Analyst: Stocks Will Crash by 75% in Coming Years

Société Générale analyst Albert Edwards is famous for his bearish prognostications, but his latest forecast — where he calls for a 75% crash — might be his the gloomiest yet.

Edwards believes that central bank intervention has both delayed and exacerbated the inevitable U.S. recession, which will result in massive equity losses, and eventually, sharply negative interest rates. From MarketWatch:

“The U.S. is one recession away from deflation,” said Edwards. “There is a grotesque amount of debt piled on the corporate sector, and when the chickens come home to roost, there will be massive bankruptcies.”

Edwards believes the chaos and subsequent collapse in asset prices will force policy makers to adopt negative interest rates in the U.S. and deploy helicopter money, pushing the Fed-funds rate — the rate at which banks lend to each other — to minus 3%. It is currently at 0.40%.

The corporate debt bubble Edwards refers to is the $5.7 trillion in corporate debt hit in the first quarter of this year. That number marks a 63% surge from $3.5 trillion in just eight years. That corporate debt explosion coincides precisely with the Fed’s launch of its first quantitative easing (QE) campaign in late 2008.

How low can stocks go? Edwards says much lower than almost anyone thinks:

Edwards expects valuations to crash from their current 26 times multiple. For this market to work off its current bloat, he says, the Shiller P/E needs to correct to a 7 times multiple, which would require a 75% plunge in the S&P 500 to 550.


In case you’re wondering, a 75% drop would bring the Dow Jones Industrial Average all the way down to 4,500, and the Nasdaq Composite to 1,315.

To his credit, Edwards claims he doesn’t like being a permabear, and that he can’t wait until his doomsday scenario plays out so he can make a big bullish forecast. “Nothing will give me more pleasure than to see this over. I want to come out into the light. I want to turn bullish,” he says.

Thus far today, investors aren’t too worried about Edwards’ big bearish call. The SPDR Dow Jones Industrial Average ETF (NYSE:DIA) rose $1.11 (+0.61%) to $182.08 per share in late Monday morning trading. The DIA, which is the largest ETF that tracks the DJIA, has gained 4.64% year-to-date.


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