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Edwards: ‘Jail Eddie George and Mervyn King. And Bernanke!’

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. I’ve 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!

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This entry was posted by Paul Murphy on Thursday, July 17th, 2008 at 10:31 and is filed under Capital markets, People. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.

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Comments

  1. Jul 17   18:38 Posted by Alex Grey [report]

    Maybe Albert Edward has in fact been in right all along. Inflation-adjusted stock market performance following the burst bubble in 2000 has been relatively weak compared to other similar cycles/periods. Comparing stock markets in the years following the boom/bubble peak (seeing the stock market peak as a crucial turning point) and following them out for 89 months (the length of time data are available for the current period) the comparisons are (with values in (): Peak 1929:09 (100.0); 1937:02 (71.0) Peak 1973:01 (100), 1980:06 (49.05); Peak 1980:12 (100), 1988:05 (140.9); 1987:08 (100), 1995:01 (107.5); and 2000:08 (100), 2008:01 (76.2). As can be seen the post-2000 period was the third worst on record, very close to the net performance (in real terms) of the 1930s, with the post-1973 period being the worst. Given the recent equity market performance post January 2008, the ratio for this cycle is falling again. Note that 1937:02 was also a high point in the post- 1929 shakeout; after this the real value of the S and P fell by 45% through to 1938:04. I wonder how this cycle will stack up in another 12 months. Obviously the path taken in these different periods to end up at the point 89 months out from the preceding peak varies, but then again aren’t stocks for the long-run?

  2. Jul 17   14:17 Posted by rl [report]

    for another damning indictment of those in charges, see The Big Picture @ http://bigpicture.typepad.com/comments/2008/07/idiots-fiddle-w.html

  3. Jul 17   12:10 Posted by D Last [report]

    You should hear Senator Bunning’s vitriolic assault on the Fed at Bernanke’s testimony hearing. Told him to his face that the Fed was incompetent, that the manner of Bear Stearns’ bailout was a disgrace, and that far from giving the Fed more powers they should be reduced - just try and control inflation, all inflation including assets, period.

  4. Jul 17   11:10 Posted by pegnu [report]

    the UK and US financial systems are clearly completely bonkers. If the insanity continues much longer we’re heading for ruin. We’re in uncharted territory and it may even be too late to prevent what is coming.

  5. Jul 17   10:59 Posted by foley_a [report]

    I’d have to agree - the Ponzi scheme only goes bust when people stop buying into it. Just because something is broken doesn’t mean it didn’t work before. I can’t believe I just wrote that - my logic is now broken.

  6. Jul 17   10:36 Posted by VP [report]

    Lol. Though where does this fit with Greenspan’s assertion that it’s not the role of central banks to deflate asset bubbles? Can’t say I entirely disagree with him; all modern capitalism is to some extent “Ponzi”, at least since the end of the Gold Standard.

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