Earlier the last Friday , before share prices rallied sharply on misguided hopes for the Mother of All Bailouts -- see the Associated Press report, "Stocks Surge on Report of Entity for Bad Debt," for more on the latest round of smoke, mirrors and short-covering -- a post at FT Alphaville, "Edwards: Prepare for the Great Unwind Part 2," detailed a frightening outlook from someone who is not only a highly-rated Wall Street strategist, but who got to where he is because he actually knows what he is talking about (unlike the majority of his peers).

The Ultra-Bear, SocGen’s Albert Edwards, was at his apartment near Perpignan last Wednesday, re-charging his batteries…

Sitting on my balcony at midnight sipping some local Rosé with my good friend Dr Bob, we were discussing recent market developments and generally putting the world to rights. To our amazement the most stunning shooting star raced across the night sky and exploded spectacularly out to sea. Now on my return I did a little research. Amid this week’s turmoil was it pure coincidence that a Shooting Star is a well known bearish signal for markets?

The views of Edwards, and his colleague James Montier, have moved from being off-the-dial to progressively mainstream over the past year or so. But he’s still got a couple of predictions that can shock:

First is the depth of the equity bear market that is likely to unfold. Our central case is that Ice Age multiple contraction will send the S&P down some 70% from the peak to 500…

The second event that will shake investors to their core over the next year is a collapse in emerging market (EM) economic growth (and all that brings). The consensus still touchingly believes that despite a deep economic downturn in developed economies, continued rapid EM GDP growth will keep overall world growth resilient in the 3-4% range next year..My own view is that outright contraction of global GDP is entirely possible next year.

Edwards’ central argument is that while everyone is currently focused on the rapid deleveraging being forced on the financial sector, no one is looking at the US trade deficit, which is rapidly correcting. A resultant slump in global forex reserves will lead to a second round of financial deleveraging as emerging market economies slide into recession.

Totally separate from the ongoing credit crisis, a new type of liquidity squeeze has just begun. It is The Great Unwind Part 2