UK's sorry state / 17 steps - CW Podcast Charts, Like the Mid-70's - The "set-up for a big rally in Gold"? Options

[DrBubb]

The UK's sorry state - Charts for the CW Podcast
The Spectre of the Mid-70's - Is worse coming now?
====================================



Related CW Radio Podcast (Dominic Frisby interviews Michael Hampton: Jan.25th, 2009)

I have just done short interview with Dominic Frisby about the sorry state of the UK economy.
It will be up in the next day or two as a CW Radio podcast. This thread has the charts to go with the podcast.

1970's : Gold prices in US Dollars ------------------------------------------------ : Gold in Euros-------
..

Gold rose, then dropped over 18-20 months, and then took off in a parabolic move up into 1980.
In hindsight, the drop was just the set-up for Gold's big move up.

What was the news background then?
OPEC pushed up oil prices. First, in October 1973 (which helped usher in that first jump in Gold), and then again in 1979.

Stocks and interest rates were part of the story too.

Wall Street : Dow Jones Industrials (INDU) from 1970-1980 : Down over 40% from the 1973 peak


UK Stocks : FT-100 from 1970 - 1980 ? ................. : There was a "secondary banking crisis"
.

Interest Rates
.

Look at what happened to Inflation - A brief drop and then right back up again


The only thing that saved the US (and the world?) from continuing inflation was Paul Volcker stepping into
the Fed and raising rates to very painful levels. That killed inflation, and allowed the falling dollar to recover.



== ==

What's different and more dangerous this time is the massive amounts of debt. It is much less likely that the Fed, or the BofE will "take the pain" and force up rates to stop inflation. they are likely to let inflation push higher much longer, since they will hope that by doing so, they can avoid a Depression. The result is likely to be a delay in the worst slump, but an eventual Greater Depression after a long sequence of steps.

Here, i have laid out what I am expecting to see:

17 steps to Hyperinflation ... The Build-up of debt (step #8) leaves a dangerous vulnerability



The UK is at a highly dangerous stage - Debt levels are rising and Confidence is being lost in the currency.

Sterling - the GBP etf (FXB) ... update --------------------------------------- : British Household debt : source
..

The Pound dropped sharply in the 1970's too. But then bounced back

Why the two bouncebacks? (into 1980 and later, after that $1.05 low?)
Simple: North Sea Oil, and Thatcher's policies which improved UK competitiveness.
Nothing like that is waiting for the UK today.

When rates eventually pick up - to save the currency - we will see the final slide in the property market, probably by 2011-13:



= = = = =
LINKS:
Clone threads : HPC.#1 : HPC.#2 : SPig : ??

[BHP Tinto]

Yeah, that 18-20 month period of gold declines would have got a lot of people thinking it was all over...time to get out, only to be left on the sidelines when it finally exploded.......now isn't the time to be shaken out of this decades declines. Back up the truck baby.

[DrBubb]

The FT stock index had a huge drop in 1973-74: -73%

Can anyone find a better chart than this one?


source: http://www.chartsrus.com/...FTSE : Other Int'l
Long Term ... larger chart


ONE OF THE FIVE BIGGEST STOCK DROPS
=====
5) Hong Kong 1997-98 -64%
The Hong Kong stock market’s heavy fall in 1997-1998 came as investors deserted emerging Asian shares, including a very overheated Hong Kong stock market

4) London 1973-74 -73%
Next came the UK stock market’s 73 per cent drop in 1973 and 1974. set against the backdrop of a dramatic rise in oil prices, the miners’ strike and the downfall of the Heath government.

3) Japan 1990-2003 -79%
In third place, with a 79 per cent decline, was the Japanese stock market, which suffered a protracted slide in price from 1990 to 2003 as a share and property price bubble burst and turned into a deflationary nightmare.

