Could it really have arrived? Are global stocks about to tank in an all consuming way? Indeed, is this the moment Albert Edwards has been waiting for since 1996?
Well, there was some trepidation amongst equities dealers in London ahead of Monday’s opening. Last week was a bit tough on the old nerves (the short, sharp Shanghai bath; the sight of the Dow falling 200 points in the space of a minute or two), and the early signs pointed towards more of the same this week.
The Nikkei in Tokyo fell a full 3.3 per cent — echoing falls across Taiwan, Hong Kong, Shanghai, South Korea, Singapore and Australia. The yen, meanwhile, rocketed — rising to a three-month high against both the dollar and the euro. That seems to confirm that a great unwinding of the Yen carry trade really is underway as investors, worldwide, de-risk their portfolios.
For Edwards, Dresdner Kleinwort’s notoriously bearish global strategist, this truly is the moment. He’s moving his asset allocation advice to maximum overweight bonds and aggressively underweight equities. Here’s what he told Dresdner clients this weekend:
“We believe the long and widely awaited equity correction is upon us. The sharp deterioration in the US economic dataflow should extend that loss below key support levels. We expect government bonds to be the safe haven, especially as risk assets generally are likely to suffer as the Yen carry trade now unwinds.”
Of course, Edwards is perhaps London’s best-known doom-monger when it comes to stocks. “Regular readers will know that we do not move our asset allocation and equity stances very often, preferring to take the long view. Because of our Ice Age thesis, we have maintained a structural underweight of equities relative to long dated government bonds since October 1996! This stance has been as much derided as membership of the Flat Eart Society,” he writes in his weekend global strategy report.
Has he been utterly and comically wrong for more than a decade? Well, Edwards would argue the toss: “We keep hearing equities should be the asset of choice. Hence it is always worth considering that over the period we have been underweight equities, the return of longer dated global bonds have held their own, with far lower volatility.”
Meanwhile, during the first few moments of trading on the London stock market the FTSE 100 fell 94 points…