Société Générale strategist Albert Edwards has questioned whether the last phase of the 'Ice Age' for the global economy is upon us as the US sinks into a 'deflationary quagmire'.
Edwards, a renowned uber-bear, points out that the Michigan Survey of inflation expectations has just collapsed for both one and five years, a level associated with extreme equity and bond market turbulence.
The Michigan survey posted a sharp fall in November to 2.6% for both one and five-years from 2.9% and 2.8%, but what really worries the strategist is the significant fall in mean inflation expectations for the year ahead, slumping from 3.5% to 2.8%.See also Institutional Investor's Daily Agenda.
Edwards explained: 'I have been warning for some time that policymakers have, until now, been pretty good at keeping inflation expectations elevated despite consistently undershooting their inflation targets at both the headline and core rates.
'I think the bond market and investors are sniffing out the same failed policies we saw in 2004-2007. We are seeing yet another financial bubble and another Ice Age ‘lower low’ of inflation in this cycle. Investors are reasoning that when this cycle ends, as it surely will, then outright deflation seems a near certain outcome in the US just as it now knocks loudly on the eurozone’s door.'
Edwards notes that 10-year implied inflation expectations, as measured in the bond market, have fallen to a three-year low of 1.85%, and he is very concerned that headline CPI inflation has run well below expectations for a considerable time....MORE
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