Albert Edwards: The "Freddie Kruger-Like Nightmare" For Stocks Is Coming

Tyler Durden's picture

The punchline from Albert Edwards latest note:

Tapering is tightening, which inevitably ends in recession, bailout and tears


Our warnings throughout last year that an unravelling of emerging markets (EM) was the final tweet of the canary in the coal mine have still not been taken on board. The ongoing EM debacle will be less contained than sub-prime ultimately proved to be. The simple fact is that US and global profits growth has now reached a tipping point and the unfolding EM crisis will push global profits and thereafter the global economy back into deep recession. Our thesis on how EM would be pushed to crisis was simple, especially as we saw close parallels with the 1997 Emerging Asia currency crisis. We saw yen weakness further undermining an already weak balance of payments situation in the emerging world as a direct replay of 1997. A strong dollar/weak yen environment is typically an incendiary combination for EM, and so it has proved once again. Having reached tipping point the yen will often rally strongly as it has now and as it did in May 1997. This may or may not delay the impending EM implosion for a few weeks. Indeed the Thai Baht, the first domino to fall in the Asian crisis, briefly rallied strongly (vs the US$) in early June 1997, reassuring investors just ahead of its ultimate collapse.


There has never been any shadow of doubt in my mind that tapering = tightening, and I marvel that the Fed convinced anyone otherwise. A Fed tightening cycle inevitably plays a key role in triggering the next crisis (see below). Plus ca change, hey?

  • 1970 Recession/Penn Central Railroad
  • 1974 Recession/Franklin National Bank
  • 1980 Recession/First Penn/Latin America
  • 1984 Continental Illinois Bank
  • 1987 Black Monday
  • 1990 Recession/S&L and banking crisis
  • 1997 Asian currency collapse/Russian default/LTCM
  • 2007 The Great Recession/Collapse of almost the entire global financial system
  • 2014 Emerging Market collapse/deflation/recession/another banking collapse etc., etc.?

Additionaly, we have now made it all too clear that there is no such thing as a market anymore - there is a carry trade, manifsted typically by the level of the USDJPY - which is the ultimate driver of all risk. It is this trade that Edwards warns will no longer work as it results directly in EM collapse, as can be seen most recently as the source of the EM crisis of 1997.

And while the bulk of the note focuses on Edwards' take of Andrew Lapthorne's comments which we summarized before (see Refuting The Biggest "Recovery" Lies In Four Simple Charts), his conclusion is worth highlighting as well:

But the inevitable has occurred and fundamentals have caught up with the markets as they always eventually do. The recent slide in US equity prices has been entirely consistent with the profits outlook Andrew has been flagging for some months (see chart below).



The market has at last awoken from the dream it hoped would last forever ? you must have had one of those dreams which you hope you can get back to if you fall asleep again quickly. The pungent smell of coffee has now overwhelmed the hallucinatory vapours contained in QE. Commodities snapped out of their trance some two years ago and could not find their way back into that same dream-like state. Now it is equities turn.


The dire profits situation will only get worse as EM implodes and waves of deflation flow from Asia to overwhelm the fragile situation in the US and Europe.


... the slump in the recent ISM data may be the ?straw in the wind? of what is to come. Certainly the three-month change of the leading indicator has now turned down sharply ? even before the recent ISM data has been incorporated. We watch the unfolding EM crisis with increasing trepidation because we know how this story ends. We have been here before.


And even if the Fed resumes massive QE at some point as the world melts down, and markets desperately attempt their return to the dream trance, they will instead find themselves locked into a Freddie Kruger-like nightmare in which phase 3 of this secular bear market takes equity valuations down to levels not seen for a generation.

Pure poetry.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Newsboy's picture

"40% Overpriced"

Chief Kessler's picture

The pic looks like Ted Nugget at his draft interview circa 1970

Oh regional Indian's picture

Interesting that they are only going back to 1970. This can be 1897, 1907, 1913, 1919. Even if the FED was not active, it's owner's always were.

One way or the other, so many shades of 1929 it is not funny. The most re-peaty rhyming in history it feels like.

China is germany, Japan is England, the US is of course still the US, NK is Italy?....axes are allied....

Incidentally, Mercury is retrograde, trade lightly, everything is likely to be mis-understood.


BLOTTO's picture

It really makes one wonder what we did wrong in our past life, to be dropped off on this planet under these conditions...


stant's picture

thank krugman hes been picken a fite with yall since his trillion$ coin didnt fly

IREN Colorado's picture

Blotto, I like to look at this as a unique opportunity to fix some mistakes we've made in the last couple hundred years. Lets round up some banksters and a few political hacks............

Who brought the ropes?

Pladizow's picture

"Freddie Kruger-Like Nightmare"

This market is the offspring of a corrupt mixture of blended Ben/Allen DNA spewed into a whore of a banking system!

DaddyO's picture

And this is how it will be policed when the sheeple wake up to the fact they have been hoodwinked.

SkyNet is well on its way to becoming fully self-aware...


General Decline's picture

Now that they have this technology worked out they can begin the depopulation operations. They don't even need aggressive, low IQ thugs anymore to carry out their debauchery.

Spastica Rex's picture

I think we will be cared for at some level of comfort while we slowly die off.

DaddyO's picture

Care to elaborate?


Spastica Rex's picture

Other than the physical "labor" that can't be automated or virtualized (decreasing all the time), those people existing outside the "knowledge economy" are superfluous. Consequently, the superfluous are placated with all kinds of bestowed benefits. To a great extent, I believe the motivation to do this comes from the potential consequences of not doing it. I also believe that our masters are not, in fact, entirely monstrous, and they do not wish to see unnecessary suffering, even from a purely moral standpoint. However, I also believe that our masters are willing to allow "natural" scourges such as disease and war to run their courses, if necessary.

