Why do you have a role at the bank and what is the purpose of your job?

Why am I employed?

And actually, I don't mean that from like why are you employed?

Like if you've got the equity you call etc..

Why is this an important role though, to have a bank?

Well, I remember in the run up to the, Nasdaq bubble bursting,

we were having our roundtable lunches

Tony Dye then who was,

head of Phillips & Drew Asset Management,

who had become bearish to early

Value orientated. Yeah.

I remember him saying to, the head of equities

Well, I totally agree with what Albert is saying

But why haven’t you fired him?

Because that's what happens to most bears

or most analysts who get it wrong.

Not on the bullish side.

But if you quote if you're an economist and call it a recession on the sell side,

you're and you're wrong.

You're usually out pretty quickly that there's such a bias towards optimism.

And it's and it's not just confected, it's it's natural.

It's like an analyst covering a stock.

You inevitably they're going to be hugely enthusiastic about their sector.

Hello and welcome to another episode of the Odd Lots podcast.

I'm Tracy Alloway and I'm Joe Weisenthal.

Joe, I think I think a lot of people don't understand

the role of bears in finance, in markets.

It's to, it's the it's to, create headlines for tweeting.

Right.

Well, retweet technically to sell newsletter but I was

I was going to say it's to get emails open.

Right. That's right.

So I think, you know, being a bear who's selling a newsletter,

we can all kind of see the business model there.

But if you're an analyst at a big sell side firm and you're known as a bear.

Yeah,

that seems incredibly difficult to me because like the tendency

on Wall Street and investment and finance is towards optimism, right?

You have to place bets on the future.

You have to put your money to work.

And if you're managing to be a sort of like long run

bear and a big sell side institution, that's pretty impressive to me.

Well, so you're selling? Yeah.

You're selling.

They call it the sell side.

And if you know, there's

all these financial instruments that the financial institution has

and you're the bear is like, well, I'm not going to buy anything.

You know, once you it's the sell side.

You're supposed to have something to sell,

not something that telling people to not tell other people to sell.

The clue is truly in the name.

But the other thing that's very impressive is, if you're a long run bear

at a sell side institution who also manages to be the top

ranked macro analyst in your category for 13 years in a row.

That's pretty impressive, right?

It is impressive.

And this gets to another important point, which is people like to read

and people like

and I think about this even with podcasts and other forms of any sort of media,

whether it's formal media and a PDF that a banks sells or a news

organization, people like to consume ideas, and it doesn't mean

they're going to consume the ideas and say, oh, this was convincing, buy, sell.

But they like to hear a range of ideas.

They like to see how they like to have their thought process influenced.

They like to stress test.

Well, this is what I was going to say.

Like, to me, the role of a true bear on Wall Street is for big investors

and institutional clients to actually test some of their thinking.

You know, if you have a bunch of analysts who are trying to pitch you

tech stocks in the moment, like you want to hear an opposing viewpoint

that says, well, maybe like here is the downside scenario.

Well, here's the other thing.

Right now, we're recording this in early May 2026,

which is that equity markets around the world are very high.

Some would say bizarrely high, but they're very high for various reasons.

We could get into bonds have been selling out very much.

And that's sort of the story.

We're here in the UK right now, and the headlines are all about

generally how much gilt yields, keep spiking.

But we're in this moment

in which I would say there is a real mismatch, but between,

I would say gloom, which you could pick your poison.

Why are you gloomy?

You're gloomy because the eyes are going to take us,

are going to destroy the world.

You're gloomy because the world around you're gloomy because high deficits, etc.

you're gloomy because politics in so many countries seems to be deteriorated.

There's plenty of reason for gloom out there.

And yet, you know you're losing if you're not in the stock market.

And so, etc.

it is just a very weird time.

But, yes, there is this weird mismatch depending on how you look at it, between,

sentiment across any many different, attempts to measure sentiment and what.

Sure, at least certain parts of the market are doing.

Yeah, I think that's exactly right.

And also you know, you mentioned bond yields going up.

So we're recording this on May 6th, the 30 year UK gilts were in London

still by the way hit like its highest since 1998 or something yesterday.

And you're absolutely right.

There does seem to be a tension between

all these little glimmers of inflation that are out there

and what's going on in the equity market, because you would expect,

with rates possibly going up, that equities were going to take a hit.

But anyway, we do in fact have the perfect guess, right?

Someone who is very well known not just for being a bearer,

but also for having very long term sort of, paradigm views

on the relationship between bonds and equities.

Someone we've been reading for a very long time, probably very long time.

We finally convinced him to come on the podcast.

I gave it away earlier when I said the, the top ranked

Extel survey macro analyst 13 times in a row.

But we are, of course, going to be speaking with Albert Edwards,

who is the global strategist over at Sock Jones.

Heather, thank you so much for coming on this.

It's a pleasure. I don't get out much in this.

This is a real treat. They've let you out of the barricade.

That's right, that's right.

First of all, I should ask when people introduce you as a well

known bear, does it great.

You the way it seems to. Great.

Some other people I remember Nouriel Roubini would always get upset

if you called him Doctor Doom. Do you get upset now?

Please be introduced at all.