2) US Nasdaq 2000-2002 -82%
The second biggest collapse came from the technology-rich US Nasdaq index, which fell by 82 per cent following the bursting of the dot.com bubble in 2000

1) Wall Street 1929-32 -89%
The Wall Street Crash heads the list, with the US stock market falling by 89 per cent between 1929 and 1932. The bursting of the speculative bubble led to further selling as people who had borrowed money to buy shares had to cash them in in a hurry when their loans wre called in.

/see: http://acheson.wordpress.com/2008/04/17/hi...market-crashes/

DETAIL/ REvisiting the news:

The old FT 30-share index ­ predecessor to the FTSE 100 ­ fell from a peak of 543.6 points on 1 May 1972 to a low of 146.0 on 6 January 1975 before doubling to 301.8 by the end of February. But the real gloom was concentrated in 1974, when the market fell by more than half, mainly through five deadly drops of more than 10 per cent, each spread over a few days or weeks.

"A paralysing pessimism took hold of a significant number of stock market practitioners, fund managers and company directors," says John Littlewood, a stockbroker who lived through that period. "Some genuinely believed that the capitalist system faced collapse."

/more: http://www.independent.co.uk/news/business...ash-648533.html

[DrBubb]

Return of the inflation monster?

Investors will be praying that we are not heading for a repeat of the Seventies, when inflation, which erodes investment returns, was out of control, soaring to 25 per cent in 1975.

The UK stock market went up by 171 per cent in nominal terms during the decade, but UK shares made only 0.4 per cent a year after inflation, according to Barclays Capital, the investment bank. Annual property returns were 3 per cent, and bonds and cash fell by 3 per cent a year, in effect losing investors' money.

During the worst period the UK's stock market plummeted 73 per cent in 1973 and 1974, making the 20 per cent drop of recent months look tame.

Inflation is much lower now, but still a problem. It is recognised widely that the official measures, the consumer prices index (CPI) and retail prices index (RPI), underestimate how quickly prices are rising. This is because some of the most common costs, such as utility bills, food and transport, are rising fastest.

This affects companies as well as households. Industry is facing its biggest increase in costs for 18 years, according to the Confederation of British Industry. And it is not only a British problem; inflation in China is running at nearly 10 per cent.

Ted Scott, manager of the F&C UK Growth & Income fund, says: “We could get stagflation, a period of little or no economic growth and higher prices. That would be bad news for equity markets, and not only in the UK. The emerging markets are quite unstable because inflation is going up there as well.”

During the Seventies only investors in commodities, a traditional inflation hedge, did well - up 7 per cent. Oil made 19 per cent a year in real terms. Trevor Greetham, manager of the Fidelity Multi-Asset Strategic fund, cautions against rushing into commodities because they have already had a good run. “It can only be a matter of time before slower global growth leads to weaker prices,” he says.

However, Mr Scott thinks that gold and silver could be worth buying if inflation remains high. The easiest way to do so is via exchange-traded or managed funds, such as JPM Natural Resources. He also tips companies that can pass on higher costs to customers and hold up as the economy slows. These include Tesco and Reckitt Benckiser, which owns brands such as Nurofen and Harpic.

http://www.timesonline.co.uk/tol/money/con...icle3856399.ece

[DrBubb]

ECHOES OF THE 70's seem to be popping up everywhere in recent days
======

1/
British economy is on the brink
Tory leader David Cameron made the running, claiming that by piling on the national debt Britain risked being forced to go to the International Monetary Fund to prop up its economy in a repeat of Labour's 1970s economic humiliation.

When Gordon Brown appeared on Friday's Today programme, he was taunted with repeated cries of "Boom and bust" by interviewer Evan Davis.
UNQUOTE
/see: http://www.telegraph.co.uk/finance/finance...-the-brink.html

2/
VALUE IN FOOD- back in vogue (goodbye to those tiny nuveau cusine pigeon meals?)
Townie: back to the 1970s
As the credit crunch takes a big bite out of the restaurant trade old favourites are suddenly back in fashion Damian Whitworth
A few years ago I wrote the obituary of the Aberdeen Angus Steak House.

