Nearly all investors around the world are fearing global markets will soon collapse, warns Ed Dempsey, chief investment officer of Pension Partners, who expects the United States will be officially back in recession by the third or fourth quarter.

With yields in U.S. Treasurys and bonds in most industrialized countries at record lows, the global fear of collapse is priced in the market and there is a major market shift coming soon, Dempsey told Yahoo.

The fear trade is very priced in “and it’s all over the world,” he said.

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible

“Some people say it’s the Fed. Well, the Fed doesn’t explain places like Denmark, Austria and Canada. If you saw this morning, there were negative yields. France, Germany and Denmark now have negative yields on their short-term paper,” Dempsey added. “Around the world, the single narrative of collapse has taken hold.”

The global collapse investors are waiting for hasn’t happened yet.

“Looking back, 2011 had historic volatility, flat stock prices and low yields. We now have yields lower, volatility is low, but we have an S&P 500 that is up almost 9 percent,” he noted. “If you step back, you can make an argument that the collapse trend is beginning to change.”

The problem for investors, according to Dempsey, is buying bonds at 1.6 percent.

“It’s like flying a plane at about 50 feet off the ground,” he said. “There’s no room for error.”

When investors make 8 or 9 percent on bonds, they do not have to worry much about what the stock market does.

“But if you’re going to make 0 percent on your money market or 1.5 percent on your 10-year Treasury while the S&P goes up 9 percent or goes up 15 percent or starts to run away, that’s a real problem. That’s a problem for your wealth,” Dempsey noted.

The current yields are lower than they were after the collapse of Lehman Brothers Holdings Inc.

“The key word is ‘after,’ after Lehman Brothers,” he stressed. “But you don’t have the event.”

While some might consider the economic crises in Europe and China as events, Dempsey does not, noting, “It’s a process.”

“Lehman was an event. You had record low yields after Lehman, you now have yields lower than post-Lehman, but you don’t have this single event,” he added. “And bears have to answer for the fact that we have an S&P up 9 percent.

“I’m not saying that the event can’t happen or it won’t happen, I’m simply saying that bond investors are positioned as if it [the cataclysmic event] has already occurred, and therein lies the opportunity,” he said.

“If you do not get this systemic event, then there’s room to go up,” Dempsey noted, predicting a scenario that could result in a gain of 30 to 40 percent in the S&P 500 for the year.

“We’re obviously in the midst of a slowdown. It’s obvious to anyone,” he said, anticipating the U.S. will be officially back in recession by the third or fourth quarter.

“I don’t know that we’ve ever entered a recession with yields this low and corporations healthier,” Dempsey stated. “You have corporations that have the best balance sheet they’ve had in 50 years. In many cases these are wonderful companies that yield sometimes twice the 10-year Treasury.

“It’s a very strange phenomena and it should provide support underneath the stock market,” he added.

A recent Rasmussen Reports poll found that 62 percent of Americans feel the country has slid into a recession, while only 20 percent disagree.

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