Albert Edwards and Dylan Grice: Bearish Forecasts from Two Top Strategists

Found via ValueWalk.

It’s been nearly 18 years since Albert Edwards forecast an “ice age” in which bonds would outperform equities. He’s been right until just recently, when cumulative returns on the two classes converged. But Edwards insists that his thesis is still accurate – deflation will be the force to propel bonds over stocks, he says. Dylan Grice, meanwhile, warns that the markets operate on an unstable equilibrium that could devolve into apocalyptic conditions.

The two spoke at Societe Generale’s annual research conference in London on Jan. 14. Edwards is the firm’s global strategist. Grice is the director of research at Edelweiss Holdings, a Zurich-based investment manager. Prior to that, Grice worked alongside Edwards at Societe Generale.

“We are one recession, one slip away from outright deflation, both in the euro zone and in the U.S.,” Edwards said. That would adversely affect equities, he said.

If that message wasn’t sufficiently foreboding, Grice warned of a societal breakdown that would be far more disruptive.

The financial markets measure trust through yield, according to Grice. Investors should not be lulled into assuming today’s record-low yields (in both equities and bonds) imply similarly low degrees of risk. That is incongruous with current political developments, he said.

“It is wrong. It is the last hurrah,” Grice said. “This is not just an economic but a social phenomenon.”