The restaurant chain had long been the object of national ridicule for its veleveteen booths, carpeted walls, 1970s menu of prawn cocktail and steak à la Wellington boot and stark lighting that turned the few bewildered tourists inside into a humorous tableau for those of us sniggering outside. Finally, the restaurant group went into administration and I stuck the knife in.

However, my verdict was tempered by my research, which extended to visiting one of the restaurants and eating a meal. Sure, the Thousand Island dressing looked radioactive, but it tasted great. My steak was juicy and delicious, the best I'd had since a trip to Texas. I found myself calling for someone to ride to the rescue of this much-mocked establishment
/see: http://www.timesonline.co.uk/tol/life_and_...icle5572880.ece

3/
Book says inflation rates of 1970s could return
In The Great Inflation and Its Aftermath, author Robert Samuelson turns to what he calls an underappreciated watershed in U.S. economic history: the spiraling prices of the 1970s and the painful national belt-tightening that eventually quelled them.

Samuelson, a longtime columnist for Newsweek and The Washington Post, rightly describes the era as worthy of renewed attention. After the sunny growth of the 1960s, inflation suddenly spiked to double digits and stayed there for three consecutive years: 1979, 1980 and 1981. It reached an annual high of 13.5% in 1980.

The standard explanation for rising prices identifies as the culprit Lyndon Johnson's bid to have both the guns of Vietnam and the butter of the war on poverty without raising taxes. Samuelson instead blames a generation of depression-scarred economists who shared an "obsession" with obtaining full employment and the hubris to think such a utopian state was attainable.

Samuelson doesn't say so explicitly, but there is an obvious parallel between the unintended inflationary consequences of the full employment campaign and the foreign policy mistakes that led to Vietnam. In both instances, an establishment consensus to avoid repeating searing historical experiences led to disaster.
/more: http://www.usatoday.com/money/books/2009-0...aftermath_N.htm


4/
Forbes chief expects recovery 'much sooner' than people think
GRAND RAPIDS -- The economic pain of the past 18 months feels a lot like the early 1970s but won't rival the Great Depression, Forbes magazine publisher Rich Karlgaard said Wednesday.

"I believe we're going to get into a recovery much sooner than people think," Karlgaard said, "by the second half of '09."
But the growing economy won't look like others in our history, he warned the luncheon crowd of 600 at the Steelcase Ballroom in DeVos Place.
"History doesn't repeat itself, but it does rhyme," Karlgaard said. "I think when it comes back, it will come back in kind of a strange way."

Here's a thumbnail look at the 1973-74 downturn:

-- The Arab oil embargo doubled the price of gasoline.
-- The federal government's upheaval started with Spiro Agnew's November 1973 resignation as vice president and peaked with President Nixon's departure in August 1974, succeeded by President Ford.
-- Stocks dropped 48 percent between March 1973 and November 1974.

One other thing is in common between then and now: fear.
"There was so much fear in 1974; people were paralyzed," Karlgaard said.
"It feels scary now. Fear is so thick, you could cut it with a knife."

The current anxiety has an extra twist of queasiness, he said, because change is so fast, people are having a hard time keeping up with it.

/more: http://www.mlive.com/business/west-michiga...s_recovery.html

[Cuthbert Calculu...]

Brown speaks truth at last

http://uk.youtube.com/watch?v=y2qKKzi59r8

[DrBubb]

http://www.investors.com/editorial/editori...317606433388245

Another Winter Of Their Discontent ?

Some have begun comparing today's crisis with the one in the 1970s, when Britain's pound sterling crumbled and its economy suffered from a decade-long bout of strikes and stagflation.

For those who don't remember, it was the worst of times. A coal strike in 1973 led to nationwide blackouts. Angry voters ousted moderate Conservative Party Prime Minister Edward Heath in favor of Labor Party leader James Callaghan. But things didn't get better.

