The latest offering from the perma-bear community, delivered by Albert Edwards at SocGen, is, well, bearish. US corporate profits are suffering a "gut wrenching slump," Mr Edwards warns, adding "whole economy profits never normally fall this deeply without a recession unfolding. The economy will surely be swept away by a tidal wave of corporate default."
Mr Edwards says the recent rebound in the S&P 500 is misleading. "Ignore this noise", he insists, "Recent whole economy profits data show that while the Fed plays its games, the economic cycle is withering and writhing from within."
He adds:
Historically, when whole economy profits fall this deeply, recession is virtually inevitable as business spending slumps. And if I had to pick one asset class to avoid it would be US corporate bonds, for which sky high default rates will shock investors
When whole economy profits begin to fall sharply, this is usually followed shortly after by the overall economy tipping over into recession, driven by the volatile business investment cycle.
He says that "historically it was Fed tightening, not profit weakness, that presaged recession," but this time round "Fed tightening may not be a necessary condition to catalyze a recession and that the deep profits downturn is sufficient in itself."
So, buy a cabin in the woods and tinned food? Before you do, bear in mind that as Goldman Sachs points out, excluding energy, metals and mining companies, US high yield defaults are near a post-crisis low.