In my view the bear market in equities will resume beyond
the so-called summer rally. Crucially, the huge fall in household
wealth will dampen consumer demand and rising risk aversion will
delay a revival of global investment. There will also be much
weaker corporate earnings growth, making equities overvalued; a
weaker dollar spreading deflation into emerging economies; and poor
leadership from the US administration on global economic policy and
geopolitics.
But the most important factor suppressing equity market revival is
intensified disinflation in the US. This means that US corporations
can only recover profit margins at the expense of consumer
purchasing power. That increases the risk of a double-dip recession
at worst and weak corporate earnings growth at best. Profit margins
won't recover and more jobs will be lost, drastically postponing
economic recovery.
Global ripples
Disinflation also applies globally. As the euro and sterling have
strengthened against the dollar, eurozone and...
