In today’s Exponential Investor

  • Feeling old in Primark
  • The recession we had to have
  • Whatever the outcome, it won’t be great

I was made to feel old the other day.

I had the day off, so my wife and I went out with the boys to a nearby town that we quite like. They have a restaurant there that’s an “Asian fusion” restaurant, a mix of Japanese and Korean food mainly.

Afterwards, we thought we’d have a potter about the shops (as you do).

In doing so, our eldest needed some new jumpers and trackies (tracksuit pants in Australian speak) for the impending winter.

As he grows out of most things in about ten minutes, we ducked into Primark to get him some “Primarnie specials”.

To my great surprise, Primark actually had some pretty decent kids’ kit.

Well, decent to me.

Memories of another time

Primark is currently doing a run of kids’ stuff that’s solely based on the National Basketball Association (NBA), or more specifically 1990s era NBA.

Now, coincidentally, recently I’d decided to apply for the BBC quiz show, Pointless.

The aim of the game, to give the most obscure answers to a number of general trivia questions (that’s the short explanation at least).

If you’ve ever seen Pointless, you’ll know what it’s all about.

Anyway, part of the application is to identify a particular area or specialty. I put down, “1990s culture”.

As a child growing up in the 1990s, how could you not be an expert in all things 1990s? It was a time when the internet was fast becoming a thing, when the real video game console wars were kicking off and importantly when the NBA was at its finest period in history.

So, to see the 1990s were on their way back… well I was pretty happy, but then immediately felt quite old. However, mixed in with this feeling was also some trepidation, because while the 1990s might be well known for hammer pants, NBA all-stars, video game console wars and a plethora of one-hit wonders, it was also a time of economic uncertainty that is also on a 1990s comeback trail…

Why do the 1990s really matter?

I eventually picked up some Chicago Bulls t-shirts and hoodies and an LA Lakers hoodie for my son. And now we can wear similar stuff… yep, I’m one of those dads.

I was also reminiscing about my original Charlotte Hornets Starter jacket, which I pined over for years before my folks eventually crumbled for one of my birthdays.

Today I see the same “vintage” Starter jackets going for in excess of £250 to £300. I must remember to get my dad to sift through more of my storage stuff…

Even as I venture out into society again today, it seems that amongst today’s youth, there’s a resurgence in all things 1990s.

I swear on my life that, the other day, I even saw a kid in Hammer pants. By the way if you’re not sure what I mean about “Hammer pants”, just check out this.

Anyway, post feeling old about a 1990s “resurgence” there was something else about the 1990s that I think might also be making an appearance sooner rather than later.

Now, admittedly I was only seven in 1990. But on one of my primary school reports I recently took a look at I had noted that I tried to keep in touch with the news so I could understand what was going on in the world and in politics.

Yes, I was one of those kids too…

Now while I was young, I still understood and can look back on today that the 1990s were actually a pretty troubled economic period. At least the start of the 1990s certainly was. In Australia we had “a recession that Australia had to have” – a phrase then coined by Treasurer Paul Keating in 1990.

In mid-1990, Australia was in the depth of a deep recession that lasted the better part of a year. Unemployment shot up into double digits, there were failures in the financial industry (the aptly named Pyramid Building Society being one of the biggest) and even a commercial property bubble bus that the Reserve Bank of Australia estimated cost the economy around $9.2 billion.

House prices fell, and the Reserve Bank cash rate (interest rate) was at 17.5%.

There’s no typo there: there was a seventeen-point-five per cent interest rate. The retail banks had mortgages priced around that level too.

Imagine that, imagine your mortgage rate was around ten-times higher than it is now…

Of course, Australia was not alone in its 1990s economic woes. Globally the world was still reeling off the back of a market rout in the late 1980s and fear, uncertainty and economic pain was system in the global financial system.

In the UK it was a similar story: company earnings were in free fall, unemployment was on the rise, the economy was contracting, in recession for a year, and interest rates were up around 14%.

To think that it would ever be possible to return to economic conditions like we saw in the 90s is frankly obscene… right?

Well, maybe it’s not so far-fetched.

If the 1990s are coming back, maybe all of the 1990s are coming back, warts and all.

Become a prepper

Right now it’s hard to see where the trigger for a massive 1987-style stock market crash might come from. But at the same time, it’s very clear that central banks have no intention of letting up with their current spate of stimulus, money creation and economic tomfoolery.

Which leads to the question, when will they stop? Can they stop? What happens if they don’t stop or if they do?

The outcome in many of these situations is not great.

Stopping outright would be the best course of action. Raising rates, quashing growth intentionally, bursting the housing bubbles, asset bubbles, but ultimately killing high inflation off is most likely the best outcome.

It would probably lead to a recession, that would last a year or maybe more. But, in my view, it would be the recession we had to have.

The outcome where the central banks continue to inflate assets, keep money cheap (free in many cases) let the housing market continue to rip and kick the big old can down the road… that might paint a pretty short-term picture, but it also widens socioeconomic gaps. It pumps inflation to uncontrollable levels and it sets up for a bigger, harder fall down the road… which someone has to carry the can for.

I expect that soon enough rates will rise, high – indeed, really high to the extent that unemployment will shoot higher and that recessions will come. They’ll be deep, long and tough because that’s what’s needed to right the troubled ship that is the global economy.

Which means you’ve got some pretty important moves to make in preparation for these events. And you’ve got a bit of time on your side, thankfully (it seems).

My view is you need to prepare (prep) for the worst. Have hedges to these outcomes in a portfolio mix – with assets like gold, bitcoin, and defensive, yield-bearing stocks. But you should also have a mix of economic agnostic stocks too: these are ones that are breaking through with new technologies and innovations that could bring deflationary pressures to the market anyway.

Do you keep cash in the bank? As noted in Monday’s edition of Exponential Investor, cash is no longer king.

It does not pay a positive real (after inflation) rate of interest.

It does not give you benefits from the rise of decentralised finance (DeFi) relative to traditional finance (TradFi).

It looks as if the 1990s are coming back – and it’s not all to do with hammer pants and NBA hoodies.

Until next time,

Sam Volkering
Editor, Exponential Investor