And anyone speaking to me, quite frankly. Okay.

Is it a deserved reputation?

It's deserved in the

sense that, the media has more latched on to

or had more latched on to my bearish views on equity markets?

But not my bullish views on government bonds.

I joined the sell side, so I've been working in finance since 1982.

I joined the Bank of England just over the road, here.

But I joined after a little stint on the buy side,

which is why, by the way, I write such short notes

because I've actually had to read these notes.

I'm on the buy side. I over the years.

I know the clients and readers aren't sitting there waiting for them,

and if they can't read them in about three four minutes, they're not going to read.

They're not going to read them at all.

But I joined the sell side in 1988 at a time Waltz became Dresdner Tynwald.

I was there for almost 20 years, but I saw the back end of the Japanese bubble,

and I saw the, what Richard Nomura used to describe

the balance sheet recession in Japan and how it unraveled

and by the time we got to and how Western economists were saying,

you're doing it all wrong in Japan, you should be just liquidating,

the capital stock and get to get rid of this deflation.

And I was thinking, well, firstly, actually this what's happening in Japan

is that just ahead of you, ten years ahead of you in the West,

because their bubble was a lot their credit bubble was a lot earlier.

And when it burst in the West,

you wouldn't be doing what you're recommending that they do.

You'll be you'll be you'll be slashing rates.

You'll be doing everything.

Stop recessions.

But the key thing about Japan,

so the back end of 1998, when I thought,

this is coming to the West, I developed what I call the ice age view,

which is secular stagnation

thesis, which is essentially Lawrence Summers.

The excess of savings over investment, driving down

real yields and bond yields and causing a rerating of valuations.

But we saw in Japan after a while that actually year

inflation and bond yields and interest rates would carry on coming down.

But off the wall it wouldn't cause any more PE expansion.

Actually quite the reverse that inflation got so low

and so close to deflation it would cause PE contraction.

So what I was trying to do is bolt on a financial market

view, on to the secular stagnation thesis.

And that ran all the way from 1996.

I ran with it.

I thought it was coming immediately after the Asian crisis.

You mentioned gilt yields being their highest since 1998.

I can remember that the aftermath, the Asian crisis, the Russian GCL crisis.

This is where longevity helps, by the way.

You can I might not be able to remember what happened yesterday, but

I can remember 20 years ago quite, quite well,

and then from 2000 onwards, you started to see as bond

yields got low, a problems were emerging within the equity markets.

So, so that was basically the ice age, the ice age, these

and it were so although I was an equity bear and well known for that,

I was very much a bond bull.

Government bond bull.

I'm glad you said.

And just reflecting I'm glad you said the point about having come from,

the buy side and understood the attention spans of readers

and how that informed your view of the sell side,

because that's something that I've said or thought many times.

Having started my career, a lot of what I learned to

write was from reading sell side research and it it.

I figured that, okay, the sell side

analysts are writing for people who are just inundated with notes, right?

Their inboxes are filled with all kinds of notes.

They must know what the type of content that the buy side

is willing to read, chart heavy, off and concise, etc.

and so early on

in my journalism career, I figured, okay, if this is how the sell side rides,

it's probably a good idea to sort of cribbed some of these ideas

because they understand the realities of short and attention spans and so forth.

And now in social media,

everyone has the attention span, essentially, of a buy side trader.

What's your job?

You know, Tracy introduce who is strategist

setting aside your views specifically, what are you what is your

what does success look like?

Why do you what

why do you have a role at the bank and what is the purpose of your job?

What?

Why am I employed?

I know, and actually I don't mean that from like why are you employed?

Like if you've got the equity call etc..

Why is this an important role to to have in a bank?

Well, I remember in the run up to the, Nasdaq bubble bursting,

we were having our roundtable lunches, a climb walls and Tony Dye then who was,

head of Phillips and Drew Asset Management

who had become bearish to early value.

orientated. Yeah.

And his coconspirator out in out in Chicago.

Prince what's his name? Brinson.

Both had come under the umbrella of UBS.

I remember him saying to, the head of equities

at Klein what's, Well, I totally agree with.

Well, I'll but say.

But why haven't you fired him?

Because that's what happens to most bears

or most analysts who get it wrong.

Not on the bullish side, but if you if you're an economist

and call a recession on the sell side, you're and you're wrong.

You're usually out pretty quickly.

There's a there's such a bias towards optimism.

And it's and it's not just confected.

It's it's natural.

It's like an analyst covering a stock.

You inevitably they're going to be hugely enthusiastic

about their sector and stock it so that there is a natural bias.

And part of my role, I mean, I I've, I've developed it over the years

and even when I'm getting it wrong, how to avoid getting fired not to be.

We had it we had a we had an analyst at time Walt's in the late 90s.

He was he was a tech analyst.

He was very bearish on Nokia and Ericsson.

He was right.

He was pounding the table with analysts with sorry with their clients.

And he saw off the, clients so much he almost got fired.

And the secret is to develop strategy.

This is my view.

For what it's worth, they can calibrate what what I'm thinking.

I'm not too much in their face.

I'm not annoying them too much.

I'm a bit like Caesar.

I always used to have a slave right behind him.

