“I predict future happiness for Americans, if they can prevent the government from wasting the labors of the people under the pretense of taking care of them.”
“Sometimes I wonder whether the world is being run by smart people who are putting us on or by imbeciles who really mean it.”
- Laurence J. Peter, ‘The Peter Principle’.
Get your Free
financial review
First, some history.
“During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.
“Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.
“You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.
“Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.”
Warren Buffett was writing about the US stock market during the depths of the financial crisis – you can read his full op-ed here – but a similar argument holds for the UK stock market, too. The UK has also been one of the long term winners versus many other stock markets. How it will fare under a Socialist government is not so clear.
But as Buffett is right to point out in his opinion piece for the New York Times, if you wait for the robins, spring will be over. There’s never a good time to be investing – there’s always something to worry about.
Which is why we focus so much of our time on searching for genuine value, which offers a ‘margin of safety’ in the event of a broad market sell-off. By definition the less you pay for something, the less you should worry about it becoming cheaper. And if you’ve done your homework properly, the cheaper it becomes, the more attractive it becomes, and you should buy more.
And we’re also not convinced that there’s huge merit in market timing. We know that we’ve never been able to practise it successfully. So unless it’s critical for you that your portfolio cannot undergo any decline in net asset value whatsoever, we suggest the better option is simply to diversify sensibly, across a variety of asset classes, including investments that aren’t correlated to stocks and bonds, and then hunker down and wait for the dust to clear.
So why did we vote ‘Out’ in the UK referendum on leaving the EU back in 2016 ?
Quite simply, because what we signed up for in the referendum of 1975 was continued membership of a Common Market, and nothing more. The EU of 2016, and still more so of 2024, has metastasised into something far beyond that – and its direction of travel towards full political union is beyond debate.
For us, the argument was barely about money. Indeed it was quite possible that in the short run at least, a decision to leave the EU in 2016 would hurt rather than boost the fortunes of our asset management business.
But there’s more to life than money alone.
The European Union was conceived in a bi-polar world, when the countries of Europe were sandwiched politically and geographically between the United States and the Soviet Union. The EU was born in a world before globalisation and emerging markets even existed.
The EU’s agenda of ever-closer union, trade harmonisation and integration entails ever-rising regulation and the reduction of competition – which is probably why so many big businesses voted to Remain.
The EU’s economic performance is poor and getting worse.
The EU itself is becoming increasingly unpopular amongst its own people.
And the introduction of the euro, undertaken for political reasons fundamental to the long term EU project, has turned out to be an economic disaster.
We are not anti-European. We love Europe. But as the former Conservative MEP Daniel Hannan has pointed out, it is possible to love Europe and hate the EU.
Sadly, the tone of the referendum debate, like the quality of all political argument in its wake, on both sides of the Atlantic, was a disgrace – like watching four-year olds insulting each other in the playground. There was certainly plenty of noise, but precious little signal. And – just as with Covid, lockdown and now Climate Change – we are sick and tired of hearing so-called ‘experts’ wheeled out to issue fatuous forecasts that have no substance in reality.
We do, however, recommend Roger Bootle’s excellent book on the subject – ‘The trouble with Europe’.
Roger Bootle has some serious form when it comes to economic forecasting.
He published ‘The Death of Inflation’, for example, in 1998 – when nobody was anticipating the wave of deflation that subsequently washed across the developed world.
And ‘The trouble with Europe’ is not the product of a swivel-eyed Eurosceptic headbanger, but a careful, balanced and even-handed discussion about the merits and challenges of a British departure from the European Union.
Bootle is surely right when he points out the deficiencies of the EU project, namely:
- The EU suffers from a profound identity crisis;
- Its institutions are badly structured and badly run;
- It is focused on a largely irrelevant agenda, driven by the pursuit of harmonisation and integration, which produce costly regulation and dampen competition;
- It is alienated from its electorates.
And it is already too big, yet wants to get bigger.
We’ve written before about Leopold Kohr. Kohr was an Austrian Jew who only narrowly escaped the Nazis and went on to write his ‘magnum opus’ which was titled ‘The breakdown of nations’.
Kohr had grown up in and been heavily influenced by his small home town of Oberndorf near Salzburg. The Christmas carol ‘Silent Night’ had been written and composed there.
