'Catastrophic,' 'Ultimate Death Cross' – an Analyst at SocGen is Not Mincing Words

July 16, 2012 1:16 PM EDT
The end game for the bond bull market is going to be quite a mess, Albert Edwards, an analyst at Societe Generale, suggested in a note to clients Monday.

The analyst believes three- to five-year government bonds will prove “a catastrophic investment," but -- and this is a big but -- feels investors are still bailing out of bonds too early. Edwards thinks bonds yields could go significantly lower before they turn around. He thinks we may even see yields on the 10-year below 1 percent.

Regarding equities, Edwards said signs the U.S. is re-entering recession alongside an “ultimate death cross” on the S&P 500 “should put investors on high alert.”

A death cross is when the 50-day simple moving average (SMA) moves below
the 200-day SMA. An "ultimate" death cross is similar to a standard death cross, but takes place on a monthly chart.

Edwards recently observed analyst optimism in U.S. has been below 30 percent for three weeks in a row. This is a very bearish sign, since the lack of a move represents a change in sentiment. This shift in sentiment is a good leading indicator for equities, according to the Edwards.

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