Surviving World War III
Edwards Deming, often called the Father of Quality, built an entire philosophy of management around this simple idea, teaching quality management concepts across Japan after World War II. The Japanese readily accepted his ideas, implementing them at such world-class companies as Sony and Toyota, which went on to become high quality low cost producers. The quality revolution nearly crushed the U.S. automotive industry. American manufacturers converted to quality just to survive and now compete successfully with foreign firms. (Many industrial firms find that they are now even legally required to be quality certified according to ISO 9000 standards, though the emphasis for
Additional finance for wartime economies could be met only by the creation of money. This in turn led to differential inflation in the affected countries and created an obvious disparity in international price relationships. Corrective action required some countries to devalue and others to revalue. Inflation and devaluation were only two of the problems faced the other main problem was the imposition of exchange controls in the first half of the 1930s. Governments were required to exercise control over currency flows in and out of their country, which in turn led to foreign exchange rationing. The outbreak of the Second World War forced all countries to introduce exchange controls, even those that had not imposed them earlier.
From the end of Second World War until the early 1970s there was a very stable economic environment in the United States helped by the Bretton Woods Agreement, which kept interest rates in a narrow range. However, when the US dollar was devalued, partly as a consequence of the funding of the Vietnam War and a heavy domestic spending programme, uncertainty and fluctuation in interest rates replaced the economic stability. Europe and Japan had also recovered in economic terms from the re-building effects of Second World War and, with their economies growing, the Dollar came under severe pressure. The need to be able to hedge (or to protect) against the risk associated with volatile currencies and interest rates became critical for many businesses and industries. The result was the birth of the first financial contracts, which became the cornerstone of the futures and options industry, as we know it today.
The roots of our modern forex market are an interesting topic that has been covered ad nauseum by other trading books however, I do believe it is important to have some knowledge of the market's history, so this section covers the key points. If you have never studied global monetary systems, consider this section an abridged history of the forex market. The modern forex market's roots began with over-the-counter currency trading desks established by banks throughout the 1970s and 1980s, following the collapse of a postwar-era monetary system known as the Bretton Woods system. Bretton Woods was established in June 1944, as World War II came to a close. The Allied nations sought to establish a new monetary system to promote global investment and capitalism and to eliminate the challenges of a gold standard system.
In the first period, that is from the outbreak of the World War until the Armistice, the depreciation of the German mark was relatively slow. In October 1918 a gold mark was worth 1 -57 paper marks. More rapid was the rise of wholesale prices, from 1 (1913) to 2-34. In that period the issues of paper money increased more rapidly than the price of a gold mark expressed in paper marks and than the genera prices of goods, as is shown in the following figures and in Diagram 1
The modern foreign exchange market characterized by periods of high volatility (that is a frequency and amplitude of price alteration) and relative stability formed itself in the twentieth century. By the mid-1930s London became the leading center for foreign exchange and the British pound served as the currency to trade and to keep as a reserve currency. Because in the old times foreign exchange was traded on the telex machines, or cable, the pound has generally the nickname cable . After the World War II, where the British economy was destroyed and the United States was the only country unscarred by war, U.S. dollar, in accordance with the Breton Woods Accord between the USA, Great Britain and France (1944) became the reserve currency for all the capitalist countries and all currencies were pegged to the American dollar (through the constitution of currency ranges maintained by central banks of relevant countries by means of interventions or currency purchases).
In July 1944, representatives of 44 nations met in Bretton Woods, New Hampshire, to create a new institutional arrangement for governing the international economy in the years after World War II. After the war, most agreed that international economic instability was one of the principal causes of the war, and that such instability needed to be prevented in the future. The agreement, which was developed by renowned economists John Maynard Keynes and Harry Dexter White, was initially proposed to Great Britain as a part of the Lend-Lease Act an American act designed to assist Great Britain in postwar redevelopment efforts. After various negotiations, the final form of the Bretton Woods Agreement consisted of several key points
Although the returns on equities have fully compensated stock investors for the increased inflation since World War II, the returns on fixed-income securities have not. The change in the monetary standard from gold to paper had its greatest effect on the returns of fixed-income assets. It is clear in retrospect that the buyers of bonds in the 1940s, 1950s, and early 1960s did not recognize the consequences of the change in monetary regime. How else can you explain why investors voluntarily purchased long-term bonds with 3 and 4 percent coupons despite the Moreover, during World War II and the early postwar years, interest rates were kept low by the stated bond support policy of the Federal Reserve. Bondholders had bought these bonds because of the widespread predictions of depression after the war. This support policy was abandoned in 1951 because the low interest rate fostered inflation. But interest rate controls, particularly on deposits, lasted much longer. And finally, one cannot...
I should say that a chart helps those who can read it, or rather who can assimilate what they read. The average chart reader, however, is apt to become obsessed with the notion that the dips and peaks and primary and secondary movements are all there is to stock speculation. If he pushes his confidence to its logical limit, he is bound to go broke. There is an extremely able man, a former partner of a well-known Stock Exchange House, who is really a trained mathematician. He is a graduate of a famous technical school. He devised charts based on a very careful and minute study of the behaviour of prices in many markets - stocks, bonds, grain, cotton, money, and so on. He went back years and years and traced the correlations and seasonal movements - oh, everything. He used his charts in his stock trading for years. What he really did was to take advantage of some highly intelligent averaging. They tell me he won regularly until the First World War knocked all precedents into a cocked...
The dismaying reports rang true to Tivadar Soros. He had been concerned about the Nazis since their rise to power a decade earlier. Having watched their rampant, senseless violence explode into world war, he worried that the violence would eventually reach Hungary, Budapest, and his family. Having survived one form of tyranny during World War 1, Tiva-dar vowed that he would help his family make it through another. He had few financial worries because he sold off some real estate early in the war. He radiated supreme self-confidence his calming presence comforted George, Paul, and Elizabeth. Ferenc Nagel, then a boy of 13, recalled the maudlin guessing game his own father played that spring, trying to predict how many of his family and friends would be wiped out. Half of them at least, was the father's gruesome prediction then in the next breath, he said knowingly, Not the Soroses. Not the Soroses. On another occasion, while the Soroses were holed up in a cellar, George, Paul, and...
Figure 1-3 depicts consumer prices in the U.S. and the United Kingdom over the past 200 years. In each country, the price level was essentially the same at the end of World War II as it was 150 years earlier. But since World War II, the nature of inflation has changed dramatically. The price level has risen almost continuously over the past 50 years, often gradually, but sometimes at double-digit rates as in the 1970s. Excluding wartime, the 1970s witnessed the first rapid and sustained inflation ever experienced in U.S. history. gold standard. As described in detail in Chapter 10, a gold standard restricts the supply of money and hence the inflation rate. But from the Great Depression through World War II, the world shifted to a paper money standard. Under a paper money standard there is no legal constraint on the issuance of money, so inflation is subject to political as well as economic forces. Price stability depends on the ability of the central banks to limit the supply of money...
