Yes It’s an AI Bubble. Here’s Why (with Albert Edwards)

Summary

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

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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.

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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]).

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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])

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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])

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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]).

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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]).

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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]).

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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]).

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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.

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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])

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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!”)

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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.

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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.

Transcript

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[Marin Somerset Webb]

Bloomberg Audio Studio podcasts radio news hello Marantalk's Money Listeners. Now first, a quick reminder. We are recording an episode of Marin Talks Money in front of an audience the morning after Rachel Reeves UK Budget that'll be a depressing affair. Join us at Bloomberg's European headquarters in the heart of the city of London for questions and smart analysis. I'll be joined by Helen Thomas of Blonde Money, Stephanie Flanders, Bloomberg's head of government and Economics, and of course John Stepek will be there. Find the registration link in the show Notes Space is limited as ever, so do sign up soon onwards. Welcome to Marin Talks Money, the podcast in which people who know the markets explain the markets. I am Meron Somerset Webb. This week Albert Edwards, global strategist at Society General, joins me in the London studio. The FT has called Albert a provocative and voluble strategist. Other people just call Famous investment guru and my colleagues at Bloomberg like to call him A Perma bear. Sorry about that. Albert. Albert, welcome to Marin Talks Money.

[Albert Edwards]

Hi there and thanks for inviting me on. It's been a long while since I've been promising to come on, but here I am.

[Marin Somerset Webb]

You have been promising to come on, I would say for many, many years, but here you are. This is exciting and I'm going to get as much out of you as I possibly can because I suspect you won't agree to come on again for another decade. So we're going to have to cover pretty much much everything. So why don't we start with equity markets, bubble or no bubble in the.

[Albert Edwards]

US that is, I think there's a bubble, but there are going to always think there's a bubble. But I think looking back, I've been in the Markets now since 1982, I've been working and these things come around from time to time and in, during each bubble there's always a very plausible narrative, very compelling. And hey, I know in previous bubbles like 2007 and even the NASDAQ bubble in late 1990s, even I start to doubt myself. And this is one of these times, very compelling narrative, strong earnings, but it will end in tears. That much I'm sure of.

[Marin Somerset Webb]

We were both working back in the dot com bubble days and so we remember the run up, right, those days when we were told that the old valuation method didn't count anymore and that we should realign ourselves with the new plateau of the market, et cetera. And that because the new technology was going to change the world so enormously, valuations didn't matter, current earnings didn't matter, it was all about the future. So we remember all those things. And then of course it all went horribly wrong. Do you feel any of those things now?

[Albert Edwards]

I do. And the narrative is in some ways very similar, particularly when you see these extremely rich valuations in tech, 30 times over, 30 times forward earnings in the US being justified because of decent earnings growth. But one of the key comparisons I think is there when you think back to the late 90s, the telecom sector, which would get it because it wasn't just technology, it was technology, media and.

[Marin Somerset Webb]

Telecom, well, we used to call it the TMT bomb.

[Albert Edwards]

TMT bomb and the telecom sector were getting free money, they were laying cables. The amount of capital investment which was taking place on the back of the free money, a lot of it quite useful, but a lot of it replication, a lot of it not needed wasted investment and how it strangled the other parts of the economy as money was sucked towards this sector. So One of the key comparisons, you had a bubble in earnings as well as a bubble in valuations, and then something always changes to pull the rug out from under it. Now, during the NASDAQ bubble, it was higher interest rates. The Fed was raising interest rates through the back end of 1999. But one key thing which people often forget is despite these higher interest rates, as you move right towards the end of 1999, people were so scared of the Y2K time bomb that we'd flip over to the first of January and all the computers would stop working.

[Marin Somerset Webb]

So, interesting. Younger listeners won't remember this. No. We're talking about there was this appalling fear that all of our technology, all of our computer systems would be unable to deal with this turn of the century and everything around us would collapse.

