It pays to be optimistic

There are plenty of reasons to be pessimistic in today's financial world. But that's not necessarily the right attitude for investors, says Merryn Somerset Webb.

There is bad news aplenty in the magazine this week. Matthew Lynn looks at the uncomfortable truths around the Bank of England's new quantitative-easing (QE) programme. Elsewhere, weworry about China's "alarming debt pile".Alex Rankine considers the idea that the latest round of globalisation has met a nasty end. And Andrew Van Sickle asks whether the end of the bull market in both bonds and equities is nearly upon us: the worst-case scenario from here is a nasty crash, but even the best case, says Deutsche Bank, is pretty bad that stock returns lag their long-term averages.

After all, with most developed economies looking pretty ropey and profits weak, the only things driving markets are low interest rates and QE. The idea that cheap money is the one thing holding up stock prices makes sense to us at this point. It allows companies to borrow at super-low prices and it makes their dividends look like gold dust compared with the returns available on anything else.

It follows then, as Henny Sender pointed out in the FT this week, that "the end of cheap money will cause valuations to reverse and drop". Look at it like this and it is "disconcertingly easy" to argue that there is a very rocky road ahead.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

Miserable, isn't it? Perhaps it's also a little too easy. Turn to the interview in this week's issuefor Nick Train's views on this. Everyone wants to sound cautious on the stockmarket, he says. It makes them feel "wise". But the truth is that history is rarely on the side of the pessimists.

It is usually on the side of the optimists. The former expect things to go wrong in familiar ways. The latter for things to go well in new and wonderful ways. Look at the corporate world in this context and the future of the stockmarket is one of stunningly exciting opportunity and one you should have more of a stake in.

Why? It's all about the way the internet allows firms both to forge new and better relationships with their clients and the way it cuts the capital they need to do that. The result? Don't expect stocks to get cheaper. Expect the ones that get digital technology to get way more expensive. Returns are more likely to be significantly above their long-term averages than below those averages, says Train. Think 20% a year, not 2% a year.

There is optimism in our cover story too: according to Matthew Partridge, the fountain of youth is within our reach. We are close to breakthroughs in the treatment of all the real nasties cancer, dementia and heart disease. But we may soon also be able to slow the actual process of ageing itself.

All the more reason to keep saving for retirement as well as to hope that Train is right and the analysts at Deutsche Bank are wrong. We'll be needing those 20 percents to keep compounding for as long as possible.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.