The modern foreign exchange market characterized by the consequent periods of increased volatility and relative stability formed itself in the twentieth century. By the mid-1930s London became to be the leading center for foreign exchange and the British pound served as the currency to trade and to keep as a reserve currency. Because in the old times foreign exchange was traded on the telex machines, or cable, the pound has generally the nickname cable . In 1930, the Bank for International Settlements was established in Basel, Switzerland, to oversee the financial efforts of the newly independent countries, emerged after the World War I, and to provide monetary relief to countries experiencing temporary balance of payments difficulties. After the World War II, where the British economy was destroyed and the United States was the only country unscarred by war, U.S. dollar became the prominent currency of the entire globe. Nowadays, currencies all over the world are generally quoted...
Convertibility ended with the Great Depression. The major powers left the gold standard and fostered protectionism. As the political climate deteriorated and the world headed for war, the foreign exchange markets all but ceased to exist. With the end of World War II, reconstruction for Europe and the Far East had as its base the Bretton Woods system. In 1944, the postwar system of international monetary exchange was established at Bretton Woods in New Hampshire, USA. The intent was to create a gold-based value of the American dollar and the British pound and link other major currencies to the dollar. This system allowed for small fluctuations in a 1 band.
Since the 1930s, the United States has gone from a country in major crisis, mired in a deep depression, about to enter into a world war, with an undeveloped stock market compared to the more established European markets, to becoming the biggest economy in the world, the biggest stock market in the world, and having a currency so strong it has overtaken gold as the world standard. The United States went from a country on the financial brink to the only superpower on earth
World War II caused massive government spending for military purposes and the accumulation of purchasing power by businesses and individuals. Following the war, Congress passed the Employment Act of 1946, which stated that it was the continuing policy and responsibility of the Federal Government to promote maximum employment, production, and purchasing power. It was assumed that fiscal and monetary policies would be used to attain these objectives.
In time Soros became an analyst offering advice to American ffnan-cial organizations about European securities. As he had expected, few on Wall Street had any interest, let alone great instinct for, investment trends in Europe. The 1950s were long before the current era of global trading, long before American investors began to sense that there was money to be made on the other side of the pond. At the time Europeans dealt only with Europeans, and Americans talked only with Americans. This parochialism worked to Soros's advantage. Aiding him too was the fact that Western Europe's economies were slowly beginning to recuperate from the devastation wrought by World War II.
The post-World War II period saw Great Britain's economy in ruins, its infrastructure having been bombed. The country's confidence with its currency was at a low. By contrast, the United States, thanks to its physical isolation, was left relatively unscathed by the war. Its industrial might was ready to be turned to civilian purposes. This then has led to the dollar's rise to prominence, becoming the reserve currency of choice and staple to the international financial markets.
For example, Japan, Inc. and U.S. economic dominance set an unthinkable economic consolidation into motion. War after war has been waged throughout Europe and eastern Asia over territory, customs, religion, and politics. If there was one thing everyone could agree on, it was that Europeans could agree on nothing. World War I has been labeled a mistake. World War II was a continuation of the same mistake. The very fact that Germany and Japan rapidly integrated into the free world economy proves the fine line between friend and foe and raises the question, What was it all about Approximately 60 years after the last shots of World War II echoed, Germany, France, Switzerland, and Italy formulated a treaty to merge their economies into a common market with a common currency. I had an opportunity to speak with some World War II veterans at a Memorial Day gathering in 1999. My curiosity overwhelmed me. Did anyone who lived through that conflagration conceive of a unified western Europe The...
The conclusion of The World in Depression, 1929-1939, was that the 1930s depression was wide, deep, and prolonged because there was no international lender of last resort.2 Great Britain was unable to act in that capacity because it was exhausted by World War I, obsessed with pegging the British pound to gold at its pre-1914 parity and groggy from the aborted economic recovery of the 1920s. The United States was unwilling to act as an international lender of last resort at the time few Americans had thought through what the United States might have done in that role. This book extends the analysis of the responsibilities of an international lender of last resort.
As it was indicated, the U.S. dollar became the leading currency toward the end of the Second World War along the Breton Woods Accord, as the other currencies were virtually pegged against it. The introduction of the euro in 1999 reduced the dollar's importance only marginally. The British Pound. Until the end of World War II, the pound was the currency of reference. The currency is heavily traded against the euro and the U.S. dollar, but has a spotty presence against other currencies. Prior to the introduction of the euro, both the pound benefited from any doubts about the currency convergence. After the introduction of the euro, Bank of England is attempting to bring the high U.K. rates closer to the lower rates in the euro zone. The pound could join the euro in the early 2000s, provided that the U.K. referendum is positive.
With the end of Bretton Woods in 1971, and more particularly since the beginning of the 1990s, the world economy has been characterized by its globalization. The fall of communism has permitted the rise of the single American superpower, replacing the Pax Britannica of pre-World War I with Pax Americana. The economic liberalism that started to be implemented in the industrialized nations by Margaret Thatcher in 1979, and later on was extended to the developing countries by the IMF's adjustment programs, looks like the laissez faire policy of the Victorian epoch. Most financial markets are now fully deregulated and capital flows freely circulate all around the world. As a consequence, in the 1990s and for the first time since 1913, the structure of the international capital flows was marked by the return of portfolio investments, especially in the form of bonds and equities. Therefore, exactly like a century ago, we enjoy at present an undisputed right to place our money where we will,...
As already said in Chapter 1, Alfred Winslow Jones (1923-1989) is considered the father of the first hedge fund. During World War II he was a writer and editorfor Fortune magazine covering a variety of topics from finance, to politics, to the war effort. By 1948 he had left Fortune but was working on a freelance article for the magazine entitled Fashions in Forecasting . It was while researching this piece that he interviewed the most successful money managers of the time and began to formulate ideas for a new type of fund. Jones was not convinced of his ability to predict the direction of the market consistently. He thought he had good stock picking skills but admitted that he was not able to predict the direction of market trends.
If we closely examine Germany's maneuvering, it is not difficult to conclude that there was a new war being waged. It was economic and used currency exchange as a central weapon. The target was the pre-war alliance. Perhaps Germany and Japan could win the real war of world dominance while having lost the military conflicts that proved so costly. Indeed, look how both nations prevailed in post World War II trade. The development that halted German and Japanese progress may have been the evolution of currency trading. Vast and rapid currency adjustments leveled the playing field to the extent that the five most powerful economies joined in an effort to stabilize the floating monster they had helped to create. The Group of 5 (G5) was formed to negotiate central bank intervention efforts aimed at taking the sting out of adverse exchange rate fluctuations. G5 grew into G7, which kept the same objective. The group quickly discovered that forces driving currencies were significantly stronger...