Throughout his life, Kohr was sceptical of “bigness”.
He fervently hoped that, after the horrors of the Second World War, Europe might get “cantonised” back to the sort of small, autonomous communities that still exist in Switzerland:
“We have ridiculed the many little states,” he wrote,
“now we are terrorised by their few successors.”
Our hostility to the EU project is as much philosophical as it is political or economic.
Ruchir Sharma, writing for ‘The Financial Times’ (‘Capitalism is in worse shape in Europe’ – 1st July 2024), asks and answers the pertinent question:
“Why is Europe falling behind? Look at the role of government. While over time governments have extended their control over most capitalist economies, they have expanded most markedly in Europe. Until the 1980s, government spending was lower on average in the UK and the EU Big 4 than in the US. Now Europe spends far more. The burdens of an oversized state have crushed productivity growth, which is the key to rising prosperity. From 1960s postwar peaks, I calculate that productivity growth has collapsed from almost 7 per cent to less than zero in the EU Big 4. It has fallen in the US too but less drastically, dropping from 2.5 per cent to around 1 per cent, possibly due to superior tech prowess..
“More government spending left less room for private competition and initiative, particularly as central banks joined governments in a campaign to eliminate business cycles. Central bank purchases of bonds and other assets exploded from near zero in the downturns of the early 2000s to record heights in 2020, reaching 16 per cent of GDP in the US and 22 per cent in the EU Big 4.
“As the “cleansing effect” of recessions faded, incumbents thrived. Corporate profits rose in part on oligopoly pricing power. Since 2000, sales in most industries have been concentrating in the largest firms — though on this front less rapidly in Europe than the US.
“Markets increasingly distorted by easy money and state bailouts also spawned “zombies” — firms that don’t earn enough to cover even interest payments on their debt. Rare before the 1980s, the latest data show zombies account for at least 10 per cent of public companies in developed markets — up to 20 per cent in the US and 22 per cent in the UK.
“In part because it lacks spending authority, the “Eurocracy” channelled its energies into what has been described as a “global regulatory hegemon”. Any company with ambitions in Europe must meet standards set by the most powerful states, Germany and France, on everything from carbon emissions to milk production.
“Facing both continental and national bureaucracies, it’s no surprise Europeans are more likely than Americans to cite regulation as a major obstacle to starting or expanding businesses. Many medium-sized German companies say they are considering shutting down, citing “too much red tape and higher taxes”. Many French firms dare not grow, lest they face costly rules that apply to firms with more than 50 employees.
“Heavy regulation creates a business environment that is friendly to mega firms with the most money and lawyers. Until the pandemic hit, start-ups were shrinking as a share of all companies in many industrial countries, including the UK, Spain and Italy.
“By favouring giant companies, governments boost the wealth of corporate founders, including entrenched billionaires..”
We would also cite the work of the late Dr. Albert Bartlett, professor of physics at the University of Colorado at Boulder. You can see his most famous presentation here. It’s just over an hour long, but well worth your time.
Bartlett’s key point is that mankind’s biggest failing is our inability to understand the power of the exponential function. The exponential function describes anything that grows by a fixed percentage over time. That could be the population of a city, or the number of spectators at a football match. But anything that grows by a fixed percentage over time is subject to the magical-seeming laws of compounding, what Albert Einstein allegedly referred to as the eighth wonder of the world.
Beyond a certain size in anything, there are limits to efficiency.
As Bartlett puts it, starkly,
“Continued growth past maturity for any entity becomes obesity or cancer.” Ladies and gentlemen, we give you: the European Union. The epitome of growth beyond maturity.
Warren Buffett, in his letter to shareholders of Berkshire Hathaway for 1989, also touched on the power of the exponential function:
“In a finite world, high growth rates must self-destruct. If the base from which the growth is taking place is tiny, this law may not operate for a time. But when the base balloons, the party ends: A high growth rate eventually forges its own anchor.
Carl Sagan has entertainingly described this phenomenon, musing about the destiny of bacteria that reproduce by dividing into two every 15 minutes. Says Sagan: “That means four doublings an hour, and 96 doublings a day. Although a bacterium weighs only about a trillionth of a gram, its descendants, after a day of wild asexual abandon, will collectively weigh as much as a mountain…in two days, more than the sun – and before very long, everything in the universe will be made of bacteria.” Not to worry, says Sagan: Some obstacle always impedes this kind of exponential growth. “The bugs run out of food, or they poison each other, or they are shy about reproducing in public.”
