Friday, August 19, 2011

From Ice Age to Hyperinflation With Société Générale's Albert Edwards (Aug. 19, 1011) TLT

From Reuters:
Three months ago, with the Federal Reserve nearing the end of its second major stimulus program and inflation pressures on the rise, Albert Edwards' bond market view stood out from the crowd.

Societe Generale's famously bearish analyst, in contrast to most, did not see 10-year Treasury yields rising above 3 percent just because the Fed was going to stop buying bonds. Instead, he predicted they would fall below 2 percent.
So far, Edwards -- who predicted the Asian financial crisis of 1997-98, the U.S. housing implosion and who sees China's economy suffering a hard landing -- has been closer than most on his debt call. Last week, yields tested their record low of 2.04 percent.

Investors, however, should hope he's not as accurate on his next call: Edwards sees Treasury yields falling further because, he says, the economy will weaken. He is targeting benchmark rates at around 1.50 percent in the next six months.
Be sure to lock in a low-rate mortgage while you can, though. After that, says Edwards, a period of hyper inflation will push bond yields into double digits and send the S&P 500 stock index tumbling to 400, only a third of its current value.
"On a 10-year view I think government bonds are a horrible investment," Edwards told Reuters in an interview. "My view is that the end game for all this is monetization and trade war and very rapid inflation."

London-based Edwards admits his views are outside the mainstream.
"Many think I am mad," he wrote in a recent report.

Still, Treasury yields have fallen from 6.5 percent in 1996 when Edwards went overweight the debt.
And, with nerves shattered by wild price swings and portfolios that still show losses from the 2008 financial crisis, more people may be receptive to markedly bearish views.

Edwards says the economy is in an Ice Age -- his term for a period of low inflation and near deflation and in which the economy has seen a broad deleveraging from the stock boom of the 1990s.

"That was the great moderation -- the great moderation was a lie and a Ponzi scheme built on these massive debt mountains. And now those are finished you go back to normal, or worse than normal because you're so vulnerable," he said....MORE

Coincidentally, MarketBeat titled one of today's posts "Ten-Year Yield Could Fall to 1.5%: Rosie"