I read the other day a puff piece sponsored by Swiss finance industry. It was about them attracting ultra-rich clients. Its understood, that Swiss are desperate to restore some appearance of credibility after they rat out their clients under so-called “The swiss bank program”. In short, the program allowed for Swiss banks to avoid criminal prosecution in exchange for the disclosure of all of its U.S.-related accounts that were open at each bank between August 1, 2008, and December 31, 2014.
The piece presented the ugly truth, that this time the rich lobbied quick and hard the western governments. The markets were flooded with liquidity at the first sign of the pandemic, with very little places to go but the stock market. As the result, asset prices across financial markets have held up very well.
While the global economy is going to contract by 4.4. percent (8% in the USA, 10% in the UK, 6% in Russia and China will grow by 2.7%).
The billionaires grew richer, as they could afford to hold to their investments and even poured in more money during the crisis. Any pre-pandemic worries about wild evaluations of the technology stocks were washed away. The main growth in stocks was in Technology and Health Industries. Equities price to earnings ratio is now 33 for Facebook, 34 for Google, 36 for Apple, 92 for Amazon, 800 for Tesla. This is much higher the historical average, which was mostly between 10 and 20.
Amazon chief executive Jeff Bezos net worth grew by $73bn between mid-March and mid-September. The EU is unable to adequately respond to the pandemic and going into second lockdown. Jeff's net worth expected to grow further. Tesla and Facebook chief executives (Elon Musk and Mark Zuckerberg) each have $45bn more.
There has been an enormous wealth transfer from the poor to the rich via injection and direct contracts to selected companies by the governments in West.
On much small scale I benefited a little bit too. I invested in the each of kids' college accounts $17K in April 2020 it has grown by 20% now. The fact is that the poor and middle class will pay higher taxes once they are back to their jobs.
Emotions cost the investors’ money.
Apart from the need for money, some people do it to satisfy their emotional needs. During periods of high stress, investor losses can rise to about 6 or 7 per cent a year from emotionally-guided investment decisions. That number rises significantly if someone fully invested in equities were to have sold out at the bottom of the March downturn. Because investors feel deep discomfort selling chronically under performing assets at a loss, many people in down markets will hold on to losing assets, and instead sell the things that are going up. Which is, of course, the wrong way round.
A compulsion to buy high and sell low costs investors 1.5 to 2per cent a year, compared with buy and hold strategies. Investors increasing their cash holdings due to uncertainty is a principle cause of investment own-goals, costing them 4 to 5 per cent a year over the long term. The average UK investor holds 14 per cent of their investment portfolio in cash.
Fees – the investors are making rich somebody else.
A handful of super wealthy multi-billionaires have accumulated vast riches from running private equity funds that have performed no better on average than basic US stock market tracker funds since 2006.
The number of private equity barons with personal fortunes of more than $2bn has risen from three in 2005 to 22, according to a new analysis which estimates investors paid $230bn in performance fees over a 10-year period for returns that could have been matched by an inexpensive tracker fund costing just a few basis points.
The performance is average. US public pension plans earned about $1.50 (net of fees) for every $1 invested in private equity funds between 2006 and 2015. This translates into annualised returns of about 11 per cent, little different from the US stock market over the same period. The performance of Private Equity funds, net of fees, matched that of public equity markets since 2006.
The active fund managers were kept explaining that during a crisis they will proof their worth and wisdom. In the past ten years approximately $2tn has been transferred from active to passive funds. Only about a third of US equity funds beat the broader market in the year to the end of June. The longer-run results are even grimmer, with under 13 per cent outperforming over the past 15 years. The story is broadly similar for bond funds, despite fixed income markets generally being considered less efficient and therefore offering more opportunities for skilled money managers.
Active vs. Passive flow money flow in the last ten years. Amount is in $tn
Fun story: Current secretary of the state in the UK used to be justice secretary in 2016. Back then he announced plans to overhaul legislation to make it easier to convict companies of financial crimes. No measurable progress has been done (but no doubt some deal and connections were made).
Currently in the UK to secure corporate convictions you need to find "directing mind" - usually senior executive, to hold it criminally liable. This drives corporate culture where nobody is responsible as every decision is done by consensus.
In March 2019 a letter written by a cross-party group of members of the British parliament said there was “no real legal mechanism for holding large institutions criminally to account”.
What is the government doing? The government’s plan includes the creation of a “strategic board”, agreed by the Home Office and the Treasury, to oversee economic-crime policy. But it also included bankers from Barclays, HSBC, Standard Chartered and other lenders — many of which have been in the cross hairs of authorities in recent years for failing to prevent economic crime.