SocGen's Edwards: Trade war recession fears a 'red herring'
Fed actions 'murder' bull market
Société Générale bearish strategist Albert Edwards has said growing fears of a global recession caused by a US-China trade war may be a "red herring" as the Federal Reserve is more likely to "murder" the bull market.
In his latest research note, the notoriously bearish investor also dismissed the idea that yield curve inversion is a "necessary" or "sufficient" indicator of a recession.
Edwards said: "The assumption that the increasing drumbeat of a trade war is the likely trigger to causing a US (and global) recession may be a red herring - albeit a rather pungent one that cannot be completely ignored."
At the time of writing, US 2-year treasuries are yielding 1.86%, while 10-years are yielding 2.1%.
Edwards said that while "some commentators still cling to the belief that because the 10y-2y has yet to invert…this almost fool-proof recession predictor is not warning us of any imminent downturn", he believes that "all the inversion of the yield curve tells us is that the Fed has raised interest rates considerably".
He explained that while on the surface interest rates are low, analysts must take into account the impact of QE on the 'shadow' Federal interest rate.
Edwards said: "Rather than bottoming at 0.25%, the effect of QE was actually to reduce the shadow… rate to -3%.
"This represents a considerably more aggressive tightening of interest rates than meets the naked eye, and one that historically is more than enough to tip the economy into recession.
"If ten of the last 13 Fed tightening cycles have ended in recession, then certainly on the evidence above another one is likely to arrive far sooner than the complacent consensus believes. No wonder the bond market is rallying so strongly.
"The Fed has already done sufficient to murder this cycle."
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