Albert Edwards: "It Feels Similar To Just Before The 1987 crash"

Add SocGen's grouchy permabear Albert Edwards to the growing list of bond bears.

In his latest letter, the SocGen strategist echoes what we have said earlier this week, namely that equities are wobbling as yields rise above key threshold levels, and says that he agrees "with the bond bears that US yields will continue to rise, causing more problems for equities" ... with one footnote, a predictable one: "I do not believe bond yields have yet seen a secular bottom. I repeat my forecast that US 10y yields will fall below zero."

He is right: once the current infatuation with the reflation impulse is over which has been made possible by a record drop in the US savings rate offset by a historic surge in credit card usage - a carbon copy of what happened in 2011 when the ECB went so far as to hike rates assuming the recovery was here, and unleashing the worst debt crisis in European history - central banks will revert to doing what they do best: nationalizing capital markets and crushing savers with financial repression, the likes of which have not been seen yet.

In any case, it's good to see that despite his recent vacation to Jamaica, Edwards' gloomy disposition is right where he left it back in gloomy London, and as he admits "I can reassure readers I am restored to my bearish best."

Edwards' bearish sentiment was only boosted by this week's market performance, to which he offers the following commentary:

So used are we to the relentless rise of the equity markets, seemingly without pause, this mini-tremor actually felt like an earthquake. But maybe this is the start of something more.

Maybe indeed, because in the very next sentence Edwards goes all out: "Certainly, as we explained at our Conference, the current conjuncture feels similar to just before the 1987 equity crash. All that was missing was the slanging match over the weak dollar between the US and Europe, but we duly got that while I was away."

Ah yes, the dollar, but before the trade wars truly begin, everyone is watching something else: the yield on the 10Y, where Edwards differs from the consensus we observed earlier, and believes that a bull market will only truly start once yields rise above 3.00%:

Every man, woman and child seems to have decided that the US 10y bond yield has broken out of its long-term downtrend and we are in a bond bear market. Our own excellent Technical Analyst, Stephanie Aymes, shows that 3% (not 2.6%) is the key long-term breakout yield we should be watching. But she thinks that 2.64% was also significant as this means the RSI downtrend has now been broken (see bottom panel in chart below) and a run to 3% is now perfectly plausible. That though does not mean the bond bull market is over.

Edwards then decides to take a shot at the "great rotators" out of equity and into debt noting that...

With much anticipation the US 10y bond yield broke the critical 2.6% many regard as key to defining whether the current bull market is still intact or not (see left-hand chart below). With yields now closing on 2¾% and the 30y closing on 3.0%, many see this as a great time to dump bonds and switch into equities.

... however, he cautions that "this might not be so wise (see right-hand chart below):

Why? Because, quoting Stephanie Pomboy and showing our chart from yesterday, Edwards points that according to the MacroMavens economist, "stock prices are now be the biggest threat to the economy – even more than the Fed. Heaven forbid the market ever goes down”. (The latest monthly reading just out shows a further surge above previous peaks – see right-hand chart below.)

Edwards then points out something else we showed on Monday: all the spending growth is thanks to a plunge in US personal savings:

US consumer spending growth is running way above growth in real average hourly (or weekly) earnings (see below). This gap is sustained by a slumping savings ratio, not jobs growth.

Then, taking a hint from yet another post on ZH - ironically also referencing 1987 and David Rosenberg's math on the latest GDP print - Edwards again highlights the "shocking slump" in the household saving ratio (SR) from 3.3% in Q3 to 2.6% in Q4, and also quotes Rosenberg saying that "without this decline in the SR, consumer spending would have only risen a paltry 0.8% in Q4 against an actual rise of 3.8%, and GDP would have risen only by 0.6% against an actual out-turn of 2.6%!" This quickly leads to the next rant:

The Fed’s easy money policies have driven household net wealth to new highs and the SR has fallen hand in hand in the last two years. The US has now got double bubble trouble (ie bubbles in both corporate and household debt). Just like 2007, this is another economic boom fuelled by an unsustainable credit bubble that will inevitably blow up with a rooky Fed Chairman in place."

So in conclusion, Edwards' deflationary "Ice Age" is still with us, and eventually US rates will tumble, ultimately turning negative. "Why do I think yields could go negative?" Edwards asks rhetorically? "Well I expect that the true extent of how close the US is to actual outright deflation, and hence how high real yields currently are, will soon be
revealed. But before US 10y yields turn negative, expect them to visit 3% first."

And somewhere in the sequence of events, the SocGen strategist expects the crash of 1987 to make a repeat appearance. And why not: until just a few days ago, the stock market had its best start of the year since, well, 1987. It's what happened later in the year, however, that matters more.


Give Me Some Truth arby63 Thu, 02/01/2018 - 12:37 Permalink

A lot of "someones" are off their rocker.

The "Russian collusion" BS is gospel truth to the 415 members of Congress (and our president) who voted to impose harsh sanctions on Russia for its "meddling."

Nor is there a single MSM organization who is skeptical of the "collusion" and "meddling" meme. 

What was the famous line from "The Man who Shot Liberty Valance?"

Newspaper man to Jimmy Stewart's character: "Sir we are in the Old West. When it comes to the truth vs. conventional wisdom, always print conventional wisdom." Or something similar to this.


In reply to by arby63

Thought Processor Bank_sters Thu, 02/01/2018 - 11:09 Permalink


I'm sure all of this is being discussed with and between the Deep State intel establishment and the GOP / Trump now in simple terms as negotiation points with regard to potential fall out from the ongoing investigation and collection / accumulation of hard evidence.  Thinly veiled threats perhaps.  Regardless the market weapon has been primed.  All it needs is the right spark and well, you get the idea.  Was this the plan all along?


