Deutsche Bank, Long-Term Asset Return Study, Sept 2020
Economic cycles come and go, but sitting above them are the wider structural super-cycles that shape everything from economies to asset prices, politics, and our general way of life. In this note we have identified five such cycles over the last 160 years, and we think the world is on the cusp of a new era – one that will be characterised initially by disorder.
Not all disorder is ‘bad’. Indeed, if the themes of the world economy swing like a pendulum, then it may be that some have swung too far from a ‘sensible centre’ and are due to revert. This can have a cleansing effect. What is worrying, though, is that several themes appear poised to revert at a similar time. This is the point – that simultaneous changes to structural themes will create a level of disorder that will define a new era.
Before we review the key themes of the upcoming “Age of Disorder”, we must note that while some historical super-cycles have begun and ended abruptly, others were slower to evolve and end. The most recent era – the second era of globalisation, during 1980-2020 – is much more like the latter. It started slowly and has been gradually fraying at the edges over the last half-decade. The end of this era has been hastened by Covid-19 and – when, in years to come, we look at the rear- view mirror – we may see 2020 as the start of a new era.
- See also: Social Repercussions of Pandemics (IMF, Jan 2021):
Epidemics may have social scarring effects, increasing the likelihood of social unrest. They may also have mitigating effect, suppressing unrest by dissuading social activities. Using a new monthly panel on social unrest in 130 countries, we find a positive cross-sectional relationship between social unrest and epidemics. But the relationship reverses in the short run, implying that the mitigating effect dominates in the short run. Recent trends in social unrest immediately before and after the COVID-19 outbreak are consistent with this historic evidence. It is reasonable to expect that, as the pandemic fades, unrest may reemerge in locations where it previously existed.