Tuesday, 14 October 2008

New Labour is bad for the FTSE

This looks like boom and bust to me.

The red line indicates the level of FTSE when Brown took over the management of the UK economy. Eleven years later, the FTSE is below the level it was back in June 1997. The index has been through at least two unsustainable booms followed by two nasty crashes.

In contrast, the period between 1984-97 looks like an Arcadian golden age of steady price appreciation, and no major crashes. Even the 1987 nosedive looks like a temporary blip.

The message is clear; New Labour is bad for equity markets, the Conservatives bring stability, and steady capital growth. Ok, I am being a little provocative here, but the chart does seem to suggest this basic message.

Also, for those of us who don't actually own equity and would like to see a more equitable distribution of wealth, the fact that the index is below its 1997 level might be a positive thing. It might give a brief moment of envious and bitter pleasure. It serves the rentier class right.

(Many thanks to Nick, who inadvertently suggested this chart to me)


JeD said...

Thats a great chart.

Nick von Mises said...

You're welcome. While the general point holds that Labour = disaster, the Tories did have the advantage of being earlier in the secular credit cycle that started from 1971 (i.e. Nixon defaulting on all US dollars). The run up under the Tories has a big part of credit expansion behind it but they were voted out before the crack-up boom.

Oh, bearing in mind the FTSE is ultimately in £££s, how about an inflation adjustment. The trots will LOVE that.

Mark Wadsworth said...

Yup. That is one majestic 'double-top' formation. And proves the old rule that stock markets 'underperform' under Labour.

dearieme said...

Don't worry, when milord Mandelson spends his Brussels booty, the market will sky-rocket.

jdc said...

Yes, as above I think this is unfair - the Tory era on the graph is all at lower numbers, so of course the 1987 crash looks smaller. 25% of 2000 is a much smaller number than 20% of 6000.

Also it was a period of higher inflation, so to get a real return on the money you would expect stocks needed to rise faster, and they would, as profits went up thanks to inflation.

Logarithmic real terms graph, please!

roym said...

what a wind up. as someone posted above, we really need to see this data in real terms.

Are we also to believe that Lab were responsible for the large falls due to 9/11, or the dot-com crash!

I fail to see what complaints free-marketeers can have from this govt. after all they spent just as much time up the backsides of the the square mile promoting its virtues and applying "light touch" regulation at the expense of pretty much every other sector bar construction perhaps.

yes, these have been the worst two 5 year stretches to have invested in equities but perhaps we should feel a bit for the simple investor who went long thinking about retirement. how many of those will have to delay that for at least another 5 years whilst those who created todays mess have pocketed enough to be more than comfortable in whichever sunspot that pleases them.

Anonymous said...

Roym, Inflation is running at over 5% right now so in fact the figures for the Labour gov would be far worse.

And the UK was less affected by the dot.com burst than the US and Brown did just as little to burst it. And you forgot to mention the current crisis which is 100% Brown's fault.

roym said...

"And the UK was less affected by the dot.com burst than the US"

the FTSE still took a nosedive though. i have the balance sheets of a couple of maxi ISAs to prove it! and just what was brown supposed to have done to deflate that bubble?

"the current crisis which is 100% Brown's fault"

i agree this govt was very happy to take tax receipts from housing/construction instead of easing the pressure and keeping house prices realistic. however, one could be equally simplistic and say that deregulating mortgage lending and enabling building societies to demutualise precipitated the avalanche.

jdc said...

"Roym, Inflation is running at over 5% right now so in fact the figures for the Labour gov would be far worse."

Than what? Inflation was well into double digits for much of the Thatcher era.

Anonymous said...

jdc, really when? I know they inherited double digit inflation but they brought that under control by 83.

jdc said...

Yes and no - Labour actually had brought it under control to an extent, hence the strikes. RPI fell from 17% in 1976 to 8.5% in 1978, went into double digits again in 1979 and stayed there. Even in 1983 it averaged 4.9%, so not that different from today. It fell for a few years after that, but by 1989 it was soaring again thanks to the Lawson boom, hitting 5.4 that year, then 6.9, then peaking at an average annual rate of 7.6 in 1991.