Hat-tip to Monevator for the phrase. He’s right, dammit, particularly in a time when Mr Market is feeling down, but perhaps more generally. The bearish argument always has more drama to it, since it inherently assumes a change to the status quo. There’s no news buzz in ‘sun rises today’, no excitement to draw the attention.
There are a lot of things that I could name, that indicate that the world is going to hell in a handcart.
- Peak Oil
- population increase
- the increasing risk-aversity in the West
- the baby-boomers retiring and stiffing the stock market for the next 20 years by selling out of it
- inflation fallout from the credit crunch of 2007
The problem is that at any time in history one could find a litany of things that were going to end the world. In the 1960s and 1970s it was nuclear armageddon, starvation, global cooling (!), oil running out.
Some part of me still sees an incoming crapstorm, as the West surrenders its economic and intellectual fire to the East, and it is hard to insure against that sort of thing. Turning paper investments into real stuff is the only way to hedge that, and in the extreme you end up hoarding tins of lentils and lots of ammo. I’m old enough to come to the conclusion that’s not a life I want to live.
I’m older than Monevator. I remember watching the moon landings on the black and white TV at primary school, and being enthralled. There were no limits to growth, then. My optimism survived the 1970s, and my college years, but something went badly wrong in the 1980s. Ever since watching Survivors on TV in the late 1970s I’ve had a penchant for the apocalyptic vision.
- Jenny from the 1970s Survivors series, played by Lucy Fleming
At that time I also had a penchant for Jenny 🙂 So I tend to be drawn to posts like Early Retirement Extereme’s The Wealthy Shall Inherit The Earth.
I’m on the general same wavelength, though I hadn’t thought it out anywhere nearly as well as Jacob. Peak oil will roll back the advance of globalisation by increasing the costs of transportation, and will probably define the high-water mark of living standards as measured by stuff.
Britain isn’t in too bad a position as far as Jacob’s prognosis – largely above 50 degrees North, with ample water, reasonable amounts of coal and fertile soils. But it does probably have too large a population.
Peak oilers and folk like Jacob are well outside the mainstream, but their ideas seem to be spreading. Insurance group AXA are taking a pretty dim view of future life in Southern Europe and in particualr the PIGS economies. EC head honcho Jose Barroso is anticipating dictatatorships in Club Med, purely from the financial fallout, rather than rising oil prices etc.
We seem to be in a phony war with the recession, and losing ground as time goes on.
And yet…what if Monevator is right? More recently, the UK has looked better relative to other European countries. Some part of that is the promise of an end to the profligacy of Gordon Brown, though overall I’m glad he and Alistair Darling handled the crisis itself, rather than the as yet untested Osborne. I’m not sure I would go as far as to say Britain is booming again, but I sure hope it is. How do I get exposure to the upside of that?
Well, to some extent I do already. My AVCs are invested in L&G Global 50:50 FTSE and it’s the best investment I’ve made so far, which is just as well as it has most of my cash in it 🙂 It makes sense to do it in my pension savings, which I don’t plan to access for up to ten years. If Jacob’s vision comes to pass, then pension savings have no real meaning anyway, for the debased currency will hold no value. It will be destroyed by successive waves of inflation in booms and busts as the oil price see-saws, choking off each recovery as it gets off the ground when the increased demand for oil meets the implacable limitation of declining production.
My post-tax savings in ISA and cash I am using to buy productive assets and investing in establishing a business that I can use to generate an income after finishing office work at The Firm. That way I am riding the bulls with long-term pre-tax savings while trying to hedge the bears with more immediate post-tax savings. I hope the bulls will pull ahead, and that my attempts to hedge the bears will turn out to be misallocated resources
Simple Living In Somerset 
Good to see you’re moving this discussion along, and I appreciate the hat tips. 🙂
I think all the issues you mention are viable concerns, but as you say there have been dozens over the past decades. Worse, many of them were *real* issues rather than fears or expectations.
Basically, I think looking at our history a strategy of betting on macro fears would have been utterly ruinous.
There’s nothing wrong with hedging or diversification, but the uber-bearish argument as articulated in some quarters could well be an example of smart guys over-explaining the world.
As for the UK, the economy is always unpredictable – we could dive into a recession next year or soar. But at the moment things are not the gloomy story as they are being reported.
Q1 GDP was revised up to 0.3%, and the NIESR reckons the economy was growing at 0.6% over spring. If it’s right then we could see Q2 GDP at say 0.5% or more, meaning first half GDP could add up to what the consensus expects for the whole year! (c 0.9%)
Time will tell of course.
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> a strategy of betting on macro fears would have been utterly ruinous.
I like that. The trouble seems that many of them are black swan-like and expensive to hedge against. We have it easier in some ways – I can imagine ways to hedge global warming, but I am not sure I have any good ideas on how to hedge the 70’s fear of nuclear war…
Some macro fears are logical to hedge – energy prices rising for instance. I am thinking of farming sunlight, f’rinstance because the feed-in tariffs seem to give a 10% ROI, tax-free and RPI index-linked to boot. But some macro hazards are too hard to forestall sensibly, including anything involving a breakdown in society.
And I appreciated your post for its clear calling of what the opportunity cost of focusing on the hazards was 🙂
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Hah 🙂 Well the doomsters would undoubtedly point to Russia in the early 20th Century or Argentina more other South American states more recently, and say our happy history distorts my outlook via survivorship bias.
I think that’s true, but personally it’s an argument for trying to spend more money will the sun is shining. It’s very hard to hedge against the unquantifiable, as you say.
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p.s. Do you think in the doomsday scenario Jacob paints you’ll be allowed to live on the hog with your solar panels etc? This is what I find so unconvincing about the survivalist mentality – unless you go full-tilt into the Canadian wilderness and start building a bunker stocked with an armory and manned by 10 true comrades, in a meltdown your sensible precautions will just be liberated from you anyway.
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No,the solar panels only makes sense when there is a British government
a) existing and
b) intending pay such an overhead
I’m betting on your view of the world rather than Jacob’s there 🙂
I view that more as a financial investment that will pay about a 10% inflation-indexed ROI with a hedge on energy prices, which are a larger part of my costs than for most people because my housing costs are very low, being purely council tax, maintenance and improvement rather than mortgage and rent plus the above. Well, low housing costs ignoring the opportunity cost that being mortgage-free represents, as you highlighted!
I’m still roughing out the business case for that as there are some unusual hazards that need insuring. However, it is stuff, I have the skills to dismantle it and use it to defray my own energy usage if the government welshes on the deal, and heck, it’s only 12 grand that I expect to be inflated away to 6 grand of real value by the time I want to use it.
As far as survivalism goes, I am self-aware enough to be able to decide when life is no longer worth living, and to be open to the idea of taking the logical and appropriate action 🙂
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As far as survivalism goes, I am self-aware enough to be able to decide when life is no longer worth living, and to be open to the idea of taking the logical and appropriate action.
There surely speaks a man who has read The Road?
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No, I haven’t, though I was tempted by the film 🙂
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Oh, everyone should read it. Very bleak. Very life-affirming.
You need to read it to see what I mean. :O
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