Whose job it was to say to Caesar, you are mortal.

You are mortal.

I thought you were going to say you're a bit like Caesar.

I was like, whoa, wait a second. No, I'm the slave, right?

I'm the wage slave.

I'm the actual slave.

Often those slaves themselves

were terminated in pretty horrendous fashion themselves.

But, but it's just to sort of, you know,

if the clients, the even clients are balls would want to hear what I'm saying.

Yeah, just to know what to be watching out for in the back of my eye.

They've got to be fully invested. They got to participate.

But hey, should we you know, we've got to keep dancing

as the Chuck Prince thing, but should we be dancing near the fire

escapes or in the center of the room that sort of thing?

All of that makes a lot of sense, and I want to get into the risks

that you're seeing now.

But before we do, just going back to the Ice Age thesis.

So on the equity side, explain what went wrong,

because this is, you know, the thing that you're criticized for and you're sort of

known for is you've had a bearish view on equities for a very, very long time.

It didn't work out.

What happened.

Oh what happened from 2000 onwards.

If you look at charts of bond yields carrying on falling equity Act yields

did start to rise.

So you did have that exactly what you saw in Japan.

What derails the de

rating of equities in my view is certainly quantitative easing.

So the degree and and and the

it wasn't just used once in 2008 when when you were in your heyday.

Well, you're in your heyday now of course.

But you in another haze another hey, hey, another hey, the,

but how it persisted all the way through,

over the next ten years and that basically inflated

and and that was the job of QE to inflate all asset prices

where the ice age continued to work

was within the equity market

because sectors which were, benefited from lower bond

yields, such as defensives or growth sectors, did extraordinarily

well and rerated to huge premiums versus

cyclicality or value stocks.

So even though the, equity manager might ignore

what I'm saying at the macro level, well, the market's not going down.

Actually, within the equity market, it was still very, very relevant.

This Japan ification of the West, theme.

Right.

Let's talk about then Japan ification.

And within Japan, a vacation Japan specifically because this is an important

there's a lot going on right now that's very important in the 20 tens.

You know, the Japanese, the JGB market, for a long time

it was characterized as the widowmaker. Right.

Because everyone looked at the size of the Japanese

debt stock and they say it's going up and up and up.

It's big Japanese debt to GDP is getting higher and higher.

And yet rates were going down.

This confused a lot of people.

You were correct on the call that that was actually sort of irrelevant,

that actually, that stock could go higher and higher rates could keep going down.

Japanese yield famously zero, probably negative in many instances.

Post-Covid, however, that's changed. Yeah.

And now Japan.

Now Japan, as well as every other developed market economy.

The rates are going up.

So this relationship, whatever was going on, has flipped.

What flipped really post-Covid,

in your view, such that rates are going up

all around the world, including in Japan, but also, especially in the UK,

that ice age of disinflation and lower rates has truly come to an end.

I mean, what flips

it, in

my view, was was prior to the Covid, recession,

by the way, before, the Covid recession,

I was writing in 2020, early 2020,

before the, pandemic came along, that actually

the next recession would see a transition away from the ice age.

I was moving, and it worked for me for quite a long time.

But actually, I was thinking we were going to move to a new, paradigm.

And, and that falling bond yields story was going to going to stop.

And the reason was up until that point,

quantitative easing had been injected primarily

and virtually entirely into the veins of Wall Street.

It was a it created the idea that the QE didn't create inflation was nonsense.

It created loads of inflation,

but the sort of inflation people like in the housing, in financial assets,

asset prices, and no one complains about that

unless you don't own the asset prices, what it caused.

There's a lot of inter-generational tension

with younger people not being able to afford,

which is why we can come onto populism later.

But one of the reasons, populism has, come along in space

so cause lots of inequality, which even the central banks eventually realize.

But what I thought would occur was, as you,

the next recession, when it came along, you were so close to outright deflation.

And certainly remember, if that time you were having negative bonds,

so much of the market was negative. Bond yields.

Europe had quite clearly fallen into the Japan ification trap.

The US was heading there,

I thought

and predicted that we would get a flip over

into, Modern Monetary Theory type

QE, where they started injecting money into the veins of Main Street and a bit

so fiscal fiscal, so, so, so basically classic

tax cuts, checks dropping on people's doorsteps,

paid for by monetary creation.

And I didn't foresee clearly

the pandemic made the situation, the inflationary situation

on consumer prices a lot worse because of the restricted supply chains.

And yeah, having read, you know, I've got a lot of sympathy with with a lot

of, I don't tend to have any dogmatic views, monetarist, Keynesian or whatever.

Like I'm quite Catholic.

I bring all the themes in.

There's quite a lot about MMT.

I agree with a reading Stephanie Kelton book.

One thing was absolutely clear

was they were saying, yes, we can do this.

It doesn't create inflation,

but when you hit capacity constraints, you have to stop doing it.

And nothing could have been more capacity constrained

than global economy, during the Covid.

So in my view, it was crazy

to do what they were doing and it was going to create it.

And the money's you could see it from the broad money growth.

