Thursday, January 14, 2016

COULD THE S&P FALL TO 550?

SocGen's Albert Edwards created a furore and thereafter much heated debate when he prognosticated that the S&P could fall as much as 75% to 550 due to China's devaluation.

My view: The S&P reached 683 in 2009. Since the Global Financial Crisis, global debt has increased 200% and global derivatives have increased anywhere from US$700T to US$1.5Q which is more than the US$500 plus T recorded in 2009.

US monetary base has increased 500% since then. GDP to monetary base is below that recorded during the Great Depression. During the 1997/98 Asia Financial Crisis, the US and EU were not as badly affected. In the 2008/2009 Global Financial Crisis, US and EU were badly hit, but Asia was able to power ahead though a debt fueled economy. Now the world is on the brink of yer another crisis and no major economy powerhouse is there to buffer any impact.

















Currently the U6 data points to 10% unemployment. On the other hand, if we were to measure unemployment against the number of people within the employable age group, the unemployment could be close to 20%. That means 100 million Americans are without a job!

Today, we have a US economy that faces recession in earnings, recession in the oil, mining and manufacturing sectors. And now, US total debt stands at more than 300% of total GDP.

Look at the Blatic Index 402 points vs 12,000 points in 2008.

Any major crisis I believe, will be debt driven and in a deflationary economy, it could be a double whammy. Will the S&P really fall to 550? I do not know. If allowed in a freefall it could be worse than 2009. However, I am inclined to believe that the Fed will not allow the S&P to be in a freefall to 550. At 1,200 to 1,500, I think the Fed's printing press will work doubly hard, but will it be enough to stem the tide?

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