This phenomenon has already hit European markets, and Albert Edwards warns investors would be foolish to think it can't occur in the US, too.
In his latest missive, Edwards says he's"more confident than ever" that the next phase of his long-touted Ice Age theory will soon befall the US. His thesis, formulated in the 1990s, stipulates that deflation will grip US and European markets, sending long-term bond yields towards zero and triggering the collapse of stock prices. This scenario would be similar to what happened in Japan after the country's credit bubble burst in the late 1980s.
For proof that his thesis is already taking hold, Edwards points to the negative 10-year-bond rates that were recently seen in some European countries including Germany. He's now warning that US investors should brace for the same, as well as a corresponding slump in stocks. "Most commentators now accept the Japanification of mainland Europe has occurred, but they just cannot conceive that the same thing might happen with the US," Edwards said in a note on Tuesday.
He continued:"My biggest conviction call is that US 10y bond yields will converge with Japanese and German yields in the next recession at around minus 1% and that markets will panic as outright deflation takes an icy grip." Edwards is not known to be shy about taking wildly contrarian views. Even as he calls for sharply lower US Treasury yields, Wall Street heavyweights including
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