An international following when Siegfried Stern published an extensive study of returns in common stock in 13 European countries from the onset of World War I through 1928. Stern's study showed that the advantage of investing in common stocks over bonds and other financial investments extended far beyond America's financial markets.15
To Soros, the key to his investment success has been his skill at surviving. It might be hard to think of survival as a practical skill, but to Soros, it helped explain his accomplishments. For example, in The Alchemy of Finance he wrote When I was an adolescent, the Second World War gave me a lesson that I have never forgotten. I was fortunate enough to have a father who was highly skilled in the art of survival, having lived through the Russian Revolution as an escaped prisoner of war.
As a result, U.S. unemployment rates kept falling, from 5.7-5.2 , while German unemployment was reaching post-World War II highs, printing in the double digits. In short, dollar bulls had many good reasons to sell the EUR USD, yet the currency pair kept rallying. Eventually, the EUR USD did turn around, retracing the whole 2004 rally to reach a low of 1.1730 in late 2005. But imagine a trader shorting the pair at 1.3000. Could he or she have withstood the pressure of having a 600-point move against a position Worse yet, imagine someone who was short at 1.2500 in the fall of 2004. Could that trader have taken the pain of being 1,100 points in drawdown
Even before the World War there had often existed some divergence between the purchasing power of a depreciated paper currency in the country in which it was issued (its internal value) and the purchasing power of the same money in terms of gold (or silver) and foreign goods (its external value).f During the period of the notorious assignats it was observed that the internal value of the paper money surpassed its value in terms of precious metal. Consequently, those who possessed metallic money could then live cheaply at Paris, just as after the World War the possessors of foreign exchange could live cheaply in Vienna or Berlin. A speculator who had spent 1,000 paper francs (i.e. 4 gold francs and 16 sous) on a dinner declared that formerly he never spent less than 12 francs on his dinner. Even in that episode shrewd business men had converted their paper money into metallic money in time. During and after the World War, which provoked, in varying degrees, the depreciation of the...
As for price-earnings ratios, according to a Hansberger Global Investors study, the S&P has only experienced six years in which the year-end p e ratio ranged between 5.2 and 7.4 Two of those years were 1916 and 1917. Of the 15 years in which the p e was between 7.4 and 9.7, two years were in World War I, one was in World War II, three were in the Korean War, and two 1973-1974 covered the period that included the Yom Kippur War. He enlisted as a pilot at the outbreak of the Korean War. He won his wings at a base in Arizona and was ready to be shipped to war. Then his father, the legendary Captain Eddie, America's leading air ace in World War I, came through the base on his barnstorming tour to build enthusiasm for the war effort.
Small stocks recovered smartly from their beating during the Great Depression, but still underperformed large stocks from the end of World War II until almost 1960. In fact, the cumulative total return on small stocks (measured by the bottom quintile of market capitalization)
The most important thing to understand in a currency pair or more precisely in a Forex transaction is that you will be
As it was indicated, the US dollar became the leading currency toward the end of the Second World War along the Bretton Woods Accord, as the other currencies were virtually pegged against it. The introduction of the Euro in 1999 reduced the dollar's importance only marginally. British Pound - Until the end of the World War II, the Pound was the currency of reference. The currency is heavily traded against the Euro and the US dollar, but has a spotty presence against the other currencies. Prior to the introduction of the Euro, both the Pound benefited from any doubts about the currency convergence. After the introduction of the Euro, Bank of England is attempting to bring the high U.K. rates closer to the lower rates in the Euro zone. The Pound could join the Euro in the early 2000's, provided that the U.K. referendum is positive.
Juxtaposed to natural occurrences are sudden ecopolitical events that were becoming increasingly frequent into the twentieth century. The most blatant were events leading to World War I and II. Imagine the assassination of the Austrian prince would precipitate a global conflict that could only be ended by the Spanish Flu pandemic that crippled both sides. Thereafter, repeated aggression by Hitler pushed Europe into war, but the Japanese attack on Pearl Harbor represented the single catalyst Such monumental ecopolitical phenomena shake the very roots of world monetary markets. Enemies simply segregate currency markets. The only intercurrency transactions are underground or black market. As currency traders, the emphasis is on post gold standard and free-floating currency forums (such as Interbank, futures, and options). None were available or needed during the World Wars. The first series of modern currency-influencing events began before Nixon closed the Gold Window with the 1967...
The Florida land boom began in the early 1920s when America had started to enjoy a long period of prosperity. For many years, it was the custom of wealthy Northeasterners to visit such glamorous Florida sun resorts as Miami and Palm Beach in winter. Prior to World War I, they had been joined by well-to-do mid-western farmers and northern manufacturers. In the early 1920s, this flow of visitors grew to include just about everyone.
Negative economic news, on the other hand, which is associated with higher bond prices and lower interest rates, weakens the U.S. dollar against other foreign currencies. If the U.S. economy is perceived to be weak, the dollar represents that weakness. The U.S. dollar posted its all-time post-World War II lows against the yen just before the great bull market of the 1990s kicked into full force. During this period, the American economy was in recession, just starting to come up for air.
Federal income tax was first collected under the Revenue Act of 1913, when the 16th Amendment to the U.S. Constitution was ratified. Until 1921 there was no tax preference given to capital gains income. When tax rates were increased sharply during World War I, investors refrained from realizing gains and complained to Congress about the tax consequences of selling their assets. Congress was persuaded that such frozen portfolios were detrimental to the efficient allocation of capital, and so in 1922 a maximum tax rate of 12.5 percent was established on capital gains income. This rate became effective at a taxable income of 30,000, which is equivalent to about 240,000 in today's dollars.
Consider the evolution of Sears, Roebuck & Co. Sears began as a catalog seller of virtually everything a consumer (and particularly a rural consumer) might need. The company enjoyed much success following World War II as it established its brand identities Craftsman tools, Kenmore washers and driers, and DieHard batteries. With Allstate Insurance, Dean Witter Reynolds, and Coldwell Banker, Sears evolved from a retailer into a financial services company. Spinning off Dean Witter in 1993 and Allstate in 1995, Sears drew sales through the softer side of Sears and its flagship hardware, tools, tires, and batteries. Sears launched Sears.com in 1999 as it evolved from bricks to clicks. With the recent acquisition of Lands' End, Sears returned to catalog retailing. To solve this problem Barra uses an industry classification scheme that allows a company to be classified as being in up to six industries.
