I grew up in a close family and always felt blessed to go to my grandparents for Saturday lunch, where 4 generations would sit around the same table talking.
We don’t really socialize much other than over the weekly Sabbath meals. This weekend I took note of the fact that when we socialize, as was the case on Friday night and Saturday lunch, there were 3 generations around the table. I love the fact that when we go to friends and when they come to us, our friends usually bring their children (even when they are adults) and often they bring their parents. Yesterday we had an 84yr old for lunch and the youngest was 15. The lessons one learns from having people with life experience in your life is immeasurable and sadly ignored.
I see it all too often that people who are older cannot find jobs as easily as they should, I see that people who are older are often left on their own and excluded from their families social engagements. I sadly see it in the economic and investment world and on this I want to make some comments.
Today we have access to live information at our fingertips 24/7. With access to all this information either via the media or via our investment platforms, we are exposed to lots of random price fluctuations as people interpret the future and express it through transactions in the economy. This results in price action which illicit’s an emotional response which in turn leads to action which starts the whole process over again as in a network effect. As the frequency of times we are exposed to price movement increases, human nature looks for causative answers to these movements. However, we are unfortunately duped most of the time to believe the so called experts know what they are talking about.
I see an increasing number of youngsters presenting themselves as expert mentors, strategists, commentators, etc. I also see plenty of grey haired experts representing the largest financial institutions in the world equally offering advice that is still so young.
This week I shared on LinkedIn a chart of real interest rates going back 700 years, I believe this study was done by the Bank of England.
I don’t want to come across as “know all”, in fact what I would like to come across as a “know less”. As someone who has studied economic history, I get to picture seated at my table the economic greats over many generations.
As I picture the conversation around my dinner table I can see the economic great thinkers putting forward their ideas and vigorously debating them: I see Joseph from the Bible, I see John Locke (1632-1704), I see David Hume (1711-1776), I see Adam Smith (1723-1790), I see Jeremy Bentham, I see David Riccardo, I see John Stuart Mill, I see Karl Marx, I see William Stanley Jevons, I see Alfred Marshal, I see Carl Menger, I see Ludwig von Mises, I see Fredrich Hayek, I see John Maynard Keynes, I see Milton Friedman, I see Paul Samuelson, I see Murray Rothbard, I see Joseph Stieglitz, I see Paul Krugman and I haven’t even touched on economists who are investment strategists.
I encounter conversations with friends and family telling people that such and such is a dead certainty. For example, Australian property prices will definitely go up. They base this on the fact that they have been going up for 40 plus years (except for a small pause/retracement last year). What is hard to explain to people is that 40 years is a drop in the ocean of time, and that we have witnessed similar such cycles in property markets thousands of times over the ages.
The 700 year chart above shows decades long counter cycles against a very strong trend. Getting caught on the wrong side of those counter cyclical trends can prove devastating, even fatal. I do not have the answers to whether we are at the end of a cycle. What I can tell you is history has a lot of information to help us make an informed probabilistic decision.
Unfortunately history is largely ignored and we focus on too short a time into the future. I want to simply leave you with a few words of caution.
Mind the Generation Gap.