Additional Coverage:
- Expert who predicted the dotcom crash says Americans could face a much bigger crisis soon (marketrealist.com)
Economist Who Predicted Dot-Com Bust Warns of Imminent, Larger Crisis
Albert Edwards, a renowned bearish strategist at Societe Generale, who famously foresaw the dot-com crash, is sounding the alarm once again, predicting a financial crisis that could dwarf the 2008 market meltdown. Speaking with Bloomberg and Fortune, Edwards, a self-proclaimed “perma bear,” shared his concerns about the current “AI Bubble” and the potential for a severe market correction.
Edwards has a track record of dramatic – and sometimes accurate – predictions, including the tech bubble burst of the late 1990s and early 2000s. While acknowledging that not all his warnings have materialized, he remains resolute in his current outlook.
“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 confidently asserted that “it will end in tears,” a conviction he holds firmly.
He further emphasized to Fortune that prior theories of bubbles before the 1999-2000 dot-com crash and the 2008 financial crisis were also “very convincing.”
Edwards admits that his consistent bearish stance often frustrates clients, particularly during market surges. He noted that the “surge in the market was so relentless” in previous instances that he would often cease discussing bubbles because “clients get pissed off with you repeating the same thing over and over again and being wrong.”
However, he added that the sentiment dramatically shifts when the bubble inevitably bursts. “Generally, when you’re gripped by a bubble, people just don’t want to listen because they’re making so much money,” he explained.
Edwards highlighted two critical factors that he believes will contribute to the impending bubble burst. Drawing parallels to the markets preceding the dot-com crash, he pointed out key differences today that could make the next downturn more severe.
Historically, market bursts were often triggered by the Federal Reserve’s monetary policies, particularly interest rate hikes that exposed market excesses. This time, however, Edwards anticipates the Fed will pivot from “quantitative tightening to quantitative easing” with rate cuts, which he believes will not be the catalyst for the burst.
Instead, he told Bloomberg that this policy could lead to a “further meltup,” making the eventual collapse even 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 stressed to Fortune that the market is overdue for a correction, noting that aside from the pandemic, there hasn’t been a true recession since 2008. “That’s a bloody long time, and the business cycle eventually always goes into recession,” he concluded.