In fact, by 1976, Britain was broke, and had to go hat in hand to the IMF for a $5 billion loan.

In late 1978 and early 1979, Britain went through what pundits called its "winter of discontent." Garbage workers, coal workers, transport workers, even grave diggers, went on strike, and British industry was essentially placed on a three-day workweek.

Fed up with the chaos, the British people turned to Margaret Thatcher, the Tory Party leader, who rebuilt Britain using the ideas of Friedrich Hayek and other apostles of free-market thought.

Within three years of Thatcher taking the reins of government, Britain was booming.

To be fair, the situation today isn't quite as bad as it was in the 1970s. For one, there are far fewer strikes to contend with. For another, Thatcher's boom in the 1980s created a much larger and more diverse economy. Until quite recently, London vied head-to-head with New York as the capital of global finance.

/more: http://www.investors.com/editorial/editori...317606433388245

(Isnt as bad as it was in the 1970's" Untrue. In the 1970's, Britain was awaiting North Sea Oil, and the arrival of
Thatcher as PM, rather than being mired in much worse levels of debt, with badly "challenged" political leadership.)

"Far fewer strikes" - maybe so far, but let's wait a year or two.

[Catflap]

4) London 1973-74 -73%
Next came the UK stock market’s 73 per cent drop in 1973 and 1974. set against the backdrop of a dramatic rise in oil prices, the miners’ strike and the downfall of the Heath government.

The old FT 30-share index ­ predecessor to the FTSE 100 ­ fell from a peak of 543.6 points on 1 May 1972 to a low of 146.0 on 6 January 1975 before doubling to 301.8 by the end of February. But the real gloom was concentrated in 1974, when the market fell by more than half, mainly through five deadly drops of more than 10 per cent, each spread over a few days or weeks.

"A paralysing pessimism took hold of a significant number of stock market practitioners, fund managers and company directors," says John Littlewood, a stockbroker who lived through that period. "Some genuinely believed that the capitalist system faced collapse."

/more: http://www.independent.co.uk/news/business...ash-648533.html

Great link, thanks.

I've been looking for charts myself for the old FT 30 index - I remember reading that back in the mid-70's the UK stockmarket really was the UK economy as the earnings were mainly generated in sterling from the domestic economy (needs verification) whereas today something like 40%+ of earnings from FTSE 100 listed companies comes from oversees (ie. they are global players). With a fall in sterling profits earnt from oversees in other currencies should increase when they get converted back in sterling - this I feel should help any further falls in the FTSE 100.

The old FT 30-share index ­ predecessor to the FTSE 100 ­ fell from a peak of 543.6 points on 1 May 1972 to a low of 146.0 on 6 January 1975 before doubling to 301.8 by the end of February. But the real gloom was concentrated in 1974, when the market fell by more than half, mainly through five deadly drops of more than 10 per cent, each spread over a few days or weeks.

The last day of the cyclical bear on the Dow came on December 6 1974 at 577.60 after it's most recent high of 1051.70 on January 11 1973 which was a fall of 45%. The fall of 73% for the FT 30 was horrific and understandable back then set against a bleak outlook and future for the UK economy - if you were to take the end of February low (301.80) to which January 6 low (146.0) quickly doubled, perhaps because of the rallying Dow as well, then the crash would have been lower at 44.5%. (since Dow and FTSE usually peak and bottom around the same time)

This would have been in-line with the Dow's 45% decline at the same time and the Dow's 48% decline from August 14 1937 to March 31 1938 which was the last global recessionary period before that before the outbreak of war.

This is where we stand in todays global recession:

Dow high October 9 2007 (14,164.53) to Dow low November 20 2008 (7552.29) = 47%

FTSE 100 high October 12 2007 (6730.7) to FTSE 100 low November 21 2008 (3781) = 44%


As we can see, UK and US equity markets have already fallen by around the same percentage terms in the last 2 global recessionary periods - can we really expect further falls from here and another leg down?. I am convinced that the bottom is already in.

