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Uber bears see 'deeply negative' US interest rates

Statues of a bear and a bull stand outside the Frankfurt Stock Exchange.
Hannelore Foerster | Bloomberg | Getty Images
Statues of a bear and a bull stand outside the Frankfurt Stock Exchange.

Rather than hiking rates and tightening monetary policy, two of the City of London's most renowned pessimists believe the U.S. Federal Reserve will soon cut them into "deeply" negative territory.

Societe Generale's Albert Edwards and Bob Janjuah, senior independent client adviser at Nomura, are two notoriously bearish - but widely-followed - strategists and made the conclusion over that very British tradition -- a cup of tea.

"I enjoyed afternoon tea with my fellow strategist Bob Janjuah of Nomura," Edwards said in his latest note published on Thursday.

"The next U.S. recession will probably arrive a lot sooner than most investors expect and will likely see more desperate monetary experimentation from the Fed. Bob and I thought that this time we would see deeply negative interest rates in the U.S. (and Europe)."

The negative rate would only apply to banks but the lenders should in theory pass on this disincentive to save to its customers by trimming their rates.

Such a measure would likely come alongside another bout of bond–buying, according to Edwards, a measure which has also been touted from economists like Larry Summers, the former U.S. Treasury Secretary.

Fears over global growth was credited by the Fed as it decided to hold off on what would have been its first rate hike in seven years last week. While not a complete surprise, the uncertainty caused "risk-off" sentiment throughout global markets.

Just a day later, Bank of England Chief Economist Andy Haldane entertained the idea at that the U.K. central bank could may have to cut rates rather than raise them because of deflationary fears and concerns over emerging markets.

Edwards highlighted in his note that Sweden was currently leading the way on negative rates with its current level of -0.35 percent - effectively charging the banks that are hoarding cash at the central bank.

The SocGen strategist also likened the situation in the U.S. to the decades of stagnation suffered by Japan, but added that the U.S. is currently even worse off.

"In the 1990s Japan could rely on exports as the rest of the world was growing strongly – unlike the situation for the U.S. now. This time is indeed different. It is worse!," he said.

"The last seven years of exploding central bank balance sheets will seem like Bundesbank monetary austerity compared to what is to come."

While his bearish thoughts and predictions are widely read by colleagues and rivals at fellow banking organizations, they do not always come true. In September 2012, he announced the U.S. was in recession and Wall Street would soon react, and warned of an "ultimate" death cross for the S&P 500—where the 50-day moving average falls below the 200-day trend line.

Instead the S&P 500 continued to rally, and has gained around 32 percent since Edwards' pronouncement.