Humans can stand extraordinary stresses from the environment and many of the survival stories emanating from the Second World War will testify to this. However, if we are pushed too far, our stress response turns on our own bodies and begins to create mental and physical breakdowns. During the Second World War, mental fatigue became a recognised syndrome with a clinical diagnosis (some soldiers during World War One were categorised as malingerers or cowards).
Construction data represent a significant group of indicators that are included in calculation of the U.S. GDP. Additionally, housing traditionally has been the engine that brought the U.S. economy out of the recessions that occurred after World War II. These indicators are classified into three main categories
Ironically, while the right to redeem dollars for gold was denied U.S. citizens, it was soon reinstated for foreign central banks at the devalued rate of 35 per ounce. As part of the Bretton Woods agreement, which set up the rules of international exchange rates after the close of World War II, the U.S. government promised to redeem for gold all dollars held by foreign central banks at a rate of 35 per ounce as long as they fixed their currency to the dollar. The United States continued to redeem gold at 35 an ounce, although private investors were paying over 40 in the private markets. Foreign central banks rushed to turn in their dollars for gold. The United States, which held almost 30 billion dollars of gold at the end of World War II, was left with 11 billion by the summer of 1971, and hundreds of millions of dollars were being withdrawn each month.
A third illustration of the virtually infinite set of possibilities for expanding credit on a fixed money base is international in character. The gold-exchange standard involved central bank holdings of liquid securities denominated in the British pound, the U.S. dollar, and the German mark as central bank reserve assets along with their holdings of gold. The gold-exchange standard developed before World War I, although this arrangement was long thought to have been a post-World War I development based on the recommendations of the Genoa Conference of 1922 and the Gold Delegation of the League of Nations and pushed hard by Governor Montagu Norman of the Bank of England who sought to increase foreign holdings of British pound securities to provide relief for the British balance of payments.46 The boom in world lending of 1913-1914 was financed by increases in central bank holdings of securities denominated in the British pound, the French franc and the German mark.
Relations Between Inflation And The Balance Of Trade In Various Phases Of The Depreciation Of The Mark
Paper prices in the home market increased in the course of a year by 50 per cent (according to the indices of the Central Office of Statistics) and gold prices remained for a long time above those abroad. The first of the two theoretical schemes under consideration was probably applicable in that first phase (taking into account the restrictions due to the war and the economic policy of the time) the disparity between home and foreign prices stimulated importsf and together with other causes contributed to the disequilibrium of the balance of trade.
When World War I started, the cream of the French army was slaughtered by the rapid precision fire of the German machine guns and the enormous destructive power of their artillery. The overreaction to the Prussian defeat resulted in 250,000 French dead in the first six weeks of the war alone, about the total number of American soldiers killed in action in World War II.
Almost without exception, the stock market turns down prior to recessions and rises before economic recoveries. In fact, out of the 41 recessions from 1802, 38 of them, or 93 percent, have been preceded (or accompanied) by declines of 8 percent or more in the total stock returns index. The three that were not were the 1829-30 recession, the recession that followed the economic adjustment immediately following World War II, and the 1953 recession, where stock declines fell just shy of the 8 percent criterion. Table 12-1 summarizes the return behavior for the nine post-World War II recessions. You can see that the stock return index peaked anywhere from 0 to 13 months before the beginning of a recession. The recessions that began in January 1980 and July 1990 are among the very As the Samuelson quote at the beginning of this chapter indicates, the stock market is also prone to false alarms, and these have increased in the postwar period. Excluding the war years, where declining stock...
Introduction The Financial Fragility Hypothesis the offspring of Induced Investment and Business Cycles
Minsky's financial fragility hypothesis - whose relevance to the post World War II economic downturns is unquestioned - was first conceived in his dissertation and developed more fully in later years. It is a theory of business cycles connecting financial conditions of firms and markets to investment and in which coordination failures exist. Years later, Minsky (1975, 1982, 1986) articulates a theory of investment combining finance and income determination. The carefully developed 'financial fragility' inherent in advanced capitalism is based on a two price system. One is the price level of current output, and the other, the price level of financial and real assets. These two prices are determined from different relations and variables. The price of current output is the device through which production and distribution occur and costs are recovered. The price of capital and financial assets reflects uncertainty and is dependent on yields. Since yields represent streams of income over...
Market Risk Premium (rm - rf or mrp) The market risk premium is the spread of the expected market return24 over the risk-free rate. Finance professionals, as well as academics, often differ over which historical time period is most relevant for observing the market risk premium. Some believe that more recent periods, such as the last ten years or the post-World War II era are more appropriate, while others prefer to examine the pre-Great Depression era to the present.
Investors at first did not realize that central bankers were serious about reducing inflation. When the Fed first reduced interest rates in August 1982 and sparked a stock market rally, there were few believers that this was the beginning of a long-term boom. Few believed that the corner had been turned on inflation and that interest rates were at the beginning of a long-term trend that would end with the lowest rates since World War II.
The first obstacle deals with production function indivisibilities and financing charges. Financing charges are the concern of Chapter 6. Production indivisibilities - technological conditions - which abet monopoly, it can be said, are very few indeed in areas of the economy which are not regulated. One of the leading phenomena of recent business evolution has been the development of multi-plant firms as substitutes for single giant plant firms, indicating that the technological basis for monopoly is severely restricted in its effectiveness. The inertia seems smaller today in the United States than it was in Britain prior to World War 1 and even then Marshall emphasized the weakness of this obstacle.
Smith's conclusion was right, not only historically, but also prospectively. It took just over 15 years to recover the money invested at the 1929 peak, following a crash far worse than Smith had ever examined. And since World War II, the recovery period for stocks has been better than Smith's wildest dreams. The longest it has even taken since 1945 to recover an original investment in the stock market (including reinvested dividends) was the 3 -year period from December 1972 to June 1976.
Historically, the invention of the microwave magnetron during World War II made pulsed radar practical, and early radar systems were undoubtedly tailored around what magnetrons could do. The 5J26, for example, has been used in search radars for over 40 years. It operates at L band and is mechanically tunable from 1250 to 1350 MHz. It is typically operated at 500-kW peak power with 1-jjls pulse duration and 1000 pulses per second (pps), or 2 ills and 500 pps, either of which is 0.001 duty cycle and provides 500 W of average RF power. Its 40 percent efficiency is typical for magnetrons. The 1- to 2-p.s pulse duration provides 150- to 300-m range resolution and is convenient for magnetrons, which simply oscillate at the resonant frequency of their mechanical cavities and are subject to frequency instabilities that would be unacceptable compared with the narrower signal bandwidth of longer pulse widths.
