Thursday, January 14, 2016

French financial analyst warns US stocks due for 75% crash because Fed "bond buying" policies have expired


Chris Matthews, in Fortune, reports a study from France by Albert Edwards, at the Societe General, “Analyst: Here comes the biggest stock market crash in a generation”.  He supposedly published a research note Wednesday on a blog that I can't yet find (will update if I find the URL).

Edwards claims that the US equity  markets have been propped up artificially by the Federal Reserve’s bond buying program, which has now stopped, with a slight rise in interest rates.



Matthews points out that Matthew has repeatedly made similar predictions all the way back to 2010.

Of course, I always thought that stock prices were more a measure of what investors will pay for earnings. (Here’s a primer on how that works in the language of a CPA. )  A way to understand all this is a thought experiment where I imagine a issue stock for my book authorship and sales activity, and even music composing or performance or film, screenplay or video production. Truly a fantasy right now.

Matt Clinch has a big story about Edwards’s claims on CNBC that gives more details. The headlines somewhat incorrectly attribute Edwards's claims to China's problems; he says it's the Fed (and past 2008 bailouts catching up with us).
 
On the other hand, Yahoo! a story in which Goldman Sachs claims that the “fair market value” for the SP is 2100.

The idea that low oil prices could destabilize all the markets is strange.  Airlines, railroads and car companies, as well as utilities, should benefit. And the idea that our investors are so spooked by a “Communist” country’s erratic behavior (taking on too much debt, though) is unsettling. Why hasn’t Donald Trump talked about the markets in the last week?
 
The markets are up as I write this, but let’s see if they can hold together today.  Don’t hold your breath.  Will markets react if someone on Wall Street finds this blog post on his or her smart phone?

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