Unsure Markets

Dear Friend  

So the markets are not quite sure which way they want to go but today is the reddest day for a while with fears over the collapse of Evergrande – the Chinese property company and its reverberations. There is a little breathing space with some ‘value’ situations at home – stocks like IAG (Br Airways’ parent) and BT falling recently and BT which should have held above £2 when the European stakeholder was announced but no, they are doing all they can to drift down to £1.50. Sainsbury’s had a flurry of speculative activity (catching those shorting the shares!) and they were powering upwards to £3.50 only to drift back below £3. 

We didn’t trim the tops-off (should we have done so?) but perhaps that would simply have been greedy because for all three, major gains could still materialise from corporate activity.They are not alone, though we are comfortable holding and adding to them at these levels both for the capital prospects and the income in Sainsbury’s case – and the safety offered compared with playing with the over-hyped tech sectors. Meantime, our uranium addition has powered ahead – as demand has rocketed for ‘yellowcake’ and in part from the launch of a new fund in Canada which already owns the equivalent of 14% of a year’s demand from all the power generators. Meantime too, we are taking a bit of profit from our long-held assets in Japan which have jumped usefully on a change of premier. I like the Country but we’re rotating across to more ‘value’ than technology there too. (Never forget too as you look at the US Nasdaq – the Nikkei Dow powered ahead on technology, etc in 1989 yet is still 20% lower, even after this recent 15% boost, some thirty-two years later. Japan was the world’s biggest market then (40% of all value) and now it is the US (pushing towards 70%). Then there are the miners of which we have some – and I am tempted to add Rio which has fallen almost a third since its recent high yet still yields 10.6%. We need our iron ore and our copper for all the environmental applications and vast quantities of it too.

What else? We have done very well from Mr Neil Woodford’s fallout as the good was dumped with the bad and ugly. We’re still picking-up some of the fire-sold cheap stocks. Schroders Public Private Trust (the old Woodford Patient Capital Trust) was one we chased to the bottom and now have a meaningful stake and also IP Group – each has a chunk of Oxford Nanopore which is floating soon, so see what has happened to the values of our trusts. Remember the adage – buy what everyone hates and sell what everyone loves – not just for the sake of it but keep that adage in mind when you are making your decisions on individual investments as much as whole asset classes too. There are other good stocks like Legal & General too with an income yield of 6.3%pa and sustainable – we don’t have any (yet?) but can you have too much of such a good thing (not that I especially like its model but it’s too cheap and relatively safe. It is still below its February 2020 high and I remember buying these at 29p in the depths of 2009!)?  

So what else is news? Perhaps that the Chinese shrewdly have been buying UK stocks. Sunday Telegraph analysis shows that the People’s Bank owns £12.4billion of our bigger companies with most emphasis on energy (and oils) and materials. This is part of its Foreign Currency reserves allegedly and a wise move – something I encouraged our lot to think about doing when the markets were in the depths but did they listen… it’s wise to have such assets to offset the National Debt, especially when the cost of borrowing is so cheap for it. Apparently China has few US entries…and clearly it is comfortable accumulating fossil fuel company assets – no doubt buying these shares very cheaply from all those naïve investors who don’t understand what ‘not holding them’ actually means (and that doesn’t mean ‘doing good’). Just imagine if China ends-up owning some of our giants and relocating them – what controls can the rest of the World impose on them as is possible on UK quoted producers now? Anyway, I digress…   And interest rates? See ‘inflation’ below but there is still so much cash sloshing around. Danone has raised the lowest yield hybrid bond yet raising E1billion in a ‘Social Bond’ (hmmmm) at zero percent and you’ll have your money back in 2025. At the same time, Eli Lilly, the US pharmaceutical company, raised forty year money on – wait for it – 1.375%pa. Yip – both were lapped-up as they help meet liability models for ‘investing’ – how foolish! That is how ‘stupid’ things are at the moment. I mean, why would anyone tie-up money at only 1.375%pa for forty years and the significant risks – if say interest rates rose to 10% in year twenty, that bond (ignoring the gradual climb to repayment at £1), repayable at par at the end would fall 86% (as well as assured poor interest) to be tradeable on the markets at £13.75 for every £100’s worth but I bet everyone buying it now sees it as the highest of security, ‘Triple A rated Investment Grade Bond’.
Meantime it’s lovely to be helping a lady who won £250,000 on the Lottery. Now, before you go out and buy one on the superstitious premonition that you too will win, as you won’t, I have to say that despite the many thousands of interactions with people we have had over the decades, this is the first, because it is such a rarity as the odds are stacked against you. What is frightening however is that it is still a smaller sum than her mortgage… and that is more the reality for the enquirers who come our way than a windfall like this making a significant financial change to their lives. ‘And how are you managing the begging letters? Oh, I expect we’ll still send a few from time to time’ goes the retort! Maybe too I shall add the thought – just how many people do you know could cope with a big win of £1million or more? Sadly the bigger it becomes the harder it is for people to also not let it ruin their lives, because they simply don’t know how to cope and how to be responsible with it. However, we are always there to try to help guide anyone who needs financial planning and that can include those who inherit significant sums too. That is far more likely than a windfall success on some gamble which is stacked against you!  

