As is the case with post-scenarios in all market crashes, what capital markets needed was time for the swell of money to accumulate outside the market, and to do that, the right environment had to be present for a sustained period of time. And by all accounts, the environment for capital accumulation couldn’t have been any better than it has been over the last five years. Interest rates have remained consistently low, as reflected in real estate prices. Investment in emerging market economies such as China and India has swelled to an all-time high, not only in the form of direct investment, but this time in the form of corporate cost-saving concepts such as outsourcing.
Add to this that oil prices have been pushing significant highs, for contrary to popular scepticism, periods of high oil prices can be considerable long-term market drivers. For one, just as with any pricing mechanism, what goes up inevitably comes down. The significant uptake in demand from development of emerging market economies such as China and tension in the Middle East have created an over-pricing reaction of oil to above $70 a barrel, but once the global economy has adjusted to this new supply-demand ratio, prices will begin to ease. And when they do, organisations will find they have more capital than they thought to play with, for the net effect of high oil prices is to force companies to become more frugal with their capital, and cut costs in unnecessary areas that they are only too happy to blow in times of excess – when the pressure begins to ease, companies accustomed to budgeting for these aberrations feel it first, and the excess capital is felt throughout the market.
In addition to this, sustained periods of high oil prices as we have experienced them actually benefit exploration into cheaper technological methodologies of energy usage hugely, as both corporate and government budgets are incentivised towards investment in what otherwise appears like tomorrow’s problem. The irony is that it is in periods of short-term cost-inflations that effective long-term cost-cutting strategies are formulated.
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