Why SocGen's Albert Edwards Sees Double-Digit Inflation Coming Back

Introduction

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2:05Bloomberg Audio Studios. Podcasts. Radio.

Podcast Introduction

2:10News.

Podcast Introduction

2:10Hello, and welcome to another episode of the Odd Thoughts Podcast. I'm Tracy Allaway. And I'm Joe Weisenthal. Joe, I think a lot of people don't understand the role of bears in finance and markets. It's to create headlines for tweeting, right? And retweets. Technically, it's to sell newsletters. I was going to say,

2:40it'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, 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, at a big sell-side institution, that's pretty impressive to me.

3:11Oh, so you're selling. Yes. 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, it's like, well, I'm not going to buy anything. You know what else? It's like, well, it's the sell-side. You're supposed to have something to sell, not selling 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

3:42for 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 I think about this even with podcasts and other forms of any sort of media, whether it's formal media on a PDF that a bank 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.

4:13They like to have their thought process influenced. They like to stress test their own ideas against others. Well, this is what I was going to say. Their own ideas against others, yeah. 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 at the moment, like you want to hear an opposing viewpoint that says, well, maybe 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

4:44around 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 up very much. And that's sort of the story we're hearing in the UK right now. And the headlines are all about generally how much guilt 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 AIs are going to take us, are going to destroy

5:14the world. You're gloomy because the war in Iran. You're gloomy because high deficits, et cetera. 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, et cetera. It is just a very weird time. But yes, there is this weird mismatch, depending on how you look at it, between sentiment across many different attempts to measure sentiment and what at least certain parts of the market are doing. Yeah, I think that's exactly right.

5:45And also, you know, you mentioned bond yields going up. So we're recording this on May 6th. The 30-year UK guilt, we're 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. That's right. Someone who is

6:16very well known, not just for being a bear, 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 since the beginning of our careers. We finally convinced him to come on the podcast. I gave it away earlier when I said the top-ranked Extel survey macro analyst 13 times in a row.

Guest Introduction

6:37But we are, of course, going to be speaking with Albert Edwards, who is the global strategist over at SockGen. Hi there. Thank you so much for coming on All Thoughts. It's a pleasure. I don't get out much. And this is a real treat. They've let you out of the bear cave. Exactly. That's right. That's right. Why don't you go ahead and explain? Well, first of all, I should ask, when people introduce you as a well-known bear, does it grate you the way it seems to grate some other people? I remember Nouriel Roubini would always get upset if you called him Dr. Doom. Do you get upset? No, I'm pleased to be introduced at all

7:07when anyone's still 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. Now, 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,

7:39which is why, by the way, I write such short notes, because I've actually had to read these notes on the buy side over the years. And 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 them. They're not going to read them at all. But I joined the sell side in 1988 at Kleinwaltz, became Dresden Kleinwaltz. I was there for almost 20 years. But I saw the back end of the Japanese bubble and I saw the,

8:09what Richard Kuh at 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 they're just ahead of you, 10 years ahead of you in the West because their bubble was a lot, their credit bubble was a lot earlier. And when it bursts in the West, you won't be doing what you're recommending

8:41that they do. You'll be, you'll be, you'll be slashing rates, you'll be doing everything to 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 re-rating of valuations.

9:13But we saw in Japan after a while that actually here inflation and bond yields and interest rates would carry on coming down. But after a while, it wouldn't cause any more P expansion. Actually, quite the reverse. The inflation got so low and so close to deflation, it would cause P contraction. So what I was trying to do is bolt on a financial market view onto the secular stagnation thesis. And that ran all the way from 1996.

9:43I ran with it, I thought it was coming immediately after the Asian crisis. You mentioned guilt yields being their highest since 1998. I can remember that, the aftermath of the Asian crisis, the Russian GKO crisis. This is where longevity helps, by the way. I might not be able to remember what happened yesterday, but I can remember 20 years ago quite well. And then from 2000 onwards, you started to see, as bond yields got lower, problems were emerging within the equity markets.

10:14So that was basically the Ice Age thesis. So although I was an equity bear and well-known for that, I was very much a government bond bull. I'm glad you said, 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

10:44sell side research. And 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 often, concise, et cetera. And so early on in my journalism career, I figured, okay, if this is how the sell side writes, it's probably a good idea to sort of crib some

11:14of these ideas because they understand the realities of shortened attention spans and so forth. And now with social media, everyone has the attention span essentially of a buy side trader. What's your job? You know, Tracy introduced you as strategist. Setting aside your views specifically, what does success look like? Why do you have a role at the bank and what is the purpose of your job? Why am I employed? And I don't mean that from like why you employed, like if you've gotten the equity call, et cetera. Why is this

11:44an important role though to have at a bank? Well, I remember in the run-up to the Nasdaq bubble bursting, we were having our round table lunches at Kleinwalt's and Tony Dye then, who was head of Philipson Drew Asset Management, who had become bearish too early, a bit like Jeremy Grant and value orientated, and his co-conspirator out in Chicago, what's his name, Brinson, who both had come under the umbrella of UBS. I remember him saying to the

12:16head of equities at Kleinwalt's, well, I totally agree with what Albert's 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're an economist and call a recession on the sell side, and you're wrong, you're usually out pretty quickly. There's such a bias towards optimism, and it's not just confected, it's natural, it's like an analyst covering a stock.

