Monthly Archives: February 2013

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