Merryn Talks Money – “Yes, It’s an AI Bubble. Here’s Why”

Date: November 10, 2025
Host: Merryn Somerset Webb (MSW)
Guest: Albert Edwards, Global Strategist at Société Générale

Episode Overview

In this episode, Merryn Somerset Webb is joined by Albert Edwards—often labeled as a “perma-bear” and renowned for his provocative takes on global markets—to discuss the current state of equity markets, parallels with past bubbles, the role of AI, central bank policy, deflation in China, and the risks lurking beneath the surface, especially for retail investors. The heart of the discussion is whether the AI-driven rally is a true economic revolution or another bubble poised to burst, and what implications that has for portfolios today.

1. Bubble or No Bubble? Revisiting Market Parallels

[03:10–08:32]

• Are we in a bubble?

  • Edwards is unequivocal: “I think there’s a bubble” ([03:29]). He draws on his decades in markets, calling today’s environment reminiscent of the dot-com mania—particularly the narrative-driven overvaluation of tech stocks.
  • MSW remembers the late ‘90s TMT bubble, when “valuations didn’t matter... it was all about the future” ([04:12]). The conviction now is just as strong—with similarly sky-high valuations.

• Key comparison to the dot-com era:

  • Money flows: Edwards notes, “...the telecom sector [in 1999] was getting free money, they were laying cables... a lot of it replication, not needed, wasted investment... strangled other parts of the economy as money was sucked towards this sector” ([05:20]).
  • Bubble characteristics: Earnings bubbles as well as valuation bubbles, with markets falling when the monetary environment changed (e.g., Y2K liquidity withdrawal, Fed tightening).

• Differences now:

  • The Fed is in an easing mode, rather than tightening. “Normally when bubbles burst, it is usually the monetary authorities’ tightening cycle, and that isn’t there” ([07:13]).
  • The market could “melt up” even higher before bursting, especially if the Fed pivots to more quantitative easing ([08:32]).

2. What Would Burst the Bubble? Risks and Triggers

[08:14–15:30]

• Risk from retail participation:

  • Edwards: “That was retail which drove [the market] ... Professional investors... were expecting a recession and [were] dragged... into the market by retail. Just buy the dips... the stock market never goes down 30, 40, 50% anymore. Until it does.” ([10:58])

• Structural fragility:

  • Bubble could be more damaging now as “consumption growth has become more and more concentrated amongst higher earners, rich consumers whose wealth has been inflated by the stock market... The economy may be more reliant on the stock market going up, and if it goes down 30, 40, 50%... consumption just gets hit very, very badly indeed.” ([09:31])

3. Inflation, Deflation, and Policy Backdrop

[12:05–17:36]

• China’s deflation:

  • “China has seen 12 successive quarters... of year-on-year declines in its GDP deflator... If any other economy had seen that, they would be printing money like confetti and chucking it into the economy” ([12:05]).
  • Deflation in a highly indebted economy is “the worst situation to be in” ([13:09]).

• Knock-on effects for the West:

  • Potential downside surprises for inflation due to China’s deflation and global overcapacity.
  • Lower inflation might support further easing, inflating the asset bubble even more ([15:02]).

• Fiscal dominance, public debt, and future inflation:

  • MSW: “What on earth can you do about this [public debt]? ... Running interest rates slightly lower than inflation for a long time...” ([15:02])
  • Edwards warns, “We might get some short[-]medium term relief from the Chinese situation, but medium to longer term we have to expect higher inflation because there is no other thing that can happen without politicians getting a grip, which they’re quite clearly not going to” ([16:39]).

• Central bank independence questioned:

  • “Central banks will be told to intervene to hold down bond yields... If they don’t do what I say, I’ll find others to do it.” ([24:04])
  • “[Central bank independence] is absolutely just not real.” ([24:08])

4. Gold, Precious Metals, and Asset Allocation

[19:01–29:39]

• Gold as a debasement trade:

  • “I think people are joining the dots... [it’s] the debasement trade... not just gold, it’s the entire precious metal complex” ([19:13]).
  • Correction in gold is technical, not fundamental—“the precious metals can rip roar upwards but the bond yields don’t” ([20:44]).

• Central bank gold buying:

  • The move out of US assets is “partly a consequence of the seizure of Russian assets after the invasion of Ukraine” ([27:14]). Fearful of similar treatment, EM central banks prefer gold.

• Crypto as insurance:

  • “To the extent that crypto is a bet against central bank competence... there certainly is a place for cryptocurrencies if central banks are going to do what I think they’re going to do.” ([28:36])

• Portfolio construction in an inflationary world:

  • MSW references the “Gavkas Turkish portfolio” (50% equities, 50% gold).
  • Edwards: “Stocks are a hedge against inflation... but if we go through a secular derating, actually that can wipe out all those gains” ([29:39], [31:58]).

5. Private Equity: The Bad Cockroach?

[32:01–37:21]

• Skepticism of private equity marketing:

  • “The big advantage of private equity has been carried interest... and it doesn’t have to mark itself to market. People say, well, we haven’t got the volatility in private equity yet, but you don’t know what it’s really worth” ([32:38], [32:55]).
  • Warning signs: High-profile bankruptcies (First Brands, Tricolor); “never just one cockroach” ([33:01]).

