Societe General’s perma-bear Albert Edwards is a widely read bank analyst because he looks at the world with an apparent mathematical mind, searching for truth and not considering politically restrictive niceties when providing economic analysis. In trading and investing all that matters is the accuracy of an underlying thesis, dare we call this “truth.”

As Edwards looks at what is obviously a migrant crisis spreading through Europe — with potential to alter the political foundation of the region — he apparently doesn’t run scared from labels such as “racist” or “xenophobe” that can be thrown just for considering logical economics. It is in conducting the if-then math that Edwards notes that migrants entering Europe face “disgusting” job prospects and this is creating a “frankly dangerous” situation.

At the core of Edwards’ thesis is nothing about skin color or religion – it is a thesis based on educational accomplishment, or the lack thereof.


Albert Edwards = QE is not a panacea

In his recently weekly strategy noted titled “Disgraceful, disgusting and dangerous,” Edwards swipes at two targets.

The market structure clueless European Central Bank, a frequent target, is again in his sights. It seems he can’t write a report without whacking them, even when the primary topic doesn’t neatly tie in.

Recent “anemic” economic data out of the US and Europe “confirms what we already knew,” namely that “QE is not the panacea.”

“Some 18 months and €1 trillion later, the eurozone remains in the doldrums,” he notes, as middle-class wages, which drive real economic growth, have generally been slipping around the world. “More concerning perhaps is that the ‘potential’ GDP growth rate has slumped over the past decade or so.”

It is here Edwards makes the connection with immigration, and he starts by recognizing how government economic statistics benefit from it.

Albert Edwards sg-edwards-9-22-gdp-growth-uk
Albert Edwards


Albert Edwards – Even a conservative government likes immigration because it boosts economic statistics

From the point of the financial crisis, Germany has significantly outperformed under the Eurozone banner while France and Italy are “standout… underperformers.”

With an eye towards improving economic statistics, the math of impression is considered. The formula for measuring GDP includes a component for calculating the number of people in the workforce. When a workforce is growing, it improves economic statistics. From one perspective, government economists view immigration positively.

Edwards points to a “conservative” government that liked immigration:

Since GDP growth is, by identity, made up of productivity growth (GDP/head) and growth in the working population (headcount), some policymakers in developed countries have grabbed the opportunities that circumstance has presented them to boost their workforce and so potentially GDP growth. The UK did this under Tony Blair’s New Labour Government with a virtual open door policy to immigration, and more recently Germany has welcomed more than 1 million refugees, with more to follow as the refugee crisis continues.


Albert Edwards = GDP formula does not distinguish the output value of each new worker

But what the formula doesn’t consider is the real economic output of each immigrant is, on average, based on how well educated they are.  Edwards points to hard statistics that show “children of migrants are more likely to be unskilled workers and able to obtain employment without having a degree.”

Edwards then looks through Europe and notes that most countries are allowing immigrants to enter the country without discernment. He then considers the UK, which has a different approach that resulted in a higher level of education for its immigrants:

The UK’s excellent record of migrants thriving in higher education also spills across to employment opportunities, with the children of immigrants enjoying a significantly lower unemployment rate (see left-hand chart above). By contrast in the eurozone there is a disturbing correlation between the glass ceiling for educational attainment for children of migrants and their job opportunities. This is a massive problem for as my mum always used to say, the devil makes work for idle hands. This divergence in outcomes can only exacerbate the alienation of an ill-educated and unemployed migrant youth population within the eurozone. Actually let’s not beat about the bush: the educational and job prospects for the children of migrants in many eurozone countries are disgusting, disgraceful, and frankly dangerous.  (Emphasis from Edwards).


Albert Edwards – Looking at logical economics is not a censored activity, yet

Put all the simple “islamophobic” labels aside, and consider mathematical truth.

In a developed world economy, a well-educated work force is required. When immigrants from a different land and culture enter the developed world with no education, no skills, their job prospects are bleak. This is true of anyone regardless of skin color, religion or native tongue.

It is highly likely that uneducated immigrants are going to find a ticket to poverty and with their “idle hands” exasperate a populist problem like gasoline being thrown onto a bond fire.

That’s logical if-then analysis from a market point of view. Why don’t the elite rulers recognize truth? Is it too complex for them to understand?

Edwards didn’t go this far, but he did note that significant policy decisions need to be made to stem the tide. He notes that, while educated migrants thrive in London, regardless of race or religion it is the uneducated who are “losers”:

So forget about the shocking US income inequality. The failure of early school leavers in the UK to get a job ranks among one of the most disturbing social trends I have ever seen in a developed country and helps to explain why the white working-class workers voted en bloc for Brexit.

For professional investors, traders and economists using core market logic that doesn’t censor statistical truth is key for a society to manage its problems. Albert Edwards gets it. If the elite rulers don’t get it, this won’t end pretty.