Any Happy Returns

Chapter 3Super Cycles and Their Drivers

When patterns are broken, new worlds emerge.

—Tuli Kupferberg

Cycles, both in economic activity and in financial markets, tend to repeat their patterns and unfold within the boundaries of structural trends that can last for extremely long periods. History shows that economic activity and real incomes can be relatively flat, or even recede, for many decades, while other periods experience consistent growth and prosperity. Equally, within financial markets, there are long‐term periods, or super cycles, where overall returns are subdued, while others exhibit a powerful trend of rising returns. When these longer‐term trends or regimes change, the impact can be significant as investors are often unprepared for them; assumptions become entrenched and are often slow to adjust to a new reality.

I describe the longer‐term periods of lower growth as ‘Fat and Flat’ markets: periods when point‐to‐point real returns are low but large swings or trading ranges exist. These are distinct from the long‐lasting upswings that I describe as super cycles. The factors and conditions that drive these super cycles will be the topic of the next part of this book, with each chapter covering a different super cycle since World War II (WWII).

Before discussing the post‐WWII super cycles and financial markets, it is worth putting recent developments into a longer‐term context. With the benefit of some long‐term data series compiled by academics, we can see that ...