AKHIL PATEL – “The secret wealth advantage”

Akhil Patel is the co-founder and Director of ‘Property Sharemarket Economics’, an investment research service that teaches subscribers how to ‘remember the future’, based on leading knowledge of economic and financial cycles.

Akhil became interested in such cycles after his family’s business went through difficult periods during the major recessions in the early 1990s and 2008. He refused to accept the conventional wisdom that these events could not be forecast in advance. After much study, he decided to develop a body of work to help people – whether they were investors, business owners, or those just interested in doing something with their savings.

In addition to running his own business in London, Akhil has professional experience in the UK civil service and in international development. He has two master’s degrees (in finance and public policy) and a first degree in the Classics from Balliol College, Oxford. 

We met him to talk about his recently published book The Secret Wealth Advantage.

Your book The Secret Wealth Advantage  is a sort of guide to the future to help us forecast periods of economic boom and bust and make decisions accordingly. Can you tell us more about it?

The purpose of the book is to give the reader an account of the 18-year economic cycle, which is the key pattern of boom and bust that affects all our economies. But I wanted to make it a readable account, so I illustrated each of the stages of the cycle using a different episode from history. I have structured the book as a journey through the cycle from start to finish, and throughout that journey I weave in explanations of why the cycle happens, why no one sees it, how banks amplify it, and so on. Finally, I wanted to make the book practical, so each chapter ends with a series of ideas about how investors and entrepreneurs can make better decisions based on knowledge of the cycle. As I say in the introduction, the book was written to be “an investment guide to the future”.

Is this your first book? What is your background?

Yes, this is my first book. While it is a book on economics and economic cycles, I am not an economist and, in fact, I’ve never had a single minute of formal economics tuition. I studied Classics at the university. My interest in economics came later and everything I write about is self-taught.

How was the idea of the book born?

My interest in the subject started when my family’s business (pharmaceutical wholesaling) was badly affected by the financial crisis. Banks called in loans from small businesses, including my family’s, because they had overdone their lending during the boom and needed to repair their balance sheets. Many of the businesses they demanded repayment from would have survived the crisis had they retained access to credit, but they were denied it, and so they failed. It happens during every banking crisis. We were luckier than some and found a way to survive, but it precipitated a series of decisions that ended up going very badly for my family. Fifteen years later we are still dealing with the consequences. At the time, I felt that we should have had access to knowledge and information that could have helped us to prepare better. I made it my mission to find out what we had missed and then learn how to better deal with the next crisis. It was patently obvious to me that there would be another one. I essentially wrote the book that I wished I’d had back in 2008. It is written to help other families avoid the problems we went through during the bad times. And also to help them take advantage of the good times that arise out of every crisis.

What is the “18-year cycle” you describe?

It’s the main pattern of boom and bust that has been operating in Western economies for centuries. You can see it most clearly in the United States and the United Kingdom because they have undergone the least political change over that period of time. But it’s very apparent in other countries now, such as Japan or the EU. The cycle works as follows: it begins out of the prior crisis when almost no one is ready for the economy to turn around. The economy recovers and then expands and, after a few years, things might even be going a little over the top, despite the memory of the recent crisis. This results in the next stage, a minor, mid-cycle recession, which takes place around 7 years after the start. But this recession generally tends to be short and ushers in the next expansion, the third stage. This tends to be a more explosive part of the cycle, more bullish and speculative, not least because banks, having survived the mid-cycle recession, are more willing to lend. This boom phase also lasts about six to seven years. Things eventually go way over the top and the resulting crash brings down the banking system which then causes a deep depression, taking around four years to sort out. And then we start all over again, 18 years after the last cycle began. While the 18-year span is only an average, there’s very little variation in the timing. It’s a very reliable guide to the rhythm of the economy. I’ve studied it long enough that I can’t remember what it’s like to not know about it and I see signs of it everywhere.

Why does this happen?

The key factor is land. Land is the driver of the economic cycle. Land is fundamentally a scarce resource and its price can go to any level as long as someone is willing to pay (and this will be high because we all need to own or occupy a piece of land to work/live on). Banks use land as collateral for most of their lending. So it’s key to our economic lives. People talk about real estate or house prices but when they rise, what’s really going up in value is the land on which the house sits, not the building itself. Its importance means that as economies grow and become more prosperous, most of the gains are taken by land. This makes it an ideal asset for speculation. This also means the price of land can go way over the top and, on the other side, can come crashing down. And when that happens banks collapse: due to the collateral underpinning most of the lending they have done has lost its value. As a consequence, they stop lending and this causes a problem for the entire economy. Governments are forced to intervene, and bail out the banks; they then reset the system, write new banking rules that might have prevented the last crisis and the whole thing begins again. I explain the central role of land in the economy in chapter 2 of my book. It’s the most important chapter. If you understand this you will have a pretty good chance of forecasting the direction of an economy.

Over the last few years, we have lived through a series of unprecedented events. Have these affected your theory or your predictions?

These events have been huge and I don’t want to diminish their impact. But “unprecedented” is a very strong word and the cycle has continued through such events as the US Civil War, the Spanish flu, the Cuban Missile Crisis, and the fall of the Berlin Wall. In fact, in over two hundred years the only thing that has interrupted it were the two world wars. So, while these events had a major effect on our lives, they are surface phenomena, while the cycle is about the deeper forces. Think of it this way: the surface of the sea is sometimes subject to the most ferocious storms that cause massive waves and problems for seafarers. They need to be taken very seriously. However, the underlying tides and currents continue regardless of what’s going on above the surface and ultimately are more important. Therefore these events, important as they are, have not changed the theory or my predictions. If anything, they’ve made the predictions more likely to be realised.

Where are we now, in the 18-year cycle, and what can we expect for the future?

We are in the second expansionary phase of the cycle, otherwise known as the Boom. The most speculative couple of years are still ahead of us before a peak later this decade, around 2026. You might think that this does not correspond to what is going on in the news in 2023. We have many of the elements you’d expect which are detailed in my book for this stage of the cycle. High house prices (which refuse to go down much despite a few ridiculously strong years). Building is going on everywhere. Every day you’re reading about new businesses starting, which threaten to disrupt the status quo. And this is despite the fact that, according to most experts, we were 100% guaranteed by to have a recession this year. What happened? Not a recession. When Silicon Valley Bank collapsed we thought to be on the verge of a “Lehman Brothers moment” that would lead to another financial crisis.  We didn’t get that. This was all because of where we are in the cycle presently. I remain of the view that the most speculative years are ahead. They will of course be felt in some places more than others. For example, the biggest boom will be somewhere like Saudi Arabia. But even in Europe, things have the potential to go even more over the top than presently.

In your opinion, how do you think the emergence of AI will impact the 18-year cycle and the accuracy of your predictions?

AI is a game-changing technology that will fundamentally reshape our economic world. (In time. At the moment, there’s a lot of hype but eventually, nothing is going to be unaffected by it). However, in relation to the cycle: this is not the first cycle where a new technology has emerged that has changed everything. In the 1840s it was the railways. After 1908, it was the automobile. After the 1950s it was commercial air travel. After the mid-1970s it was the microprocessor and the personal computer. After 1993 it was the internet. After 2010 it was the smartphone. They emerge to make the cycles bigger than the one before. AI will be no different. What none of them do is changing the cycle. They are part of it.

Images courtesy of the author