There is certainly never a shortage of opinions when it comes investing whether it’s in stocks, real estate or anything else!
In fact I offered my thoughts on the subject of expert analysis in the article ‘Historic Look At Following The Herd Or Worse, The ‘Experts’, When Investing!‘ which examines events from recent history where analyst opinions couldn’t have been more wrong.
And as a student of history this phenomenon brings to mind a somewhat off color saying with an unknown origin (possibly Harry Callahan in the The Dead Pool circa 1988) that goes…’Opinions are like assholes. Everybody has one.’!
Of course to be fair there are analysts who do nail markets and their followers can be richly rewarded.
The trick or skill for the investor is being able to ferret out those seers and then hoping against hope that their past performance will be an indication of what their future results may be!
With that said an analyst known for his bearish predictions has put forth a forecast that is so extreme that I felt it had to be shared. The analysts name is Albert Edwards and the firm where he serves as global strategist is Société Générale.
His prediction is for the S&P 500 to drop to a level of 550 which would represent an approximate 75% drop from the 2,100 high. Currently the S&P 500 is trading at about 1917.00.
Here is the summary for his rationale concerning a severe bearish move but, remember that for every Albert Edwards there is in the ballpark of 10 analysts predicting that the market will go to new highs. Who will be right? Nobody knows!
Albert Edwards Thesis For A Crashing Market!
I believe the Fed and its promiscuous fraternity of central banks have created the conditions for another debacle every bit as large as the 2008 Global Financial Crisis. I believe the events we now see unfolding will drive us back into global recession.
Valuation booms are followed inevitably by busts. But the key point is that these valuation bear markets take the Shiller PE back down to 7x or below.
Since valuations peaked at the most obscene level ever in 2000, we have only seen two recessions and at the nadir of the last one, in March 2009, the Shiller PE bottomed at 13.3x, way above the typical sub-7x bottom. In valuation terms the bear market was not completed in 2009 and indeed after only two recessions there was no reason to expect it to have been completed.
If I am right and we have just seen a cyclical bull market within a secular bear market, then the next recession will spell real trouble for investors ill-prepared for equity valuations to fall to new lows. To bottom on a Shiller PE of 7x would see the S&P falling to around 550. I will repeat that: If I am right, the S&P would fall to 550, a 75% decline from the recent 2100 peak.
His complete rationale can be found in an article at Zero Hedge here.Google+