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Ian Rush or Neymar?

7 August 2017 by Gary Kirk

This week marks a milestone in my career, given it was 30 years ago that I started working in the world of fixed income markets.

In a nostalgic look back, the world has certainly moved on, although there are a lot of similarities. In that summer of 1987 politics was never far from the front pages, as it is today; Margaret Thatcher had just been re-elected for her third term as Prime Minister, but her popularity in the party was beginning to wane (sound familiar?) and the Social Democratic Party had just merged with the Liberal Party. In Europe that summer the European Community passed the Single European Act, although the Euro itself was still over 12 years away from being introduced. Elsewhere in Europe Romanian workers rebelled against the communist regime led by Ceausescu which contributed to the undercurrent of revolution that helped the decline of Soviet-led communism across central Europe. In the arts U2 released the Joshua Tree album, Michael Jackson released Bad and we went to the cinema to see the blockbusters of that year –  ‘Good Morning Vietnam’ and ‘Fatal Attraction’.  In sport the new football season was about to get under way with the headlines questioning the rationale of football transfers following the transfer of Ian Rush from Liverpool to Juventus for a world record fee of £3.2m whilst Peter Beardsley moved to Liverpool from Newcastle to smash the UK interclub record for the princely sum of £1.9m.

Here in London the opening of the Docklands Light Railway was welcomed by those firms that had pioneered the move East to Canary Wharf, a relief for the staff who previously had to rely on buses. Newly privatised British Airways announced the merger with British Caledonian Airlines and the FTSE 100 reached an all-time high of 2443 and the S&P saw 336. It was all looking good in that summer of 1987; even with 10yr Gilt and UST yields above 8%, as was the norm in those days, long before Central Bank QE programmes.

I had a very short honeymoon period to my career as the feel-good factor that summer came to an abrupt end in October 1987. A skirmish between Iran and the US off the coast of Kuwait led to some unease that quickly spread to a downturn in equity markets (I do hope that a peaceful settlement is quickly reached with North Korea). By the end of that October the Dow Jones was down 22%, the FTSE down 26% and the Hang Seng down over 45% – some commentators put the spiral down to the new concept of ‘programme trading’ while others blamed the sell-off on pure over-valuation of assets! Hindsight is a wonderful thing and buying risk assets following that dark period would have been a smart long-term move.

Commodities saw $ Spot Gold at $465 in that summer of 1987 and crude oil at $21 p/b; roll on 30yrs and oil is up 134% (although in 2008 it was up 590%), gold is up 170%, the FTSE (excluding dividends) by 233% and the S&P by 668%. However, these increases seem tame when we look at footballers; Neymar da Silva Santos’ recent transfer from Barcelona to Paris St Germain for €222m (circa £200m) surpasses all other risk assets, representing a 6150% increase, compared to the record transfer in 1987! Now I am not in a position to debate the merits, if any, of Neymar over Rush but I am beginning to question my recent thoughts that financial assets currently look over-valued!

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