By Herbert Lash NEW YORK, March 27 (Reuters) - In his latest book, Wall Street strategist Barton Biggs contends that financial markets predicted key turning points in World War Two, and investors can use that predictive power to survive catastrophe. Biggs, one of Wall Street's biggest stars when he was at Morgan Stanley, lays out in "Wealth, War & Wisdom" (Wiley, $29.95) the steps the wealthy should take in times of war and other major upheavals. The performance of the U.S., British, German and Japanese stock markets during World War Two show the cumulative decisions of investors accurately predicted major tipping points of the war far better than any other source, he said. "The market isn't necessarily wise at all times, but the market is wise at great turning points," said Biggs, who believes he is the first to point out the prognostic powers of stock markets during World War II. As evidence, Biggs points to three events the public failed to perceive at the time, but markets did, as game changers that signaled an Allied victory long before that was clear: An all-time low in the British stock market in the summer of 1940 before the Battle of Britain, a turn for the upside in the U.S. market in late May 1942 about the time of the Battle of Midway and a peak in German markets as Hitler's troops advanced on Moscow in December 1941. "This, to me, confirmed the extraordinary (and unrecognized) wisdom of market crowds," Biggs writes. INFORMED GROUPS MAKE WISE DECISIONS Biggs takes the basis of New Yorker columnist James Surowiecki's book "The Wisdom of Crowds" -- informed groups are more exact in their predictive powers than individual expert analysis -- to examine the war through an investor's lens. "There's real evidence that informed, motivated crowds acting individually on a cumulative basis make wise decisions -- whether guessing the weight of a hog, the stock market or for that matter election results," he said. But "it has to be an informed crowd," said Biggs, now a partner at Traxis Partners, a hedge fund with about $2 billion in assets. A history buff, Biggs said investors ignore the message of markets at their "extreme peril." For those with wealth, it's imperative to be prepared for when barbarians appear at the gates, he said. Affluent families in France, Belgium, the Netherlands and Denmark who retreated to farms deep in the countryside survived the war in deprived but reasonably comfortable circumstances, he said. Agricultural land was a better asset to hold than houses or buildings, which were bombed, destroyed or expropriated by occupying armies. Although Biggs said stocks traditionally outperform bonds and did so during World War II, he warns investors that there are no long-term "keeper" stocks to put away and forget about. And for countries on the war's losing side, both stocks and bonds returned negative, and in most cases, deep losses. Biggs recommends equity index funds and that the wealthy move money abroad -- an expensive and wrenching step that should be viewed as "catastrophe insurance." "In simplest terms, the conclusions are to diversify your fortune both as to asset class and location, anticipate the anticipation of trouble and pay attention to the message of the markets. Equities are the place to be in the long run." (Reporting by Herbert Lash; Editing by Eddie Evans)