[Albert Edwards]

Absolutely. And it was prudent to buy lots of tins of baked beans. If everything went down, then I personally quite like eating cold baked beans out of a can. But if it didn't go down, it was fine. You had your cash in the safe, you just put it. It was just preventative. But what you saw, and you can see it in the. I was chatting about it with one of my colleagues last week and I showed him a chart of USM naught rocketing up towards the end of 1999 and then collapsing as you flipped over into the year 2000, everything didn't sh. Shut down. The Fed withdrew that liquidity and that is when the NASDAQ started toppling over. Now, as far as I can see, at the moment, those same conditions aren't there. The Fed is lowering interest rates rather than tightening interest rates and they're just moving away from quantitative tightening to be neutral. I think they'll go to quantitative easing quite soon. So normally when bubbles burst, it is usually the monetary authorities tightening cycle and that isn't there. And I feel a bit like towards 1999, I just got bored being bearish, basically rattling my chains, saying, this is all a bubble, it's all going to collapse. And I find myself talking about something else a lot of the time. And that's the comparison which really worries me. I can feel that, yeah, this is going to go on for a lot longer. And actually that's when something just comes out the woodwork and takes the legs from out from under the bubble.

[Marin Somerset Webb]

Interesting. So, I mean, you are not the only person talking about a bubble. Neither am I. There's almost a bubble and people talking about bubbles, if you see what I mean. So it's not as though it's a contrarian thing to say anymore. It feels very obvious. But it also seems possible that there could be a melt up from here.

[Albert Edwards]

Absolutely.

[Marin Somerset Webb]

And people talk about melt ups and I'm like kind of already had a melt up that looked like a melt up, but maybe there's more melt up.

[Albert Edwards]

To come as they sort of start to flip away from quantitative tightening to quantitative easing. And I think it will have to be. There's a lot of evidence that there's problems in the repo markets in the us, in the plumbing that the Fed uses, that they're going to be forced to shift to quantitative easing quite soon. And that for example, could cause a further melt up. And so when the bubble bursts will be even more damaging than it would be if you got it over with early.

[Marin Somerset Webb]

And is this a bubble? Do you think that on bursting is similar in scale to the dot com bubble? Or is it worse in that to some extent the TMT bubble was sort of contained. And this seems to have a much deeper set of deeper tentacles throughout the US economy in particular, I think what.

[Albert Edwards]

May make it worse this time around is that the New York Fed, for example, have shown that consumption growth has become more and more concentrated amongst higher earners, rich consumers whose wealth has been inflated by the stock market doing so well, consumption for the bottom 50% of income earners has actually been quite poor. So to the extent what has driven the economy forwards is AI investment, this sort of spaghetti of vendor. And that's another comparison, the spaghetti charts of vendor financing that also saw in 1999. But what is slightly more concerning is I think the economy may be more reliant on the stock market going up and if it goes down 30, 40%, 50%, and we've seen these before, a, a lot of people will be stunned that that can even occur. But actually consumption just gets hit very, very badly indeed. So it's not just an investment cycle, but a consumption cycle too.

[Marin Somerset Webb]

Yeah, and that might be particularly bad given the huge retail participation in this bubble, particularly in the US and I keep looking at the number of leveraged ETF launches, single stock, single stock, leverage ETFs.

[Albert Edwards]

And certainly after Liberation Day when President Trump backed off his initial tariffs and the stock market started going batshit crazy from that point onwards. That was retail which drove that. And the professional investors we could see from the surveys were very reluctant to participate. They were still quite bearish. They were expecting a recession and they really dragged kicking and screaming into the market by retail. Just buy. The dips always just buy. Because the stock market never goes down very might pop down 10%, 15%, but it doesn't go down 30, 40, 50% anymore. Until it does.

[Public.com/Dutch Advertiser]

Wanna bet?

[Albert Edwards]

Until it does.

[Marin Somerset Webb]

Exactly. Let's leave aside what might be a trigger for the end of the bubble or for preventing a melt up, but a lot of this idea that it might go on, that might be a continuation in the bubble is about inflation and interest rates. Right. As you just said. So you're expecting the Fed to keep cutting rates, we're expecting rate cuts in the uk, et cetera. But you've also written about the deflationary environment in China.

[Albert Edwards]

I mean, if any other economy, G7 major, G7 industrialist economy, had seen the level of economy wide deflation that China is suffering. So China has seen 12 successive quarters, quarters, not months, quarters of year on year, declines in its GDP deflator. That's economy wide. So it's more than just the CPI or rpi. It's economy wide, includes exports, includes investment goods, et cetera. If any other economy had seen that, they would be printing money like confetti and chucking it into the economy. India is in a real hole in terms of its deflation. And as we know, having followed Japan over many years, the worst situation to be in is when you're a highly indebted economy as China is, and then to suffer deflation because it crushes you.

