Albert Edwards: Expect a deflationary bust

Société Générale's Albert Edwards warns it won't be long before the markets lose faith in the recovery.

Ever since the late 1990s, Albert Edwards has been warning that the West is heading for a repeat of the Japanese experience, with debt and deflation causing an "Ice Age" in equity markets and economies. It's starting to look as though he may have a point.

Stocks have gone sideways since the late 1990s, and have got much cheaper. They will get much cheaper still, says Edwards in a Socit Gnrale note, as investors have yet to twig that "we are only one short recession away" from deflation.

Most developed countries' inflation rates are below 1.5% and the trend almost everywhere is down, notes Edwards. The US rebound is "already noticeably longer than average [and showing] classic signs of old age, such as rapidly slowing productivity growth and stagnant corporate profits".

It won't be too long before the markets lose confidence in the economic recovery and "will no longer be able to ignore the lurking deflationary threat". Rapid market moves would ensue."

How will all this end? First, in a "deflationary bust". But in the longer term, expect much, much higher inflation, as panicked central banks print yet more money in a vain attempt to escape the downturn.

Recommended

The US Federal Reserve is about to rein in its money-printing – what does that mean for markets?
US Economy

The US Federal Reserve is about to rein in its money-printing – what does that mean for markets?

America’s central bank is talking surprisingly tough about tightening monetary policy. And it’s not the only one. John Stepek looks at what it all mea…
23 Sep 2021
Prepare for the rise of the “labour-lite” business
Global Economy

Prepare for the rise of the “labour-lite” business

Staff shortages are not going away any time soon – businesses that can do without a big workforce will thrive, says Matthew Lynn.
12 Sep 2021
The charts that matter: gold and bitcoin both slide
Global Economy

The charts that matter: gold and bitcoin both slide

Gold and its modern counterpart, bitcoin, both sold off this week. Here’s what’s happened to the charts that matter most to the global economy.
11 Sep 2021
Evergrande: is China facing a Lehman Brothers moment?
Chinese economy

Evergrande: is China facing a Lehman Brothers moment?

China's property market is overheating. And one of its biggest developers, Evergrande, is in struggling to repay its debts. John Stepek looks at what'…
9 Sep 2021

Most Popular

The times may be changing, but don’t change how you invest
Small cap stocks

The times may be changing, but don’t change how you invest

We are living in strange times. But the basics of investing remain the same: buy fairly-priced stocks that can provide an income. And there are few be…
13 Sep 2021
Two shipping funds to buy for steady income
Investment trusts

Two shipping funds to buy for steady income

Returns from owning ships are volatile, but these two investment trusts are trying to make the sector less risky.
7 Sep 2021
How to stop recurring subscriptions becoming a drain on your money
Personal finance

How to stop recurring subscriptions becoming a drain on your money

Tracking and pruning subscriptions isn’t as easy as it sounds. Here's how to take charge.
14 Sep 2021