New year can get in the way of understanding what is happening on financial markets. Just because humans measure the year in 12 month tranches, it does not necessarily follow that markets do. Consider world stocks, for example. MSCI’s all-country world stock index is often cited as having fallen 43.5 percent in 2008. In fact, long-term investors’ losses were a lot worse. From an all-time high on November 1, 2007, to a low on November 28, 2008, the index fell 56.2 percent.
Thanks are due to the World Economic Forum for clearly explaining the interlinked web of misery currently facing the world. Make what you will of the details in the graphic below – and if you can, please do let us know! — but the overall impact really does spell it all out.
The world has experienced many crises in the past.
In 1636, during the Dutch Tulip Bulb Bubble, the quest for a perfect black bulb had inflated the price of a black bulb by many hundreds. In a different crisis in 1866, a London wholesale bank Overend, Gurney & Co collapsed with a massive debt, after expanding its investment portfolio beyond its means.
Graphic evidence from Investec Asset Management (below) highlighting the demise of the carry trade. It shows returns from borrowing low-yielding currencies such as Japanese yen to buy high-yielding ones over the past 7-1/2 years or so. There has been a roughy 50 percent decline since the end of July.