Corn was one of the original commodities traded on the CBOT. The first forward contract for corn was introduced in 1851 the first futures contracts for other grains were transacted in 1865. Soybeans were added to the exchange in 1936, and soybean products, such as meal and oil, became popular after World War II.
Although populism had a low electoral impact, and had vanished as a stand-alone political force by the end of the century,6 it was notable as the first American political movement that argued that the federal government had some responsibility for the living conditions of the common person. Moreover, its distrust of large industrial concerns and of the investment banks was to resurface in the pre-First World War progressive movement. In the years before the First World War, the progressivist impulse dominated political thinking in both of the main parties. Moreover, it was not antipathetic per se to big business, from which the prosperity of the prewar years clearly flowed. However, progressives believed that wrongdoing was inherent in American life, even among the most outwardly respectable people. This 'realist' conception of business life lay at the root of their dislike of the large industrial combines, and it led them to question the nineteenth-century ideal of a clear...
Exponential smoothing may appear to be more complex than other techniques, but it is only another form of a weighted moving average. It has the added advantage of being simpler to calculate than any other method discussed only the last exponentially smoothed value E,,i and the smoothing constant a are necessary to compute the new value. The technique of exponential smoothing was developed during World War II for tracking aircraft and projecting their position the immediate past is used to predict the immediate future. The geometric progression
VA LOANS AND FIRST-TIME BUYER PROGRAMS. For veterans, Uncle Sam has provided a fantastic opportunity to buy an initial set of rental units. The government's help began just after World War II. The first veterans lending program was called the GI Bill of Rights and was intended to provide war veterans with medical benefits, bonuses, and low-interest loans. VA loans are not directly made by the Department of Veterans Affairs but rather are guaranteed by it, which is similar to how FHA loans work. The great thing about GI or veterans' loans is that they can be obtained for 100 percent of the purchase price.
At the end of 1997, who would have guessed that Japan, the world's second largest economy, would sink into the worst recession-depression in the post-World War II era Who could have predicted that Russia would default on its debt payments, that the Southeast Asian markets would implode, and that, in a span of six weeks, the Dow Jones Industrial Average would plunge 1,800 points only to regain new highs three short months later
The Substitution For Legal Tender Currency Of Other Means Of Payment During The Last Phase Of The Inflation
In order to understand the sudden stabilization of the exchange in Germany and other European countries with greatly depreciated currencies, it is necessary to take into account the monetary and financial phenomena which prevail in a very advanced stage of the depreciation of a currency. The systematic and comparative description of conditions in Germany, Poland, Russia, Hungary, and Austria, when made, will form an interesting chapter in the theory of monetary depreciation. Economists' theories, until now, have been modelled on phenomena observed in countries where the currency was not so enormously depreciated as in the above-mentioned countries after the end of the World War. It is true that in the latter countries were repeated some of the phenomena which occurred during the depreciation of the French assignats and of the currency of the American Colonies. But in those two cases the depreciation took place in social and economic circumstances very different from those of our time...
But as we know, there has been a radical change in the real value of the dollar since the Second World War. Today's dollar has only a sliver of the purchasing power it had in 1802. People's perceptions and the law often lag behind changing conditions by decades. Thus the preservation of capital in dollars, rather than in purchasing power, is still viewed as the fiduciary's major responsibility. The focus on the dollar itself, not on what it can buy, is the backbone of the bond market, bank accounts, life insurance policies, and scores of other financial products. If taken to court, most fiduciaries would probably still win today if they had preserved their clients' dollars, no matter how much the purchasing power had shrunk.
As noted in the last chapter, an all-encompassing strain of risk permanently entered the investment environment for the first time after World War II. The virulent new risk is called inflation. Nothing is safe from this virus, although its major victims are savings accounts, T-bills, bonds, and other types of fixed-income investments. For these investments, there is no antidote. While a relatively small number of companies may flounder financially or go under in any normal period, credit risk is far less dangerous than inflation risk.* And government bonds or T-bills eliminate credit risk entirely. Not so for inflationary risk. Inflationary pressures after the Second World War have radically and completely altered the return distributions of stocks, bonds and T-bills.
The rapid inflation of the postwar period has turned all risk calculations topsy-turvy. While stocks have always had higher returns than T-bills or bonds over time, as we saw in the last chapter, the disparity between the three classes of financial investment widened enormously after 1945. Since the Second World War, moreover, cumulative stock returns, adjusted for inflation, have moved exponentially higher than T-bills or bonds for periods of 15 years or more. Inflation destroys the returns of T-bills, government bonds, and all other debt securities. Yet few investors put this enormous outperformance of stocks over debt securities into their risk calculations. Let's look at how stocks and bonds have performed over other periods in the past. Table 14-2 shows the probabilities of stocks outperforming bonds and T-bills after inflation over different intervals between 1802 and 1945. Three periods are analyzed, 1802 to 1870, 1871 to 1945, and 1946 to 1996. In each period the probabilities...
The International Monetary Fund (IMF) was founded as a part of the Bretton Woods Agreement in 1944. (The World Bank, the IMF's sister institution, was also founded at the conference.) The intent of the IMF's founders was to help avoid the destructive currency fluctuations in the period before World War II. At that time, each nation had devalued its currency in a bid to make its exports the most competitive. The result shattered economies and helped sow the unrest that flowered into Nazism.
A crucial figure in the history of futures is Richard Donchian (1905-1993), known as the father of the modern trend of following systems for his pioneering works in the field of commodity futures management. Donchian's original methods involved the use of a moving average as entry exit indicator. After World War II, he shifted his focus from securities to commodity trading. In 1948, he created the commodity fund Futures, Inc., based
The International Monetary Fund (www.imf.org) and the World Bank (www.worldbank.org) were both established in the mid-40s as part of post-World War II reconstruction plans. While neither group acts as a policymaker or regulator for any government or institution, their actions can sometimes impact the forex market or signal potential currency moves.
48 In the years 1970-1 degree-granting institutions conferred about 26,000 masters degrees in business. In 1985-6, the number rose to about 67,000 degrees (US Dept. of Education, Digest of Education Statistics, 2001). In 1965, only eight percent of Harvard's MBA class accepted jobs in investment banking. 21 percent of the graduating class of 1969 entered investment banking and this remained the record until 1986 when 29 percent went into investment banking (Wall Street Journal, June 16, 1987). Similarly, 18.8 percent of NYU's graduating class went into investment banking in 1986. In addition to technological forces, the trend was influenced in the 1960s by pressure to replace a generation of retiring partners for whom relatively few successors were groomed during the post-Second World War era (Hayes, 1971).