I acknowledge that there are many (perhaps most, 'round these parts) who would argue that automation does not reduce the need for labor. My only response to that contention is that I don't believe the evidence supports it.

I also do not believe that the future I describe is inevitable, but rather that it will exist through the actions, and perhaps more importantly, the in-actions of all of us.

Finally, I'm not convinced that the energy exists to support this future.

DaddyO's picture

At this point, I think most who are awake want a reset.

As to the automation aspect of things, wasn't it to make our lives easier? Has it accomplished that end? I think not.

I made a handsome living in the factory automation business for a number of years. It does automate many menial jobs.

I contend that as long as the FED has the power of the press, they will continue to print to solemnify the masses.

This is the reason that the POTUS has pushed .gov benefits like he has. It serves two purposes, to grow his power and to placate the ensnared.


nasdaq99's picture

what kind of a world values a gravel company at 100x forward earns???????????


nasdaq99's picture

that was supposed to have a chart of VMC

Trucker Glock's picture

#the same world that values a company with loses that are double it's revenue.  or is the ratio 4:1?

island's picture

This is all anyone needs to know to understand what is happening in the REAL economy.    Velocity of M2 Money Stock (M2V)      Bupkis.


A Lunatic's picture

Long cat food........

nuclearsquid's picture

I am scared.  I need Simon Black to tell me where its safe to live this month.

HyBrasilian's picture

cue fonestar to give us daily updates about all the "MONEY ON THE SIDELINES" just waiting, WAITING to jump into a crypto currency, of unknown origin, with any number of competitors that may come along, that evades the IRS, whereby all your transactions are logged ~ FOREVER, and that requires more 'energy' to mine a unit of the currency than it takes to mine & process a bar of gold.

YC2's picture

Definitely among a bunch of strangers with whom you have no cultural ties, thats for sure!

J Pancreas's picture

Funny you mention cat food as I also had to eat some Fancy Feast tuna puree for breakfast this morning. Since I just purchased my 1-series with fixed payments for 120 months as well as my shares of TWTR and GRPN underperforming recently I've had to tighten my belt somewhat. Good thing I've got stable part time employment at my local Wal-Mart to help me weather this happy confluence of events.

LawsofPhysics's picture

Did someone say "bailout"?  Where is old Hank "tanks in the streets" Paulson these days anyway?  Swinging from a lamppost I hope.  Just trying to stay optimistic.

stant's picture

us tanks are being moved to europe .just a fyi , if that shows any light on things

Oh regional Indian's picture

From where to where? They are all over Germany anyways. Do you have a source/link?



stant's picture

 just go to martin armstrong site , link wont paste here

BandGap's picture

The part about the US shipping oil to the EU is also interesting. I know the US is heavily involved with transferring fracking technology to Europe, as well.


RaceToTheBottom's picture

OK, who is Archduke Franz Ferdinand?  The lady with the weaved bread hair or the other local thug oligarch?

Pure Evil's picture

Yep, better get ahead of the curve this time around. Looks like Europe will be target central for WW3 starting in Ukraine this time around instead of Poland for WW2 and the Balkans for WW1.

Randoom Thought's picture

Too much predicting of gloom and doom. Those who control price do not manage the market to follow the narrative. There seems to be a pretty good case for a market fall, the the question is will it precede (contributing to) or follow (being caused by) the "crisis". The way those managing the markets typically like to do it is to have the crisis precede the market collapse. That way they can "claim" that it was unforeseen and there was nothing that they could do ... all along knowing full well that they control price and not a free market.

Newsboy's picture


Nervous-making, it is...

Son of Loki's picture

Bullish?  Robust?  Twerkish?

Kaiser Sousa's picture

Dow up more than 100 points....

trade deficit increases....

GM aint selling shit....

earnings misses everywhere....

320k more mother fuckers hit the unemploment roll and about to be getting foodstamps...


fucking bullshit......


J S Bach's picture

All that freshly printed QE money has to go somewhere before its inflationary effects hit the rest of us plebs.  The stock market is the natural magnet for it.  Don't bend your brains about the illogic of the ups & downs.  Just remember the end result which is coming.  A greater and greater loss of purchasing power of the world's fiat currencies.  Hold onto your physical assets and be patient.  End of sermon.

Pegasus Muse's picture

"Hold onto your physical assets and be patient." 

And try to focus the mind on pursuits that can produce a state of wonder and serenity.

"I think that if I were required to spend the rest of my life on a desert island, and to listen to or play the music of any one composer during all that time, that composer would almost certainly be Bach. I really can't think of any other music which is so all-encompassing, which moves me so deeply and so consistently, and which, to use a rather imprecise word, is valuable beyond all of its skill and brilliance for something more meaningful than that -- its humanity." --Glenn Gould

redpill's picture

Just wait until they forceably make you associate it with ultraviolence, my droog.

OpenThePodBayDoorHAL's picture

that was Beethoven, wendy (i mean carlos)

SilverSavant's picture

Fuck patience, I want to mine donor organs.

Ban KKiller's picture

No free market. There, makes sense now? 

Front run the Muppets is the ONLY game.

CH1's picture


That's how it goes in the land of insanity.

Drop out of the system and pull your brain out of its pollution.

Race Car Driver's picture

> Drop out of the system and pull your brain out of its pollution.

The only solution to the pollution. Personal general strike for as long as it takes. No excuses.

Yes, I am doing this. No, it's not easy. Nothing of any value is.