Economic Crisis

A short note to myself about market crises

Buenos Aires, Argentina

Just a short note today, as I’m hopping on a plane later and heading west across the Pacific Ocean. This weekend, a good friend is getting married in New Zealand. Since I’ve never visited that country before, it’s a great excuse to go. I’ll be sure to keep you posted on what I find when I get there (I’ve been told both that there’s a housing bubble and excessive government regulation…fellow wedding guests can expect an interrogation…).

In the meantime, my short note below is based on a short note to myself…written over 12 years ago. All is explained below.

A note to myself about market crises

Recently, I was having a periodic clear out of old papers at home. Often I keep notes of things, frequently jotted down on a whim. I discovered one such note. It preserves a facsimile of some thoughts at one moment in time, in this case prior to the last 12 years of my experiences (including fatherhood, emigrating to Latin America and learning another language).

The note isn’t dated (my bad), but the information it contains suggests it comes from early 2006. Back then, I still worked in banking, having recently moved back to London after a few years in Hong Kong.

In 2006, signs of a financial bubble were rife. Investment banks were making huge profits. Dozens of new hedge funds and private equity funds were being set up all the time. Leverage was high. There were real estate bubbles in many countries. Construction was booming…and that was just judging by the 14 or so cranes I could see from my own office window, all putting up huge tower blocks.

I realised it couldn’t last forever. I’d already been in banking for over 12 years, and seen plenty of ups and downs. So I set down on a piece of paper the main crises I’d worked through. It’s a short note, but here’s what it says (mildly edited so it’s easier to understand):

1994 bond markets crash

1997 Q3/4 equities (Asian crisis)

1998 Russian bond default / LTCM

1999-2001 Bull market (especially tech.)

2001 Equities / tech crash

2002-2003 Bear market

2004-2006 Bull market (for everything)

Next problem in 2006 or 2007?

4 crises in 12 years: approximately 1 every 3 years.

[Note: “LTCM” is short for Long Term Capital Management – a huge US hedge fund, run by Nobel prize-winning “geniuses”, that went bust and nearly caused a financial crisis.]

The “next problem” certainly did get started in 2007, even though most people didn’t become aware of it until 2008. Although I guessed the timing correctly, I certainly don’t claim to have predicted just how huge it would be. It grew into the global financial crisis (GFC), which decimated banks, economies and many people’s private finances in large parts of the world.

The GFC was a monster crisis in terms of size and reach. Surviving it required large doses of monetary adrenalin, being ultra-low interest rates and central bank money printing on a vast scale. There’s still plenty of adrenalin left in the system, although the dose is being reduced…slowly.

What would I add to that note today? Hmm…let’s see…perhaps something like this…

2007-2012 global financial crisis (banks struggle, real estate bubbles burst)

2011-2015 gold bear market

2011-2018 bear market in emerging market stocks (opportunity?)

Late 2014 to Mid 2016 US stocks go sideways

Mid-2016 global bond bubble peak (following massive money printing / QE)

2015-2018 US tech bubble – internet companies (ongoing)

2018 Multiple real estate bubbles (e.g. Hong Kong, UK, Australia, etc.)

Next problem in…?

There are no crystal balls. But always plenty to ponder. That last question should keep me occupied on the long flight to New Zealand…

In the meantime, let me know your thoughts…or whether you have a habit of writing notes to yourself. (I hope I’m not alone.)

Stay tuned OfWealthers,

Rob Marstrand

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Rob is the founder of OfWealth, a service that aims to explain to private investors, in simple terms, how to maximise their investment success in world markets. Before that he spent 15 years working for investment bank UBS, the world’s largest wealth manager and stock trader with headquarters in Switzerland. During that time he was based in London, Zurich and Hong Kong and worked in many countries, especially throughout Asia. After that he was Chief Investment Strategist for the Bonner & Partners Family Office for four years, a project set up by Agora founder Bill Bonner that focuses on successful inter-generational wealth transfer and long term investment. Rob has lived in Buenos Aires, Argentina for the past eight years, which is the perfect place to learn about financial crises.