[Marin Somerset Webb]

Well, it increases the real value of people's debt and makes it even harder to pay off. You want inflation if you're in debt, not deflation, right?

[Albert Edwards]

Absolutely. And Robin Brooks, who I follow, who's at the Brookings Institute, no relation to the name, but he pointed out that China's PPI on consumer durable goods is accelerating downwards. It's down 4% year on year and it's getting worse. And this is part of their surplus capacity problem. They've got a lot of deflation to give the world and they want to get rid of it. And the big surprise could be, especially in the US where everyone is waiting for inflation to pick up because of the tariffs, is it just doesn't that inflation. We added downside surprise in the UK recently, albeit from quite high rates, downside surprise in Japan, US has broadly been surprising. On the downside looking at their underlying driver for inflation, which is unit labor costs, is what I've been writing, is that unit labor costs and unit costs are only running at 1% year on year. And that's not an erratic number. That's smooth. That's what most economists think drives inflation. And that's been coming down quite smartly, as has company inflate corporates. The corporate price deflator has come down and that's running quite a way below core cpi. And I think the big surprise may be not the economy suddenly drops into the recession in the next few months, but inflation really carries on undershooting. The bond rally really gets going, which will cheer Rachel Reeves up no end in the uk and actually that inflates the stock market bubble even more perhaps.

[Marin Somerset Webb]

But it's not ideal for deeply indebted Western economies. One of the things that we talk about a lot on the podcast is how do you deal with this level of public debt? What on earth can you do about this? And the answer of course is a type of financial repression. Running interest rates slightly lower than inflation for a long time so that eventually your debt doesn't necessarily go away, but it is massively reduced so that in some ways the last thing that an economy like ours wants right now is another wave of deflation out of China.

[Albert Edwards]

It's a get out of jail free card for the politicians. Cyclically, I could think we can get a downshift in inflation on a secular or trend basis. I mean I'd been known for many, many years for my Ice Age thesis which I put together at the end of the ninet the west following what happened in Japan, that inflation would come lower and lower and bond yields following that. After the pandemic I have switched camp into a secular rise in inflation. I can remember personally 28% inflation in the UK and actually in Japan also had 28% inflation. I think seeing the fiscal on a secular basis, seeing the fiscal incontinence which is there and the fiscal dominance over monetary policy, I can see inflation trending back up to double digits. You might get some short term relief, but actually politicians seem congenitally unable to deal with these fiscal deficits, which means the path of least resistance will ultimately be money printing.

[Marin Somerset Webb]

So 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.

[Albert Edwards]

I mean, and populism. Anyone in the UK who suggests, for example, we get rid of the triple lock on pensions will be voted out of office immediately. Perhaps best not to say it in the run up to the election.

[Marin Somerset Webb]

We're speaking on the day that Rachel Reeves has been out talking this morning about, well, about the budget, which is again increasingly weird that you come out three weeks before a budget to tell everyone there's gonna be bad news in the budget to make them feel really miserable in advance of the budget and make things even worse than they were already. But here we are. That's what she's done and she's made it pretty clear that this isn't about spending cuts, it's not about getting grip on public spending, it is about taxing everybody more. It's no longer about broad shoulders, it's about kind of everybody's shoulders.

[Albert Edwards]

Yes. And getting a hold of the spending, particularly welfare spending and disability. And we saw even with, I think global bond markets took a big lesson from this. The Labour party, even with 180 plus majority couldn't get through the most minor of reforms in terms of disability spending where alone in the world, particularly for under 30s, it has exploded upwards as people get signed off, get signed and they're tiktokers to actually explain to you how to game the system to do this and they're just unable, totally unable to get a grip on it. And it's. Although the UK isn't the worst offender by any means, I think the US is worse, I think France is worse. Both those countries are more protected than the uk France because it's wrapped up in the Eurozone wrapper US because of the dollar and the exorbitant privilege of being able to borrow in the dollar. But the UK is far more vulnerable to blow up. I mean luckily we're in a period where bond yields are coming down and this is what blew up. Liz Truss her budget came at a time when bond yields were rising sharply globally and it wasn't a good time to hit the markets with that sort of.

[Marin Somerset Webb]

And also she hadn't put any effort into getting everyone else on side.

[Albert Edwards]

Exactly.

[Marin Somerset Webb]

It came out of nowhere.

[Albert Edwards]

Exactly.