Long-Term Care  

I am pleased that any government is considering tackling this spikey and real issue for so many. That said, I do not understand exactly why the ‘cost’ has been addressed in the way it has – dividend tax and National Insurance make little sense in seclusion to so many other ways of raising revenue and which may be seen as more equitable and then the cost would have been a lower headline too. For example, those with considerable property interests, even in their dotage, pay not a sou more. Simply extending tax to ‘investment income’ would have tackled that misnomer. Then, attacking employers and employees alike with more National Insurance and ‘it’ being ‘lost’ in the NHS which already consumes more money than all the Income Tax collected from all of us seems bizarre too (though the Government’s advertisements for forty-two new managers on salaries of up to £270,000pa doesn’t bode well – that means an overall cost inclusive of pensions, holidays, etc of over £15million a year just to start). Will the NHS set-up care homes now or will the rates the existing ones charge simply rocket to consume all this extra tax being collected and then it is hard to see how the system and provision of that care will have changed.

We have to be hopeful however and the cap of £86,000 in total for ‘care costs’ is welcome. I just trust though that the small print of ‘not including accommodation costs’ will not mean that most residents of care homes don’t qualify for that and still have to pay; if ‘care’ is only for those who are unable to attend to their personal needs then sadly not many survive long enough to have consumed £86,000 in the first place. Let us hope that this is just the start of ‘someone’ actually recognising the whole system needs attention.

On tax overall, the levy against us is the highest it has been since after WW2 and not a Conservative objective either and indeed, my Father used to say that enterprise (work) should not be penalised so much but better to penalise spending (and hoarding?) as work generates economic growth. Still, it means it is ever more important to put as much as we can into our pensions and ISAs as these remain free of tax within – a very valuable attribute. There will be more ‘stealth’ taxes to come as a consequence of Covid19 I am sure so make sure you use your allowances! At least those with some capital can now reflect on the considerable tax savings their hundreds of billions (trillion plus?) collective ISAs and Pension Funds are enjoying I suppose (not in the figures for overall taxation above!) but it is little consolation for the extra levies and the inequitable nature of them I guess. Still, the Chancellor will be raising even more in Inheritance Tax from bloated home prices now and Capital Gains Tax from those beyond ‘main residences’ too so watch out!

Still, there may be one silver lining – companies may ensure dividends before 5 April will be much bigger as these will avoid the National Insurance surcharge so that should boost income for investors. That applies to private and public limited companies.  