So just to be clear, and I know you said

we were going to skip ahead to the, you know, populism,

which is a very intertwined, I would say, or many people would say would

with what's going on with economic policy right now,

is the failure,

the basically the premise that governments could ever stop

the fiscal expansion once the capacity constraint is hit.

So you have the money drops, you have the helicopter drops,

you have the checks, you have the tax cuts.

Arguably quite justified during the worst of the Covid

is the core analytical error, the notion that after you hit

that capacity constrains that governments have the internal capacity to say,

okay, we've hit that point now where we have to raise taxes to stop the chair.

Democratically elected, democratically elected officials are capable of saying,

you know what?

We've hit the capacity constraints and now we have to unwind the checks.

I don't think that.

I don't think congenitally they are able to do that.

That's what I'm saying.

Is that where they were the analysis breaks.

Yeah.

Well that's where the that's where the description breaks down.

Yeah.

That's where the future, if you like, is so scary

because well, actually in the US for example, the the budget deficit

detached itself from economic reality before Covid hits in Trump's first term.

And that's when you first started seeing huge amount.

Yeah, yeah.

Budget deficits heading to six 6% of GDP in

an absence of a recession or crisis.

And we at 7% of GDP

also going to be IMF numbers before I came in, it was 7% of GDP.

When unemployment is this low, you're never there's no appetite to.

And if politicians try and do it

and I would say part of the problem with the UK at the moment.

So yields at 2028 year highs

is not that they haven't tried to do it, they have tried to do it.

But if you it's a very fine tight roads

placating the bond markets

and will fuel electorates so much that you're on your way out to Dubai.

Yeah.

Well you know you're on your way out of government.

Okay.

Which

I think you're saying in the election now you're on your way out to the election

and our high taxpayers are out some that some of them are on the way out Dubai

and then then looping back somewhere else at the moment.

But, you're, you're you're out, you're out of government and

and this is the problem, one of the problems for, for the UK

government is the electoral electorate

won't tolerate unless there's a crisis.

Well, most politicians need a eurozone type

Greek, Spanish, Italian crisis to be able to implement

the measures that everyone knows needs to take place.

But but electorates currently have no appetite for them.

I saw this amazing chart.

You probably saw it too, because it was an Atom

Tuesday's newsletter recently, but it was from T.S.

Lombard and it showed fiscal support

during the 2022 energy crisis in Europe as a percentage of GDP,

and I hadn't realized just how substantial it actually was, like energy tax cuts.

And so, of course,

the question now is, with oil going back up and people coming under pressure,

if we're going to see that same type of fiscal response, I don't think you can.

Well, first, first of all, it's even in Europe,

the rise in the gas price is nowhere near as bad as it was in 2022.

And they will do they will do stuff.

And they have done stuff in places like Spain.

Despite the European Commission warning the countries

that actually you haven't got the buffers to be able to do this, they are trying

to have been reducing VAT, but I quite like the climate in the US.

It's somewhat different just over there saying I was just over

in Boston, Boston recently, I can see the gas price

well above $2, especially in Massachusetts.

Yeah. But it really is.

But but but the natural gas price isn't, hasn't really gone up in the US.

And, you know, winding back to that famous, statement

in the early 70s of this is our currency, but your problem to the Europeans.

Yeah, this is our war, the US war.

But it's your problem.

The Europeans and especially Asia, particularly Asia,

which gets so much of its derivative

chemical supplies out of the Gulf.

I saw your chart of the urea versus the corn price

showing us absolutely stratospheric.

But so much of of the

so much derivative chemical products coming out of the Gulf, especially to Age

Asia, I saw that 80% of

India's ammonia comes from the Gulf.

Now the Asia is in real, real trouble.

And this is coming down the I mean, one thing

I think there's really surprised me, in the early part of the, war

was when I looked at five year versus five year inflation swaps.

They'd come down, they hadn't started going up.

But recently, the two year, into a shot up

and the five year and five year have started to go up.

The people have started to realize this is dragging on and on.

The why the taco your former colleague

Rob Armstrong invented the taco.

Description.

Why the taco trade isn't working here.

I saw a very nice quip, which is because in Rawlins involved,

it takes two to taco and it Trump can announce these U-turns,

but they're not effective unless Iran is also,

you know, participating or dancing the same dance.

So all when when I hear all the oil analysts, all commodity analysts

on on our call, the equity guys of it's still really bullish.

The bongos someone but sweet

the commodity guys are basically sobbing into their microphones

because they know they know the inflation

coming down the track here in fertilizers and food and everything.

This is the funny thing, talking about all the commodity guys

see doom.

It's like it's knocking on our door and everyone has to go, let's

see what happens.

I want to talk more since we're here in the UK.

I mean, I, I mentioned the Dubai thing and I'm actually very fascinated by this,

not Dubai people moving to Dubai specifically per se,

but the political economy generally of fiscal

consolidation, which includes the possibility of leaving.

And when the issue that I think people would say it

across UK and across Europe is probably twofold.

One is declining productive capacity manufacturing, getting eaten by,

Chinese competition and digital industry that can't keep up

with, what's happening in the United States, particularly with I

don't like.

Okay, you say it's obvious and many people say it's obvious.

We all know that the government needs to

shrink the deficit, but it's very tough if people can leave.