[Marin Somerset Webb]

But so we have this massive public debt problem and as you say, this sort of fiscal, fiscal dominance in the UK and elsewhere. Is it concern about that, that the gold price has been signaling?

[Albert Edwards]

I think it is. I think people are joining the dots and I think the debasement trades because it's not just gold until the recent correction it's had a very deep. Well, it is enjoying a very deep. Enjoying it's not quite the right word if you're holding it. It's seeing a very deep correction at the moment. But it's not just gold, it's the entire precious metal complex which ran up very, very sharply incidentally from the date of August 22nd. Jerome Powell the Fed chairs Jackson Hole's speech gold ran up 30% but actually the rest of the precious metal complex rose even more strongly. Now you got to the stage where gold had was so overbought. Technicians look at things like calls relative strength index, RSI as they're called, how far the price has moved from the moving average essentially had a monthly RSI of over 92, which was the highest in history for the gold market. So you're going to see a very deep correction. But I think this is the deeds basement trade. Why aren't bonds yields also rising at the same time sharply at that time? I think it's basically because people say, well it's not a debasement trade because bond yields, if people expected very high inflation, bond yields and the bond market.

[Marin Somerset Webb]

Would collapse and yields would be going to the sky.

[Albert Edwards]

And it's because people figure out because of fiscal dominance, the central banks will be told to intervene to hold down bond yields at some point, whether it's 5%, whether it's 5.5% or 6% at some point the maths just do not add up anymore for fiscal sustainability. So there would have to be yield curve control or as Japan had for many years, yield curve control or quantitative easing, which is effectively yield curve control. So yeah, the precious metals can rip roar upwards but the bond yields don't. In the same way they start to stall out as they get to higher levels.

[Marin Somerset Webb]

So you think gold will come back? We're just under 4,000 today as we speak, we're $3,967. But it seems likely to me and to John who's on the forecast with me, a lot, that gold will go back over 4,000. And that's still something that one should hold on to.

[Albert Edwards]

Gold, silver, under the circumstances. Gold, silver, platinum, palladium, all of them.

[Marin Somerset Webb]

You're holding all of them.

[Albert Edwards]

Gold might be gold, might be the laggard gold miners. Gdx gdxj I don't personally recommend. Of course you don't. I wouldn't know. I'm a macro person. I wouldn't know stock. If it bits me, I just wave my arms around and talk about the macro backdrop. And actually there was, quote, my former colleague Dylan Grice, you know very well, I know Dylan well, used to do a lot of research about the. What happened to Germany in the 1920s.

[Marin Somerset Webb]

Yes.

[Albert Edwards]

And why Rudolf von Haverstein, who was the rich bank governor, why he kept on printing money. And the conclusion was, and I think it was a quote in later life was he basically kept on because he was scared of the economic and social consequences of stopping. And it's similar with the public sector deficits. The politicians are scared of the social consequences of stopping spending money and throwing money out as they are doing and these huge spending plans they've got. And so the path of least resistance is money printing.

[Marin Somerset Webb]

They can just keep it going for another few years. Another few years, another few years, kick the can down the road, figure it out later.

[Albert Edwards]

The COVID period, it didn't. If you like spoiled politicians into thinking they could spend like this and eventually the markets come for them. They look around for the weakest candidate. That may well be the UK at some stage, even though other countries are worse, they'll pick off the weakest candidate and basically bludgeon them and make an example of them. Which is why we're going to end up with quantitative unlimited money printing to hold down. And if the central banks won't do it. I always like the Groucho Marx quote. These are my principles. If you don't like them, I have others. These might be my central bankers today. If they don't do what I say, I'll find others to do it.

[Marin Somerset Webb]

Yeah. So central bank independence as ever is something of a myth, isn't it? It is absolutely just not real.

[Public.com/Dutch Advertiser]

Yeah.

[Albert Edwards]

For every long there's a short do.

[Marin Somerset Webb]

You run with the bulls or is.

[Albert Edwards]

There something in the woods?

[Marin Somerset Webb]

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[Marin Somerset Webb]

Now, on the subject of central bankers, what part do you think that central bank buying of gold is playing in this? So we've seen various central banks around the world, China in particular, constantly adding to their gold holdings.

