The Rothschild Warning

Something which I have historically found somewhat irksome is the way that most private investors are biased to the buy side, yet many of those who advise them appear to be perennial bears. They also seem to delight in being harbingers of doom and gloom, even while selling stocks, bonds and probably everything else which is dependent on the markets going up and the world being in a state of decent economic growth.

Indeed, I would add that there is a small minority who actually take pleasure in private investors losing money when the markets fall, so that they can feel better about themselves, and perhaps their own failures. True, markets do fall quicker than they rise, and it pays to take a balanced, rather than rose-tinted perspective when you have your hard earned cash on the line.

But the view would be that if Warren Buffett can become one of the richest men in the world on the basis of what has generally been a patient buy and hold strategy, so in theory can everyone else.

But of course there are sadistic doomsters, and there are people who clearly know what they are talking about. Best in class in terms of financial markets brains, and indeed, genes is Lord Jacob Rothschild, scion of the legendary dynasty. His ancestor Nathan is credited with giving us arguably the finest stock market quote ever: “buy to the sound of cannons, sell to the sound of trumpets.” The last decent examples of this in a modern context were the first Iraq War as a buy, and the FTSE 100 hitting a record at the end of 1999 – when everyone was in “party” mood.

Rothschild would appear to be warning that the new highs for the FTSE 100 and many other major indices can be classed as trumpets. They would also appear to be a fanfare which is totally at odds with the fundamental position. True, we have interest rates at record lows, and this is something which can cover a multitude of issues.

However, the suggestion is that with geopolitics now at its most fraught since the Second World War, according to Rothschild, even the punch bowl of QE may not be enough to shield us from the multiple risks facing investors. For instance, we have our 20th-century-style aggressor in Russia, chaos in the Middle East, and the EU project on the verge of a Grexit. While most of these issues may have been the result of misfortune, good intentions or simply bad luck, it would appear that solutions are far away, and arguably getting even more out of reach.

But that is not all.

China is the big negative development on the economic front, something which could in the end make the trials and tribulations in the EU appear to be a tea party. The “fiscal cliff” situation in a non democratic country with untested emergency systems may have totally unpredictable consequences in The West, where we are ourselves in uncharted territory in terms of the ramifications of deflation, massive sovereign debt and flat-lining growth.

In fact, the only plus point to glean from Rothschild’s annual statement is that his investment vehicle, RIT Capital Partners has seen its assets rise 10% over the past year, with savers in the £2.3bn trust apparently flourishing in the current dark environment.