Edwards On USD & US Nominal Bond Yields

Albert Edwards, the top ranked strategist at Societe Generale, points to USD and US nominal bond yields today:

Click on charts to enlarge, courtesy of Societe Generale.

The dollar may be breaking upwards (see chart above). If this is the start of a large upward move, driven in large part by huge short positions that might be forced to be unwound, this may crush correlated risk positions. In addition, the end of the $300bn Fed program of buying US Treasuries last week is causing jitters. Yet amid the noise one should focus on the longterm fundamentals (see chart below). Nominal quantities matter.

And a strong message to equity bulls:

Now a bull would say this is all jolly good news as company profits can be increased by continued cost cutting and margin expansion ... with margins already so very high, it is impossible for companies to cost-cut their way to sustained profits growth... Hence nominal revenue growth will be the key driver to the profits outlook. In targeting margins, companies are currently driving the US economy to the very abyss of outright deflation - something we will all realise as this cycle soon stalls.

Of course, the business cycle gurus do not see an imminent "stall" ...