Dow Jones

FRANKFURT—Is the U.S. stock market on the brink of collapse?

Dresdner Kleinwort Wasserstein strategist Albert Edwards warned investors last week that the U.S. stock market is poised for a crash.

Then the investment bank spent Friday clarifying the message.

In a client publication, dated Aug. 1 and titled “Fraud!” Mr. Edwards said there was high risk that U.S. productivity data to be released Tuesday would trigger the crash.

“We say what we see,” the note said. “We wrote back in August 1998, ‘Investing in the U.S. miracle will in retrospect be seen as a sick joke.’ The markets will be forced to confront this harsh reality on Aug. 7. Make a date in your diary! The U.S. ‘New Paradigm’ will then be officially revised away. The risks of an equity crash are high.”

He said that forecast is based on the expectation that “the valuation structure of the U.S. financial markets is about to be glassed into reality,” with “rapid ‘New Paradigm’ productivity growth” revised away.

Holger Zschaepitz, the reporter who wrote the Die Welt article, said he took Mr. Edwards’ report at face value. “Generally, a ‘crash’ is defined as a drop of 20% or more,” he told Dow Jones Newswires.

The firm took exception to that extrapolation.

“Our bank is not advising clients that we’re predicting a 20% crash next week,” a Dresdner Kleinwort spokeswoman said. “We have not predicted a 20% decline in markets. There has been no categorical statement we’ve made predicting a crash.”

Mr. Edwards, who had a day off Friday, could not be reached directly for comment. However, in a written statement distributed through the spokeswoman, he said:

“The ‘Global Strategy Weekly’ highlighted the impending substantial downward revisions to historical productivity data, and we believe that the U.S. market remains highly overvalued.”

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