The Retreat of Globalisation

From the mid-1970s onward, Western economies embraced globalisation as a way to improve growth and reduce inflation, says Williams. But while the expansion of trade boosted growth, companies got most of the benefits. This was because they used the fall in the price of manufactured goods to boost margins and profits. Meanwhile, lower inflation caused by cheaper imported goods enabled central banks to reduce rates, while rising household borrowing kept consumption booming. All of this was good news for the stockmarket.

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This cycle has now broken down. Stalling productivity has hit real wages, which are still below their 2007 peak. And quantitative easing in developed markets and China's debt-fuelled investment cycle, which jointly prevented the global economy from collapsing, have now reached their limits. So firms are going to see their margins squeezed, while trade wars and interest-rate rises will cut economic growth. This will hit stocks, suggesting that investors should expect a long period of poor returns.

The Retreat of Globalisation is short and to the point. Williams' focus on the importance of corporate profit margins is particularly welcome and his investment recommendations are sensible without being obvious. Both private investors and professionals should take the time to read this book.