In case you are wondering what right I have to pontificate on this subject, I have traded though three major booms and busts without a scratch and made serious money in the aftermath of each one. Bring it on!
The debris from this major disaster was still around in 1981 and I did a lot of brilliant deals in the UK and the USA as a direct result. For example, buying an industrial estate producing £30,000pa for £70,000 in 1979 (I lived in the attic and got the income up to £45,000pa by upgrading the place and letting vacant space).
Even in the early 80s, I seemed to be the only person about with any money.
It was obvious that we were in a boom - in 1987 I sold my Ferrari 512 Boxer back to Ron Stratton for £40,000 (the same price I had paid him a few months before) because it was a really crap car that the magazines described as having "complex handling".
This was code for "this frigging thing will kill you if you attempt to take a corner at speed". And believe me, I just love taking corners at speed - currently I have a Lamborghini Huracan and an Audi R8 V10 Manual and these things will corner at speeds where the tyres are screaming louder than the passengers. Unusually, I have a house full of girls who all love fast cars - "faster daddy, faster"
Back to the crappy Ferrari 512, a few weeks after selling it back to Ron they were changing hands for £250,000 - yes really. Boom or what?
Hands up - I only buy cars on performance with no regard to resale value or possible appreciation. Ferraris are just terrible cars and I refuse to buy another one on principle.
In 2004 a guy rang me out of the blue and offered me £10.25m for a property I had paid £3m for so I sold it to him. A similar thing happened with other properties with the result that I went into this disaster with no debt and £17m on deposit in a variety of banks. At one point I bought several million pounds worth of shares in Tesco on the assumption that the banks might all go bust but people will still need to eat.
What would Corbyn have done in a banking crisis? He would have let them all go bust so that the workers would riot in the streets and start a communist revolution. Yes, seriously - these people are commies and want blood in the streets. Then they will ship me off to a "re-education camp" in the Outer Hebrides.
Unlike most people (and let's face it, I am unlike most people) I just love to buy stuff that everybody thinks is doomed. The idea of buying something purely because it is going up in value fills me with horror. Bitcoin? Are you serious? What a joke (bear in mind I am a computer person by background - see MOPEKS).
But most people just look around for a bandwaggon and jump on board. And the more people buy it, the higher it goes in price, thereby encouraging other people to jump onboard. Until one day, somebody sells out and the price drops so somebody else also sells and before you know it you have a melt down.
Yes they are. Academics like to think that a bust is a "Black Swan Event" and can somehow be prevented. Dream on. People with first class minds do mathematics or physics so all other academic research is carried out by people with second class minds (I have a degree in Mathematical Physics). And unfortunately, these second class minds don't really understand what is happening so they hide behind meaningless jargon and statistics.
If something has not hapened for 70 years does that make it more or less likely that it will happen soon? Well, it depends on the nature of the event - if the event is the death of somebody born 70 years ago as time goes on the event becomes more likely not less. It is not a black swan but a dead duck.
And it is totally inevitable that after a period of time, there is nobody left in a position of authority who has lived through a boom and a bust. Most people reading this (if anybody bothers) will not even have been born in 1974 or if they were alive, they were in school wearing short trousers. Or short skirts.
So eventually a situation will always develop where boom and bust is seen as a thing of the past and we don't need to worry about it anymore. That is the signal. "This time it is different". It is the scene in the film where the professor says "this machine is 100% reliable and it is totally impossible for anything to go wrong". You know that the shit is going to hit the fan any time soon and it does.
Banks are run by human beings (yes, really) and they have lending targets - they need to lend money to people to make money. Hopefully, they lend it to people like me who will pay it back. But as time goes by and prices heat up, people like me have sold out and are hiding in a corner waiting for it to all fall apart so that we can buy it back at half price. Meanwhile, the bold and the adventurous are borrowing billions from Icelandic banks.
So, if you are a very careful banker you are in an impossible position - the only people borrowing are either wide eyed optimists or cynical, cunning people who realise what is happening and are going to cream off so much that when the whole lot goes down the plughole they are still sitting pretty. Either way, as a banker you are doomed. Early retirement is the only sensible option.
I met a man a couple of weeks ago who explained that his brother in law used to own a big collection of prime high street shops but saw the internet coming. What did he do? He hocked them all up to the eyeballs and left for Monaco - leaving the banks with the problem.
Who would be a banker - not me
The Queen famously asked "why did nobody see it coming?". Well, your Majesty, I saw it coming - that was why I had £17m when it struck.
So at this point you are probably asking "so, Mr Smartarse, when is the next bust due?" The honest answer is that the actual date it starts is impossible to foresee - it is technically a chaotic event. It is like asking how long it will take for the Mexican bandit with a rope round his neck to fall off the top of the telegraph pole. You cannot forecast the exact time but you can certainly say "it will definitely happen unless Clint Eastwood shows up"
And that is the problem - Clint Eastwood might show up in the shape of a reduction in interest rates by the Fed. Or maybe there will be a massive breakthrough in battery technology and solar energy. You cannot foresee these things - it is literally impossible.
And meanwhile instead of the 5% I used to get on my £17m (£850,000pa so enough to live on) you get close to zero and the risk of all your money being stolen by hackers.
If I had nothing better to do and was prepared to spend 500 years in an American prison, I am totally confident I could personally write computer code to steal millions from banks - and there are a lot of people out there smarter than me (well, not that many really).
Right now there is a huge room full of hackers in Moscow backed by Mr Putin whose job is to steal money from Western Banks. Scary or what?
So, what to do? The only thing I can think of is to be very cautious and try to ensure that whatever and whenever it hapens you can survive it and profit from the fallout ("it might be radioactive but it is so cheap")
BREXIT? North Korea? China? A banking crash? Commies in Downing Street? We live in interesting times.
Bob Cory
Modified on 10/09/2019 at 11:16:53 by ℗ Bob Cory