Albert Bartlett was primarily concerned with the scarcity of natural resources and the limits of physical infrastructure when faced with a human population growing at an exponential rate.
But the exponential function isn’t just relevant to population growth. The power of compounding has a deadly relevance to the financial world, most notably to the decades-long build-up of a mountain of sovereign debt.
In the aftermath of the Global Financial Crisis, a story somehow got about that governments had started to whittle down that mountain of debt. That they had, in financial parlance, started to “delever” – i.e. pay down their accumulated debts. But as the McKinsey Global Institute pointed out, for example, in their research note of February 2015, ‘Debt and (not much) deleveraging’, the idea of governments suddenly becoming fiscally responsible after the Crash was a complete myth. The terrible reality is that since 2007, global debt levels have actually exploded higher. Since the global debt mountain was already unpayable back in 2007, the fact that it has subsequently expanded, and not shrunk, should serve as a warning – to governments and investors alike. There are limits to exponential growth.
At some point, the bond market will encounter those limits.
But there’s what’s truly safe, and what everyone thinks is safe. They are not the same thing.
Jeremy Siegel makes the point nicely when he observes,
“You have never lost money in stocks over any 20-year period, but you have wiped out half your portfolio in bonds [after inflation]. So which is the riskier asset ?”
Flight to safety ? Flight to insanity, more like.
And the euro zone is Ground Zero for this insanity in the sense that its banking industry has barely restructured since the financial crisis (unlike those of the US and the UK). And the monetary regime of the euro means that individual sovereign governments within the EU can’t even try and print their way out of their problems – only the ECB can do that. The economies of the EU are locked inside a doomsday machine.
The continued expansion of the EU also means an ever-rising financial burden on those few countries which are net financial contributors to the project.
In 1957 the richest country of the six founder members of the EEC, excluding tiny Luxembourg, was the Netherlands. Its per capita GDP was not quite double that of the poorest country, namely Italy.
In 2004 when the EEC expanded its membership by nine new countries, the per capita GDP of the poorest new joiner, Poland, was about a third of the richest. When Bulgaria and Romania joined in 2007, they were even poorer.
As the EU has spread eastward, it has incorporated countries that are significantly less developed than those of the founder members of the project when it was started. One obvious side-effect is that there has been a huge growth in migration from the (much) poorer countries to the (much) richer ones. This has in turn generated an ugly upsurge of racism, xenophobia and hostility to the EU project among rich and poor alike.
Migration was not an issue at the founding of the EEC nor in the 1973 expansion, because the discrepancies in the wealth of the various members were not so extreme.
Perhaps the biggest concern we have on the part of the EU project is that we think it will fail, because we think the euro will fail, and in voting Out we didn’t want the people of the UK, which has never been part of the euro zone, to have to pick up the tab. We’ve paid enough already.
We encourage you to read Roger Bootle’s book, ‘The trouble with Europe’.
But we also suggest that there’s very little requirement to do anything by way of preparing for whatever volatility may be to come. (You can always raise cash, or – probably a better idea – increase your allocation to gold, just in case.)
We have no idea what the market will do in the short term. But as long as we hold sensible investments at sensible prices, we don’t need to, either.
So this is why we voted Out in 2016. We went one better on 4th July 2024, and expressed our respect for a thoroughly corrupt political system by not even voting at all.
………….
As you may know, we also manage bespoke investment portfolios for private clients internationally. We would be delighted to help you too. Because of the current heightened market volatility we are offering a completely free financial review, with no strings attached, to see if our value-oriented approach might benefit your portfolio – with no obligation at all:
Get your Free
financial review
…………
Tim Price is co-manager of the VT Price Value Portfolio and author of ‘Investing through the Looking Glass: a rational guide to irrational financial markets’. You can access a full archive of these weekly investment commentaries here. You can listen to our regular ‘State of the Markets’ podcasts, with Paul Rodriguez of ThinkTrading.com, here. Email us: info@pricevaluepartners.com.