Wealth taxes are very difficult, almost infamously so.

And particularly in an era where the big money is being made

to equity markets, not through traditional wage or labor income, etc..

It's great to say, obviously, fiscal consolidation is the move,

but it is setting, even setting aside electoral constraints,

is there an obvious path towards reducing the deficit,

given the means through which the people with money can avoid paying tax?

It is very difficult.

And you mentioned the UK.

The UK is a very specific problem

in not so many young people

after the pandemic have been signed off as permanently sick.

They don't even have to look for work.

So the welfare bill

has to a large extent gone out of control in the UK.

And even though the labor government here has an overwhelming majority,

it couldn't get it through Parliament, couldn't get any reform measures

through Parliament and the markets, seeing that,

and the number of U-turns they've had to do is as their own,

MPs have rebelled, let alone the public rebelling.

I mean, it's very, very

difficult, and defense, but especially the young people.

Right.

Because there's the heating assistance that the old people and the triple lock

so that the pension goes up by the maximum. Yeah.

Or the whatever the maximum of three different inflation measures are.

It's the it's the old, it's the old as well. Right.

Yeah.

No, I absolutely and this is one of the things which

exacerbates inter-generational

hostility tensions is the, the younger people

who can't get on the housing ladder, see the older people

protected through things like the triple lock pensions going up,

the of the, of the, of the highest of, of of wage inflation,

price inflation, all minimum of 2.5%.

So on a real escalator and clearly totally unaffordable.

However, when I look at the CBO in the US, it's just when I look at the CBO

projections of US debt to GDP, they go off to infinity.

Very.

And yeah, and, you know, this is unsustainable

because infinity is not a number which is sustainable.

The only the IMF has looked at is quite close.

The only other country to go off

to infinity even quicker than the US is strangely China.

Yeah. And it's fiscal.

And the IMF have cited the US and China as the two basket cases.

Now the UK isn't the worst,

miscreant in terms of its fiscal situation.

France I look at the IMF numbers.

France is much worse, but it's under the protection of the eurozone umbrella.

The US is much worse, but it's under the protection of the dollar,

being the reserve currency,

the bond vigilantes are woken up.

They're pretty p*** off looking around.

What's going on?

You know,

they've got a dusty copy of Reinhart and Rogoff, on on under their desks.

I think you were getting. Yeah, we're going over 100% of GDP.

We're getting near the levels of where it's a problem.

And, to be fair, on the public sector, what they've done is transfer

a lot of the excess debt, which was there in the household sector

and corporate sector onto their own balanced, balanced balance sheets.

But you look at you look at these and you think, well, well,

actually you look at the vigilantes are looking to pick someone off

and give them a bloody good kicking, basically to teach everyone else.

And, and the gilt market is, is the weakest,

you know, it hasn't got enough protection.

It's the weakest kid in the playground and it's going to get it's going

to get beat badly beaten up at some points.

I mean, I don't think Bill gross, Bill gross, many years ago said

the gilt market was sitting on a better, better Kryptonite.

Kryptonite, nitroglycerin, nitroglycerin, nitro.

And I think we're all we're almost.

And when you saw the the oil price come down yesterday.

But the gilt price, the gilt you're going up.

That is a real that's such a real issue, especially as Starmer,

Prime Minister Starmer exits the scene at some stage soon.

That's right.

We're recording this also during local elections,

just to make sure the maximum amount of stuff possible could happen

between when we record this and when he actually publishes.

But actually, okay, you say that the bond vigilantes have woken up

and one could infer from that statement that, like, we are now in a longer term

period where bond yields are going to be higher

and inflation is possibly going to be higher,

but on the other hand, it feels like the news cycle

is so compressed nowadays and new stuff is happening all the time.

And there's so much chaos in global politics.

It also feels really difficult to have a sort of paradigm paradigm.

Is that a word paradigm paradigm?

Like, I like you, invent you.

Yeah.

Long as you know, it's hard to have a longer term view on the market

in the way that one could have an ice age thesis in the early 2000s.

Is that possible for you now?

Are you sort of all moving in the short term, like everyone else seems to be?

I think it is possible.

At least I'm trying to make it possible.

But as you say, markets are so volatile.

I was reading the

the recent rally in the equity market, 10% plus rally.

This was the fastest ever rebound,

10% rebound after a 10% correction.

And it's and it's particularly on the equity market they have become.

So fixated with the bite on dips

mantra that actually the fed has got our backs.

There will never be recessions again

if there was a recession is because of the pandemic.

We can't actually remember 2008, which is a consequence

of a very long period of, of of growth building up excesses.

No, I, I think there is there is a place for a long term theme, and the long term

theme is actually it's it's fiscal

in its fiscal incontinence, political weakness.

And eventually the monetary authorities having to monetize away these debts.

Because in the US, when you're paying 4% of GDP on a government

on your interest payments, that is absolutely crazy.

I mean, ten years ago, I was looking at the charts.

Ten years ago, it was roughly the same as the eurozone at around 2%.

It's absolutely crazy numbers.

So the end game for me, I can remember

28% inflation in the UK and in the seventh in the 70s.

I certainly think we go back everywhere to double digit inflation.

