In For The Long Haul
I grew up in the 1970s and remember what a terrible decade it was.
Flared trousers, kipper ties and platform shoes were fashionable. The Sex Pistols blasted into the music world; we only had three TV channels, and Top of the Pops was a must-watch Thursday night ritual for most teenagers.
And evangelical Christian Mary Whitehouse waged war on what she felt was the media's promotion of the permissive society and liberal values.
A lot of strikes
A strike by coal miners (we had a huge coal industry back then) led to energy rationing and a three-day week for many parts of the economy.
The 'Winter of Discontent' described the time in the latter part of the 70s when gravediggers, firefighters, refuse collectors, train workers, and car production employees were all on strike simultaneously.
Inflation hit just over 14%, interest rates hit 17%, and energy and food costs had risen 300% by the decade's end. The property market was in the doldrums, and there was a general feeling of pessimism.
Despite the bleak conditions, we did come through the 1970s and by the mid 1980s inflation had fallen and economic growth and prosperity had improved.
Hedge fund manager Barry Norris of Argonaut has created a brilliant 'Stockumentary' called The 1970s Redux, which explains what the 1970s were like for investors and what we can learn from that period to navigate today's current economic challenges.
The current cost of living squeeze
Inflation is like a tax because the buying power of your money reduces over time. Although you don't see your savings fall in value, they buy less and less each year.
As we all know, inflation is back with a bang, currently running at about 8-9%, depending on what measure you use. The invasion of Ukraine isn't the leading cause of inflation. We have central banks to thank for that, as a result of increasing the amount of money in the system over the past few years.
It's even worse for investors, with most stockmarkets down almost 20% over the past year (with tech stocks falling over 50%), as central banks start to reduce the supply of money and increase interest rates. Borrowers have seen the cost of borrowing increase with interest base rates rising around 300% to 1.25% in the UK and 1.75% in the US.
The consensus among the more sceptical investment community members is that high inflation will be with us for 18-24 months. And they think we'll probably also have a recession over that time.
My advice is to plan for tough financial times over the next few years. But if you or anyone you know is in their twenties, there is cause for optimism, as explained by investment consultant James Ferguson”
"Starting your career at the age of 20. You should be facing rising interest rates which should be pushing property values down into your ability to catch them. You should have the fastest rate of wage growth, partly because you're going through your early career promotion stage and partly because you can demand quite big pay rises on top of those promotions. I think the young could, over the next ten years, really make something from this." *
Times might be challenging for many, but if you are young, they might just enable you to lay the foundation of future financial abundance. Every cloud does have a silver lining, but only if you look for it.
Warm regards
Jason
* The MoneyWeek Podcast: Recession, house prices and the power of youth - 9/06/22