Price Value Partners manage investment portfolios for private clients. We also manage the VT Price Value Portfolio, an unconstrained global fund investing in Benjamin Graham-style value stocks.
“I predict future happiness for Americans, if they can prevent the government from wasting the labors of the people under the pretense of taking care of them.”
“Sometimes I wonder whether the world is being run by smart people who are putting us on or by imbeciles who really mean it.”
Get your Free
financial review
First, some history.
“During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.
“Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.
“You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.
“Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.”
Warren Buffett was writing about the US stock market during the depths of the financial crisis – you can read his full op-ed here – but a similar argument holds for the UK stock market, too. The UK has also been one of the long term winners versus many other stock markets. How it will fare under a Socialist government is not so clear.
But as Buffett is right to point out in his opinion piece for the New York Times, if you wait for the robins, spring will be over. There’s never a good time to be investing – there’s always something to worry about.
Which is why we focus so much of our time on searching for genuine value, which offers a ‘margin of safety’ in the event of a broad market sell-off. By definition the less you pay for something, the less you should worry about it becoming cheaper. And if you’ve done your homework properly, the cheaper it becomes, the more attractive it becomes, and you should buy more.
And we’re also not convinced that there’s huge merit in market timing. We know that we’ve never been able to practise it successfully. So unless it’s critical for you that your portfolio cannot undergo any decline in net asset value whatsoever, we suggest the better option is simply to diversify sensibly, across a variety of asset classes, including investments that aren’t correlated to stocks and bonds, and then hunker down and wait for the dust to clear.
So why did we vote ‘Out’ in the UK referendum on leaving the EU back in 2016 ?
Quite simply, because what we signed up for in the referendum of 1975 was continued membership of a Common Market, and nothing more. The EU of 2016, and still more so of 2024, has metastasised into something far beyond that – and its direction of travel towards full political union is beyond debate.
For us, the argument was barely about money. Indeed it was quite possible that in the short run at least, a decision to leave the EU in 2016 would hurt rather than boost the fortunes of our asset management business.
But there’s more to life than money alone.
The European Union was conceived in a bi-polar world, when the countries of Europe were sandwiched politically and geographically between the United States and the Soviet Union. The EU was born in a world before globalisation and emerging markets even existed.
The EU’s agenda of ever-closer union, trade harmonisation and integration entails ever-rising regulation and the reduction of competition – which is probably why so many big businesses voted to Remain.
The EU’s economic performance is poor and getting worse.
The EU itself is becoming increasingly unpopular amongst its own people.
And the introduction of the euro, undertaken for political reasons fundamental to the long term EU project, has turned out to be an economic disaster.
We are not anti-European. We love Europe. But as the former Conservative MEP Daniel Hannan has pointed out, it is possible to love Europe and hate the EU.
Sadly, the tone of the referendum debate, like the quality of all political argument in its wake, on both sides of the Atlantic, was a disgrace – like watching four-year olds insulting each other in the playground. There was certainly plenty of noise, but precious little signal. And – just as with Covid, lockdown and now Climate Change – we are sick and tired of hearing so-called ‘experts’ wheeled out to issue fatuous forecasts that have no substance in reality.
We do, however, recommend Roger Bootle’s excellent book on the subject – ‘The trouble with Europe’.
Roger Bootle has some serious form when it comes to economic forecasting.
He published ‘The Death of Inflation’, for example, in 1998 – when nobody was anticipating the wave of deflation that subsequently washed across the developed world.
And ‘The trouble with Europe’ is not the product of a swivel-eyed Eurosceptic headbanger, but a careful, balanced and even-handed discussion about the merits and challenges of a British departure from the European Union.
Bootle is surely right when he points out the deficiencies of the EU project, namely:
And it is already too big, yet wants to get bigger.
We’ve written before about Leopold Kohr. Kohr was an Austrian Jew who only narrowly escaped the Nazis and went on to write his ‘magnum opus’ which was titled ‘The breakdown of nations’.
Kohr had grown up in and been heavily influenced by his small home town of Oberndorf near Salzburg. The Christmas carol ‘Silent Night’ had been written and composed there.
Throughout his life, Kohr was sceptical of “bigness”.
