Al­bert Ed­wards in­ter­view:

His pre­dic­tions of a mar­ket cliff edge aren’t pop­u­lar, but the Soc­gen strate­gist stands by his Ice Age the­sis, re­ports Tom Rees

The Sunday Telegraph - Money & Business - - Front page - Al­bert Ed­wards

The most bear­ish strate­gist in the world in­sists he is an op­ti­mist. So­ciété Générale’s Al­bert Ed­wards has told in­vestors to sell stocks ev­ery year since 1996. He be­lieves the next mar­ket crash will wipe 80pc off the value of eq­ui­ties and that Mark Car­ney and the Fed­eral Re­serve’s poli­cies will deepen the next fi­nan­cial cri­sis.

But he main­tains that the doom and gloom goes against his nat­u­ral in­cli­na­tion to be “happy” and “re­laxed”. Ed­wards shows no im­me­di­ate signs of be­ing a crack­pot in a tin­foil hat. Amid the streams of sharp-suited City work­ers, the no­to­ri­ous Soc­gen strate­gist is in khaki trousers, his wife’s pink glasses, a flo­ral shirt and clutch­ing an an­cient Nokia brick phone.

We find a restaurant tucked away in the wind­ing streets link­ing Liver­pool Street on the edges of the Square Mile and tatty-bricked Shored­itch, an un­likely refuge for the potty-mouthed strate­gist who is bat­ten­ing down the hatches for the next mar­ket storm.

The City is run by op­ti­mists. Perma-bear Ed­wards ad­mits that his pre­dic­tions of the im­pend­ing cliff edge in the eq­ui­ties mar­ket are “not very pop­u­lar”. “If I’m right, we’re all go­ing to have to re­train as bas­ket weavers by the time we fin­ish.”

He is be­ing mod­est. Even af­ter two decades of warn­ing clients on the buoy­ant stock mar­ket, Ed­wards has carved out a revered role in the Square Mile. In June he topped the global strat­egy cat­e­gory in the 2018 Ex­tel Sur­vey of An­a­lysts for a 15th con­sec­u­tive year, a feat un­matched.

The defin­ing idea of Ed­wards’s ca­reer is his in­fa­mous “Ice Age” the­sis. Two decades on, the worst effects, he claims, are still brew­ing, but his grim warn­ings are start­ing to res­onate. Ed­wards be­lieves that Western mar­kets will even­tu­ally fol­low Ja­pan on the path of de­fla­tion and mis­er­able growth it has been walk­ing since the Nineties. With each eco­nomic cy­cle, in­fla­tion and growth will drop to a new lower level.

The West is slid­ing closer and closer to “out­right de­fla­tion”, Ed­wards ar­gues. “The US, for ex­am­ple, is at the end of the sec­ond long­est eco­nomic cy­cle in his­tory and core in­fla­tion is be­tween 1.5pc and 2pc. If that’s the best you can get to af­ter this mas­sively long cy­cle, it begs the ques­tion what on earth will hap­pen in the next re­ces­sion.”

In­fla­tion is “one de­cent re­ces­sion away from drop­ping be­low zero in both the US and euro­zone”, he ar­gues.

When the Ice Age sweeps the West and fi­nan­cial mar­kets freeze over, it could be even worse than in Ja­pan, he warns. “When Ja­pan was suf­fer­ing this, the rest of the world was grow­ing strongly.”

Like in Ja­pan, gov­ern­ment bond yields would sink to­wards zero while stock val­u­a­tions col­lapse as eq­uity and credit bub­bles burst.

He proved cor­rect on bonds but the stocks bull run has been stub­bornly re­silient – so far.

De­spite Ed­wards’ some­what out­sider sta­tus in the Square Mile, his roots are deeply in­ter­twined with it. He re­calls tak­ing the Dis­trict Line as a child to the City of Lon­don school near Black­fri­ars where smoke was “belch­ing out” of the Bank­side Power Sta­tion, now the Tate Mod­ern, across the Thames.

Born in Raven­scourt Park, west Lon­don, and raised near Kew Gar­dens, the strate­gist has never strayed too far from the nest. But Ed­wards has an “eclec­tic” back­ground. He is of Ar­me­nian de­scent and a sec­ond-gen­er­a­tion im­mi­grant, his mother hav­ing been born in In­dia and his fa­ther in Iran.

His ca­reer was kick­started by one of the in­sti­tu­tions that now reg­u­larly finds it­self in his crosshairs: the Bank of Eng­land.

Af­ter a brief stint at the Lon­don Elec­tric­ity Board – “the most use­ful job I ever did” – he moved to Thread­nee­dle Street. Ed­wards spent three years in the Bank’s eco­nom­ics divi­sion “sur­rounded by very clever peo­ple, like David Miles, who was on the Monetary Pol­icy Com­mit­tee”.

