This guest post was written by Matthew Salter, CFA.

Some readers will be aware of an interesting historical event that took place back in 1977. Yitzhak Rabin effectively resigned from his position as Prime Minister due to the fact that his wife, Leah, was discovered to have a foreign bank account, which in those days was illegal for Israelis. Though his wife was the only one to manage the account, it was technically in his name as well and Rabin also took responsibility.
I find the story fascinating for two reasons. Firstly, it shows how much more politicians were prepared to act ‘honorably’ – Rabin resigned over his wife’s bank account, not his, and despite the fact that it was still open only due to an ‘administrative’ oversight left from their recent diplomatic posting to Washington. As Wikipedia notes, “Rabin’s resignation is sometimes seen as a display of public responsibility unmatched by contemporary politicians”.
But the second fascinating thing in this story is the concept that Israelis were not allowed foreign bank accounts. Indeed private foreign investments of almost any kind were extremely limited up until about 25 years ago when Israel started down a path of capital liberalization.
Nowadays, the idea to the vast majority of olim in Israel of not having foreign investments, let alone even a foreign bank account, is almost inconceivable.
In fact, when olim move to Israel nowadays – especially olim in their 40s and above – the vast majority of their investments are likely to be invested outside of Israel due to an accumulation over their lifetime of various different savings, property, investment funds, and so on.
This leaves two major problems for the average oleh/olah which a regular investment advisor in Israel may not be used to dealing with. The first question is the question of how to allow for any changes in the shekel exchange rate going forward – presuming that the oleh/olah is now planning on needing future income in shekels given that the majority of expenses will be in shekels. A return on the oleh/olah’s investments of 5% a year, in Dollars for example, is of little use if at the same time the dollar is losing 5% a year against the shekel (i.e. the Dollar-Shekel exchange rate is going down, as it has been over the last year or so).
The second major problem is that economic policies and developments outside Israel are going to be far more important and relevant for an oleh/olah’s investments, than for a ‘regular’ Israeli who has the vast majority of their investments in shekel-denominated products.
This brings me to two important issues that I often get asked about, and that I often talk about with clients or in training seminars:

The first issue is to do with economic growth in the United States (and closely linked to the level of interest rates). People want to know when we are going to return to a ‘normal’ economic environment. Most of us have lived in a fairly consistent world where growth is between 2-4%. In fact this has been true for the last 70 years or so. That is until 5 years ago. Then, as you can see in the diagram below1, growth dropped below 2% (where it has never been since the Second World War) and has stayed there ever since with not much sign of a recovery.


It’s fairly dramatic. It’s historic. And it has major implications for returns and investment policies (which can’t possibly be done justice in this short article).
The second issue concerns monetary policies set by Ben Bernanke at the Federal Reserve and the question of how Quantitative Easing (QE) and ‘Tapering’ are affecting the financial markets. (Quantitative easing and tapering are an economist’s way of saying ‘printing money’ and ‘stopping’ to print money, when they want to sound intelligent or to confuse their listeners).
After putting the following chart together I think it makes for fascinating viewing. What I have shown is the S&P 500 over the last 15 years against the yield of the 10-year Treasury over the same time period. The 10-year Treasury is inverted so that an increase in value of bonds is shown in the same direction as an increase in the equity index.


Traditionally, equities and government bonds move in opposite directions to each other. One (equities) are perceived to be a risky investment that rally in times of optimism, or ‘risk-on’, while the other (government bonds) are perceived to be a safe harbor in risky times and a place to put your money when things are looking less rosy.
Up until 2009 the chart reflects this quite nicely – at times when the S&P is rallying the government bonds are selling-off, and the reverse holds true. In fact, you could almost see the two lines up until 2009 as a nice reflection of each other.
But have a look at what happened once the Fed embarked on their first round of QE back in November 2009 (shown on chart). Almost immediately, the traditional negative correlation between equities and Treasuries disappeared completely and both have rallied in an almost identical fashion. This implies strongly that asset prices are being supported artificially with risk having been removed from the table as a consideration for investors.
Then look what happened a few months ago once Ben Bernanke hinted that QE may come to an end. Immediately (and dramatically) the negative relationship between bonds and stock returned, with bonds experiencing since June some of their biggest losses over the last 30 years.
So (again, without being able to do full justice to the issue in such a short article), the point proves how much influence the policies of the US Central Bank can have, and are likely to have, over returns on assets in the coming months and years.
So, just to clarify any doubts, I do not (nor does anyone) have any magic answers to how to deal with the issues raised above and finding the ultimate and profitable solution to where an oleh/olah should be invested demands more than just reading this short piece. But there are some basic principles that any oleh with reasonable investments should be on top of – awareness of exchange rates, principles of diversification, economic policies and paths in the US, UK and Europe.
These may be scary terms to a lot of investors, but investing time into understanding some basic principles of investing and economics can go a long way to making sure your investments continue to provide for the future you had planned.
Matthew Salter, CFA, has had a varied and well-traveled career as an Economist and Portfolio Manager, spanning almost 20 years working in senior positions in Government and Central Banking. He began his career working as an economic policy expert and advisor to Government Ministers at the UK Finance Ministry (HM Treasury). Subsequently, Matthew was seconded to the European Commission in Brussels before relocating to Jerusalem where he began working in Reserves Management at the Central Bank of Israel. Matthew headed the multi-billion dollar investment portfolio and spent two years serving as the Head of the Bank’s representative office in New York. He now works as a consultant for companies and investment firms in a number of areas connected to international investment management. He is also a training instructor and has developed and delivered courses at some of the world’s leading financial institutions.
As well as professional training and consultancy services, Matthew hosts free seminars on international investing and economics – please email him on for more details on either.
1 Growth is shown ‘smoothed’ over 8-year periods to better reflect longer terms trends in an otherwise quite volatile data series.

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