Perspectives on economics and finances with GFD

Complete Histories – Bank of England Stock

The stock for which Global Financial Data has the longest history is the Bank of England stock, or as it was originally known, the Governor and Company of the Bank of England. The origin of the Bank of England lies in naval warfare. In 1694, the French had the strongest navy in the world and following the 1690 Battle of Beachy Head, England needed to rebuild its navy, but King William III lacked the resources and the credit to do so.
This problem was resolved by creating the Bank of England. In exchange for creating a limited liability corporation, which would act as a bank for the government and have the right to issue banknotes, the shareholders would loan the bank £1,200,000 at 8% interest. The Royal Charter was granted on July 27, 1694 and the £1,200,000 was subscribed in only 12 days. Over time, the Bank of England took on the responsibilities of managing the government’s debt, becoming a banker’s bank, controlling interest rates through discounting and establishing a base interest rate, having the exclusive right to issue banknotes within 20 miles of London, and then within the entire country, and the other duties that are now associated with a central bank. The Bank of England was nationalized on October 29, 1945. Shareholders received £400 in bonds for each £100 in par value of bank stock with bonds paying 3% interest (as opposed to the 12% yield) with bonds redeemable at par on April 5, 1966.

The Bank of England’s stock traded for over 250 years before its nationalization. The stock participated in the South Sea Bubble of 1720, though only doubling in price rather than showing the ten-fold increase South Sea Stock enjoyed before collapsing. The Bank of England stock, along with East Indies Co. stock and South Sea Co. stock were the three companies whose shares were safe enough, because of their government connection, to trade regularly on the London Stock Exchange during the eighteenth century. Until the rise of canals and the liquidity created by the Napoleonic Wars, stock trading remained almost non-existent between 1720 and 1800. Only British government bonds were safer than Bank of England stock; however, Bank of England stock had the potential for dividend increases that the government stock did not. Although the dividend fluctuated in its first dozen years, the dividend settled down to infrequent changes after the 1720 South Sea Bubble.
As you can see by the 250-year chart of Bank of England stock, the shares showed no real trend during the 1700s, rose in price during the Napoleonic Wars as England left the gold standard and suffered inflation, declined in price from around 1818 to 1845 during the deflation that followed, rose in price for the rest of the 1800s as the Bank gradually increased its dividend, plunged until 1920 as inflation occurred without any compensating rise in the dividend, then gradually rose in price until the Bank was nationalized in 1945. The behavior of the Bank of England’s stock encapsulates the general behavior of the British stock market over that 250-year period. Bank of England stock was about as safe as they come. There was virtually no risk of bankruptcy since the Bank was backed by the British government. The Bank’s stock could participate in market fluctuations because the Bank could raise its dividend as profits rose. This provided investors some protection against inflation. By contrast, British consols, which were originally issued in 1729 and still trade today cannot raise their interest payments. In fact, as a result of two refundings, the consols pay 2.5% today rather than the original 3%, while the dividend on Bank of England stock rose from 8% in 1694 to 12% in 1945 and the price of the stock quadrupled over time. Nevertheless, most of the return to Bank of England shareholders came through the dividends. £100 invested in Bank of England stock in 1694, assuming all dividends had been reinvested and there were no taxes, would have resulted in £41,870,819 by 1945. By contrast, £100 invested in British Government consols during the same period would have resulted in only £2,637,476, a 20-fold difference. Bank of England stock clearly provided the superior return. Of course, in order to have gotten this, you would have had to live 250 years and avoid paying taxes, but let’s not waste our time on details.