He fervently hoped that, after the horrors of the Second World War, Europe might get “cantonised” back to the sort of small, autonomous communities that still exist in Switzerland:
“We have ridiculed the many little states,” he wrote,
“now we are terrorised by their few successors.”
Our hostility to the EU project is as much philosophical as it is political or economic.
Ruchir Sharma, writing for ‘The Financial Times’ (‘Capitalism is in worse shape in Europe’ – 1st July 2024), asks and answers the pertinent question:
“Why is Europe falling behind? Look at the role of government. While over time governments have extended their control over most capitalist economies, they have expanded most markedly in Europe. Until the 1980s, government spending was lower on average in the UK and the EU Big 4 than in the US. Now Europe spends far more. The burdens of an oversized state have crushed productivity growth, which is the key to rising prosperity. From 1960s postwar peaks, I calculate that productivity growth has collapsed from almost 7 per cent to less than zero in the EU Big 4. It has fallen in the US too but less drastically, dropping from 2.5 per cent to around 1 per cent, possibly due to superior tech prowess..
“More government spending left less room for private competition and initiative, particularly as central banks joined governments in a campaign to eliminate business cycles. Central bank purchases of bonds and other assets exploded from near zero in the downturns of the early 2000s to record heights in 2020, reaching 16 per cent of GDP in the US and 22 per cent in the EU Big 4.
“As the “cleansing effect” of recessions faded, incumbents thrived. Corporate profits rose in part on oligopoly pricing power. Since 2000, sales in most industries have been concentrating in the largest firms — though on this front less rapidly in Europe than the US.
“Markets increasingly distorted by easy money and state bailouts also spawned “zombies” — firms that don’t earn enough to cover even interest payments on their debt. Rare before the 1980s, the latest data show zombies account for at least 10 per cent of public companies in developed markets — up to 20 per cent in the US and 22 per cent in the UK.
“In part because it lacks spending authority, the “Eurocracy” channelled its energies into what has been described as a “global regulatory hegemon”. Any company with ambitions in Europe must meet standards set by the most powerful states, Germany and France, on everything from carbon emissions to milk production.
“Facing both continental and national bureaucracies, it’s no surprise Europeans are more likely than Americans to cite regulation as a major obstacle to starting or expanding businesses. Many medium-sized German companies say they are considering shutting down, citing “too much red tape and higher taxes”. Many French firms dare not grow, lest they face costly rules that apply to firms with more than 50 employees.
“Heavy regulation creates a business environment that is friendly to mega firms with the most money and lawyers. Until the pandemic hit, start-ups were shrinking as a share of all companies in many industrial countries, including the UK, Spain and Italy.
“By favouring giant companies, governments boost the wealth of corporate founders, including entrenched billionaires..”
We would also cite the work of the late Dr. Albert Bartlett, professor of physics at the University of Colorado at Boulder. You can see his most famous presentation here. It’s just over an hour long, but well worth your time.
Bartlett’s key point is that mankind’s biggest failing is our inability to understand the power of the exponential function. The exponential function describes anything that grows by a fixed percentage over time. That could be the population of a city, or the number of spectators at a football match. But anything that grows by a fixed percentage over time is subject to the magical-seeming laws of compounding, what Albert Einstein allegedly referred to as the eighth wonder of the world.
Beyond a certain size in anything, there are limits to efficiency.
As Bartlett puts it, starkly,
“Continued growth past maturity for any entity becomes obesity or cancer.” Ladies and gentlemen, we give you: the European Union. The epitome of growth beyond maturity.
Warren Buffett, in his letter to shareholders of Berkshire Hathaway for 1989, also touched on the power of the exponential function:
“In a finite world, high growth rates must self-destruct. If the base from which the growth is taking place is tiny, this law may not operate for a time. But when the base balloons, the party ends: A high growth rate eventually forges its own anchor.
Carl Sagan has entertainingly described this phenomenon, musing about the destiny of bacteria that reproduce by dividing into two every 15 minutes. Says Sagan: “That means four doublings an hour, and 96 doublings a day. Although a bacterium weighs only about a trillionth of a gram, its descendants, after a day of wild asexual abandon, will collectively weigh as much as a mountain…in two days, more than the sun – and before very long, everything in the universe will be made of bacteria.” Not to worry, says Sagan: Some obstacle always impedes this kind of exponential growth. “The bugs run out of food, or they poison each other, or they are shy about reproducing in public.”
