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One of the basic questions today is whether Western governments should spent more in order to avoid a second recession or to hold down in order to restore the confidence among investors. Albert Edwards from Societe Generale says that this debate is a waste of time. Click here to read the full article from Prison Planet for the second recession that Edwards forecasts.  

Below you can find some key points from the article:

Albert Edwards reverts to his favorite economic concept, the “Ice Age” in his latest commentary piece, presenting another piece in the puzzle of similarities between the Japanese experience and that which the US is currently going through.  

Edwards focuses on the disconnect between bonds and stocks, and synthesizes it as follows: “investors are finally accepting that what is going on in the West is indeed very similar to Japan a decade ago. For years my attempts to draw this parallel have been met with hoots of derision  but finally the penny is dropping.” The primary disconnect in asset classes as the Ice Age unravels, for those familiar with Edwards work, is the increasing shift away from stocks and into bonds, probably best summarized by the chart below comparing global bond and equity yields – note the increasing decoupling. This is prefaced as follows: “The reaction of bond markets is wholly appropriate given it seems we are heading into outright deflation. The increasing divergence of bond and equity market yields that has been a key plank of the Ice Age will continue (see chart below). Equities will look increasingly cheap relative to expensive bonds.”

If the market is allowed to find its natural place without endless Fed manipulation (and not necessarily of stocks: the outright open intervention of USTs, MBS, and monetary aggregates is sufficient), the plunge lower will be severe, dramatic and instantaneous. Which explains why on Tuesday everyone anticipates a new message of monetary loosening, regardless of the form it ultimately takes.