In the 15 years since we launched MoneyWeek, we have seen three major bubbles come and go.
The first was the tech bubble of 2000 (this was scary – it kicked off only a very short time after we printed our first ever issue). The second was the housing (and banking) bubble that collapsed in 2008 (this wasn’t scary – we were ready!) and the third was the commodity bubble that is just crawling to its nasty end at the moment (see oil).
We tend to look at all these bubbles from the investor’s point of view, assuming that their collapses are horribly painful for everyone. But as a note from Phoenix Asset Management points out, that isn’t necessarily so.
The ordinary investor (whose money has been in passive funds or in passive funds pretending to be active funds) has had a miserable time, of course. But for those who don’t invest (or pay no attention to fact that someone else is doing it for you) and have stayed in regular employment, the effect of the regular booms and busts has been “overwhelmingly positive.”
The telecommunications, media and technology (TMT) bubble lured investors into paying to build the infrastructure needed for the internet, and then effectively handed it over to consumers for free.
The great bust of 2008 gave the same consumers super-low interest rates – if you had hung on to your job and you owned a home, your mortgage payments collapsed and your personal finances improved pleasantly as a result.
Finally, the commodities boom has hugely increased the supply of every resource under the sun. That supply now exceeds demand with the happy result that the ordinary worker should soon be seeing a further improvement to his bank balance: petrol is already much cheaper than it was, and most other things we consume (heating, travel, almost all physical products) soon will be too.
It is also worth noting that the commodity bust, in bringing with it another round of deflationary pressure (something that the falling yuan will add too), is likely to delay interest-rate normalisation in the UK. With oil prices in freefall, global markets a mess, UK GDP looking pretty iffy and the US Federal Reserve clearly beginning to regret their baby rate rise last year, it is hard to see the Bank of England raising rates in the first half of this year.
It won’t occur to most people to be grateful to global investors for paying for all this (via their financing of the misallocation of capital that has given us the over-supply) but if you aren’t invested in the commodities sector you might think about thanking any friends who are/have been.