[Cuthbert Calculu...]

The show is up:

http://commoditywatch.podbean.com/2009/01/...-economic-mess/

Trader and author Michael Hampton looks at the sorry state of the UK Economy and finds parallels between now and 1976.
Read the GEI thread on this show and see the charts here:
http://www.greenenergyinvestors.com/index.php?showtopic=5744

Don't miss the Poll on Inflation and Stockpiling in the UK

[enrieb]

Great show guys. Given the choice, I think that CWR has a better long term future than North Sea oil and UK Financial services put together.

I agree fully about the issues facing small/medium sized businesses, I have several robust ideas for businesses that I would like to set up and run, and I have the capital set aside, but due to the tax levels, paper work and regulations that exist to help keep the unproductive members of our society employed in the state sector, I choose to keep my capital locked up in gold and will continue to do so for the foreseeable future.

The only way to bring the state down is to stop paying for it.

We had a thread a while back now, around the time the financial crisis hit the markets. We likened the beginning of the financial crisis to the onset of an offshore earthquake leading to a tsunami, this inflationary debt tsunami was understood by those who watched it grow and knew the implications.

The bewildered herd who were bought off with promises, toys, sweets and games as they lay idle on the beach consuming decadently in the sunshine. Those of us who did their homework prepared and moved their assets to higher ground. We looked at the leading indicators of the crisis as one by one the outer islands of Bear Stearns, Merrill Lynch and Lehman Brothers were taken out with unprecedented violence. In the UK Northern Rock was the first to go, quickly followed by A & L and B & B as the wave swept them away.

The herd lay contented and unconcerned on the beech, even laughing at the growing cacophony of the 'doomers' and the 'tinfoil hat brigades' financial warnings, that seemed an oh so distant thunder compared to the tranquility of life in the sunshine. They reassured themselves with phrases like 'it doesn't affect me' 'its nothing to do with us' 'it wont affect me if sterling falls, because it will fall of everyone else too'

The recent fall of sterling is like the ocean withdrawing before the wave hits the shoreline, despite the strength of the deflationary arguments the fall in the value of sterling will cause a wave of price-inflation that will flood the UK with a tide of higher prices, leaving the flotsam and jetsam to sink in a stagnant pool of lower living standards. Those who did not move to higher ground are now trapped in a dangerous situation, should they now attempt to move whatever they can carry to the higher ground, knowing that there is a chance that they may not make it, or should they stay put and climb up the nearest tree hoping for safety as the waves rise around them.

The time for choices has past, we now live in a time of consequences.

[Cuthbert Calculu...]

Superb post enrieb

[DrBubb]

The recent fall of sterling is like the ocean withdrawing before the wave hits the shoreline, despite the strength of the deflationary arguments the fall in the value of sterling will cause a wave of price-inflation that will flood the UK with a tide of higher prices, leaving the flotsam and jetsam to sink in a stagnant pool of lower living standards. Those who did not move to higher ground are now trapped in a dangerous situation, should they now attempt to move whatever they can carry to the higher ground, knowing that there is a chance that they may not make it, or should they stay put and climb up the nearest tree hoping for safety as the waves rise around them.

The time for choices has past, we now live in a time of consequences.

Agreed. A very good post.

But sometimes I wish it was as simple as a wave going in and out. There will be quite alot of dangerous volatility as this story plays out. And you can find yourself on the wrong side of a move that will last for many months.

Look at these waves in inflation back in the 1970's


If you bought Gold on that first wave (to $200), you would have suffered a 50% drop (to $100), as the panic hit the stock market, and almost all assets dropped. The chart makes it look like the next wave came quickly, but in fact that were many months of waiting.