[Albert Edwards]

I think this is a natural consequence from the pivot away from U.S. assets, which was people tell me, and I think it's a reasonable hypothesis, partly a consequence of the seizure of Russian assets after the invasion of Ukraine. I was reading a narrative of the Cabinet meeting in the US where everyone was talking about seizing or freezing their assets and Janet Yellen did demure about shouldn't we think through the economic and financial consequences of this? But it certainly weakens because which emerging market central bank which might fall foul of the US at some stage is going to buy US assets and deposit them in the US to be seized later on. And I think that's that's partly what is going on here and you can see it from a lot of the hermene of the dollar has been weakened somewhat. I don't think people who say that age of the dollar is over I think are premature. But I think part of it is that is what is going on and it's perfectly logical.

[Marin Somerset Webb]

Does it make sense under those circumstances to also hold some cryptocurrencies, to hold Bitcoin in particular?

[Albert Edwards]

Do you Think to the extent that crypto is a bet against central bank competence, which is what my former colleague Dylan Grice always used to tell me, is I would add it to a portfolio, but with a very skeptical and cynical view about it, that it could collapse at some stage. But what I've noticed more recently in the last few months, it does seem to be a bit of an inverse correlation to gold. So you're putting the two together, and it does tend to dampen down the volatility. So I think there certainly is a place for cryptocurrencies if central banks are going to do what I think they're going to do.

[Marin Somerset Webb]

But if that is the case, if we are looking forward to a period of very high inflation, surely there's also a case for holding equities. And we've talked on this podcast about the Gavkas Turkish portfolio, 50% equities, 50% gold, as being the way to get through an unpleasant inflationary period.

[Albert Edwards]

I would agree with that because you're buying a real asset, and I think commodities also as part of that, another real asset, the earnings will rise in nominal terms, probably in line with nominal GDP growth. But the key question is, and that offers a protection that the profits grow, is in highly inflationary times, what multiple should the market be on? So the US is on currently a forward P of 23 times, which is almost back to where it was during the nasdaq bubble in 1982. Normally, when there's high inflation, the P is extremely low. And what you saw from 1965, for example, from 1965 to 1982, as inflation rose and as bond yields rose, there's really good earnings growth. The Dow went nowhere for 17 years in nominal terms because the P, which started at around 20 times, if my memory serves me right, in 1965, deflated, I think, to 8 times earnings by the time inflation peaked out. So, yes, what I would say is in an environment of rising inflation and rising bond yields, what has worked for the last 20 years will stop working. So bond beneficiaries, stocks or sectors which benefit from lower bond yields, they tend to be defensive, they tend to be utilities, they tend to be growth sectors like tech, which have done very well from decades of falling bond yields. And what hasn't done so well were cyclical stocks, value stocks. So what hasn't worked should start to work. When things have worked for 20 odd years or longer, it's getting out of that mindset and saying we're in a different paradigm. So, yes, I agree with you. Stocks are a hedge against inflation, but it's working out well. If we go through a secular derating, actually that can wipe out all those gains.

[Marin Somerset Webb]

Find stuff that's cheap already.

[Albert Edwards]

So it's ambiguous. It's ambiguous for stuff.

[Marin Somerset Webb]

Yeah, now I see that. Now listen, speaking of sectors that have benefited or asset classes, should we say that have benefited from very low interest rates, private equity. We're going through a period when we are hearing constantly that it's time for retail investors, for ordinary private investors to get their hands on a whole load of private equity that will really pimp their returns going forward. I'm looking at you and I'm thinking you don't necessarily agree with that.

[Albert Edwards]

Well, I'm very cynical. Generally awful trait I've picked up over the years working in finance and me.

[Marin Somerset Webb]

Having that as well. I shouldn't really have had you on actually. Terrible mistake.

[Albert Edwards]

As far as I can see, the big advantage of private equity has been carried interest. It's been its tax treatment gives it an advantage and it doesn't have to mark itself to market. So it isn't very volatile. People say, well, we haven't got the volatility in private equity yet, but you don't know what it's really worth.

[Marin Somerset Webb]

Well, you do have the volatility or you would have the volatility. If you tried to sell it every day you'd know what the price was.

