A Question For Economic Sensation

[Gavin]

ES, I have read you say a few times something on the lines of "50% falls? sorry mate it just ain't going to happen, its comments like this that make you look foolish"

Let me paint a scenario: You are in a pub, late 1999, when the FTSE was on its way to circa 6800 and you are discussing the future of stocks with a mate.

If you were told that over the next 6 years interest rates would fall to 40 year lows, that growth would remain above trend in the UK, that the UK would become the 4th biggest economy in the world, finally overtaking France, and that inflation would be kept around the target level. What would you say if your mate in the pub told you despite an unprecedented property boom peaking in 2003, the FTSE would bottom out at about 3,500 points thus losing nearly 50% of its value by 2003?

Would you say "50% falls? sorry mate it just ain't going to happen, its comments like this that make you look foolish".

OK I have picked the peak and troughs and an unusual mix of factors, but only unusual because they are the true facts in the real world. OK, you may say that you could never have fortold the events of 9/11, but the nature of unexpected events are just that, and ironically we can expect some other unexpected events in the next 6 years as well.

I just wonder why you are so sure that benign inflation or interest rates have a bigger effect than supply and demand, and their catalyst: price.

Can you admit that 50% falls are quite possible, and indeed looking at history somewhat more than 'just' possible?