Most of its business was in retail banking, and it operated 67 branches in New York City. Chase National Bank was one of the largest banks in the world, following decades of high growth. This growth was fueled both by acquisitions (during the 1920s and 1930s it had acquired seven of the largest banks in New York City) and by aggressive development of new markets and products (especially in corporate banking). The bank had extensive international operations, and it was the first bank to open up branches in Germany and Japan after World War II.
The notion of retirement really didn't have a big impact on America until after World War II. At that point, people would give 30 to 40 years of their lives to one company, who in return, would pay workers good salaries and generous pensions once they stopped working. In that way, companies were very paternalistic toward their employees. The employees were also very dedicated to their employers. Working until you were 65, quitting, and then enjoying your pension income was the common thing to do. People looked forward to the time when the company that they had worked so hard for would begin to take care of them.
We know for sure is that the standard way of thinking that we learned in school (including especially business schools) is not very rewarding and produces many more life failures than successes. In commodity trading, for example, over 90 percent of all traders lose money consistently. The reason is that the common mode of thinking is not productive in the naturalistic world of the markets, and losing rather consistently produces a diminishing enjoyment of our tasks. We will examine the power of logical trading based on the proper use of our mental equipment rather than the bipolar thinking of win lose. By moving from left hemispheric (digital) thinking to right hemispheric (analog) thinking, we will gain financial and worry-free peace. We find that Chaos gives us choice, and by right choosing we create everything we value. We learn that the markets work just like our minds, and by understanding our minds we can use the markets in any fashion that suits us. We must get to know our...
Now that we have examined basic price behavior characteristics, the next step in understanding currencies requires closer examination. The first objective is to feel comfortable with the components of random, sequential, seasonal, cyclical, and secular trends by more fully understanding tools for identifying these behavior patterns. Toward the mid-twentieth century, a number of respected market practitioners began experimenting with technical trading models. The speculative post World War I period created a group of technical market wizards whose reputations stimulated interest in this emerging field. Among popularized names were mysterious successes like W. D. Gann, Elliot, and even J. P. Morgan. By the 1940s, mechanical calculators were encroaching on the slide rule and rudimentary statistical models began to gain popularity.
* 1958.64 Despite a U.S. recession, gold begins to flow out of the U.S. This was the start of the chronic balance-of-payments crisis we are still suffering. The weak Canadian dollar and British pound were strong during this period, while hard currencies like the Swiss franc and the deut-sche mark began to inch up against the dollar from their post-World-War-II fixed price.
President Hoover stated that some part of the real cause of the depression was expansion of production outside of Europe during World War I, expansion that proved excessive at 1925 prices when European production recovered after that year. In addition, there were the financial complications of reparations and war debts an overvalued British pound and an undervalued French franc, and the recycling of German reparations after the Dawes Plan by American private purchases of the bonds of German corporations and public bodies. Some blame attaches to the reduction of interest rates in New York in the summer of 1927 to assist Great Britain to maintain the overvalued parity for the pound when U.S. domestic purposes might have been better served by an increase. When prices in the New York stock market began to increase in March 1928 and especially after June, U.S. purchases of foreign bonds came to a halt. For a time, Germany, the Latin American countries and Australia shifted to short-term...
The history of statistical process control goes back to the 1920s and Western Electric, part of Bell Labs, where Walter Shewhart perceived that real-world processes, such as manufacturing, rarely generate normally distributed data. He concluded that these real-world processes display variation that is inherent in the process (i.e., common variation) and extra variation (i.e., special variation). The absence or presence of special variation determines whether a process is in or out of control. Shewhart ' s book The Economic Control of Quality of Manufactured Product demonstrated that industrial processes could yield data, which through statistical methods could signal the state of control of the proc-ess.1 Deming applied Shewhart's methods during World War II to improve the quality of weapons. After the war he took SPC to Japan and transformed Japanese industry.
There have been two serious inflationary episodes. The first was associated with shortages during and after World War II. The second covered almost all of the 1970s and was caused, in part, by rising oil prices and rapid growth of the money supply. During each of these periods, inflation significantly reduced the real value of estates. During the 10 years ending December 1979, the purchasing power of 1 was cut in half. In recent years inflation has been averaging about 3 percent. This destroys most or all of the after-tax return currently offered by many bonds and money market securities.
After World War II, the developed nations of the West entered into the Bretton Woods Agreement, which fixed the relative values of their currencies. As a result, there was little or no trading of currencies. In 1969, the agreement was unraveling. Leo Melamed, head of the Chicago Mercantile Exchange, concluded that the demise of fixed exchange rates would result in a trading opportunity. There would be a demand to trade and hedge currency prices, so there would be a demand for futures and options contracts involving exchanges. At the time, the exchange was shrinking, trading only meats. Melamed was looking for new contracts so the exchange could grow.
The collapse of Japanese stocks during and after World War II was far greater than occurred in its defeated ally, Germany. The breakup of the zaibatsu industrial cartels, the distribution of its shares to the workers, and the hyperinflation that followed the war caused a 98 percent fall in the real value of Japanese equities.17 Despite the fact that the Second World War resulted in a 90 percent drop in real German equity prices, investors were not wiped out. Those who patiently held equity were rewarded with the tremendous returns in the postwar period.18 By 1958, the total return for German stocks had
Over the next several decades, political structures will go through profound changes. Once again, alliances are being reformulated with Russia joining the West in new efforts toward capitalism, democracy, and free trade. Just as quickly as Japan rose to global economic dominance after World War II, Russia and her Commonwealth of Independent States (CIS) can dominate in the next century. This suggests that the ruble or any derivation thereof will be a significant currency to track and trade. Behind or alongside of the ruble we will see China's yuan. Descriptions of currency behavior that relied on the euro, sterling, and dollar are equally applicable to the ruble and yuan. It is simply a matter of data and time.
In July 1944, in Bretton Woods, New Hampshire, representatives of 44 nations met to establish the standards by which international trade and finance would be conducted once World War II had ended. This included not only specification of the exchange rate and payments system that would prevail but also provisions for helping the third-world nations develop in the postcolonial era. Ironically, the major issues that have plagued international monetary systems and agreements in the 50 years since the end of the World War II have been precisely those feared by Keynes in the early 1940s. In fixed-rate regimes, efficient means of realigning currencies remain elusive. Either the solutions tend to be deflationary, when they force deficit countries to contract their economies, or politically unpalatable, when they require currency devaluation.
For the risk analyst, assessing the growth-maximizing level of debt, beyond which a crisis becomes more likely, requires first measuring external indebtedness and the extent of debt overhang. This is more difficult than just looking at the nominal amount of accumulated debt. As shown in Chapter 11, the sheer amount of debt is not so easy to grasp either, given the diversity of sources and the unequal quality of debtor and creditor reporting systems. The first priority is to measure the external debt relative to macroeconomic indicators such as GDP and official reserve assets, etc. to obtain solvency indicators. Solvency indicators should illustrate stock stock relationships, linking the country's debt obligations with its overall assets and its hard currency liquid reserves. Solvency indicators, however, are not sufficient per se to assess a country's financial weaknesses. The main reason is not related to Citibank Chairman Walter Wriston's shortsighted claim that contrary to banks,...
