In 1996, SocGen's Albert Edwards foresaw an Ice Age where equities would replicate the experience of Japan though the 1990’s and de-rate both in absolute terms and relative to government bonds.
A June 27 column in The Economist about the risk of deflation quotes Edwards:
"It is worth repeating the very simple point that an integral part of the Ice Age thesis is lower lows and lower high for nominal economic quantities in each cycle. it is this process that drives the Ice Age re-rating of government bonds and the de-rating of equities - each recovery bringing a partial reversal to the process and each recessionary phase taking us to shocking new lows, both in bond yields and in equity multiples. I do not believe this process is complete, especially as I do not see the economy as reaching exit velocity of GDP in excess of 3%. Indeed, growth is still anaemic and vulnerable."
The column, titled "The other risk," also publishes a chart from Edwards' latest research that shows the trends of the core CPI (Consumer Price Index) and the core PCE (personal consumption expenditures).
The column noted:
The core PCE number (personal consumption expenditure deflator) is only 1% - a modern low - and the Dallas Fed, which uses a trimmed mean number (eliminating the outliers), actually recorded a small fall in the latest numbers.
To read the entire article, click here.