Analyst: Stock Market Crash Coming
A U.S. stock market crash may be coming this year, as a rapid decline in China’s foreign reserves will cause the Chinese yuan to collapse.
At least that’s the word from noted perma-bear, Albert Edwards, global strategist at Societe General.
“A renminbi devaluation will only sever an already badly frayed safety rope,” Edwards said in a note obtained by Newsmax. “If one is looking for key technical indicators to ring the bell on the cyclical bull market—maybe it has just rung loud and clear.” (Source: “Albert Edwards: China’s Loss of Monetary Firepower Will Kill Stocks,” NewsMax, February 8, 2016.)
China’s foreign exchange reserves stood at almost $4.0 trillion in 2014, but the People’s Bank of China has torn through about $800 billion since then to artificially support the Chinese yuan against foreign currencies. The yuan is hovering around five-year lows against the U.S. dollar.
The International Monetary Fund (IMF) recommends a safe level for China’s foreign reserves at $2.8 trillion or above. (Source: Ibid.) If China keeps burning through its foreign reserves like it has over the past year, it will hit the IMF recommendation in the next few months, which will spell trouble for U.S. stocks.
“If that occurs in the next few months, expect to see a tidal wave of speculative selling, forcing the People’s Bank of China to throw in the towel and let the market decide the level of the renminbi exchange rate,” Edwards said. (Source: Ibid.)
China’s central bank last devalued the yuan in August 2015 for three consecutive days, knocking three percent off its value. The S&P 500 took a hit, as it fell more than 10% from its record-high over the next few trading days.