Well, because really I know all the headlines of the episode.

Yeah. No,

I think

there is the fiscal dominance, which is there,

the central bank will have no other no other option.

I mean, you could get

some consolidation on the crisis, but I think that's where we're we're heading.

Just, just just monetize away.

This is there no how to different leads.

Yeah. I'm sure they won't say.

And now we are monetizing.

Yeah, yeah.

Do you ever, this happens to us.

Do you ever talk to either new colleagues or clients for whom?

Talking about 2008.

You might as well be

talking about the 1930s Great Depression, because this is like,

I feel like this is happening

more and more in my life, something that I take for granted.

Oh, well, remember when Lehman and I might as well be talking about credit

and stall or something like that? Yeah. And.

No. Exactly.

And with the retail participation in the market

and you get these one day options, which I don't, I don't understand.

It's so short term about having

I mean, one of the advantages of, of being in finance since, you know,

1982 is I can remember the Asian crisis, which is one of the first times

I got myself into deep trouble being banned from Malaysia, Malaysia,

after writing the are you still banned?

I don't I don't, I don't, I don't I feel for you but for you.

And this relates to the I thing in which we live is going,

you know, in 1996, writing that the Asian, miracle

was basically a pack of cards waiting to collapse.

And I had on my bookshelf this book from the world Bank, Thailand's

Economic Miracle, Sustainable Growth and Development.

And you just say, I see these so many times before going into the not

I remember, I remember, yeah, in the late 90s going around the US

saying, look, this is a huge bubble, which is going to collapse.

It's very similar to the Asian crisis.

I'm basically my, my, my boss, the chief economist.

I went to restrain the clients from punching my lights out.

But I you know, when I

read what I do now about the AI, etc., I just think,

yeah, I thought I've heard this so many times, and maybe that's

maybe being young is better because you don't have that baggage.

Well, being young, I think you're more of an optimist.

So you've got a lot less gray hair in your beard than I have.

Yeah, but more than I had a year ago.

So I'm catching up to these podcasts.

Pick up color.

The cameras here are pretty black.

Make a black. White. Okay. Make it black and white.

I can confirm that when we started this podcast, you did not have any gray hair.

And it all sort of set in over the course of ten years.

I notice more every day. This is a fact.

Since you mentioned AI, and since we're talking about historic parallels,

there seem to be a lot of similarities, with the.com bubble, just wild enthusiasm

for a new technology and the expectation that everyone's going to be making money.

On the other hand, the argument against a.com redux

is this idea that, well, you know, tech companies have very,

very heavy valuations at the moment, but they are actually earning money.

And if you look at the multiples, there are nowhere near

where some of the dotcom companies actually were.

What's your thinking there?

How much of a parallel or analogy is this?

I mean, the main parallel I would draw

is with the telecom part of the tier.

So so the.com bubble was more TMT,

telecom, media and technology.

People forget it was a it was a bit wider,

but the

telecom side was, was quite similar to what you're seeing now with AI

because they actually went out and dug trenches and laid cable.

There was a CapEx boom.

And if you were selling cables in the same way you're selling

semiconductor, Nvidia is selling semiconductor chips.

You benefited from producing picks

and shovels for the gold rush, essentially.

And there was real there was real profits there

in the on the telecom side at least.

But the problem is, is the you for

is is the narrative is so compelling

that you're given these companies a given free money.

Essentially, although Oracle is not quite so free anymore.

But you're you're being given free money

and you go off and spend it on you blow it on CapEx,

which isn't necessarily going to be profitable

ten years down the road.

And what you've got is, is basically

when you look at the, us, it's mega caps.

They've gone from being hugely,

free cash flow generative to zero.

I saw chart 2027 zero.

It's gone.

It's being blown to.

Net now you might say well then

at least they're not borrowing very heavily

but actually it's transforming their balance sheet.

So I just read you quote I brought a quote along.

Yeah I wrote it down so I didn't forget it.

But it's, it's, it's

it's about it could be about the, AI transformation.

So not so long ago, a leading expert opined that.

And I put this in mind, this sort of thing I write in my notes.

He opined that in retrospect, we will look back and recognize that

the US economy was experiencing a once

in a century acceleration of innovation

which propelled forward productivity, output, corporate profits

and stock prices at a not at a pace

not seen in generations, if ever.

Now, that absolutely applies to to what is going on now.

That's quotes from Alan Greenspan

13th of January 2000.

At the New York, the Economic Club of New York, just before Nasdaq collapsed.

Now, all that was true.

And by the way, I was reminded

that, quote, reading Jeremy Grantham's book making of a Poem up,

another poem about went to his book launch, and I, I didn't read many books.

I'm quite lazy. I don't read many books.

I thought I was I was going to this book launch. I better read it.

I had some of these great quotes from Bernanke and Greenspan,

which they would probably like to erase from people's memory,

but that equally applies to now

it it is absolutely transformational.

It probably will be transformational.

Doesn't mean you can't have a stock market collapse.

Yeah.

When bears have a book party is at a picnic, then, that's a good one.

Thank you. Sorry, I was trying to think of a bear joke.

That was the best.

That's good, that's good.

