SocGen’s Albert Edwards is a man who likes to update you on the new date for the apocalypse by way of a weekly note that comes out once every two-ish weeks.
The idea of a bi-weekly, weekly seems, on the surface, to be logically impossible. But what you have to keep in mind is that we’re talking about a man who has made a career of making the impossible possible.
For instance, Edwards has won the Global Strategy category in the Extel Survey of analysts for 14 straight fucking years. In other words, he was topping the list of global macro strategists in Europe when most sell-side analysts were still in the 8th grade.
And in a testament to his unparalleled ability to defy reason, he’s managed to do that while making semi-weekly calls for an imminent market crash amid a speculative mania in risk assets unseen since the goddamn tulip bubble.
So before you go telling Albert that he’s gotten it “wrong” all these years, you might want to consider the above, because as far as managing to thrive as a bear in an environment where everyone is predisposed to being virulently hostile to naysayers, Edwards is one big, badass, hungry Grizzly whose skeptical take on markets you will have to pry from his blood-soaked mandibles.
That brings us to Thursday’s note, which finds Edwards in rare form. Here’s the executive summary of a piece amusingly entitled “January 2008 Is Here Again!”
[As usual, the bits we would describe as "vintage Albert” are bolded]…
Very recent data confirms slumping household saving ratios in both the US and UK. This was last seen in 2007, just before the bursting debt bubble blew the global economy and financial system to smithereens.
The Fed and BoE should surely hang their heads in shame having presided over yet another impending disaster. Why will politicians and the people tolerate this incompetence? Indeed they won’t.
Im genuinely getting tired of bashing the major central banks, but every day more evidence mounts that almost exactly the same debt excesses that caused The Global Financial Crisis (GFC) in 2008, are present today. The UK Bank of England and US Federal Reserve deserve particular vilification for failing to remove the monetary punchbowl quickly enough just like the 2003-2007 period, allowing grotesque debt excesses to build.
The US has just this week seen substantial downward revisions to its household saving ratio (SR). Some 1½% has been lopped off recent estimates, taking the SR down from a respectable 5½% to just 3.8% – levels seen just before the last recession. The UK has also recently published some shockingly low household SR data, showing a slump in Q1 to only 1.9% (see chart). Actually the UK’s situation is worse than it looks relative to the US SR if you measure it on the same basis (see chart below). The US measures household income and savings net of depreciation mainly of the housing stock. If you add this back (as the UK does), the US household gross SR is some 3% higher!
At 7%, the US gross SR looks positively Germanic for its high level compared to the UK! But it is still disturbingly low relative to US history. In addition, the sharp 2% decline over the last year has helped to sustain what has only been moderate consumer spending and GDP growth at a time when real wages have been squeezed.
The UK has also only sustained moderate GDP growth via a total collapse in the SR to unprecedented historical lows, but also relative to the levels of the credit crazy US. The BoE recently warned of spiral of complacency about mounting consumer debt. But, of course, there is no acknowledgement of its own pernicious role in this unfolding disaster.
There’s a lot more in the full note which we encourage you to read if you can find it, but ultimately, the conclusion is this:
Nothing much has changed, and history suggests that when UK SR (measured gross) declines to, or below, the US SR (measured net), as we saw in 1987 and as we see now (see front cover chart), we in the UK are sitting on a massive credit bubble that is primed to burst with recessionary consequences. Alarm bells will be ringing all around the Bank of England but it is too late.
And as for all the complacent bulls sitting around idly enjoying the warmth emanating from the risk rally campfire, watch out … because Albert is right behind you…