I dont have the gold price data on Bigcharts before 1979, so I cannot show the charts that I want to, Instead, I am using ASA Corp. (ASA) and Newmont (NEM) as a Proxy for Gold. I will compare them with the S&P500 (SPX):

ASA vs. SPX & NEM : 1973-75 Weekly


ASA vs. SPX & NEM : 1974-79 Monthly


Above you can see some of the differences that occur, and how important is the choice of the right trading vehicle. ASA went soaring off with Gold in 1973, while NEM only picked up a little. In fact, the big gold stock Newmont, had trouble moving away from SPX the stock market index at all. It slid down with SPX. And later rose with SPX too. NEM didnt really get moving until quite late in Gold's move in 1979.

ASA proved to be a bad choice in 1976. It fell heavily, on its own while stocks held up, and Newmont too. NEM fell back towards ASA a year or so later.

I will try to get some Gold price data for the period so I can compare it directly with SPX in 1974-79.

Here are some chart comparisons for the 1970's while I am seeking the data

Gold prices

......... ASA versus NEM and SPX
.........

ASA kept up with Oil until 1973-74, but not in the second part of the 1970's, when ASA lagged.
This may because of the rising cost of ming gold underground. Most of ASA's portfolio of gold mining
stocks is concentrated in South Africa, where mining got much deeper and more expensive.

[pyewackitt]

Agreed - really liked this podcast - definately telling it how it is there Bubb

I completely agree that the UK is in a precarious position but to a certain extent on the global scale the fact we seem to be entering the most perilous time in any depression type period, that is of course 'the currency crunch', i think there's a lot of discussion to be had on what happens to the USD and Euro next.

The Dollar has been incredibly strong throughout this crisis but the spectre of a posible T-bill market bubble and increasing export costs for US manufactured goods isn't good for the immeadiate future. And what happens when this long awaiting USD crash occurs... Soverign wealth funds removing assets from the US? China and other countries stop buying dollars as the values of their current holdings drop? How long until we would see Oil priced in something other than dollars? How much capital that has been unwound will be re-deployed internationally if the dollar starts to look shakey? I suspect if the USD starts to tank it will happen rather hard and fast like the rest of this crisis has been.

The Euro is in many ways in an equally difficult position to the dollar. How do you manage 16 eurozone economies each moving in different directions? From the hugely indebted and over extended PIIGS (Portugal, Italy, Ireland Greece, Spain) to the far more reserved and controlled Germany which avoided a lot of the credit excess (particularly in property markets). How to you manage various levels of unemployment when countries like France pushing over 8% unemployment and sure to rise. Considering that the Eurozone economies contribute aproximately as much to global GDP as the USA (http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)). How will the eurozone manage as its countries move in different economic directions, will any countries leave the Euro as a currency if its value is destroyed by some nations overextending and potentially defaulting on debts? We can expect to see a lot of countries in europe breaching the Eurozone regulations on debts in the very near future.

The current position of Sterling might well recover - whilst Oil and Finance have hardly been in the best of health as industries in the UK the service industry and specialist technical businesses are still the UK's strengths and the weaker pound will help the few UK manufacturers left in existance. A further collapse in the pound might also be on the cards as Q4 earnings come to light and government prepare for a third wave of bailouts and continue to spend our future incomes on the toxic debts commercial banks dont want. If the later occurs and Sterling continues to plumment a mass exodus from the currency might really start the chaos globally within currency markets.

To date the credit crunch was the unwinding of debts and we have felt its impact on our banks and stocks etc. but the coming 'currency crunch' is going to be far more difficult to call in terms of when and where it happens and of who the winners and losers are... it may well be that in the global race to the bottom we find ourselves in that the winners will be considered to be those who lost least. I personally am expecting 2009 to see waves of severe fiat currency revalutions around the globe - after all the value of paper money tends towars the value of paper.

EDIT - I forgot to add. One of the KEY componants of the 'currency crunch' is that all the above is going to be happening at once in that each currency will be fighting its own internal structural conditions (i.e. share and distribution of industrial sectors such as cars in the US) and market externalities (i.e. good news for one currency might implictly be bad for others). We are going to see fluctuations literally affecting every other currency over and over again - I think this is going to be really kicking off as we move into April-May time and current financial year ends. The actions of Central Banks working together will either be pivotal in making the situation better or (if current management of the crisis is anything to go by) significantly worse.