I love that there's so many different directions we could go.

And I want to ask you, there's something about the 20 tens,

that I've thought a lot about you talking about QE.

QE ended in the mid 20 tens.

No, I mean, first they stopped cutting rates, then they stopped.

You know, it was a series. It was a sequence. Right.

But then they actually started shrinking the balance sheet.

It didn't affect stocks.

Stocks just kept going up.

And now we look today and again stocks at least in the US.

But around the world stocks are doing all very well.

This is despite the fact that rates are the rate picture is nothing like it was.

In the beginnings of what you characterized as the Ice age.

Did that make you question anything?

Have you revised any past views in light of the fact

that it turns out, evidently, that ultra low rates and quantitative easing

may not have been such a precondition for these incredible equity market gains?

How do you reconcile that?

I think well, certainly back in the,

prior prior to,

the Covid recession, the quantitative easing is quite

a lengthy period, if you like, got things going.

Got that momentum going.

And one of the most profitable, ways methods of investing

is just momentum trader.

I sitting here,

head of quant with

Andy Lapthorne, who I've worked with for 30 years,

last month, he's actually trying to move a few desks away from me.

Not now, but I'm looking at his convert.

Momentum investing is is, totally fine.

And actually, if I was participating in if I was a fund manager,

fully invested, I'd be quite happily with that investment style.

But looking at the technicals for when to get me, is the macro story changing?

Is something changing?

I've been writing recently. The.

Yeah, it's profits are booming.

Yeah, in the tech sector.

But actually the second derivative is starting to turn over

because you can't go parabolic forever.

It's the second derivative is starting to turn off.

So it's still very healthy profit growth.

The momentum of the momentum momentum.

But it started slow.

So I I'm when you've got bubble conditions

then is this something the bulls should be looking at. Even

if you're a bull think well I actually that is a change I should be watching.

What I would say

at the moment is I think launched it earlier.

I think the retail in particular, which

certainly after the liberation

trade bear market came in early before the professional investors,

they've been consistently the ones to drive the market back up.

And it is a bit like what causes big bear markets are recessions.

Yeah, it's when and usually when you're the peak of the cycle

you're on the wrong valuation.

Wrong forward P and prices collapse.

If you if you are a copper stock normally at the peak of earnings

you're on a P is low, you're P on for

and so you're geared up for the collapse in prices.

They have some memory there.

But what tends to happen in bubbles.

You end up on a 23 like the S&P

on a 23 times forward PE at the points of recession.

So you're the wrong earnings, forward earnings and the wrong PE.

And people are there's no

there's no acknowledgment that there could be a recession out there

apart from the IE spending on investment which could collapse at any.

We've seen it before and for not me.

Another deep seat comes along.

Something happens to blow that narrative up.

But outside of that,

you look at the US economy and you look at the yeah,

last year it's see no employment growth when the economy's toddling

along quite happily between 2 and 3%, and not just because of the public sector.

Private payrolls year on year slowed to zero.

You're thinking, yeah, you know, it's having an effect.

It has a positive effect on some ways on, on on uni labor costs.

But this is really undermining consumption.

So real US real household

incomes are up half a percent year on year, half a percent, their consumption

consumer spending in real terms is still up over 2%.

Why is that?

The savings ratio in the US in the last year

has collapsed from over 5%

this time last year to 3.5% now.

That is as low as the only other times it's been

lower is after when the US people was spending the Covid check.

So it got down to 2.5% or just before the 2008

global financial crisis, when you had that credit bubble,

the consumer's totally tapped out.

And if you get a wave of inflation coming through the economy

through cost push, last time companies just walked up their margins,

they put their prices whacked up, their margins as well.

An unprecedented fashion because margins sort of contracted as costs went up.

They didn't.

It was absolutely unprecedented.

Greed flash in the sun.

Louis fed name the sectors which did it retail, wholesale and construction

with the three big contributors to that whole economy level.

But but people had pandemic checks there

so companies could get away with doing it again.

This time around, as this wave of cost push pressure

comes through, our companies going to be able to get away with it.

When when the savings ratio is already so low, is it going to start

squeezing the corporate sector margins, which are ludicrously,

obscenely inflated, in my view?

And when these margins stark, if these margins start coming down

because they can't pass on these price increases, will they

then react to that by cutting jobs and cutting investments?

So could the one surprise we get is actually the economy

outside of AI, investment is far weaker than we think

and actually could tip over into recession.

Now that could be a real surprise because that could take down the

AI sector as well.

It's not just in the business force.

So I think that's an interesting

not not sit that's an interesting black swan

because no one is thinking this all price could cause a recession.

One question I want to ask, given your long career,

when were you most worried about the future?

Is there a particular moment looking back where you were,

you know, really hitting the panic button?

I tend to stay very close to the panic button a bit too close.

Some some people say, that's your job.

I tend to see problems around the corner.

In fact, I was on a conference call with clients yesterday

and I said, well, probably the most bearish thing I can think of from

my side is I don't feel as bearish as I have done in the past.

Like I struggle to see an immediate catalyst for collapse.

And the positive narratives are always very compelling.

I remember the time I was most worried globally was Guy

was was 2006, 2007 where it was obvious to me.

