Over the next few weeks, I will be writing a series of pieces on trends in the global economic landscape, and what the implications of these trends are for investors. In this edition, we continue our examination of prior well-known asset bubbles in order to better establish a context and an investment philosophy for the coming years.
Please, click the following link for part I of our piece on asset bubbles.
What goes up must come down
– Sir Isaac Newton (1642-1727)
Inflation across the world surged in the 1970s following rampant increases in commodity prices and over-spending by government in response to the baby boom in the preceding decade. The major developed economies, led by the United States, unable to maintain the gold standard due to persistent trade and current account imbalances, call on the IMF to create a new synthetic currency, which essentially severed the ties between these countries’ currencies and gold. Investors flocked to commodity markets en masse following this decision out of fear that the ability of governments to print money without retribution would cause inflation to spiral out of control. Gold enjoyed a spectacular run, rising tenfold from 1973 before peaking intraday in February 1980 at $850/oz.
