Investors beware – the 1970s nightmare is back
Picture the scene: inflation (measured by the retail prices index – RPI) is running at 11%; there’s an oil embargo and an energy security crisis, but the government has just discouraged new investment in indigenous, reliable energy through a populist windfall tax; and while the Bank of England has begun to raise interest rates, “real” (after-inflation) rates are still negative to a degree never seen before, locking in huge post-inflation losses for cash deposit savers.
We’ve also witnessed an unprecedented expansion in the money supply, whereby all recent new government borrowing for profligate handouts has been financed by the printing press. After a period of globalisation and financial stability which witnessed a record bull market in “long duration” assets (such as “growth” stocks and bonds with long maturities), the stockmarket has begun to turn down, led by the glamour stocks, while commodity prices, having been in slumber for a decade, are on the up, impervious to demand concerns.
This sounds like an investor horror movie from the 1970s – but it is, in fact, the investing reality of today. The 1970s redux has already arrived.
What was so bad about the 1970s?
Between April 1972 and November 1974, the UK stockmarket fell by 70%, while from January 1973 to October 1974, US stock prices halved. Although the US
