September Newsletter: ‘There may be worries ahead…there always are’

28 September 2022

The chancellor has warned that Britain could end up “bankrupt, idle, and hungry”. Various economic concerns have prompted government cutbacks, excess profit taxes, and surprise lifts to interest rates. Inflation is close to 10%. But the quote, the government actions and the inflation rate are not from today. They are from 1952. The first year of the Queen’s reign. Chancellor Rab Butler could see only worries ahead. Liz Truss, the UK’s new prime minister, who recently opined about British ‘idlers’ appears to have similar worries about the future.

To say the world has turned out better than Rab Butler’s view from 1952 is an understatement. If he could see the world as it is today imagine his wonder. In the UK in 1952 life expectancy was 69 years today it is eighty-two. Infant mortality has declined from twenty-nine deaths per 1,000 births to 3.4. In December 1952 four thousand people died in a day due to thick London smog. Today there are no more smogs. UK carbon dioxide emissions per head are now actually lower than at any time since the 1800’s. Real living standards have increased 4.5x!

But as the chancellor’s quote of 1952 and the general gloom surrounding the struggles of today suggest we humans find it easier to view the future with worry rather than optimism. The figures given above can even be viewed both positively and negatively. There are too many people in the world today. We keep alive babies who will struggle physically throughout their lives. We are confronting a carbon dioxide led climate crisis. Our riches mean we are over consuming the world’s finite resources. It seems we almost always see the future as being worse than the present, when in reality it tends to be the other way around.

For financial markets there are always worries ahead. When so many are employed to ‘predict’ the future it is difficult, given our glass half empty approach to envisage a time where the majority of these ‘soothsayers’ predict a rosy scenario. Despite a stock market history of strong returns, the famous Dow Jones Index has produced a total return of 81,000% since 1952, the risks of stock market investment are emphasised. ’The past is no guide to the (uncertain) future.’

Indeed, the last few years for stocks have been rocky. There have been good reasons for that. But as the decline gathers speed those good reasons are disappearing. The emotions, the views, are taking over. We are in the stage now that Rab Butler found himself. Difficult to see a better future. Markets are feeding on themselves and are beginning to fall on fear itself.

When will this change? Given that a recent survey of current investor views shows them to be more bearish/worried than ever before, more than at the peak of the pandemic, the answer to that question is pretty soon. Markets turn when the view of the future is most negative. Two years after the Queen’s coronation in the June of 1953, and despite the Chancellor’s bearish outlook, the stock market had doubled from those lows. That is not an entirely silly scenario for today. For financial markets we should begin preparing for the spring.