[Albert Edwards]

But there are problems in the private equity space, as people call it at the moment. And you've had two high profile bankruptcies in the US with First Brands and Tricolor. And I know nothing of what they do and understand, but I know that there have been problems there and that has started to leak into the high yield bond market. Spreads have started to widen because people are worried. And Jamie Dimond of JP Morgan has come out and said, well, you never have just one cockroach. Well, you've got two there. And it's not just the IMF have been warning about private equity. Andrew Bailey at the bank of England England is very worried about it and people don't really focus on this. And maybe this is the thing which in this cycle, every cycle is slightly different. Maybe this is the thing in this cycle which will lay us lower, I don't know. But there's an awful lot of leverage. One of the elixirs for private equity is leverage, huge amounts of leverage.

[Marin Somerset Webb]

More private equity people would like you to believe is that it's got nothing to do with debt at all. And everything to do with being better.

[Albert Edwards]

At managing really Yes, I think I'm just too cynical. I'm sure they're wonderful mandate and I'm sure some of them are, I'm sure some of them, of course.

[Marin Somerset Webb]

But I suppose one of the problems with the performance record of private equity is that, you know, when you talk to private equity people, they will say to you, well, look at the long term performance record, you know, it's really great. But if you go back to the very beginning, say you're looking at over a 15 or a 20 year period. If you go back to, you know, 15 years ago, this market was tiny and you had a very small number of super intelligent and effective people working in a very small area. So that doesn't tell you anything about performance when it's huge, vast amounts of money in every single mathematics graduate wanting to work in it, et cetera. It's a totally different sector now to the sector that we look at the performance of 15 years ago. Is that fair?

[Albert Edwards]

Yeah, no, absolutely. And you can tell that the bubble conditions because certainly they are sucking the best. The engineers and sort of people who used to go into finance, investment banking, for example, they're all getting rich in private equity.

[Marin Somerset Webb]

Outrageous.

[Albert Edwards]

One of the big problems for private equity, like so much else, is they benefited from years and years of falling bond yields. And the mood music has now changed. I know bond yields might be coming down just at the moment, but if we're in a secular, in my view, we're not going back to where we were. We're in a secular bear market for bonds. And if you're highly leveraged, it's going to be a major problem. And what you've seemed to have is a very few number of companies at the moment related to AI, which are doing very, very well. But you scratch the surface and my colleague Andrew Lapthorne does this for me. You remove the top, not even 10% of companies. Quota companies are top 10 companies. And underneath that things are pretty crappy. And as you drill down into smaller and smaller companies, things are really, really tough. And people talk about a K shaped recovery within the consumer sector and within the corporate sector, it's very, very, there are very small amounts of winners which are out there. And so the mood music maybe for private equity, and certainly in the UK where you've got private equity taking over the vets, taking over care, home, nursing homes, and people just don't realize how their tentacles have spread so deeply into the real economy. And the UK is a really good example. If your vet isn't owned by private equity you're doing pretty well. But to me it's a real issue. I wouldn't say problem. Problem. Yeah, because that's a bit pejorative. It's an issue. It's an issue we should be watching closely, we should be aware of. And as Jamie diamond says, you never get. I don't want to compare private equity to cockroaches, but you never, as he said, you never just get one cockroach as these things start going bust.

[Marin Somerset Webb]

So we're worried about private equity, worried about inflation. We're also worried about deflation, worried about equity valuations. We're worried about.

[Albert Edwards]

I'm amazed how I got more lines you can see over there. I haven't got many lines here, but I'm amazed I'm not more wrinkled.

[Marin Somerset Webb]

And for those of you who can't see Albert, which actually is all of you, he's not remotely wrinkled and he's wearing a great seasonal shirt. We might put a photo of Albert online.

[Albert Edwards]

That'd be lovely. That'd be lovely. Do try and Photoshop me a bit.

[Marin Somerset Webb]

No. So here's the question, Albert. What could go right?

[Albert Edwards]

Well, what could go right, I suppose, is the bubble just carries on for another year. The interest rates come down, bond deals come down on a cyclical basis. We go to 40 times forward earnings. Some of us have seen this all before. I'll stop talking about equity bubbles and start talking about gold or my personal life, as I have done in the past instead.

[Marin Somerset Webb]

But that's not going right, is it? That's just going on a bit longer.

[Albert Edwards]

Yes. I don't think there are any good options here. What's the least bad option?

[Marin Somerset Webb]

What about this?

[Albert Edwards]

Down the road for so long.

[Marin Somerset Webb]

What about this? AI does everything, everything that it has promised to do. There's a massive productivity wave throughout the Western world, which brings down government spending massively, hugely reduces our deficits, gradually starts reducing the debt, makes every company more productive, such that valuations are perfectly fine and everything's okay. Everything's okay.

