Any Happy Returns

Preface xvii Acknowledgements xxi About the Author xxv Chapter 1: An Introduction to Cycles and Secular Trends 1 Repeating Cycles 3 The Social and Political Cycle 4 The Business Cycle 8 Super Cycles in Financial Markets 9 Psychology and Financial Market Super Cycles 11 Part I: Structural Trends and Market Super Cycles 19 Chapter 2: Equity Cycles and Their Drivers 21 The Four Phases of the Equity Cycle 22 1. Despair 23 2. Hope 23 3. Growth 24 4. Optimism 24 The Drivers of the Four Phases 24 The Cycle and Bear Markets 28 Identifying the Transition from Bear Market to Bull Market 30 Valuations and the Market Inflection 30 Growth and the Market Inflection 32 Combining Growth and Valuation as a Signal 36 Inflation, Interest Rates and the Market Inflection 37 Combining Growth and Interest Rates 39 Chapter 3: Super Cycles and Their Drivers 41 Super Cycles in Economic Activity 42 The Modern Era: Growth from the 1820s 47 Super Cycles in Inflation 50 Super Cycles in Interest Rates 53 Super Cycles and Government Debt 55 Super Cycles in Inequality 56 Super Cycles in Financial Markets 59 Super Cycles in Equities 63 Structural upswings 1. 1949–1968: Post-World War II Boom 66 2. 1982–2000: The Modern Cycle 66 3. 2009–2020: The Post-Financial-Crisis Cycle and Zero Interest Rates 67 ‘Fat and Flat’ super cycles 1. 1968–1982: Inflation and Low Returns 68 2. 2000–2009: Bubbles and Troubles 68 Part II: Analysing Post-war Super Cycles 71 Chapter 4: 1949–1968: Post-World War II Boom 73 International Agreements and Falling Risk Premia 75 Strong Economic Growth 76 Technological Innovation 79 Low and Stable Real Interest Rates 81 A Boom in World Trade 83 A Baby Boom 83 The Consumer and Credit Boom 85 All-Consuming Consumerism 87 Chapter 5: 1968–1982: Inflation and Low Returns 91 A Lost Decade for Investors 92 The Bubble Before the Bust 93 High Interest Rates and Low Growth 95 The Collapse of Bretton Woods 96 Social Unrest and Strikes 100 Collapsing Trade, Increased Protectionism and Regulation 104 Increased Public Spending, Lower Margins 105 The End of the Downturn 107 Chapter 6: 1982–2000: The Modern Cycle 109 1. The Great Moderation 110 2. Disinflation and a Lower Cost of Capital 112 European Interest Rate Convergence 112 Monetary Policy and the ‘Fed Put’ 114 3. Supply-Side Reforms (Including Deregulation and Privatisation) 117 Tax Reforms 118 Deregulation and Privatisation 121 4. The End of the Soviet Union (Lower Geopolitical Risk) 123 5. Globalisation and Cooperation 124 Technology and the Labour Market 128 6. The Impact of China and India 128 7. Bubbles and Financial Innovation 129 The Japan Bubble and the Tech Bubble 130 Chapter 7: 2000–2009: Bubbles and Troubles 133 The Bursting of the Technology Bubble 135 The Financial Crisis of 2007–2009 138 Leverage and Financial Innovation 140 The Decline in Long-Term Growth Expectations 147 The Rise in the Equity Risk Premium 148 The Negative Correlation Between Bonds and Equities 150 Chapter 8: 2009–2020: The Post- Financial- Crisis Cycle and Zero Interest Rates 153 1. Weak Growth but High Equity Returns 154 The Aftershock of the Financial Crisis 157 2. The Era of Free Money 160 The Collapse in Government Bond Yields 162 3. Low Volatility 166 4. Rising Equity Valuations 168 5. Technology and the Outperformance of Growth versus Value 171 The Extraordinary Gap between Growth and Value 172 6. The Outperformance of the United States Over the Rest of the World 176 Zero Rates and the Demand for Risk Assets 179 Chapter 9: The Pandemic and the Return of ‘Fat and Flat’ 183 Pandemic Pandemonium 183 The Pandemic Shock 184 Another Tech Bubble 189 The Medicine Worked 193 The Pandemic and Inflation 196 From Disinflation to Reflation 197 Getting Real – The Shift Higher in the Real Cost of Capital 200 The Golden Rules Resurface 202 Sector Leadership and the Rotation Towards Value 202 Part III: the Post-modern Cycle 207 Chapter 10: The Post-Modern Cycle 209 Structural Shifts and Opportunities 210 Differences from the Modern Cycle 212 1. A Rise in the Cost of Capital 213 The Re-emergence of Inflation 215 2. A Slowdown in Trend Growth 218 3. A Shift from Globalisation to Regionalisation 220 4. A Rise in the Cost of Labour and Commodities 225 Post-Pandemic Reversal 229 The Consequences and Investment Implications 230 AI and the Labour Market 232 5. An Increase in Government Spending and Debt 234 The Rise in Regulation and Industrial Policy 237 Energy Transition Spending to Increase 239 6. A Rise in Capital and Infrastructure Spending 242 7. Changing Demographics 245 Ageing Populations and Deficits 246 Ageing Populations and New Markets 247 8. An Increase in Geopolitical Tensions and the Multipolar World 249 Chapter 11: The Post-Modern Cycle and Technology 251 Why Technology Wins 254 Characteristics of Technology Revolutions 255 Exuberance, Speculation and Bubbles 256 The Dominance Effects 259 The Emergence of Secondary Technologies 260 Can Technology Remain the Biggest Sector? 262 Can the Current Group of Dominant Technology Companies Remain Leaders? 264 Why Newer Technologies May Enhance Productivity 268 Weak Productivity in the Internet World 271 From ‘Nice to Have’ to ‘Need to Have’ 271 Productivity and the Impact of AI 272 The PEARLs Framework for AI and Technology 274 The Pioneers 275 The Enablers 275 The Adaptors 277 The Reformers 278 The Laggards 279 Chapter 12: The Post- Modern Cycle: Opportunities in the ‘Old Economy’ 285 Opportunities in the ‘Old Economy’ 286 Defence Spending 289 Infrastructure Spending 291 Green Spending 292 Government Policy and Spending 294 Commodities Spending 298 How Investment Markets Can Help Fund the Capex Boom 300 The Future of Jobs 301 Don’t Forget the Power of Nostalgia 303 On Your Bike 305 Chapter 13: Summary and Conclusions 309 Cycles 309 Super Cycles 311 The Post-Modern Cycle 313 References 315 Suggested Reading 335 Index 343