For the first time since Q1 of 2008, Societe General strategist Albert Edwards has reduced his equity allocation to the 30% minimum.
He believes the Federal Reserve’s monetary policy will prove a disaster.
Moreover, in a CNBC article, Edwards points out an unusual divergence between the bond markets and implied inflation expectations.
Here’s an excerpt:
Unlike other bears, Albert does not see the current round of stimulus as potentially inflationary and sees deflation as a much greater risk for equity prices.
Albert uses the bond markets and implied inflation expectation surveys to measure economic cycles. He notes that the two have detached themselves from each other.
“I expect U.S. inflation expectations as measured by the bond market to decline and fall into line with five-year consumer expectations,” he said.
“The primary determinant of U.S. implied inflation expectations is the economic cycle. The recent divergence is highly unusual. The last time this occurred was, wait for it…the first quarter of 2008, just before we last reduced our equity weighting to 30 percent!”
To read the entire article, please click here.