Albert Edwards, Permabear, Sees More Trouble Ahead

Albert Edwards, Societe Generale SA's chief global strategist, hasn't been the top-ranked Extel survey macro analyst for the past 20 years because he's an optimist. He's famed for his permabear outlook, predicting "ice-age" negative western bond yields mimicking the lost decades of growth that Japan suffered. Yet, in person, he’s far from the apocalyptic Grinch his research notes might suggest. His penchant for wild, flowery shirts (check out his X profile) reveals a cheerful disposition. Nonetheless, there’s no doubt he can skewer lazy group-think or counterproductive financial policies with alacrity.

Edwards, 62, started in the City of London 40 years ago as a Bank of England economist after completing a masters degree in economics at Birkbeck, University of London. But he cites his three-year stint as an asset manager at Bank of America Corp., coinciding with the 1987 Wall Street crash, as fundamental to how he thinks — and writes — about the world.

Back in the day, forests-worth of research documents were piled high on fund managers' desks, fated never to be read. His concise and iconoclastic style is the opposite of that highbrow fodder. While cheerfully admitting his economic calls are often wrong, at least Edwards is never dull. Challenging the consensus by diving deep into obscure data is what his followers appreciate, providing a reality check for portfolio managers seeking to test their in-house thinking. I, for one, look forward to his doomster scribblings, although I reckon his pessimism is currently a bit overdone. However, his dismay about the likely repercussions of central bank interference in setting the price of money in recent years is spot on.

One of his current peeves is how corporates have gamed the sharp upswing in inflation to boost margins, profiting from so-called greedflation. As a consequence, consumer prices have probably risen more than is warranted, with excess savings accumulated during the pandemic making consumers less price-sensitive — but it's a hard point to prove. Edwards suspects margins are being boosted again as food prices decline because those reductions aren’t being passed on. The highly competitive UK supermarket sector has come under particular scrutiny, but regulators are missing the real culprits — large food and goods producers. Inflation is falling at a suspiciously slower pace in this cycle than previously.

UK Consumer Prices

Another anomaly currently bugging Edwards and his team is the way that much higher official interest rates aren't affecting corporate behavior nearly as much as the Federal Reserve might have expected. Large firms with ready access to debt capital markets are benefiting from having raised debt at super-low interest rates during the pandemic. They’re now parking cash that earns more in interest than the coupons they pay bondholders — providing a windfall, but one that will prove temporary.

Corporate Windfall