Business Cycles

This entertaining book describes the global history of economic fluctuations and business cycle theory over more than 300 years. It explains the core of the problem and shows how cycles can be forecast and how they are managed by central banks. The book concludes with detailed studies of how sub-sectors of stocks, bonds, hedge funds, private equity funds, gold, exchange rates, real estate, commodities, art and collectibles fluctuate over different categories of business cycles.

List of Figures and Tables vii

Preface xiii

Part I The Discovery of Business Cycles 1

1. Gambling Man 3

2. Cash Payment 19

3. The Dream Team of Money 27

4. The Napoleon of Finance 47

5. Jay and the Phantom Gold 57

6. Seven Pioneers 67

Part II The First Business Cycle Theories 81

7. The Golden Era 83

8. The Archeologists 101

9. Fisher and Babson 107

10. Keynes and the Austrians 117

11. The Great Depression 127

12. Lover, Horseman, Economist 141

13. The Problem with Money 153

Part III A Hidden World 165

14. The Simulators 167

15. Brains of Steel 189

16. Fat Tails and All That 199

17. Monkey See, Monkey Do 213

18. Dot Bomb 231

Part IV The Essence 239

19. The State of the Art 241

20. Three Questions 251

21. The Five Main Drivers of Cycles 257

22. The Ten Challenges of Central Banking 271

Part V Business Cycles and Asset Prices 305

23. The Mother of All Cycles: Property 307

24. When Art was In 333

25. All That Glitters 349

26. What Things are Made of: Commodities 367

27. Bonds, Stocks and Funds 379

28. The World’s Biggest Market: Foreign Exchange 391

29. Business Cycles and Market Rotation 399

Afterword: The Beat of the Heart 421

Appendix 1: List of Important Events in Business Cycle Theory 423

Appendix 2: List of the Largest Financial Crises in History 429

Chapter Notes 433

Bibliography 449

Index 471

Lars Tvede, holds a master’s degree in Engineering and a Bachelor’s degree in international commerce. He spent 11 years as derivatives trader, portfolio manager and investment banker before moving to the telecommunication and software industries in the mid 1990s, where he co-founded and seed-funded a number high-tech companies. He returned to the financial industry at the start of 2005 to become general partner and fund manager in the Swiss hedge fund company ProValue (www.provalue.ch). Lars Tvede has published several books on general economics, marketing, telecommunication and trading, including his best-selling The Psychology of Finance, which has been translated to all major languages. He lives in Zug, Switzerland.

“The Intelligent Investor and The Warren Buffett Way are regarded by many as the two most important books written for equity investors. Lars Tvede’s Business Cycles is the best ever written book about business and investment cycles. Reading this book will enhance investors ability to understand price swings in bonds, commodities, equities and real estate.”
Jörgen Chidekel, President and founder of ProValue AG

“The title Business Cycles may sound like a scientific lecture on high standing economic topics. In fact, the book addresses a series of economic themes and their historic evolution. Written in a fresh and catching language, the recounts are putting the reader’s mind into the settings of the time. This book is definitely a value, great to read – and is fun at the same time, for laymen and experts.”
Thomas K. Escher, Vice Chairman Wealth Management, UBS

“As a venture capitalist I often find myself exposed to the fluctuations in the general economy for both the good, and the bad. Lars Tvede’s book is the best explanation of these cycles that I have ever read. His approach is clear and entertaining, yet without being simplistic. Its a great read. I strongly recommend this book to anyone relying on business cycles in their daily lives.”
Frank Ewald, Partner – IVS A/S Denmark

Acclaim from previous editions of Business Cycles

“Economic theory does unfortunately not always follow a path of continues progress, where the latest theories always are better than the previous. Good theories are often put aside to leave space for some new ones that are vastly inferior. Valuable knowledge was, for instance, thrown overboard with the ‘Keynesian revolution’. It is therefore well justified that Lars Tvede has included the history of theories; from the Sun King until present day, and that he emphasizes this in his book. That we are not only given these theories, but that these also are explained through instructive anecdotes about the economists and the environment that influenced them is only enhancing the understanding in an interesting way.”
Anders Fogh Rasmussen, Prime Minister, Denmark