[harold bishop]

the weaker pound will help the few UK manufacturers left in existance.

This is a view I'm reading quite a lot. Although there is a lag plus a reduction in demand, UK manufacturing suffered a sharp decline inspite of a weaker Pound. I think if the term "manufacturing" is examined in a little more detail, we may understand better. By UK manufacturing, do we mean that a UK company takes raw materials and converts them to an exportable product ? If so, then we will need to see an entire Uk chain of industry from agricultural products, mining, chemical, energy, steel mills, foundries, machine shops, in house design and fabrication engineering ( civil, mechanical, chemical) etc. In general, I don't believe this is the current UK manufacturing model, since in the UK, these core industries have ceased to exist in any meaningful manner along with any of the skilled people to operate these sectors.

Without getting into politics, Thatcher, some thirty years ago, started dismantling these core sectors. That was the politics of the time and now the UK has a lost generation of key workers from skilled shop floor operatives to university qualified engineers.

I believe the term " UK manufacturing" now largely refers to the assembly ( or added value) of imported industrial components. These components make up a significant part of the bought in costs of UK manufacturing output and have increased in cost in direct relationship with the fall in the Pound. Hence, despite a fall in the Pound, UK manufacturers prices have risen, taking off the competitive edge that the UK exporters enjoyed in the 1970s when most of the core industries were still intact.

To think that British Layland manufactured and exported Austin Allegros with square steering wheels is astonishing ! Despite their questionable quality, they were cheap, sold overseas and brought in much needed foreign currency.

I heard Darling talk about replacing the gap left by the shrinking UK financial sector and I'm sure he was referring to manufacturing. And this is where our current political parties are completley at sea. They somehow believe that manufacturing can be turned on again at the flick of a switch and the trigger is a cheap Pound. This is so wrong it beggers belief and this is why UK manufacturing will not be the knight in shining armour that rides in and saves the UK economy.

Edit. I meant to include the following comments: When large, heavy industry is shut down, it generally never re opens. A good example is a ship yard. The facilities are lost and the skilled people move on or retire. A facility that took generations to build can be closed in short order. This is known to the decison makers at the time of closure and this is why today's politicians can do little more than talk because the task of regenerating a real UK manufacturing industry is beyond their knowledge base and the time frames they operate in.

[Cuthbert Calculu...]

Bubb, also look at Hecla in the 70s as a posible proxy for jnr mining - certainly for silver.

Bear market from 74 -79!

[DrBubb]

Bubb, also look at Hecla in the 70s as a posible proxy for jnr mining - certainly for silver.

I think Hecla has some special problems in those years, and then Silver had an amazing ride
thanks to the Hunts' buying which pushed it to near $40, and that eventually overcame the problems.

But gold did start to rally in Aug.1976, so it shows how long some Juniors can lag.
Surely, some others (with real projects?) bounced back sooner, and others never recovered.

[notanewmeber]

I think a lot of the UK have been caught out this time. Little savings, maxed out on loans, credit cards, and fully invested into property, it is not going to be pretty being caught out.



It reminds me of the biblical story where the people were warned to paint sheeps blood above their doors as the death angel passes in the night and everybody elses who were not marked, their children were killed. I couldn't find a picture to show this, so the Raiders of The Lost Ark had to do.

[Catflap]

Hmm, at the beginning of the podcast DrBubb you said that governments cut interest rates in response to falling stocks althought this wasn't actually the case back then in the UK. As I see it, inflation in the 70's was a result of the power that the unions had whch led to spiralling wage inflation, but the seeds may have been sown some years earlier.