[Albert Edwards]

Can I sell you a bridge? London Bridge is for sale.

[Marin Somerset Webb]

Really? No chance.

[Albert Edwards]

Certainly productivity growth in the US has been looking okay recently. What's interesting is no one has a recession on the horizon. The latest Atlanta Fed numbers for the next quarter, 4% GDP growth driven a lot lot by AI investments. But when I look at, I was looking at the ADP in the absence of official payroll numbers. So the biggest driver for employment is not the mega caps or the AI companies, it's mom and pop companies. It's unquoted companies. So I was looking at and the ADP in the US divided up into company size and those companies with less than 50 employees comprise 45% of employment in the US and employment is falling in the latest numbers year on year. It's very unusual. Employment for smaller companies is falling year on year in the US and it's not a rapid dumb down. It has accelerated a bit and maybe that's something to do with the immigration policies in the US but actually it's been slowing down quite rapidly for the last two, three years. So last year large cap employment still looks okay, that's slowing. But when you have the job generators in the us, small cap companies in recession, then you think actually. So the stock market may be at all time highs, but actually the rug is being pulled out from underneath. So all this II investment is going off with this vendor finance scheme between all of them. But actually could this be the rug? But I tend to look on the dark side, so I recommend all your listeners should ignore me totally.

[Marin Somerset Webb]

Okay, let me try this background, let me try something else on the positive side. Okay, so in the UK in particular, one of our big problems is very expensive energy, massive drag on the economy. If we accept, which we do, that all economic activity, in fact all activity one way or another, is energy transformed. If we were to find a way in the UK and possibly elsewhere to massively bring down the cost of energy, say, I don't know, beaming solar power from space to a massive mirror somewhere, something like that, which some of our guests have talked about, that could be, that could do things even in the uk, abandoning net zero, for example, that could be a massive positive. That could be transformative. And the Solar2 mirror could transform the US and the rest of the world. Imagine energy being practically free. I'm really working as hard as I can here, Albert.

[Albert Edwards]

I think that would be transformative if it happens. Certainly the UK is an outlier. The UK has some of the highest energy costs in industrialized countries. But that's because of the ludicrous pricing mechanism we have here, which I'm sure all your listeners will be aware of, where even if 99% of the energy being generated is from low cost renewables, which is not, but assume it is, and the gas price goes up, the average, the pricing in the UK is off that marginal producer, which is usually an expensive gas generator. And so everyone has to pay that marginal and it's a ludicrous system. So that's one of the reasons our energy costs are so high here. And you have to break that link, because what's happening is that the renewable companies are getting a massive, massive subsidy from the consumers. But there isn't any will to break that ludicrous link here in the uk. But the UK is totally almost de. Industrialized now. Now it's too late for the UK to be honest.

[Marin Somerset Webb]

Okay, that didn't get me anywhere either. Nothing left in terms of trying to encourage you to think of something positive.

[Albert Edwards]

Well, I think when you've been through many cycles like you and I have, you know, the inevitability and the business cycle, the one thing which cannot be abolished is the business cycle. And a part of. Apart from two or three months during the pandemic, the US hasn't seen a proper cyclical downturn since 2008. Now that is an extraordinary long economic cycle. A recession will come along and all these bubble elements will implode. It may well be the bubble implodes and then brings the economy down into recession. Or it could get. And that's going to cause a lot of surprise, but we can inflate a lot further from here. We've been doing this long enough to know anything is possible.

[Marin Somerset Webb]

Okay. So in the meantime, all we can do is hold precious metals and inexpensive equities to the best of our ability and weight.

[Albert Edwards]

And if you want to ride the equity bubble, do so. But just be very cynical about it. Don't believe the story. Momentum investing is one of the most profitable methods of investing. My colleague Andrew Lapthorne has shown me that. But just have clear technical signals to get you out, whether it's the S and P or cutting below the 200 day moving average or whatever it is. Don't buy into the rhetoric too much. Ride the bubble if you so wish. As George Soros says when he said, whenever I see a bubble, I run towards it. 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. So as Chuck Prince said, 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.

[Marin Somerset Webb]

And don't be tempted to move back in front of the band.

[Albert Edwards]

Exactly. Put your earplugs in so you can't hear the music. Right. But just keep moving around, keep jiggling.