I even managed to

and I don't understand much about crypto and all these complicated things,

all the details about, but actually got to the bottom of CDOs.

And this was before the big short film where they made it a bit simpler.

I actually understood CDOs.

I went to a CDO conference, in 2000

and 2007, and I was amazed that they weren't optimistic.

They were they were getting really worried.

And I just thought as a macro person, when someone like Bernanke says,

were asked about the housing bubble, I guess I don't accept your premise.

There is a bubble

and there's never been a nationwide house price recession in history.

I just say, you're an idiot.

You should not be in your job, basically.

And yes, he was.

He was the right person at the time when the bubble burst.

But if you looked at it because people said, well, he did the thesis

on the Great Depression, he looked at his thesis about the Great Depression.

There was nothing about the credit bubble that preceded it at all.

And similarly, he just did not understand the and where the.

So I'm not a big fan of central bankers.

Well, the Bank of England improved dramatically after I left it.

The quality the quality of the people there

because they just so reluctant

to admit they just constantly screwing it up

and making it worse for, for, for benevolent reasons.

They're trying to make it better, but they make it a lot, a lot worse.

And quantitative easing.

I, in my view, made it.

They might have been an argument

for doing the first quantitative quantitative easing,

but just to keep on going, Paul Volcker

eviscerated just before he died, eviscerated the fed by saying,

you know, you can't measure inflation that that closely.

Yeah.

It's you got a 2% target for inflation anywhere between 1 to 3

is okay, essentially, as long as it's not accelerating off.

And this is you know, we're between one broadly between 1 and 3 now.

But he said we were getting down to one with measurement errors.

It was ludicrous to try and push it back up to 2%.

You didn't need to do that.

And personally, I just think central bankers need to be reined in

quite closely.

I do think in retrospect, when we look back to the sort of late

20 tens era of inflation, it it felt pretty good.

Even though we were below target.

A lot of thought.

Yeah, a year of undershooting and yeah, there's never and I,

I'm on record as saying this not just in retrospect

is I've never understood people whining about too little inflation. So.

All right.

It's.

Well, Albert, that was fantastic fun.

Thank you so much for finally coming on Odd Lots.

It's been a real pleasure and I hope I've got a few bear bears are fun.

You're a pleasant guy.

Well, people who read my stuff

think I'm really miserable, but I'm actually a very happy, contented.

And I know well, I.

And I wear a nice shirt.

Yeah.

Nice people try and cheer people up, weirdly, but I haven't depressed

too many of your viewers.

Yeah, I think I apologize how I feel.

I feel great, Joe. That was really good fun.

I'm glad we could finally have them on.

We've been reading Albert really, literally for for decades,

or at least over a decade now.

Really fun to finally find the really are fantastic.

Yeah.

One thing that stood out to me, you know, I was thinking about what he was saying

about the US savings rate

and the ability of companies to push through price increases.

And earlier this week, I was reading the, earnings transcript for Colgate,

and they were talking about packaging costs going up quite

significantly because of higher petrochemicals prices

and also guiding their margin lower for the full year.

So basically saying that they're going to absorb the costs.

And there was one analyst on the transcript who is like, well,

why don't you raise prices, And they basically didn't, you know,

classic executive style. They didn't really say anything.

They were just like, if I were you, I would incorporate the lower margin

guidance into your algorithm and leave it, leave it at that.

But, you know, like, there might be something there.

Totally.

Can I just say this is going to be

the type of thing that someone says at the very top and so forth.

But before we flew to London, I downloaded, Ray Kurzweil's,

The Singularity Is Near book about, this was published in 2004,

in which he predicts that in the first half of this century,

we would have machines that are more intelligent than humans

on almost every scale.

But one of the things he says in the book is that, you know, part of his theory

is that, you know, computers are going to keep getting better and better.

And as they get better, more money

will flow into computer investments because they can do more things.

And they're Moore's Law and all that and that actually,

the rate of acceleration, the, the derivative of the derivative

can actually keep going up and up and up until you do get that vertical.

And so, you know, now I'm thinking like we all know.

And that like the stock market would not be nearly where it was,

where it is right now if it weren't for AI, obviously.

Right. Might be in a bear market. We might be in a recession.

The yeah, the economy wouldn't be nothing like it is now.

But now I'm like in that mood reading this just like an Albert

said, he's like, I feel a little weird right now

because I don't know what the obvious bearish catalyst is.

I know I'm in a little bit of a weird situation, and I'm reading

this book is like, what if like earnings literally just go to infinity?

Maybe it could happen, I don't know. But no.

If Albert Edwards feels pretty good about stocks right now,

and I'm talking about how earnings could go to infinity.

Yeah.

This is a sign that maybe these are the types of episodes we record near the top.

Shall we leave it there? Let's leave it there.

This has been another episode of the Odd Lots podcast.

I'm Tracy Alloway. You can follow me @tracyalloway

And I’m Joe Weisenthal You can follow me @thestalwart

Follow our producers Carmen Rodriguez @carmenarmen,

Dashiel Bennett @dashbot and Cale Brooks @calebrooks

and Kevin Lozano @kevinlloydlozano

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