Trading and managerial costs of 2 or 3 percent a year might seem small compared to the year-to-year volatility of the market and for investors who are gunning for 20 or 30 percent annual returns. But such costs are extremely detrimental to long-term wealth accumulation. One thousand dollars invested at a compound return of 11 percent per year, the average nominal return on stocks since World War II, will accumulate 23,000 over 30 years. A 1 percent annual fee will reduce the final accumulation by almost a third. With a 3 percent annual fee, the accumulation amounts to just over 10,000, less than half the market return. Every extra percentage point of return earned each year allows investors aged 25 to retire two years earlier, without sacrificing their standard of living.
Many dismissed the Eiteman and Smith study because it did not include the great crash of 1929-32. But in 1964, two professors from the University of Chicago, Lawrence Fisher and James H. Lorie, examined stock returns through the stock crash of 1929, the Great Depression, and World War II.23 Fisher and Lorie concluded that stocks offered significantly higher returns (which they reported at 9.0 percent per year) than
Figure 1-2 displays the interest rates on long-term bonds and short-term bonds, called bills, over the two-hundred-year period. The behavior of both long- and short-term interest rates changed dramatically from 1926 to the present. Interest rate fluctuations during the 19th and 20th centuries remained within a narrow range. But during the Great Depression of the 1930s, short-term interest rates fell nearly to zero and yields on long-term government bonds fell to a record-low 2 percent. Government policy maintained low rates during World War II and the early postwar years, and strict limits (known as Regulation Q10) were imposed on bank deposit rates through the 1950s and 1960s.
I had a friend who drove a tank in World War ll, fighting his way from Stalingrad to Vienna. He maintained his tank with only three tools a big hammer, a big screwdriver, and the Russian version of f you. He won the war with a few simple tools, and we can apply his lessons to the dangerous environment of the markets.
Financial limits to expansion have been reached.'10 The reconsideration of such fully aggregated models may be due to the failure of the early Post World War II predictions. The dissatisfaction with too aggregative analysis can either take the form of disaggregation which leads to mathematical complexity, or of a retreat to empiricism. The simplest linear process models, which exhibited cyclical behavior, resulted in a number of possible types of behavior for the endogenous variables, and these types of behavior depended upon the values of parameters. No matter what values these parameters were assigned, the resulting model exhibited unsatisfactory behavior. This has led Mr Hicks to the reintroduction of floors and ceilings (turning point analysis) into a model which is essentially Keynesian in its derivation.
He had learned that art from his father, and he had practiced it during World War lI hiding from the Soros had left Hungary years before because he could not abide political systems that had been ruling his coun-try-frst fascism in World War II, then communism in the postwar years. The closed societies that had sprouted throughout Eastern Europe and in the Soviet Union offended him, for he was a ffrm believer in the kind of political and economic freedom that flourished in America and in Western Europe.
Given the widely held belief that providing for the retired generation is, at least in part, a responsibility of government, it is not surprising that of the different models of mandated retirement income provision public pension schemes have by far the longest history. Initially, many of these schemes intended substantial prefunding of their obligations. In the post-Second World War period, however, there was increased acceptance of pay-as-you-go financing, with little concern expressed over poor rates of return on pension fund investments. It has only been in recent decades, as populations have aged and the liabilities of public pension schemes have exploded, that many governments have shifted the focus of their attention to private pensions, both voluntary and publicly mandated, as a means of reducing their future liabilities and mitigating increasingly obvious intergenerational transfers.
Note the extraordinary stability of the real return on stocks over all major subperiods 7.0 percent per year from 1802-1870, 6.6 percent from 1871 through 1925, and 7.2 percent per year since 1926. Even since World War II, during which all the inflation that the U.S. has experienced over the past two hundred years occurred, the average real rate of return on stocks has been 7.5 percent per year. This is virtually identical to the previous 125 years, which saw no overall inflation. This remarkable stability of long-term real returns is a characteristic of mean reversion, a property of a variable to offset its short-term fluctuations so as to produce far more stable long-term returns. The long-term stability of real equity returns does not deny that short-term returns can be quite variable. In fact, there are considerable periods of time when stock returns differ from their long-term average. Samples of such episodes after World War II are reported at the bottom of Table 1-1.
This is Union Bank of Switzerland Trading Floor, 1500 Traders strong. One of the largest dealing Rooms in the world, if not the largest. JP Morgan Chase in NY is pretty large as well about the size of a U.S. football field. Keep in mind they have branches all over the world, not quite as large as their World Head Quarters though. The rooms I worked in were that size, but that's still pretty large. I can remember times when I said, I have a bunch of rocks and a quiver full of arrows, I am up against these guys and they have Nuclear Weapons.
The most important reason researchers erred so badly on risk measurement is the manner in which EMH and most other economic investigators conduct their research. Since the Second World War the social sciences have attempted to become as rigorous as the physical sciences. No discipline has put more effort into this goal than economics. Starting about fifty years ago, economists held out high hopes that through mathematics they could make the dismal science as predictable as Einstein's theory of relativity or Kepler's laws of planetary motion. Nobel laureate Paul Samuelson, then a young professor of economics at MIT, was the first to integrate the techniques of differential equations, which had met with such success in physics, into a structured approach which could be used to study virtually any economic problem.
Governments can be borrowers or lenders, depending on the relationship between tax revenue and government expenditures. Since World War II, the U.S. government typically has run budget deficits, meaning that its tax receipts have been less than its expenditures. The government, therefore, has had to borrow funds to cover its budget deficit. Issuance of Treasury bills, notes, and bonds is the major way that the government borrows funds from the public. In contrast, in the latter part of the 1990s, the government enjoyed a budget surplus and was able to retire some outstanding debt.
In 1942, Americans were in the midst of the largest world war in history. Many were fearful that an enemy of the United States would attempt to burn down the nation's woodlands, an act of terrorism that would have done considerable damage to the war effort. In response to this threat, the War Advertising Council heavily promoted fire prevention in the nation's forests. Even naturally occurring fires were to be extinguished by 10 o'clock the following morning.
The economy of Canada is quite similar to that of the United States, being market- and production-oriented, having evolved from a mostly rural economy (before World War II), and now being principally urban and industrial, with the increase in manufacturing, mining, and service sectors. Its principal trading partner is the United States.
