Edwards compares Yellen’s mistakes in keeping interest rates too low for too long with those of Alan Greenspan, who led the Fed from 1987 to 2006, the year the U.S. housing market started to crash.
“The Greenspan Fed did raise rates from 1 percent in mid-2004 to 5.25 percent by 2006, but the pace was far too slow and the timing far too late,” Edwards said. “Just like the Greenspan Fed, the die has been cast and it is simply too late for the Yellen Fed to avoid a disaster.”
The rising price of copper, a metal that is widely used in industrial products like pipes and wiring, is an indicator of late-stage economic growth, Edwards said. Copper has risen 40 percent to 20-month highs after hitting a bottom in January 2016.
“What we are seeing now are the traditional cyclical price pressures that occur toward the end of the economic cycle,” Edwards said.
He said stocks will have difficulty rising while interest rates and commodity prices also climb.
"Given the inverse correlation between commodity and equity prices since 2011 it beggars belief how equity investors have flipped from seeing the deflationary backdrop of falling commodity prices and bond yields as good for equities, to rising bond yields and commodity prices also being good for equities." Edwards said. “It’s marvelous that equities can go up in any scenario! Of course they can’t!”
Source: Societe Generale, Datastream
Edwards has been on the record with bearish calls since introducing his “Ice Age” thesis in 1996. The forecast advised investors to put money into bonds and be cautious with stocks as deflationary pressures like those seen in Japan spread throughout the world.
Japan has struggled with repeated recessions and slim growth since its economic bubble collapsed in the 1990s.