Many of the French have an aversion to capitalism, and the past performance of stocks in France easily explains why. The contrast between historical returns to investors in France and the United States have about as much in common as the four French candidates. Over the past 150 years, French investors have received some of the worst returns of any country on the planet. We have put together total return numbers for stocks, bond and bills using data from David Le Blis, who extended returns for the CAC-40 index back to 1854 for stocks, and Global Financial Data for bonds and bills. We have taken the French returns, converted them into US Dollars, and then adjusted for inflation. Data for the S&P 500 in the United States is available back to 1871. The table below compares 145 years of returns to stocks, bonds and bills in France and the United States.  

Real Returns in USD in France and the United States, 1871-2016

Country	Stocks	Bonds	Bills
France	0.53	-0.02	-1.50
United States	6.37	2.22	0.60

If someone had invested $1 in France in 1871 and brought the money back to the United States in 2016, after inflation they would have had $2.14 if they had invested in stocks, $0.97 if they invested in bonds and $0.11 if left their money in bills. By contrast, if the money had been invested in America, they would have ended up with $7,758 from an investment in stocks, $24.12 from bonds and $4.30 from bills. If you think France’s poor returns are not one cause of the country’s left-leaning economic policies, you’re only fooling yourself.  

Two Turning Points

To illustrate the impact that French elections and government policy have had on French investors, we can look at two events: the election of the socialist Léon Blum on May 3, 1936 and the “tournant de la rigueur” (austerity turn) instituted by François Mitterand in March 1983. Léon Blum led the Popular Front to victory in the French elections of 1936, which led to a series of leftist reforms that transformed the French economy. World War II began in 1939 and inflation reigned in France both during and after the war. The result was a disaster for French investors. Adjusting for inflation, 1 Franc invested on January 1, 1936 in French stocks, bonds and bills would have produced horrible losses over the next 15 years. After inflation, one franc invested in stocks in 1936 was worth 4.37 centimes in 1951, one franc invested in bonds was worth 3.88 centimes and one franc invested in bills was worth 3.26 centimes. In other words, no matter where you invested your money in France, you would have lost over 95% of your investment after inflation between 1936 and 1951. Although things improved after 1951 as France enjoyed its post-war growth, investors still received relatively lousy returns. In the 100 years before Mitterand introduced his austerity plan in 1983, French investors lost money no matter where they invested their funds. If investors had put 1 Franc in stocks, bonds and bills in 1882, 100 years later they would have been in tears. One franc invested in French stocks in 1882 left investors with 6.65 centimes after inflation 100 years later. If they had put their money in bonds, they would have ended up with 5.59 centimes and in bills 4.11 centimes after inflation. Over a 100-year period, French investors would have lost over 90% of their money after inflation no matter how they invested their money. Contrast this with the returns to American investors between 1882 and 1982. If American investors had put $1 in stocks in 1882, after inflation they would have ended up with $208 by 1982, $2.73 if $1 had been put in bonds and $1.18 if $1 had been put in bills. The graph below illustrates total returns to French investors in US Dollars after inflation. Given the miserable performance of French investments, it is no wonder that the French are often the strongest critics of capitalism in the world. It should come as no surprise that Capital in the Twenty-First Century was written by Thomas Piketty from France. If investors in the rest of the world had suffered the lousy returns of the French, it would be a miracle if capitalism was left in any country. During the past 100 years, French economic policy has been disastrous for investors. But the fact of the matter is that in the past, the French electorate has elected leaders who showed little concern for investors, and they suffered as a result. The 2017 elections offer voters candidates who clearly differ in their economic policies. Let’s hope the French electorate understands that their choices do have consequences, and vote accordingly.