12:48Inevitably, they're going to be usually enthusiastic about their sector and stock. So there is a natural bias. And part of my role, I mean, I've developed it over the years in that even when I'm getting it wrong, how to avoid getting fired. We had an analyst at Kleinwalt's in the late 90s. He was a tech analyst. He was very bearish on Nokia and Ericsson. He was pounding the table with analysts, sorry, with their clients,

13:19and he p***ed off the clients so much, he almost got fired. And the secret is to develop strategies, this is my view, for what it's worth, they know my, they can calibrate what I'm thinking. I'm not too much in their face. I'm not annoying them too much. And I'm a bit like Caesar 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

13:49a bit like Caesar. I was like, whoa, wait a second. I'm the slave. I'm the wage slave and the actual slave. Often those slaves themselves were terminated in pretty horrendous fashion themselves. But if the clients, the even clients who are balls would want to hear what I'm saying, just to know what to be watching out for in the back of my they've got to be fully invested, they've 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

14:19the 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 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? What happened from 2000 onwards, if you look at charts

14:50of bond yields carrying on falling, equity yields did start to rise, so you did have that exactly what you saw in Japan. What derails the derating of equities in my view is certainly quantitative easing. So the degree and it wasn't just used once in 2008 when you were in your heyday. Well, you're in your heyday now, of course, but you're in another heyday. Another heyday, the older heyday.

15:21Another heyday. But how it persisted all the way through over the next 10 years. And that basically inflated, 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 re-rated to huge P

15:51premiums 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 Japanification of the West theme. Right.

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17:57through June 18, 2026. Eligibility and qualification requirements must be met. Additional restrictions may apply. Please speak with a business banker for more information. JPMorgan Chase Bank NA, member FDIC. So there's a lot of noise about AI, but time's too tight for more promises. So let's talk about results. At IBM, we work with our employees to integrate technology right into the systems they need. Now, a global workforce of 300,000 can use AI to fill their HR questions, resolving 94% of

18:28common questions. Not noise. Proof of how we can help companies get smarter by putting AI where it actually pays off, deep in the work that moves the business. Let's create smarter business. IBM. Let's talk about then Japanification and within Japanification, Japan specifically, because this is an important, there's a lot going on right now that's very important. In the 2010s, the JGB market for a long time, it was characterized as

18:59the 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 yields famously zero, probably negative in many instances. Post-COVID, however, that's changed.

19:30And 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 flipped, in my view, was prior to

20:00the COVID recession. By the way, before the COVID recession, I was writing in 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 had worked for me for quite a long time, but actually I was thinking we were going to move to a new paradigm and the falling bond deal story was going to stop. And the reason was, up until

20:31that point, quantitative easing had been injected primarily, virtually entirely, into the veins of Wall Street. The idea that the QE didn't create inflation was nonsense. It created loads of inflation, but the sort of inflation people like in housing, in financial assets. Asset prices. And no one complains about that, unless you don't own the asset prices. What it caused was a lot of intergenerational tension, with

21:01younger people not being able to afford, which is, we can come on to populism later, but one of the reasons populism has come along in space. So it caused lots of inequality, which even the central banks eventually realised. But what I thought would occur was the next recession when it came along, you were so close to outright deflation, and certainly, remember at that time, you were having negative bond, so much of the market was negative bond deals. Europe had quite clearly fallen into the Japanification

21:31trap. The US was heading there. I thought and predicted that we would get a flip over into a modern monetary theory type QE, where they started injecting money into the veins of Main Street, and a bit into Wall Street. To fiscal. Fiscal. So basically, classic tax cuts, checks dropping on people's doorsteps, paid for by monetary creation.

22:02And 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 having read, I've got a lot of sympathy with a lot of, I don't tend to have any dogmatic views, monetarist, Keynesian, or whatever. I'm quite Catholic. I bring all the themes in. There's quite a lot about MMTR I agree with. But reading Stephanie Kelton's book, one thing was absolutely clear.

22:34They 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 batshit crazy to do what they were doing. And it was going to create the money. 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 populism, which is very intertwined,

23:05I would say, or many people would say, with what's going on with economic policy right now. is the failure 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

23:36after you hit that capacity constraints, that governments have the internal