The game of blackjack or 21 evolved from several related card games in the 19th century. It became fashionable during World War I and now has enormous popularity, and is played by millions of people in casinos around the world. Billions of dollars are lost each year by people playing the game in Las Vegas alone. A small number of professionals and advanced amateurs, using various methods such as card counting, are able to beat the game. The object is to reach, or be close to, twenty-one with two or more cards. Scores above twenty-one are said to bust or lose. Cards two to ten are worth their face value Jacks, Queens and Kings are worth ten points and Aces are worth one or eleven at the player's choice. The game is called blackjack because an ace and a ten-valued card was paid three for two and an additional bonus accrued if the two cards were the Ace of Spades and the Jack of Spades or Clubs. While this extra bonus has been dropped by current casinos, the name has stuck. Dealers...
The production of books on financial crises is counter-cyclical. A spate of books on the topic appeared in the 1930s following the U.S. stock market bubble in the late 1920s and the subsequent crash and the Great Depression. Relatively few books on the subject appeared during the several decades immediately after World War II, presumably because the recessions from the 1940s to the 1960s were mild.
There have been three Big Mama Bears since World War I the Triple Waterfall of 1929-1933, which led to the Great Depression the Triple Waterfall of 1972-1975, which was a major cause of what proved to be the worst recession since the Depression and the Japanese Triple Waterfalls of 1989 to the present. Each of these Big Mama attacks produced financial and economic catastrophe.
The high equity premium since World War II is certainly not sustainable. It is not a coincidence that the highest 30-year average equity return occurred in a period marked by very low real returns on bonds. Since firms finance a large part of their capital investment with bonds, the low cost of obtaining such funds increased returns to shareholders.
Defeated in war and rebuilt by peace, Germany emerged as the cornerstone European economy within three decades of World War II. Like post-war Japan, Germany's rapid recovery and rise to dominance was not coincidental. Germany was also foreclosed from rebuilding its military or participating in military interventions. Without the need to build a war machine, Germany concentrated on consumer goods and services. Germany became the Japan of western Europe. A distinguishing feature of Germany's success was its ability to tap natural resources.
The U.S. dollar became the leading currency toward the end of the Second World War and was at the center of the Bretton Woods Accord, as the other currencies were virtually pegged against it. The introduction of the euro in 1999 reduced the dollar's importance only marginally. Until the end of World War II, the pound was the currency of reference. Its nickname, cable, is derived from the telex machine, which was used to trade it in its heyday. The currency is heavily traded against the euro and the U.S. dollar, but has a spotty presence against other currencies. The two-year bout with the Exchange Rate Mechanism, between 1990 and 1992, had a soothing effect on the British pound, as it generally had to follow the deutsche mark's fluctuations, but the crisis conditions that precipitated the pound's withdrawal from the ERM had a psychological effect on the currency.
The modern Forex market was established around 1973. But the Bretton-Woods Accord of 1944, which was established to stabilize the global economy after World War II, is generally accepted as the original beginning of the foreign exchange market. It created the concept of trading currencies against each other and the International Monetary Fund (IMF). Currencies from around the world were fixed to the U.S. dollar, which in turn was fixed to gold prices in hopes of bringing stability to global Forex events. All currencies were allowed to fluctuate around that value but only within a narrow trading range. central banks agreed to intervene in the event that their country's currency moved or threatened to move outside that trading range. If the fixed value of a country's currency shifted outside that trading range, that country had the right under the articles of the agreement to declare that a fundamental imbalance is in existence. As a result of this
These effects were especially brutal to investors whose securities matured in 1998. This was the first time interest rates hit their post-World War II lows, and rates had dropped precipitously after 1994. Investors with bonds and CDs that had been paying 6 percent and more were faced with reinvesting to earn yields of 3 percent.
The U.S. government almost succeeded in erasing the national debt in the early nineteenth century, but the Civil War pushed the debt level to new heights as it topped 3 billion. This was just the beginning of the uptrend. As the country weathered World War I, the Depression, and World War II, the national debt continued to climb. At the end of World War II, it had risen to above 250 billion. As the cold war escalated in the 1980s, the rate at which we added to the national debt also escalated. The country was actually adding 1 trillion to the national debt every four years. The stock market boom, the end of the cold war, and the strong economy of the 1990s finally did give the government a chance to catch up on some payments. And for the first time in nearly 30 years, we enjoyed a budget surplus. However, the terrorist attacks of September 11, 2001, and the subsequent wars in Afghanistan and Iraq changed all that, and the U.S. government has been posting record deficit numbers ever...
The Nifty Fifty were a group of premier growth stocks, such as Xerox, IBM, Polaroid, and CocaCola, which became institutional darlings in the early 1970s. All of these stocks had proven growth records, continual increases in dividends (virtually none had cut its dividend since World War II), and high market capitalization. This last characteristic enabled institutions to load up on these stocks without significantly influencing the price of their shares.
To add gasoline to the fire, there is evidence to support a potential depression. (Read Robert R. Prechter Jr. 's Conquer the Crash.) Such events are possible. Although we hope never to see such events in our future, we should be prepared for such uncertainties. Some theorists claim that a nuclear attack or gigantic earthquake in a major population center in the US is inevitable over the next twenty to fifty years.
Brown, Goetzmann, and Ross first raised survivorship bias as an issue (1995), claiming that survival imparts a bias to ex post returns.11 If the market risk premium were zero, a substantial upward bias would be imparted on markets that survive over a century without going under. Jorion and Goetzmann (1999) have attempted to estimate the survivorship bias by collecting monthly rate of return data from 1921 to 1996 for 39 stock market indices.12 If one looks at geometric returns, the United States outperformed all others during the twentieth century, averaging 6.9 percent in nominal terms annually, or 4.3 percent in real terms (deflating by the wholesale price index) between January 1926 and December 1996. Of the group of 24 markets that existed in 1931, only seven experienced no interruption in trading (the United States, Canada, the United Kingdom, Australia, New Zealand, Sweden, and Switzerland), seven suspended trading for less than a year, and the remaining 10 suffered long-term...
There are many sources of investment data that can be used in statistical analysis and modelling. Some of these sources are provided by government or quasi-governmental organisations and private sector data providers collate others. Financial Statistics, published by National Statistics (see Table 8.1), provides information on price inflation, institutional investment patterns, and so on. The Bank of England produces a statistical abstract with historical data relating to variables such as UK government bond yields, equity yields, exchange rates and short-term interest rates. A long historical study of investment markets has been undertaken by Barclays Global Investors. Each year they produce the results of their analysis in the Equity Gilt Study. This contains data relating to equity returns, UK government bond returns and cash returns on various different bases, as well as index levels and dividend yields. In many cases the data series go back to the end of the First World War....
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