• Systemic risks:

  • “There’s an awful lot of leverage... huge amounts of leverage” ([34:09]).
  • The “bubble conditions... they are sucking the best... engineers... all getting rich in private equity” ([35:05]).

• Problem in smaller firms:

  • Underneath the surface, “things are pretty crappy,” especially for smaller companies and value sectors outside the AI winners ([35:21]).

• Sectoral tentacles:

  • “Private equity... have spread so deeply into the real economy. The UK is a really good example. If your vet isn’t owned by private equity you’re doing pretty well” ([36:37]).

6. What Could Go Right? Attempts at Optimism

[37:56–44:12]

• Best-case scenario?

  • Edwards: “What could go right, I suppose, is the bubble just carries on for another year... we go to 40 times forward earnings... I don’t think there are any good options here.” ([37:56])

• The AI revolution?

  • MSW: Could massively productive AI save us?
  • Edwards: “Can I sell you a bridge? London Bridge is for sale” ([38:59]). He is deeply skeptical, noting that while productivity is up in the US, small businesses (the real job generators) are actually shedding jobs year over year ([39:07]–[41:07]).

• Cheap energy as a panacea?

  • MSW floats “practically free energy” (e.g., solar from space), but Edwards is dismissive: “Certainly the UK is an outlier, some of the highest energy costs... It’s a ludicrous system... But the UK is totally almost de-industrialized now. It’s too late for the UK, to be honest.” ([41:56]–[43:15])

• Inevitability of the cycle:

  • “The one thing which cannot be abolished is the business cycle... A recession will come and all these bubble elements will implode... but we can inflate a lot further from here. We’ve been doing this long enough to know anything is possible” ([44:12]).

7. Actionable Insights: What to Do Now

[44:12–45:29]

• Hold the right assets, stay nimble:
  • “All we can do is hold precious metals and inexpensive equities to the best of our ability and wait” ([44:12]).
  • Momentum investing can work, “but just have clear technical signals to get you out... Don’t buy into the rhetoric too much. Ride the bubble if you so wish... but don’t get consumed by the story. Be very cynical and just have a level to get yourself out, so you’re not bankrupted when the thing turns down” ([44:21]).
  • Soros quote: “Whenever I see a bubble, I run towards it. But don’t get consumed by the story” ([44:21]).
  • Chuck Prince quote: “You gotta keep dancing while the music’s playing, but just decide how near the fire exit you wanna be gyrating around on the dance floor” ([44:21]).
  • MSW adds: “Don’t be tempted to move back in front of the band” ([45:16]).

8. Light-hearted Closing: What is Albert Reading?

[45:29–46:53]

• Edwards reads about current events, not typically finance books. Recent reads: Boris Johnson and Gordon Brown biographies, and watching TV to unwind (“Ted Lasso,” not “Bake Off!”).
• MSW jokes about putting his photo online, with Photoshop if possible.

9. Notable Quotes & Memorable Moments

• “It will end in tears. That much I’m sure of.”
  – Albert Edwards ([03:29])
• “There’s almost a bubble in people talking about bubbles, if you see what I mean.”
  – Merryn Somerset Webb ([08:14])
• “The path of least resistance will ultimately be money printing.”
  – Albert Edwards ([16:39])
• “Central bank independence... is absolutely just not real.”
  – Albert Edwards ([24:04])
• “Never just one cockroach...”
  – Albert Edwards, via Jamie Dimon, on private equity ([33:01])
• “If your vet isn’t owned by private equity you’re doing pretty well.”
  – Albert Edwards ([36:37])
• “Can I sell you a bridge? London Bridge is for sale.”
  – Albert Edwards, on AI utopianism ([38:59])
• “The one thing which cannot be abolished is the business cycle.”
  – Albert Edwards ([43:20])
• “As Chuck Prince said, you gotta keep dancing while the music’s playing, but... decide how near the fire exit you wanna be gyrating around on the dance floor.”
  – Albert Edwards ([44:21])

10. Key Segment Timestamps

• 03:29: Edwards on the inevitability of the bubble bursting
• 05:20: Comparing TMT/dot-com and current AI frenzy
• 10:58: Retail driving the rally—risk of complacency
• 12:05: China's deflation and global implications
• 16:39: Fiscal dominance and future inflation
• 19:13: Gold’s role as a debasement trade
• 28:36: Crypto as part of the anti-fiat asset mix
• 32:38: Problems brewing in private equity
• 37:56: “What could go right?” Attempts at optimism
• 41:56: Energy costs and UK industrial decline
• 44:12: Actionable investing approach (“Stay near the fire exit!”)

Tone:
Witty, skeptical, and conversational—Edwards is both entertaining and darkly humorous, while Merryn Somerset Webb keeps the dialogue accessible yet challenging for her guest. The episode is rich in market wisdom, historical parallels, and memorable one-liners.

Summary Takeaway:
Edwards and MSW see clear signals of an AI-driven market bubble, fueled by narrative, retail frenzy, and policy shifts inclined to keep the music playing. Risks abound—from structural imbalances and public debt to private equity leverage and geopolitical shifts. Gold, precious metals, and selective equities are viewed as partial hedges, but cynicism and nimbleness are essential. The music will stop, but for now, investors must dance—just stay close to the exits.