Global Financial Data has added 320 Total Return Series to its GFD Indices. These series cover over 50 countries and include returns to stocks, bonds and bills. These indices use data already available in the total return series that are available through the GFDatabase. The indices are available both as nominal and inflation-adjusted series.These series differ from the GFDatabase indices because they have all been converted into United States Dollars and all have a common base of 12/31/1999 = 1000. This allows users to directly compare the returns to stocks bonds and bills from all major markets in the world. These total return series have more history than is available from any other vendor. A naming convention has been used to make access easier. Each series begins with “GFT” then add B for the Bond index, “C” for the Cash Index or “S” for the stock index, then add the ISO code for each country, then M for the nominal index and R for the Real Index. So the Hong Kong nominal stock exchange index is GFTSHKGM and the Canadian Real Bill Index is GFTCCANR.The GFD Total Return Indices complement the GFD Indices that are already available. The GFD Indices include several hundred series covering bonds, commodities, stocks and real estate. With the addition of these series, the GFD Indices include over 500 series. To get more information on these indices, call today to speak to one of our sales representatives at 877-DATA-999 or 949-542-4200.

 

On March 8, 1817, the brokers officially organized as the New York Stock & Exchange Board, and rented a room for $200 a month at 40 Wall Street to trade with each other. You would think that with all the money they dealt in they could afford at least two rooms, but at least they didn’t have to meet at a coffee house anymore. The NYSE reorganized into the New York Stock & Exchange Board because the NYSE dealt not only in stocks and bonds, but currency exchange as well. After the War of 1812 ended in 1815, there was a revival of commerce leading to the creation of more banks and insurance companies. Government debt increased from $45 million in 1812 to $123 million in 1817. Consequently, business was picking up, and the brokers needed new rules and a new location. While there were only two bank shares and three government bonds traded in 1792, there were nine banks, eight insurance companies, one manufacturing company (actually a bank) and six bonds that traded in 1817. Exchange on London, France, Amsterdam, Spanish Doubloons were also negotiated. New York was beginning to displace Philadelphia as the financial capital of the United States. Still, in 1817, the only companies that listed on the NYSE were local banks and insurance companies. No turnpikes, canals, mining or industrial companies were large enough to list on the NYSE. Railroads were still to come in the future. To give you a sense of what life was like on the NYSE 200 years ago, we have recreated what a list of shares would have looked like on March 8, 1817. Unfortunately, not one of these firms has survived to the present day. In the intervening 200 years, all of them either went bankrupt or merged into another firm.

Banks	Price	Bond	Price
America	92.5	U.S. War Loans	99
State of New York	119	U.S. Deferreds	97
City	100	U.S. Louisiana 6s	99
Manhattan Co.	111	U.S. 7s	105
Mechanics	112	U.S. 6s	99
Merchants	115	U.S. 6s, old & def.	99.25
New York	118	U.S. 3s	63.5
Bank of the United States	79.5
Union	90	Exchange on	Price
Insurance	Price	London	98
American	104.5	Paris	5.4
Eagle	116	Amsterdam	39
Globe	101	Spanish Dollars	7.75
Mutual Fire	111	Doubloons	15.875
National	95
New York	80
Ocean Marine	60
Washington Marine	110
New York Manufacturing Co.	75

  And what did the market look like in 1817? Using data on each of the companies in the list above, we have put together an index to show what an index of stocks in 1817 would have looked like. Data are price weighted as is true of the Dow Jones Industrial Average. I wonder what a broker from 1817 would think of the NYSE in 2017. Our Rip van Broker would discover that Starbucks had replaced the Tontine Coffee House, but he could get a copy of The Wall Street Journal there to keep up with the market. However, he would also find out that if he referred to the barista as a “wench”, he might get slapped. At first, Rip would wonder why everyone stared at and spoke to a box called a smartphone rather than to other people, but once he discovered how you could use it to follow the market in real time and buy and sell stocks, he and the phone would become inseparable. When he went to the floor of the stock exchange, he would be amazed to find that all the traders had disappeared. The exchange had learned to operate without people since they were unable to execute trades in milliseconds. Computers and algorithms had superseded inefficient human beings. Rip van Broker would probably be called over to the CNBC booth to reflect on the changes that had occurred over the past 200 years. After spending 15 seconds talking about the past, he would be asked where the market was headed in 2017 and which stocks he would recommend to the viewers watching him from every corner of the planet. I’m sure that at this point he would pray that his wife would wake him up so he could escape his nightmare.  

