“If this is what President Trump is like now, imagine if I am right and the US leads the global economy into another deep recession and financial crisis like 2008”, SocGen’s Albert Edwards wrote Thursday.
The reference was to Trump’s “stubborn child” tweet, which Edwards calls “unusually gratuitous criticism”. You know you’ve made it as a Fed critic when even Albert characterizes your derisive comments about the central bank as “gratuitous”.
To be sure, Albert doesn’t jump at the opportunity to castigate Trump for his encroachment on Fed independence, but he does acknowledge the glaringly obvious game plan. “As a long time harsh critic of the Fed (and other central banks) for their obscenely easy money policies, I am loath to critique President Trump’s punchy comments”, he writes, adding that Trump “has a very clear agenda”.
That agenda: The White House is setting up the Fed to be the fall guy if a recession comes calling in 2020 and the stock market dives ahead of the election.
Albert proceeds to run through a list of potentially ominous economic indicators, starting with the re-steepening of the curve. “We (and others), have also pointed out that the alarm bells for an imminent recession would really start ringing if the 10y-2y curve began to steepen”, Edwards writes, on the way to noting that while the 2s10s hasn’t really broken out to the upside yet, “the rest of the yield curve (which leads to 10y-2y steepening) is now shouting recession from the rooftops”.
Recall that the 2s10s steepened dramatically in the wake of the Fed decision and Powell’s presser last Wednesday.
The May jobs report gets a mention, and Albert warns that while you might dismiss it as a “glitch” (Larry Kudlow-style), there are other indicators worth taking note of. For instance, Edwards observes that “the wholly separate Conference Board Survey showed a massive 4.6% leap in the percent of respondents saying jobs are hard to get”.
Is that notable? Well, historically it is. As he goes on to point out, a surge like that has only been observed on a handful of occasions since 1974.
As it turns out, that series tracks the curve pretty well. Albert concedes that “a bull might point out the jump has come from near record lows”. That said, he cautions against writing it off entirely. “We ignore these things at our peril, and then in the benefit of hindsight we kick ourselves for ignoring the warning signs”, he chides.
Albert adds quite a bit of additional color on the apparent de-anchoring of inflation expectations and the prospect of a euro rally as the dollar loses both economic and monetary pillars of support, but the gist of Thursday’s missive is that a recession is either coming soon or is already here.
We should note that while some pundits (read: one CNBC personality) enjoy criticizing Edwards’s persistently bearish takes, one look at developed market bond yields suggests his famous “Ice Age” thesis has been proven at least some semblance of correct.
As far as what Edwards sees in Jerome Powell’s future, SocGen’s incorrigible but affable bear is unequivocal. “Even before the irascible Trump became President, I said the Fed would lose its (supposed) independence if they were the midwife to another crisis”, he writes. “By hook or by crook, Powell will be out on his ear” if the economy goes into recession ahead of the next election.