A 20-year spell work­ing on global strat­egy at Klein­wort fol­lowed, be­fore 10 years as a “one-man band” at Soc­gen, the French bank­ing giant.

But it’s the Bank of Eng­land where con­ver­sa­tion re­peat­edly grav­i­tates to­wards. His muesli is sod­den af­ter sit­ting ne­glected from an hour of Ed­wards ruth­lessly pick­ing apart Car­ney’s “lu­di­crous failed” at­tempts to stave off weak growth.

“The job of the cen­tral bank was when the party gets go­ing you take

away the punch bowl to stop peo­ple do­ing stupid things. Both bor­row­ers and lenders are get­ting so in­tox­i­cated with the cur­rent cli­mate they are think­ing that it will go on for­ever.”

Car­ney and former Fed chair­men Janet Yellen and Ben Ber­nanke have been “lock­ing the door at the party and forc­ing peo­ple’s heads into the punch bowl”, he says.

Cor­po­rate debt, es­pe­cially in the US and China, has bal­looned from years of ul­tra-low bor­row­ing rates. Moody’s has warned that a quarter of US com­pa­nies sad­dled with debt could de­fault within three years in a se­vere down­turn.

“You see the IMF writ­ing this stuff, you just think I’m not as mad as I fear.”

Quan­ti­ta­tive easing (QE) – when cen­tral banks try to stim­u­late the econ­omy by buy­ing bonds to lower in­ter­est rates and push in­vestors into riskier assets, such as stocks – has been cred­ited with help­ing to tur­bocharge a slug­gish re­cov­ery fol­low­ing the cri­sis.

Economists ac­knowl­edge that the emer­gency stim­u­lus has in­flated stock prices but Ed­wards be­lieves that QE has “cre­ated a mas­sive as­set bubble” on the brink of pop­ping.

A nor­mal re­ces­sion typ­i­cally knocks 50pc off the stock mar­ket’s value. But Ed­wards warns that QE will am­plify a crash. Af­ter en­tic­ing in­vestors into stocks through sev­eral rounds of QE, the next re­ces­sion will slash “75pc to 80pc off eq­ui­ties”, he pre­dicts.

“That makes the re­ces­sion much, much deeper, the whole thing starts to im­plode,” he pre­dicts. “Peo­ple think­ing pol­i­cy­mak­ers will sprin­kle their magic pow­der on fi­nan­cial assets and we will re­main up at th­ese lev­els in­def­i­nitely is lu­di­crous.”

Ed­wards ad­mits his role in the City is to try to “rip apart the con­sen­sus view”. If you are re­ly­ing on your four-bed prop­erty in the sub­urbs for your re­tire­ment, Ed­wards has an equally grim prog­no­sis of the UK’S hous­ing mar­ket.

One of the most “dam­ag­ing” widely held views out there is that a lack of sup­ply caused the UK hous­ing cri­sis, Ed­wards be­lieves.

He says that it is not mea­gre sup­ply keep­ing prices beyond the reach of younger gen­er­a­tions but the “free money” of QE. Prices were also in­flated by Help to Buy, im­ple­mented un­der “that mo­ron” Ge­orge Os­borne.

“There’s a lot of stock there that could be just be dumped on to the mar­ket. Noth­ing en­gen­ders sell­ing more than fall­ing prices.”

Ed­wards’s ideas of­ten seem mad be­fore they come true. His dis­missal of the ex­plo­sive growth en­joyed by the “tiger economies” be­fore the Asian fi­nan­cial cri­sis was an as­tute call. But rather than rem­i­nisce on past glo­ries, he’s al­ready look­ing to­wards the next cri­sis.

“Think of your most mad pol­icy to dig us out of the next hole,” he asks. “In the next down­turn there will be he­li­copter money, there will be mon­eti­sa­tion, there will be nega­tive in­ter­est rates, there will be de­val­u­a­tion, there will be any­thing you can think of to dig our­selves out.”

For now, he will have to wait to be vin­di­cated. “I’ve been very lucky to cre­ate a fran­chise where I don’t have to be right in six months’ time,” he says.

Ed­wards adds that he prefers to be known as an uber-bear rather than a perma-bear. The lat­ter im­plies that stocks will never whet his ap­petite but “val­u­a­tion is key”. One day, he in­sists, he will turn pos­i­tive.

‘I’ve been very lucky to cre­ate a fran­chise where I don’t have to be right in six months’ time’

Al­bert Ed­wards be­lieves Western mar­kets will even­tu­ally fol­low Ja­pan on the path of de­fla­tion and mis­er­able growth it has been walk­ing since the Nineties

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