Remember Rothschild’s advice?

I vaguely remember predicting some sort of serious economic hardship for this year. I think I may have used the word hyperinflation sometime. And guess what, I still think there’s at least a 50 per cent chance of a serious crash before the end of the year.

Now to be honest I haven’t been paying that much attention to financial news during the summer, but I haven’t been able to avoid noticing many mainstream voices have grown significantly more pessimistic lately as much of the economic data has so blatantly failed to support false hopes of continuing global recovery.

Anyway, I tried my hand at cherry picking a news story to support my fear of a resumed economic meltdown and so here’s Telegraph’s short piece on SocGen strategist Albert Edwards’ warning for investors:

Investors should brace themselves for an equities “bloodbath” and a further fall in bond yields when the current excessive optimism propping up the market seeps away, Albert Edwards, a strategist at Société Générale, has warned.

Mr Edwards said there was too much hope among investors, with excessive valuations in the US, but predicted it would come to an end in the coming months as economic data increasingly pointed to a double-dip recession.
“Equity investors are in for a rude shock. The global economy is sliding back into recession and they are still not even aware that these events will trigger another leg down in valuations, the third major bear market since the equity valuation bubble burst,” he said.

“The equity market will though crumble like the house of cards it is, when the nationwide [US] manufacturing ISM slides below 50 into recession territory in coming months.” The ISM index fell to 55.5 in July from 56.2 in June.
Mr Edwards forecast a return to the “valuation nadir last seen in 1982”, with the S&P bottoming at around 450.

Now I of course also consider it possible that the US treasury bonds could become worthless rather fast in a hyperinflationary situation that could become reality basically overnight (QE2 anyone?). But we’ll see how things will unfold… and how much blood there will be on the streets.

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