems to have decided that the US 10y bond yield has broken out of its long-term downtrend and we are in a bond bear market. Our own excellent Technical Analyst, Stephanie Aymes, shows that 3% (not 2.6%) is the key long-term breakout yield we should be watching. But she thinks that 2.64% was also significant as this means the RSI downtrend has now been broken (see bottom panel in chart below) and a run to 3% is now perfectly plausible. That though does not mean the bond bull market is over.

The Rest…HERE

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