Monthly Archives: February 2013

Uncertainty over the outcome of Italy’s election has strengthened sterling as its safe haven status appeals, in spite of Moody’s downgrade of the UK. James Mackintosh, investment editor, examines the prospects for more of a bounce in sterling.

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There are two things that matter in investing: what the fundamentals, such as earnings and the economy, are doing, and where they are expected to go. Investment editor James Mackintosh says when sentiment is extreme, investors will react much more strongly to any sign of bad news.

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The pound fell after it emerged that governor Sir Mervyn King voted for more quantitative easing a fortnight ago. James Mackintosh, investment editor, explains how investors are viewing the prospect of further easing and a weaker pound, after the FTSE 100 rose above 5,400 for the first time in five years.

James Mackintosh

Blame the collapse of the USSR: an entire generation of Americans who might once have specialised in Kremlinology now devotes its time to parsing the messages that filter out of the US Federal Reserve.

Minutes of the last Fed meeting released yesterday hammered markets. As usual, when the US sneezed (the S&P 500 down 1.2 per cent) Europe caught a cold (the Stoxx 50 index is off 2.1 per cent as I write and poor old Italy is off almost 3 per cent). Read more

Germany’s ZEW survey was credited for a good day in the markets after showing investors were more positive about the economy than expected. James Mackintosh, investment editor, wonders about the circularity of the argument, and examines if the ZEW is a reliable indicator.

Michael MacKenzie, the FT’s US markets editor, talks about the recent decline in gold prices and the revival of the carry trade and whether the momentum behind these trades can last

After Warren Buffett’s Berkshire Hathaway agreed, with a partner, to buy Heinz for $28bn, the hunt is on for the Sage of Omaha’s next target. James Mackintosh, investment editor, says Buffett prefers safety to a bargain, but notes that Berkshire has underperformed the market – and Heinz – over the past decade.

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James Mackintosh

If you want to invest like Warren Buffett, there are quite literally hundreds of authors out there ready to help. In the past year alone, two dozen books have been published on the Sage of Omaha, covering everything from his travels to the women he employs.

After Thursday’s acquisition of HJ Heinz for $28bn, I thought it was worth pulling up a list of similar stocks for those who missed Heinz (and its 20% share price pop). Read more

James Mackintosh

Brits wanting a holiday in the sun have to stump up a lot more since the pound’s crash during the financial crisis. Even after a partial recovery, the pound remains down almost a fifth in real terms against its trading partners.

On the plus side, exports should be booming. Sadly, they aren’t. There are plenty of excuses explanations, but one stands out: British exporters have too much focus on slow-growing European economies and not enough on the whizzy emerging markets. The killer statistic is that the UK exports more to tiny troubled Ireland than to all the Brics put together. Read more

The G7 by committing to not doing something has of course got folk worried about that very thing, in this case targeting exchange rates and in particular the falling yen. James Mackintosh, investment editor, says some serious disappointment will be needed to halt the weakening yen.

Mario Draghi managed on Thursday to talk down the euro – the latest volley in the cover ‘currency wars’. Ralph Atkins, capital markets editor, analyses the president of the European Bank’s verbal game theory.

James Mackintosh

Benjamin Franklin always accepted the US constitution might be changed; “the only things we can be certain of are death and taxes,” he wrote to French scientist Jean-Baptiste Leroy (if Leroy had known about the planned new top rate of 75 per cent in France he’d surely have agreed).

Death is not really relevant to investors; you can’t take it with you, after all. But taxes are vital – and often ignored by those looking back at past returns.

This makes some charts from Stanhope Capital, which runs money for wealthy families and charities, particularly handy. Jonathan Bell at Stanhope looked back at past tax rates in the UK and calculated the returns needed merely to beat inflation, for a top-rate tax payer. Read more

Low interest rates suggest low equity returns – and even worse, shares can lose money over a lifetime. Scary charts after the jump.

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Politics is back on the agenda for investors. Spanish and Italian bond and stock markets took a tumble, reacting to a spreading slush fund scandal in Spain’s ruling Popular party and rising support for former Italian prime minister Silvio Berlusconi. James Mackintosh, investment editor, asks if a retreat from the eurozone’s periphery will herald a shift in market paradigm

John Authers

Today sees the publication of Credit Suisse’s annual Global Investment Returns Yearbook, a mammoth piece of research into global long-run returns overseen by the London Business School academics Elroy Dimson, Paul Marsh and Mike Staunton. It is an invaluable resource, and this blog is likely to mine its contents for some days to come.

Revisions for this year help ram home one quick and spectacular lesson from history. Baron Nathan Rothschild is widely believed (wrongly, according to historian Niall Ferguson) to have said that you should “buy when there’s blood in the streets”.

Much of the time this advice works. Buying into Japan or Germany after the second world war would have worked out extremely well, and the greatest buying opportunities almost by definition come when it seems almost mad to buy.

But the aphorism is not infallible. This year, the academics tried to address their concern that their global stock market index suffered from “survivorship bias”. So they have recalculated them including three new countries that were not previously covered in their attempts to calculated the global equity risk premium: China, Russia and Austria. Adding these nations hugely changes the perception of long-term risk.

Let’s start in Russia. Any bold contrarians who decided in the late 19th century to bet on Tsarist Russia to outperform the US for the long-term, and held on even during the great political unrest of the attempted revolution of 1905, would for a long time have looked very clever.

The chart compares the St Petersburg stock exchange’s composite index performance with that of New York. After 1917, of course, the value of any equity investment in Russia was wiped out. This might appear to be an exceptional example. But it is not. China also had a revolution that led to the closing down of its stock market (and of capitalism for a while), and that happened within living memory. On the eve of the second world war, China’s returns looked very healthy. With the arrival of Mao, shares went to zero (and international investors have had a rough ride even since Chinese stock markets reopened).

Using the MSCI China index, covering stocks available to international investors, those who bought in 1993 have actually lost money. But Chinese stock markets have been recovering recently. And, deliciously for those who like historical ironies, the Shanghai Composite, the main domestic index, bottomed last year at 1949, the year of the revolution. Read more

James Mackintosh

Goldilocks is back! Goldilocks was the famous “not too hot, not too cold” economy which under US Federal Reserve chairman Alan Greenspan was able to deliver rising shares without the Fed pouring cold porridge over asset prices in the form of rate hikes.

Today’s jobs data suggests exactly that can happen again, thanks to the oddity of the market and the central bank focusing on different measures. Read more