Alex – the cartoon banker with a remarkable feel for the markets

Alex – the ruthless cartoon banker – has always been a humorous send-up of City types. But new research shows that he's not just a bit of fun, he's a remarkably accurate indicator of market sentiment.

Alex: he's the most hated and the most loved investment banker in Britain. He is lazy, cynical, materialistic and ruthless. But he is also charming and very very funny.

And now, to celebrate the fact that his cartoon has been gracing the business pages of the Telegraph for 25 years and the Personal View page of MoneyWeek for ten years, he has his very own academic research out.

The Said Business School at Oxford University has analysed the text of the last 5,800 Alex cartoons to see how the wording and subjects correlate with financial, social and political trends. The results are fascinating.

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It turns out that, thanks to the way the cartoon's writers collect their ideas from a huge variety of City contacts, Alex's perception of topics is a reflection "not so much of how others see the City but of how the City sees itself".

He also tracks market movements with remarkable accuracy. I have a chart tracking the mentions of hedge funds in the cartoon with the rise and fall of the assets under management at hedge funds from 1994 on. It is pretty exact - although Alex is a slightly lagging rather than leading indicator.

His time in the Telegraph also marks interesting cultural changes in the City. Look at a chart of the frequency of his use of the phrases "merchant bank" and "investment bank" and you are effectively looking at a calendar of the US takeover of the UK financial sector.

In 1987 the City was still British: names such as Morgan Grenfell and Robert Fleming were regularly bandied about and there was no reason to think they wouldn't be the global leaders of the future. The phrase "investment bank" doesn't appear until the mid 1990s. By 1999, as the "venerable names of British high finance were swallowed up by US and continental players" it has all but taken over.

There has been no mention of "merchant banks" since 2006.

All this analysing is mainly harmless fun. But you might also be interested to know that given his role as a sentiment indicator, Alex turns out to be a pretty good predictor of market performance.

The academics ran a multiple regression on various world counts in the cartoon. They used 'bonus', 'redundancy', 'dress-down' and 'internet'. Then they added in a variable set at one for every year in which Alex or Clive is fired, and the year on year change in the frequency of 'lunch'.

The statistically significant results? The years after ones in which either Alex or Clive is fired turn out to be good ones (up 23% on average). Any mention of the internet is negative, and if Alex is lunched more in any one year than the year before "the market tends to fall in the subsequent year."

Basically, if the City is confident (and talks a lot about lunch and bonuses) the next year is bad. And if the City is scared (and talks about redundancy etc) the next year is good. The City, as I daresay many of you had already guessed, is its own contrary indicator.

The model isn't perfect - it failed to predict the crash in 2008 for example. But it has been spot on for the last three years predicting almost perfectly the rises in 2009 and 2010 and the fall in 2011. Given that, you'll be wanting to know what it predicts for 2012. The answer? A FTSE 100 rise of 10.1%.

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.