These are fevered days for the Ultra Bear, Societe Generale strategist Albert Edwards. Satisfying, also.
Calling for the structural underperformance of global equities just over a decade ago was not popular. Ive given the best years of my life to a deeply unpopular cause! Not only did equity managers, unsurprisingly, balk at the message, but I found that bond managers had a bias towards bearishness so I was pretty much a pariah in all parts of the fund management community. We were clearly somewhat early with our call as we failed to predict that Alan Greenspan would launch his Ponzi experiment in the aftermath of the 1998 LTCM/Emerging Market collapse.
Now Edwards can point with confidence to similarities in what is happening now in the West to what happened to Japan in the post-bubble debacle from 1990 onwards.
But there’s one important difference: for the US it’s going to be much, much worse.
The SocGen man notes that when the Japanese bubble burst the household saving ratio there was a lofty 15 percent. Its gradual reduction over the past decade (to 3 per cent currently) helped prop up consumption during the period. In the US and UK, “the two primary Ponzi economies,” with savings ratios close to zero no such cushion exists.
We are now paying the price for unbelievable economic incompetence from both the Fed and the BoE for allowing these excesses to build. Deep bust will surely follow economic boom. Give these incompetents the bill for this mess I say, (just like Thailand did with its Central Bank Governor), or better still, throw them in jail (like Korea did with its Central Bank Governor).
Edwards recalls that people used to dismiss his comparisons with Japan with derision, because western banks’ balance sheets were sound.
Hahahahahaha!
