Stock markets ended 2010 on an upbeat note. The FTSE 100 indexreclaimed the 6000 mark before slipping back, but still registered a 9% gain, while the S&P 500, the most widely watched US index, has regained the level seen before the collapse of Lehman Brothers.
There is an air of optimism among investors and a confidence among economists that a much feared double-dip recession has been avoided. A tough moment, then, to be bearish?
Not for Albert Edwards, the best known and longest-standing bear in the City. He has seen nothing to dent his Ice Age thesis – the term he coined as long ago as 1996 to describe the relative decline of equities versusbonds. He thinks there may still be another Japanese-style economic "lost decade" to endure. "Big structural bear markets take 19 years on average and have four recessions," he says. "We've had two."
Edwards is thus sticking to two eye-catching predictions. Stock markets will revisit their March 2009 lows (3512 for the FTSE 100). And, despite the hints in recent months of a return of inflation, gilt yields will fall below 2% (from 3.5% today) as deflationary forces reassert themselves. Oh, and for good measure, prepare for the hard landing in China and the crash in commodity prices.
Ridiculous? Well, remember that Edwards' Ice Age call in 1996 has proved to be a winner: even if you include the stock market's dotcom bubble years at the end of the 1990s, equities are still a long way behind bonds since 1996.
Remember, too, that Edwards' forecasts were generally rubbished at the time. His dismissing of the supposed Asian Miracle in the mid-1990s as "Noddynomics" was resented – until the Asian currency crisis of 1998.
To Edwards' amusement (he includes selected "fan mail" in his latest research pack), correspondents to his employer were still trying to get him sacked in 2000. "Send this old, sclerotic and dangerous man into pension or – this would be much better – take him to prison," said one. "He's obviously ill and not qualified to be chief strategist of Dresdner Kleinwort. I hope his prophecy will destroy his career for the next thousand years."
In fact, the Ice Age prophecy has been the making of Edwards' career. He started out in the Bank of England's economics department, spend three years in fund management and then had a 19-year stint at Kleinwort until 2007.