Corporate profits in the U.S. are key for Edwards as a driver of the economic cycle. He looks at U.S. whole economy profits before tax and focuses on domestic non-financial companies. He says these are currently leading the business investment cycle and, ultimately, the overall economy into recession.
"Whole economy profits data give a wider and cleaner estimate of the underlying profits environment than the heavily doctored pro-forma quoted company profits data," he said in the note.
Federal Reserve tightening may not be a necessary condition to catalyze a recession, according to Edwards, who believes that the deep profits downturn is sufficient in itself to push the U.S. economy overboard. He adds that the economy will "surely be swept away by a tidal wave of corporate default" and U.S. corporate debt should be avoided, even more so than the "ridiculously overvalued equity market."
On Saturday, business magnate Trump predicted the country is on course for a "very massive recession." In an interview with The Washington Post he warned of the combination of high unemployment and an overvalued stock market.
The following days saw a list of names deride his comments including Harm Bandholz, chief U.S. economist at UniCredit Research in New York, and Sung Won Sohn, an economics professor at California State University Channel Islands in Camarillo. Mohamed El-Erian, the Allianz chief economic advisor, sees a 30 percent chance of a recession next year, with a slowdown even less likely this year.