Expert who predicted the dotcom crash says Americans could face a much bigger crisis soon
An economic crisis isn't something that happens all of a sudden, but a lot of factors weaken the economy before a major blow triggers a meltdown. The famous bearish strategist, Albert Edwards, of Societe Generale, who had predicted the dot com crash, has sounded the alarm about a looming financial crisis, bigger than the 2008 market crash. The analyst, who refers to himself as a "perma bear," spoke to Bloomberg and Fortune, sharing his opinions on the current 'AI Bubble' and the possibility of a market correction.
Edwards, who admits that he is a very bearish market strategist, has made some high-profile and dramatic predictions in the past, including the dot-com bubble burst. However, not all of his warnings have panned out, Fortune noted. "I think there's a bubble, but there again I always think there's a bubble," Edwards told Bloomberg's Merryn Somerset Webb, in a podcast. He was also firm in his opinion that "it will end in tears," saying, "that much I'm sure of." He further told Fortune in an interview that previous theories of a bubble before the 1999 and early 2000 dot com crash, and the 2008 financial crisis were also "very convincing."
He noted that each time, a “surge in the market was so relentless” that he would just stop talking about bubbles, as his clients don't like it. "Clients get pissed off with you repeating the same thing over and over again and being wrong,” he said, adding that the tone changes when the bubble bursts. “Generally, when you’re gripped by a bubble, people just don’t want to listen because they’re making so much money," he told the publication.
Edwards pointed to two key elements that would play a major role in the bursting of the bubble. Drawing parallels to the markets before the dot-com crash, he noted that some things were different today, which could make the crash much worse. He explained that previous bursts were triggered by the monetary policies of the Federal Reserve and the hikes in rates that exposed the market froth. However, this time, Edwards anticipates that the Fed will move away from "quantitative tightening to quantitative easing" with rate cuts, which won't trigger a burst. He told Bloomberg that this policy could lead to a "further meltup," making the eventual burst more devastating.
“What’s more worrying about the AI bubble is how much more dependent the economy is on this theme, not just for the business investments, which is driving growth, but also the fact that consumption growth is being dominated far more than normal by the top quintile," Edwards told Fortune.
Edwards told Fortune that the market was overdue for a correction, and apart from the pandemic, there hasn't been a real recession since 2008. “That’s a bloody long time, and the business cycle eventually always goes into recession," he told the publication.
More on Market Realist:
Bank of America issues warning that 'AI bubble' may fizzle out because of a cash crunch
Investor who predicted 2008 financial crisis comes up with another prediction — this time against AI
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