People are reflected in a stock quotation board outside a brokerage in Tokyo, Japan on Jan. 14, 2016. The gloomiest revisions of the world economy put oil at $10 U.S. a barrel, China in a hard landing, the loonie swan-diving below 50 cents and the S&P 500 down another two-thirds by the end of the year.TORU HANAI/Reuters
Now that investor fears have morphed into outright panic over the fragile state of the global economy, once-lonely bears are finding plenty of company in their winter lairs.
Some crystal-ball gazers are racing to position themselves at the front of the stampeding herd. The gloomiest revisions put oil at $10 U.S. a barrel, China in a hard landing, the loonie swan-diving below 50 cents and the S&P 500 down another two-thirds by the end of the year.
Even relative bulls on the punditry scale are hard-pressed to find the bright spots amid the spreading gloom. "Investors can't seem to find any bullish candidates to lead a sustained charge to the upside right now," veteran strategist Ed Yardeni, president of Yardeni Research, grumbled in a recent note.
But Mr. Yardeni remains optimistic that people won't want to sit for long on huge amounts of cash withdrawn from the markets in a spasm of unnecessary worry and earning essentially nothing. And in the midst of the brutal start to the year, investors can always cling to this hopeful note: "The only real positive technical development is that sentiment is extremely bearish, which has often been a good contrarian buy signal."
Perennially bullish Abby Joseph Cohen, president of Goldman Sachs's global markets institute, argues that investors may be behaving irrationally in light of an improving U.S. economy.
"What's happening really is very much an emotional response," Ms. Cohen told Bloomberg. Her advice is "to think about the most likely case, as opposed to the most awful case we can conjure up."
But on the other side of the fence, the legion of doom is doubling down on bets that market players are finally catching up with reality. Economist Nouriel Roubini warned three years ago that this would be the year "the mother of all asset bubbles" – as he characterized frothy U.S. markets – could burst.
Now the man nicknamed Dr. Doom for his prescient forecast of the Great Financial Collapse warns in a Time magazine essay that the global economy "will continue to be characterized by a new abnormal" in terms of anemic growth, unconventional economic and monetary policies, lack of inflation, very low real interest rates and many asset prices "too high relative to their underlying fundamental value in equities, real estate, credit and government bonds." And these conditions are likely to remain with us for a while.
"The next recession will come a lot sooner than people think," says another long-time permabear, Albert Edwards, Société Générale's London-based global strategist. "The key thing is this is an elderly, fragile [business] cycle" that began in June, 2009. "It won't die of old age. But you'd expect margins to be turning down. You'd expect underlying profits to be slowing as productivity growth slows. It's very vulnerable to being blown off course."
Mr. Edwards believes we are stuck in a new "ice age" – a term he began using in 2008 to describe a grim period of little inflation or outright deflation, frozen credit, sliding bond yields and more volatile and vulnerable markets and economies.
The onetime Bank of England economist has been a harsh critic of central bankers' actions before, during and since the financial meltdown and is convinced the Federal Reserve's aggressive quantitative easing has sown the seeds of an even worse financial reversal while doing little to boost the U.S. economy.
Relative to fundamentals, "financial asset prices have never been this extreme. And that's exactly what the Fed wanted," he says. "They wanted to push up asset prices. But in the process, they've underpinned the [corporate] credit bubble."
China is another key culprit in the market mayhem, mainly out of fears that Beijing will pursue further currency devaluation, which some China watchers dismiss as an unlikely scenario.
Investors "are coming to terms with what a Chinese devaluation means for Western markets," Mr. Edwards says. "It means global deflation and recession."
He has grown used to being dismissed as a crank by market cheerleaders, especially during the lengthy bull run. But if markets continue their stomach-churning ride, what sounded ridiculously pessimistic may soon seem entirely reasonable.