[Marin Somerset Webb]

All right, let me ask you one last question then. What are you reading? Came here on the train. What were you reading?

[Albert Edwards]

I don't read very much, actually. What I normally would do is get my colleagues to read. They do that. Heavily lifting for me and read all the economics or finance books and then they just tell me what's in it.

[Marin Somerset Webb]

So what are you reading? A nice Pussycrime novel?

[Albert Edwards]

No, I just poetry. No, I'm not. I generally read current events. I like reading a lot about current events. I have been reading Boris Johnson's biography just to balance that. I did read Gordon Brown's one before that. So I'm very eclectic in my taste. But I'm very lazy. I generally. In the evenings, what I do is basically just watch telly. I watch rubbish on telly and unwind. I'm so caught up with the tension of financial markets during the day, but.

[Marin Somerset Webb]

I have to so excited. Are you so excited about the Bake off financial.

[Albert Edwards]

I've never watched Bake Off.

[Marin Somerset Webb]

What can I be watching on the television?

[Albert Edwards]

Even Bake Off? Even Bake Off? No, no. I've been watching Ted Lasso.

[Marin Somerset Webb]

I mean all the tension in my life has been about the way those Sugar Dome things all broke last week.

[Albert Edwards]

I'm not a big cook. There's someone laughing in the background here at me. It's outrageous. Right?

[Marin Somerset Webb]

Alberta, thank you. Thank you.

[Albert Edwards]

Been a pleasure. And we must do this again. We mustn't wait another 10 years.

[Marin Somerset Webb]

No. Can we do it once a year?

[Albert Edwards]

Maybe. I want to hear on air commitment every. Every. Every couple of years. Definitely. Yeah.

[Marin Somerset Webb]

Well, I'm interpreting that as two. So I've got a better idea. How about we do it again straight off the crash?

[Albert Edwards]

Absolutely. Next week then.

[Marin Somerset Webb]

It's a deal. Could be in 10 days.

[Albert Edwards]

Foreign.

[Marin Somerset Webb]

Thank you for listening to this week's Marin Talks Money. If you like our show, rate, review and subscribe. Wherever you listen to podcasts, keep sending your questions or comments to marin [e-mail]. you can also follow me and John on Twitter or x. I'm erinesw and John is John. Underscore Stepek. You are on Twitter, right, Albert?

[Albert Edwards]

Yep.

[Marin Somerset Webb]

What is it?

[Albert Edwards]

Albert Edwards. 99.

[Marin Somerset Webb]

There are another 98.

[Albert Edwards]

No, I jumped over all the rest of them.

[Marin Somerset Webb]

Ah, okay. This episode was hosted by me, Marin Somerset Web. It was produced by Sama Saadi and Moses Andam Sound designed by Blake Maples and Aaron Casper. And special thanks, of course, to Albert Edwards.

[Public.com/Dutch Advertiser]

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[Albert Edwards]

This is Jim.

[Public.com/Dutch Advertiser]

Hello. Jim started advertising with iHeartRadio way back in April and now I have customers out the door.

[Albert Edwards]

And this is Sarah. Hi.

[Public.com/Dutch Advertiser]

She started putting a portion of her marketing dollars in podcasting back in you business is booming.

[Albert Edwards]

That's why I'm working on a Saturday.

[Public.com/Dutch Advertiser]

Want to be like Jim and Sarah? It's easy. All you have to do is own or manage a business and reach out to iHeart. Get started today at 844-844-IHeart or iheartadvertising.com this is Tom Keane inviting you to join me for the Bloomberg Surveillance Podcast. It's about making you smarter each and every business day day we bring you a recap of what happened overnight in Europe and Asia. The day's economic data and complete coverage of the US Market open. We cover stocks, bonds, commodities, currencies, even crypto. All the information you need to excel. Bloomberg Surveillance also brings you the analysis behind the headlines. We do that with lengthy conversations with our expert guests, the smartest names in economics, finance, investment and international relations. We do all this live each and every weekday, then bring you the best analysis in our daily podcast. Search for Bloomberg surveillance on YouTube, Apple, Spotify or anywhere else you listen on the East Coast. Listen at lunch and on the west coast when you wake up. That's the Bloomberg Surveillance Podcast with me, Tom Keene, along with Paul Smith Sweeney and Lisa Mateo. Subscribe today wherever you get your podcasts.