Albert Bartlett was primarily concerned with the scarcity of natural resources and the limits of physical infrastructure when faced with a human population growing at an exponential rate.
But the exponential function isn’t just relevant to population growth. The power of compounding has a deadly relevance to the financial world, most notably to the decades-long build-up of a mountain of sovereign debt.
In the aftermath of the Global Financial Crisis, a story somehow got about that governments had started to whittle down that mountain of debt. That they had, in financial parlance, started to “delever” – i.e. pay down their accumulated debts. But as the McKinsey Global Institute pointed out, for example, in their research note of February 2015, ‘Debt and (not much) deleveraging’, the idea of governments suddenly becoming fiscally responsible after the Crash was a complete myth. The terrible reality is that since 2007, global debt levels have actually exploded higher. Since the global debt mountain was already unpayable back in 2007, the fact that it has subsequently expanded, and not shrunk, should serve as a warning – to governments and investors alike. There are limits to exponential growth.
At some point, the bond market will encounter those limits.
But there’s what’s truly safe, and what everyone thinks is safe. They are not the same thing.
Jeremy Siegel makes the point nicely when he observes,
“You have never lost money in stocks over any 20-year period, but you have wiped out half your portfolio in bonds [after inflation]. So which is the riskier asset ?”
Flight to safety ? Flight to insanity, more like.
And the euro zone is Ground Zero for this insanity in the sense that its banking industry has barely restructured since the financial crisis (unlike those of the US and the UK). And the monetary regime of the euro means that individual sovereign governments within the EU can’t even try and print their way out of their problems – only the ECB can do that. The economies of the EU are locked inside a doomsday machine.
The continued expansion of the EU also means an ever-rising financial burden on those few countries which are net financial contributors to the project.
In 1957 the richest country of the six founder members of the EEC, excluding tiny Luxembourg, was the Netherlands. Its per capita GDP was not quite double that of the poorest country, namely Italy.
In 2004 when the EEC expanded its membership by nine new countries, the per capita GDP of the poorest new joiner, Poland, was about a third of the richest. When Bulgaria and Romania joined in 2007, they were even poorer.
As the EU has spread eastward, it has incorporated countries that are significantly less developed than those of the founder members of the project when it was started. One obvious side-effect is that there has been a huge growth in migration from the (much) poorer countries to the (much) richer ones. This has in turn generated an ugly upsurge of racism, xenophobia and hostility to the EU project among rich and poor alike.
Migration was not an issue at the founding of the EEC nor in the 1973 expansion, because the discrepancies in the wealth of the various members were not so extreme.
Perhaps the biggest concern we have on the part of the EU project is that we think it will fail, because we think the euro will fail, and in voting Out we didn’t want the people of the UK, which has never been part of the euro zone, to have to pick up the tab. We’ve paid enough already.
We encourage you to read Roger Bootle’s book, ‘The trouble with Europe’.
But we also suggest that there’s very little requirement to do anything by way of preparing for whatever volatility may be to come. (You can always raise cash, or – probably a better idea – increase your allocation to gold, just in case.)
We have no idea what the market will do in the short term. But as long as we hold sensible investments at sensible prices, we don’t need to, either.
So this is why we voted Out in 2016. We went one better on 4th July 2024, and expressed our respect for a thoroughly corrupt political system by not even voting at all.
………….
As you may know, we also manage bespoke investment portfolios for private clients internationally. We would be delighted to help you too. Because of the current heightened market volatility we are offering a completely free financial review, with no strings attached, to see if our value-oriented approach might benefit your portfolio – with no obligation at all:
Get your Free
financial review
…………
Tim Price is co-manager of the VT Price Value Portfolio and author of ‘Investing through the Looking Glass: a rational guide to irrational financial markets’. You can access a full archive of these weekly investment commentaries here. You can listen to our regular ‘State of the Markets’ podcasts, with Paul Rodriguez of ThinkTrading.com, here. Email us: info@pricevaluepartners.com.
Price Value Partners manage investment portfolios for private clients. We also manage the VT Price Value Portfolio, an unconstrained global fund investing in Benjamin Graham-style value stocks.
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