This is the last leader column I will write for IPE, ending six years as its investment editor. I don’t need to tell you this because you lived through it even more immediately than I did, but, my goodness, what an eventful six years it has been.
Those who have done a bit of mental arithmetic will recognise that I started at IPE in the darkest depths of the financial crisis, towards the end of January 2009. Things seemed pretty extreme back then. The S&P500 index was at 800 points, still 18% away from the infamous 666 it would hit a few weeks later, and fear was in the air. The developed world’s banking system, which had seized-up and all but collapsed, was still in a critical condition in intensive care. It seemed only a matter of time before a lack of cash would send a tidal wave of default and bankruptcy crashing through the global economy.
And yet in many respects January 2009 looks surprisingly tame from our perspective six years later. You could still get a 3% yield on a German 10-year Bund, for example. Today you get virtually zero and half of Europe’s government bonds offer negative yields. The spread between German and Spanish 10-year bonds was 70bps; it would spike through 600 basis points during July 2012. Mercer’s estimate of the combined pension liabilities of the UK’s FTSE 350 companies was around £400bn (€560bn); it is now powering through £700bn.
If I went back in time to 2009 and gave my younger self those figures, he’d probably assume that the euro-zone was about to break up and that bankruptcy would indeed sweep through the economy in 2009-10. He certainly would not predict that an equity market return of 150% could coincide with the bearishness those numbers imply, or that Apple Inc, which had a market capitalisation of $80bn (€76bn), would now be worth nine-times that amount.
There are other extreme inconsistencies in today’s economy that would have been difficult to imagine six years ago. Corporate profits are at an all-time high, but corporate investment remains exceptionally low. Employment and consumer confidence indicators are buoyant in core Europe, the UK and the US and yet inflation data is flashing ‘Japan’ like a discotheque.
Equity markets are breaking records while the Middle East goes up in flames, Russia annexes chunks of neighbouring countries and Greece tough-talks its way out of the euro-zone. Everything looks expensive except implied volatility, which is classic edge-of-the-cliff territory, but investors seem convinced the central banks have given them wings.
I sometimes wonder what on earth I used to write about before the financial crisis. For sure, running out of subject matter has never been a problem since 2008. I suspect a long time will pass before it becomes a problem for my successor.