Right now we are seeing Societe Generale uber-bear Albert Edwards calling for a 73% drop in the S&P, down to 450 as well as a six-fold rise in gold's price, up to above $10,000. According to Edwards, the cause for this will be the turmoil in emerging markets.
By Brendan Conway
August 29, 2013, 1:51 P.M. ET
And now we bring you the outlier forecasts. First it was Marc Faber calling for a 20% correction in the S&P 500 and gold to set a fresh high as it resumes its “haven” status.
Now we’ve got Societe Generale uber-bear Albert Edwards repeating a call for 450 on the S&P 500 — a 73% drop — plus a six-fold rise in gold’s price, to above $10,000. And sub-1% yield on U.S. Treasury bonds.
The key to this mayhem, as Edwards calls it, will be turmoil in emerging markets:
I see the current EM FX turbulence leading to a renewed global recession, with waves of deflation flowing to the west from Asia as China is ultimately forced to devalue in the face of an unrelenting loss of competitiveness, most especially against its EM rivals. The structural US equity valuation bear market will then embrace the third major leg in its long and volatile Ice Age journey. With fiscal firepower essentially spent, QE will be ramped up exponentially as the Fed doves coo in universal reassurance that they can still save the world. In fact, as Marc Faber says, they will destroy it. Ultimately I expect a new phase of aggressive QE will lead to inflation that is unlikely to be containable. Policymakers have no idea how much QE is too much, other than by looking in the rear-view mirror. But, until this unfolds, I remain resigned to being Rabbi Riskin’s proverbial crackpot.
In case you’re wondering about the Rabbi Riskin bit:
[M]y former colleague Dylan Grice pointed out the perils of calling things too early. In his latest letter to investors he quotes a Rabbi Shlomo Riskin who pointed out ‚When you’re one step ahead of the crowd you’re a genius. When you’re two steps ahead, you’re a crackpot.
Gold’s price is edging lower in relatively sleepy Thursday trading after clawing its way out of bear-market territory this week, falling 0.5% to $1,411 recently.
SPDR Gold Trust (GLD) and iShares Gold Trust (IAU) are down by 0.3% apiece. Market Vectors Gold Miners ETF (GDX) is rising by 0.3% and Market Vectors Junior Gold Miners ETF (GDXJ) is flat in afternoon trading. Accordingly, there’s not much action in the normally volatile leveraged ETFs either. Direxion Daily Gold Miners Bull 3X Shares (NUGT) is rising 1%.
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