If you look at the 'bank rate' as it was called then in 1971 and 1972 then it was around 5% and 6% and gradually rose from late '72 almost on a monthly basis throughout 1973 to a first peak of 13% in November 1973. The first rate increase for 1972 came on 22 June 1972 when stocks were at their peak and the prior rate for the previous 10 months up to this date had been 5%.

The increases were thus:

22 Jun 1972 6%
16 Oct 1972 7.25%
30 Oct 1972 7.5%
4 Dec 1972 7.75%
11 Dec 1972 8%
27 Dec 1972 9%

22 Jan 1973 8.75%
26 Mar 1973 8.5%
16 Apr 1973 8%
24 Apr 1973 8.25%
14 May 1973 8%
21 May 1973 7.75%
25 Jun 1973 7.5%
23 Jul 1973 9%
30 Jul 1973 11.5%
22 Oct 1973 11.25%
13 Nov 1973 13%


Inflation was a low 2.5% in 1967 when Harold Wilson devalued the pound and made his famous 'pound in your pocket speech' which might have been where the trouble all started with inflation - here's how it looked back then:

1967 2.5%
1968 4.7%
1969 5.4%
1970 6.4%
1971 9.4%
1972 7.1%
1973 9.2%
1974 16.0%
1975 24.2%
1976 16.5%
1977 15.8%
1978 8.3%
1979 13.4%
1980 18.0%
1981 11.9%
1982 8.6%
1983 4.6%

Going into 1974 with inflation running away there was no room to cut rates and the stockmarket fell even further - the changes to what was now called 'the minimum lending rate' throughout 1974 were thus:

7 Jan 1974 12.75%
4 Feb 1974 12.5%
8 Apr 1974 12.25%
16 Apr 1974 12%
28 May 1974 11.75%
23 Sep 1974 11.5%


As I see it, we are in a period more like the beginning of 1975 rather than 1976 like you suggest and that our 1976 day of reckoning is likely to be in 2010 when the pound is likely to be at it's weakest and we once again have some kind of IMF bail-out.

[callmejoe]

I listened to Philip Manduca on CNBC this morning. He thought sterling may rise from here.

[DrBubb]

Hmm, at the beginning of the podcast DrBubb you said that governments cut interest rates in response to falling stocks althought this wasn't actually the case back then in the UK. As I see it, inflation in the 70's was a result of the power that the unions had whch led to spiralling wage inflation, but the seeds may have been sown some years earlier.

I'd say you are about half right, and I am half wrong.
I lived in the USA during that period, and so my memories are there, not in the UK, where I moved in 1984.



My data shows that the US authorities cut US dollar interest rates (fed Funds), starting in second half 1974 around the time the US stock market bottomed.

In the UK, the rate cuts came later. In effect, rising rates (along with rising strife and rising inflation) helped to push UK stocks lower and lower until they found a bottom in 1975 (?). Then the UK rate cuts came in 1976, per your data.

1975 24.2%
1976 16.5% (Gold bottoms in Aug. 1976)
1977 15.8%
1978 8.3%

That fall in UK rates helped to ignite home buying, and that stimulus helped to touch off the next round of price acceleration.

Property Cycles
Here's an old 16 year cycle diagram that I developed before I discovered Fred Harrison's work and learned about the two year
"Winner's Curse" period which often prolongs the cycle. :


source : http://www.housepricecrash.co.uk/forum/ind...44666&st=45
update : http://www.housepricecrash.co.uk/forum/ind...showtopic=83490

As I have said previously, the wrong headed Aug.2005 rate cut (which the BofE governor was against!) touched off the last
gasp rally in the UK property market in fall 2005. Otherwise the market may have corrected then, falling back on the weight
of heavy overvaluations. This would have been the best thing for the UK. And so a 16 year cycle would have been more healthy.
That buying during the "winners curse" period of 2005-2007 added alot of debt to UK households, and may have made the difference
between a healthy correction starting in 2005, and the dangerous predicament that the UK finds itself in today. Thos who bought
on the bizarre logic of "no crash yet means no crash ever" must be regretting it now!