In 2012, I almost killed 500 of our subscribers. Not to mention however many people were standing in the hotel lobby beneath us.
I still have nightmares about it every time our publisher James Woodburn (Woody) tells the story. He thinks it’s funny. But it reminds me what could’ve gone so terribly wrong that day…
It was my first time speaking at an investment conference. The premise of my speech was something called “the synchronisation of business cycles”. This is an unusual event that triggers either a global economic boom or an unusually bad bust. The Great Depression, 2008 and 2020-2022 are the obvious examples.
Economic booms and busts are not unusual. But most of the time different countries in the world are at different phases of the economic cycle. This offsets their severity. And keeps things stable in the global economy and financial system.
Economists used to call the business cycle the trade cycle. That’s because the two were thought to be synonymous. The booming countries were exporting more than they consumed. And the countries in recession the reverse.
Over time, currency moves, productivity and price adjustments would reverse these trade flows and thereby economic performance.
The point being that the global economy was like a sailing ship. It might tilt this way and that, but overall it had a tendency towards an even keel.
The synchronisation of business cycles is when that ship gets swamped by a wave sinking the whole thing at the same time.
What happens when there’s a
synchronised bust?
What made the 2008 meltdown so severe is the synchronised boom that preceded it. This global economic expansion became known as the “Great Moderation”. Everywhere seemed to be stable and growing at the same time. Yes, even Europe.
But when the downturn came, the whole world went into it together. And that made it all the worse.
Countries couldn’t drag each other out of recession by importing cheap goods from the struggling countries.
Booming countries couldn’t invest in struggling ones at cheap prices to trigger a recovery.
Countries couldn’t come to each other’s financial aid because everyone was facing the same financial implosion at the same time.
Banks couldn’t rescue each other because they all faced the same whopping losses.
The synchronised nature of the downturn made things all the worse. It created its own downward pressure.
What does any of this have to do with my near manslaughter of 500 of our most valued subscribers?
Well, there’s a particular metaphor I like to use to explain the synchronisation of business cycles idea…
Don’t march across a suspension bridge
Ever seen the army march across a suspension bridge? It’s a trick question. They don’t.
It’s got to do with something called resonance. But this isn’t a science lesson. So we’ll stick to history to explain.
In 1831, 74 British Army soldiers marched over the Broughton Suspension Bridge near Manchester. They were in step. This synchronised impact caused the bridge to bounce more and more with each stride.
Eventually, something snapped.
The bridge threw about 40 of the soldiers into the shallow river. Pride aside, the injuries were light.
The British Army learned its lesson that day. It pre-emptively surrendered to all suspension bridges around the world. And most soldiers still break step when crossing them today.
I put this story into my speech for our conference as an insightful metaphor for the synchronisation of business cycles. But, on the day, I decided to make it come alive even more.
I’d been rescheduled as the third speaker in the early afternoon session. No other block had three speeches. And no other time was more likely to put the audience to sleep.
Worst of all, nobody else had to speak after the legendary crowd favourite Mark Faber – the original Dr. Doom.
So I decided to liven things up with a bit of unapproved audience participation to start off my speech…
I told the audience to stand up and have a stretch, as is often the “done thing” at a conference. But then I sprung my terrifyingly stupid idea.
I told the audience that my speech was about something we could just demonstrate together.
I told everyone to jump up and down on the spot together to reenact the Broughton Suspension Bridge incident.
‘If the hotel collapses around us’, I told the audience, ‘we can walk away with an intuitive understanding of what my speech was all about and head to the bar instead’.
If they walked away at all…
It was a good joke. But I took it too far. I did a countdown.
‘3, 2, 1…’
I didn’t expect anyone to actually jump. I mean, that’s the whole point of my speech. Synchronisation is a bad idea. Resonance is dangerous. The bridge collapsed.
But everyone did jump. All at the same time.
According to how Woody likes to tell the story, someone up the back even got out of their wheelchair to join in the synchronised leap of faith.
That split second when the audience all went air born together, I realised we were all in mortal danger. Not to mention those in the lobby below our conference hall.
And it was all my fault.
Would it be murder, or manslaughter? How many floors of hotel above us were about to come crashing down? Was the chandelier below our feet hanging above some unsuspecting tourist who didn’t even want to hear about investment ideas?
It all flashed before my eyes as the audience peaked in height and began to descend at once. It was the worst moment of my life.
In the end, nothing happened. Actually, I genuinely don’t remember what happened in the subsequent three or four seconds. Deer in the headlights certainly doesn’t cut it.
Once my heart began beating again, I realised my speech had only just started. I still had 40 minutes to wade through, in a state of utter panic. The whole time I was waiting for a bloodstained hotel manager to burst through the door screaming my name.
Anyway, the idea I presented that day is back.
The business cycle just synchronised
In 2008, China’s GDP boom dragged Australia out of recession. But I just don’t see where the bright spot for the global economy could be this time around.
GDP is stuttering and sputtering in almost all the major global economies at the same time. It’s a synchronised global downturn, just as we got synchronised inflation in 2022 and synchronised lockdowns in 2020.
What are the implications for investors?
The risk is an unusually bad downturn in the global economy. That puts the financial system at risk too. It leaves few safe places to hide your wealth.
This won’t be a trade-cycle style downturn, where one region of the world stimulates growth by importing from struggling regions.
The Germans won’t rescue the Greeks and the IMF can’t handle every overindebted government at the same time.
It’ll be a rare global recession.
And Australia is uniquely exposed to the consequences.
Until next time,
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Nick Hubble,
Editor, Strategic Intelligence Australia
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