“Let me re-emphasise our 400 S&P forecast with sub-2% US bond yields,” says Albert Edwards

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Today’s quote du jour comes from across the pond from uber-bearish Albert Edwards, strategist at Societe Generale. A few key aspects of Albert’s thoughts are shared below.

On the global economy

“Recent weaker-than-expected economic data around the world concur with our analysis that the current downturn in the change in analyst optimism is suggestive of weaker economic data just around the corner.”

On bonds

“Amid the equity market enjoying yet another Fed induced mega-rally, many commentators have been left grasping (gasping?) for explanations for the continued low level of global bond yields despite the ruination of the public sector balance sheet. Most have latched onto QE2 as the explanation and hence expect a sharp rise in yields from June onwards as the Fed’s buying programme ends. We expect new lows in bond yields.

“Despite fully acknowledging the ruination of the government balance sheets as years of excess private sector debt are transferred to the public sector, we still expect to suffer another deflationary bust that will take government bond yields to new lows BEFORE government profligacy and the Fed’s printing presses take us back to both double-digit inflation and bond yields. For now, we remain heavily overweight government bonds.”

On equities

“Many think I am mad. But I am not the only commentator expecting a deflationary bust – the sort of bust that will take the S&P down to 400 from the current 1300. I recently watched John Authers of the FT Lex and Long View columns interview Russell Napier, formally of CSLA and a leading stockmarket historian. Russell’s views are as interesting as ever and well worth 11 minutes of watching time. His views are similar to mine, although he articulates his thoughts far more clearly than I. Click here for the video.

Source: Albert Edwards, Societe Generale Cross Asset Research, May 25, 2011.

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Read more on Bond Investing, S&P 500 (SPX) at Wikinvest
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