GFD Complete Histories – Dr. Pepper

Since I grew up in Dallas where the old Dr. Pepper plant was located on Mockingbird Avenue (now demolished), I have always been a Dr. Pepper fan, and though not everyone refers to it as the elixir of life as I do, it is still popular among those with discriminating taste like me, especially if you grew up in Texas.
Dr. Pepper has gone through several corporate transitions. The Circle “A” Corp. which had the exclusive right to bottle Dr. Pepper went bankrupt in 1923 and reemerged as Dr. Pepper Co. after incorporating in Dallas in 1923. The Dr. Pepper Co. was acquired by Forstmann and Little, a New York Investment firm, in February 1984. Dr. Pepper merged with Seven-Up in 1986 to form the Dr. Pepper/Seven-Up Companies which went public in 1993 only to be Cadbury Schweppes plc in June 1995. Cadbury Schweppes merged Dr. Pepper/Seven-Up with the Snapple Group to form Dr. Pepper Snapple Group, Inc. in 2007 which went public in May 2008 and still trades on the NYSE. The first Dr. Pepper shares, which traded on the St. Louis Stock Exchange and OTC before moving to the NYSE on March 18, 1946, had two spectacular moves. The first move occurred between 1934 and 1937 when the stock made a 32-fold move as the company pulled out of the Depression. Since this spectacular move occurred before the stock traded on the NYSE, very few people are aware of this huge recovery in the stock price. The stock traded sideways for the next two decades before making another fabulous rise in the 1960s. Between 1960 and 1972, Dr. Pepper Stock made a 64-fold move. Even though Dr. Pepper wasn’t one of the “Nifty Fifty” stocks from the 1960s, it should have been. Between these two moves in the 1930s and the 1960s, Dr. Pep per made a 480-fold move, making it one of the best-performing stocks of the twentieth century.

Unless you have the complete history of Dr. Pepper to see how it performed prior to joining the NYSE in 1946, you wouldn’t have known that Dr. Pepper had already made one spectacular move, had built a 25-year base, and was ready to join the Hall of Fame of Outstanding stocks. True stock analysts shouldn’t only worry about the survivorship bias that comes from ignoring delisted stocks, but from the exchange bias that comes from ignoring the pre-NYSE history of a stock as Dr. Pepper clearly illustrates.

Preferred Stocks in a rising interest rate environment

Even though the Fed is not due to raise interest rates for a few years (2016 per the latest numbers that I’ve seen lately). People are still looking and preparing for this to happen. What asset classes will be affected positively and negatively? In the graph attached, I wanted to show the inverse correlation between preferred stocks and interests rates. with the recent move in rates, the price performance of preferred stocks has been negative. Please look at this long-term graph and see for your self

New Housing Price Indices Added

Freddie Mac has added 23 new Metropolitan Standard Areas (MSAs) to the list of MSAs that they cover in their quarterly surveys of housing prices throughout the United States. The FMHPI provides a measure of typical price inflation for houses within the U.S. Values are calculated monthly but are released at the end of the following quarter. The FMHPI is based on an ever expanding database of loans purchased by either Freddie Mac or Fannie Mae. With the addition of the 23 new MSAs, the Freddie Mac survey now covers 383 MSAs throughout the United States. The 23 new MSAs are:
  • Albany, OR Albany, OR
  • Beckley, WV Beckley, WV
  • Bloomsburg-Berwick, PA
  • California-Lexington Park, MD
  • Carbondale-Marion, IL
  • Chambersburg-Waynesboro, PA
  • East Stroudsburg, PA
  • Gettysburg, PA
  • Grand Island, NE
  • Grants Pass, OR
  • Hammond, LA
  • Hilton Head Island-Bluffton-Beaufort, SC
  • Homosassa Springs, FL
  • Kahului-Wailuku-Lahaina, HI
  • Midland, MI
  • New Bern, NC
  • Sebring, FL
  • Sierra Vista-Douglas, AZ
  • Staunton-Waynesboro, VA
  • The Villages, FL
  • Walla Walla, WA
  • Watertown-Fort Drum, NY
  • Weirton-Steubenville, WV-OH
In addition to these US real estate indices, GFD also added a number of international indices. The additions include five annual indices for commercial property in Germany, going back to 1995, four quarterly indices of residential property in Austria, seven quarterly indices of residential property in Germany, two quarterly indices of residential property in France and three quarterly indices of residential property in Luxembourg. If you currently do not have access to the Real Estate Database which includes these files, please contact a sales representative to access these and several hundred other data files on real estate from the United States and the rest of the world.

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