SocGen’s Edwards Says U.S. Stocks Will Plunge Below March Lows

By Lynn Thomasson
Dec. 1 (Bloomberg) -- U.S. equities will fall "substantially" below their March lows because the global economy will weaken in 2010 and stocks are expensive, said Societe Generale SA’s Albert Edwards.
The recession will worsen as businesses and consumers reduce debt and deflation remains a "key threat" for the world in the next one to two years, said Edwards, a global strategist for the Paris-based bank. Government bonds are a poor investment because yields may drop below 2 percent in 2010, while gold is cheap, he wrote in a research report today.
"Deep down, even the fiercest equity bulls must surely be doubting themselves," said Edwards, who is based in London.
"We still see much pain to come" for stocks in 2010 and 2011.
The Standard & Poor’s 500 Index has surged 63 percent since a 12-year low on March 9 as the American government lent, spent or guaranteed more than $11 trillion to end the nation’s worst recession in seven decades. Societe Generale’s outlook contrasts with the median economist estimate in a Bloomberg survey that U.S. gross domestic product will expand 2.6 percent in 2010 and
3 percent in 2010. The nation’s economy expanded for the first time in a year during the third quarter.
Edwards was voted second-best European strategist in a 2009 Thomson Extel survey released in June. The report also named Societe Generale as the top economics and strategy research firm for a third straight year.
Valuations for U.S. equities didn’t reach "revulsion"
levels in the last bear market, suggesting that the S&P 500 will retreat to below its March 9 close of 676.53, Edwards said. The S&P 500 trades at 22.2 times the past year’s earnings from its companies, the highest since 2002.
Gold, which has risen for the past eight years and climbed
35 percent in 2009, topped a record $1,200.50 in New York trading today. Treasury 10-year notes yield 3.23 percent, up from 2.05 percent in December, according to Bloomberg data.
"Recession will quickly follow recovery," Edwards said.
"Thinking the unthinkable has paid off in the last decade and should continue to do so."

I agree with the guy to some extent but not sure about the timing : the rally could last for a while before the markets head south again. When he says "Thinking the unthinkable has paid off in the last decade and should continue to do so." I totally agree but here it looks like the whole world is thinking about a double dip recession, that's what he forecasts no ?