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