The NYSE in 2217

And what will the NYSE look like in 2217? Will It even exist? At the rate technology is proceeding, I’ll be surprised if stock exchanges are around 10 years from now, much less in 200 years. Happy 200th Anniversary New York Stock Exchange. Enjoy it while you can because you probably won’t have many more.

The canal was built by William Douglass and William Cradock. Its purpose was to bring necessities, such as food and coal, to Loughborough and ship wool and other local goods to the rest of England. The shares were subscribed almost exclusively by local people including the Earl of Huntingdon (£1000), but little did the investors suspect that the Loughborough Canal was to be the most profitable canal in history. The canal was completed and opened in 1780 at the cost of £9200, when shares stood at £120. With the opening of the Erewash Canal in 1779, Loughborough was able to connect with the Trent and Mersey Canal and thus the rest of England. The canal was able to pay its first dividend of £5 in 1780. In 1791, the canal agreed to the passage of the Leicester Canal bill of 1791 in exchange for a payment of £3000 per annum. This was equal to almost £43 per share and equal to the average gross receipts for the canal during the years 1787 to 1790. The Loughborough Canal succeeded because it was a central hub for several adjoining canals, including the Leicester Navigation, the Melton Mowbray, the Oakham and the Grand Junction, causing revenues to grow until the 1820s. The Loughborough was one of the smaller canals. It had a total capital of only £142.85 for each of its 70 shares. Yes, 70 shares. There weren’t even enough shares outstanding to create a round lot! Today, Apple has 5.4 billion shares outstanding. If Apple only had 70 shares outstanding, they would be selling for $9 billion each. Nevertheless, what an investment those 70 shares were. The Loughborough Canal Navigation Co. never split its shares and it consistently both paid the highest dividend of any canal in England and had the highest price. In 1824 its share price actually hit £5000 (about $24,000 in 1824) when the company paid an annual dividend of £200 (almost $1000), more than shareholders had invested in the company. Unfortunately, the early history of the price of Loughborough Canal shares is lost in the mists of time. Given the fact that only 70 shares were available, it is a miracle we have any share history at all. Nevertheless, because the Loughborough Canal was so profitable, the shares were eagerly sought and shares remained relatively liquid until the end of the 1800s despite the small number of shares outstanding. Although the canal paid only a £5 dividend in 1780, this grew to £30 in 1793 at the height of the canal bubble, £110 in 1818 and £200 in 1824. Imagine if the dividend on the shares you owned were greater than what you had paid for the stock! Shares in Loughborough Canal stock rose from its par of £100 in 1776 to over £300 in 1792, £2400 in 1819 and £5000 in 1824, a 50-fold increase in price in 40 years, giving the canal a market capitalization of £350,000 in 1824. To get an understanding of how much money this represented, you have to realize that in 1824 the per capita GDP of England was around £30. If most laborers had worked their entire life, they would still not earn enough money to buy one share of stock! The dividend in 1824 would have supported a whole family for a year. As the chart below shows, after the Bubble ended in 1825, the price of Loughborough Canal shares followed a steady decline, in large part because the dividend paid by the Loughborough Canal fell. Nevertheless, the canal was still paying a £20 dividend in the 1860s when shares traded at £210. The decline of the Loughborough Canal began with the opening of the Leicester and Swannington Railway in the 1830s and the approval of the Midland Counties Railway which provided competition beginning in 1840. Once the railroads began to take over England, canals were unable to compete, and earnings, dividends and share prices of canals slowly declined. In a way, the Loughborough canal provided a preview of all the bubbles that were to come from canals to railroads to autos to the internet to biotech. The canal showed explosive growth in the beginning and then a slow decline into stability as competitors took business away. The Grand Union Canal bought the Loughborough Canal in 1932 and it was taken over by the British Waterways Board. Now, the city is best known for its annual Loughborough Canal and Boat Festival, but few people who visit the city will know that the Loughborough Canal Navigation Co. issued the most profitable 70 shares of any company in history.