EDITOR'S LETTERMerryn 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, we worry 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.
Miserable, isn’t it? Perhaps it’s also a little too easy. Turn to the interview in this week’s issue for 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.