take my advice

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About ten years ago a pal of mine asked my opinion of whether he should buy a London property. I pooh-poohed the idea immediately on the basis that I believed interest rates were to imminently shoot-up, which would lead directly to the bursting of the property-bubble, and a major economic downturn would, of course, follow. Hold fire, I cautioned. Data from the Land Registry confirms that London’s property market has, since then, boomed to the tune of 88% and, in real terms, the properties he was considering, in central Clapham, have more than doubled in value. Whoops. I’m pleasantly surprised he’s still talking to me, let alone asking my opinions on matters of a financial nature, which he did only last night. Which got me thinking…

Share prices have been rising unabated for years; speculators are investing/gambling with cheap, borrowed money; all asset groups are over-valued, many massively so. Sound familiar? Yep, it could be 1929, 2008 or today. The Wall Street stock market crash, which started on Thursday 24th October 1929, was the largest single setback to the global economy and led directly to the Great Depression. By the time the crash bottomed out almost three years later publicly quoted companies had lost over 90% of their value and the world was greatly changed with more than a quarter of the US’s workforce being out on its ear. With hindsight, this heralded the ending of the first period of globalisation and in its wake the world transitioned to an era of isolationism, economic protectionism, populism and aggressive jingoism. Sound familiar?

Without the Great Depression, Franklin Roosevelt may never have been more than the Governor of New York, Adolf Hitler, whose power base was rapidly ebbing away in the late 20s, perhaps no more than a historical quirk, and Howard Hughes a penniless OCD sufferer. Without the 2008 collapse of Lehman Brothers, which sparked our most recent downturn, Brexit would not have happened, austerity economics would not exist, Donald Trump would be no more than a reality TV star of ridicule and Europe would not be facing both its potential collapse and the widespread adoption of far-right policies. Like it or not, back in the 1920s Britain was the declining powerhouse and its influence on both the world and its empire was on the wane. Today, the US is in the same position. A shrinking global market leads to declining trade levels, and ultimately to more onerous conditions. Is this the end of the second age of globalism? Who knows but I wouldn’t take my advice either way.