The Deep State be saying Financial Meltdown things like, 'tanks in the streets' and 'the end as we know it' and whatever other doomsday buzz phrases you can imagine. They would love to drop kick the market now and let Trump be the fall guy for all of it (it's all coming to an end point anyway, who might the scapegoat be now?).  

That will then be the MSM narrative.

When in fact all of this is simply about restoring our justice system so that it functions within the limits set by the constitution of the United States of America.  Liberty and justice for all comes to mind.  But we all need to do our part to ensure that good triumphs over evil.


Just remember The hottest fires in hell are reserved for those who, in a time of great moral crisis, maintain their neutrality.  Dante Alighieri


Let justice be done tho the heavens fall.

In reply to by Bank_sters

wildbad Laowei Gweilo Thu, 02/01/2018 - 12:26 Permalink

right on Laowel...i too am guilty of having spurts of hope. seeing the jobs numbers, climbing dow etc.

its like playing sand castles on the beach while the tsunami of debt is racing from the horizon while we wait for donald to do SOMETHING...

there is no price finding, there is no easy way out of the debt whirlpool without worldwide state bankruptcy. but we will survive it. perhaps a couple of generations will put the plastic american dream on hold while the military tribunals exact their revenge with rope and property confiscations.

in the end its a dirtnap for the good the bad and the ugly and my only goals now are to lessen the burdens on my children and to die with a smidgeon of honor while standing up for some basic human values.

In reply to by Laowei Gweilo

An Shrubbery Thu, 02/01/2018 - 09:44 Permalink

Smells like teen spirit.

At least this time we have charts and graphs. 

Charts and graphs are NEVER wrong.

But why not a Power Point Presentation?

At least I could sleep through that.

LawsofPhysics Thu, 02/01/2018 - 09:45 Permalink

WTF? Like 1987?  Really?  What was the national DEBT in 1987?  What were interest rates in 1987?  What did the Federal reserve's balance sheet look like in 1987? Did we still have Glass-Stegall and "mark to market" laws in 1987?

This looks nothing like 1987 you stupid fuck.


"Full Faith and Credit"

same as it ever was!!!!

eclectic syncretist LawsofPhysics Thu, 02/01/2018 - 09:53 Permalink

Honestly. This is yet another PT Barnum load of shit that fails to strip the truth down to its essentiality. For instance,

"a run to 3% is now perfectly plausible. That though does not mean the bond bull market is over."

Of fucking course!! That's just a roundabout way of simply stating the essential fact that the only reliably constant bull market is Central Bankster counterfiating, and longer-term trends like bond rates, equity values ect., all arise secondarily to this. As long as that goes on and debt piles up interest rates will have to go down to stave off the inevitable collapse when the dollar finishes sliding down it's slow retrograde to it's ultimate true value of zero.

And when the dollar does approach that limit, interest rates will soar, just like they have in Zimbabwe (20%+; and Venezuela (10%; When the dollar inevitably dies the bull market in bonds will be over too, and interest rates will soar. Same old story for millennia now, just a different dumbassed snakecharmer selling trinkets with his own twist on the story. 

In reply to by LawsofPhysics

tunetopper Beowulf55 Thu, 02/01/2018 - 10:52 Permalink

CNBC in partnership with Keynesian pseudo-economists from the Peterson Institute among other Stink Tanks have cheerled the Rational Expectations train right into a tunnel of darkness. Now the great unwinding of QE will take center stage - My hunch is that the Fed and CNBC will tell us that Animal Spirits and Rational expectations dont work, and that Keynesian Economics are passe'.  So what will be the new, new sparkling object?  What should we focus on?

A new terrorist will arise- will it be Russia?  Another Waco?  a race-war?  You can believe the deep state is working on something along with Israel.

In reply to by Beowulf55

Iconoclast421 Thu, 02/01/2018 - 09:51 Permalink

This is such bs. The market declined for 6 weeks before the actual 1987 crash. We're not even 6 days from the top, and a new top could come in tomorrow in an instant.

MK ULTRA Alpha Thu, 02/01/2018 - 09:52 Permalink

Was Greenspan supposed to be the signal to crash the markets? Or was it a signal for smart money to take profits?

Or is Fed tightening sinking in to the markets and firms are changing asset allocation as a defensive measure?

A whole scale panic sell off isn't in the works because of positive economic growth data. Asset reallocation strategies are in vogue as traditional fundamentals are the new mantra.




Pi Bolar Thu, 02/01/2018 - 09:53 Permalink

It's different this time. We got SNB, FED and BOJ and a bunch of algos to BTFD!!! Forever.  

Sidenote to iPhone. DO NOT autocorrect 'algos' to 'Lagos'


bshirley1968 Thu, 02/01/2018 - 09:57 Permalink

There are no comparisons to 1987. EVERYTHING is completely different. If we get a crash like that, this party is over for a very long time....maybe forever.

Son of Captain Nemo Thu, 02/01/2018 - 10:05 Permalink

But instead of falling off the roof of your 2 story house Albert you are falling off the highest edge of Mt. Everest!...

I'm old enough to remember 1987 having been in college.

We only wish this was "1987"!... AND THIS AIN'T "1987"!!!


NubianSundance Thu, 02/01/2018 - 10:36 Permalink

In a free market Edwards could be correct, however as every market is curated by tptb following the great crash eight years ago it simply will not be allowed to happen.