U.S. markets open in 10 minutes
  • S&P Futures

    -7.25 (-0.16%)
  • Dow Futures

    -8.00 (-0.02%)
  • Nasdaq Futures

    -31.50 (-0.20%)
  • Russell 2000 Futures

    -1.30 (-0.07%)
  • Crude Oil

    +0.83 (+1.11%)
  • Gold

    +9.60 (+0.48%)
  • Silver

    +0.06 (+0.24%)

    +0.0011 (+0.10%)
  • 10-Yr Bond

    +0.0270 (+0.62%)
  • Vix

    +0.19 (+1.50%)

    +0.0006 (+0.05%)

    -0.2200 (-0.15%)
  • Bitcoin USD

    +542.44 (+1.47%)
  • CMC Crypto 200

    -2.64 (-0.34%)
  • FTSE 100

    -24.73 (-0.33%)
  • Nikkei 225

    -39.28 (-0.12%)

ALBERT EDWARDS: There's a 99.7% chance we're in a bear market

Albert Edwards
Albert Edwards

(Real Vision Television )
Albert Edwards.

Perma-bear Albert Edwards of Societe Generale thinks there is a 99.7% probability that we're in a bear market.

In his latest note to clients, Edwards warns that the recent snapback rallies we've seen in the stock market are merely headfakes and that stocks are probably headed lower.

In his note, Edwards references a model developed by his colleague Andrew Lapthorne, which incorporates macroeconomic and fundamental equity variables, and which currently indicates a 99.7% probability that we are in a bear market.

As of Thursday, the S&P 500 was down about 7.5% from recent highs after having dropped 11% earlier this week. A bear market is typically defined as stocks falling 20% from recent highs.

The key point for Edwards is that this model indicates the recent outperformance of just a few high-quality stocks has led to a correlation between investing strategies that favor quality earnings and price momentum.

And so the problem here is that different types of investors are piling into the same stocks.

Screen Shot 2015 08 27 at 9.40.03 AM
Screen Shot 2015 08 27 at 9.40.03 AM

(Societe Generale)

Edwards is also skeptical of the idea that the US and other Western economies can "de-couple" from China and emerging market economies that are currently on the rocks.

"[L]et me be as clear as I can," Edwards writes, "the US authorities CANNOT eliminate the business cycle, however many QE helicopters they send up. The idea that developed economies will decouple from emerging market turmoil is as ridiculous as was the reverse in the first half of 2008. Remember EM and commodities had then de-coupled from the west’s woes…...until they too also crashed."

For the last few years, Edwards has been writing about the idea that the US is slowly and steadily importing deflation from Asia, and that the business cycle is getting to an endpoint that will send us into a new recession.

And so with the Chinese economy slowing down — which in Edwards' view is happening more violently than official data would indicate — the negative impacts on the world economy are slowly bleeding westward.

NOW WATCH: How to invest like Warren Buffett

More From Business Insider