Blue Planet Investment Trust Plc  

Some of you will have seen the public announcements as we are facing-down the management and Board of this Trust. Sadly we have had to share numerous matters to the FCA (which is also responsible for public company listing rules) but clearly it will never say what it may or may not be doing. Our next stop will be engaging a legal firm and I should add that that is all at our cost; that is even though we are doing what we believe we need to do as the manager for clients. Before anyone worries, it only represents just over 1% of our client monies and nothing will happen too adversely to the present already depressed value (it has been one of our worst performers) but I want to change the future! I was also approached by a rather renowned anti-financial adviser/manager hack at The Sunday Times, with a series of questions which immediately smacked of someone close to the Blue Planet Board and not the ‘client’ suggested, oddly enough. This is the article where lazily the journalist didn’t even ask for a current photograph, instead using one from 2008/9 when I still had hair…  


It is such a shame that the heading could have been ‘to protect his clients, adviser takes-on an Investment Trust with allegations of mismanagement‘, isn’t it but perhaps that was asking too much. The article also ignored the fact that we charge nothing for subscriptions (up to 6% of your investment elsewhere like St James’s Place) and offer complimentary reviews of clients’ investments (where other firms charge up to 1.5% plus VATpa). Yes, Mr Hussain was told all of that and all about the shenanigans. Keep watching this space as legal engagement is next sadly. Not a single client has contacted us to share concern about their investment in the Trust – odd isn’t it! (One complimented us however and on the fact that we seemed to absorb a whole page of the Sunday Times! Shucks.).  


So the UK sees the highest ever increase since the CPI figures started, 3.25% and a big upward jolt from July’s 2.1%. RPI, the old and less-used figure (and which typically increases by more) rose by 4.1%. At the same time, interest rates remain doggedly low and apparently there is £247billion sitting in bank accounts earning not a penny. There are 9million consumers sitting with over £10,000 in a cash account earning them zilch. (Even the FCA wants to connect with these people so they can earn meaningful returns on their money and not be scammed at the same time. It says: “Far too many people miss out on the returns offered by investing sensibly for the long-term with the perception that investments are for other people. However, the reality is that having all your savings in cash carries its own risks as we’ve seen with inflation figures this week.”). Put another way, that is about £10billion of ‘tax’ all those depositors are paying as inflation is effectively a tax – it reduces the real value of your money sitting doing nothing.   There are some special reasons why the rise was so much this year and they will not repeat but the trend appears fixed. So, beware and at the same time, make sure you invest your surplus cash so it starts to have a chance of earning you something too! What is also interesting is that the UK job vacancy rate is over 1million for the first time too though those in work are still a couple of million away from the record pre-Pandemic yet this is balanced by the numbers on Universal Credit still almost double the pre-pandemic levels (60% of claimants are not working) – is something broken?

US Producer prices have nudged past a 10% increase (with consumer inflation over 5%). What with global issues of labour shortages, Covid19 supply disruption and availability etc and rocketing base materials’ prices generally, is this going to feed-through to inflation and thus interest rates? Potentially this is ‘Stagflation’ whereby economic recovery/growth is relatively weak and inflation is rampant and central bankers cannot easily use interest costs to deter consumers from over-spending and over-borrowing as it hits the economy too hard. Indeed, the last time this happened was really when the oil price shocks in the early 1970s materialised. See what is happening to gas, coal and electricity prices and that hits many consumers including the poorest and also especially those who have enjoyed spending colossal portions of their incomes on ‘entertainment’ and takeaway food through the Pandemic. Having to prioritise heating, mortgages and rents instead (and decarbonising), with much less left for enjoyment is a sobering consideration which many younger people especially have not really had to face before from those headwinds.  

State Pension Increase  

So the Government has suspended its somewhat daft ‘Triple Lock’ promise for this year anyway as the statistics don’t work. It is interesting to consider why certain criteria are ever used in the first place anyway, without ‘condition’ and then an arbitrary date set used to produce the outcome. If the idea was/is to keep pace with certain criteria (inflation and average earnings say) then surely the overriding factors must be the longer-term trend, not the foibles of one or two sets of extreme data simply as a result of the original comparative dates used?

I have done some basic maths (bearing in mind that we shan’t know the exact position till it happens). So the State Pension from say September 2019 till next April will have risen by roughly 10%. Average total earnings from September 2019 till July 2021 have risen by only 5.9%. In other words, most of the baying is because there was a drop in earnings oddly enough so a rebound in earnings from a rather lower level is not an increase at all. To me it seemed unjust to expect only the gains and not the drops but can we ever imagine seeing a State Pension drop simply because the comparatives went downwards…! So, even if the State Pension stayed static (it will rise but not by 8-9%) come April, it has still risen significantly higher than average earnings have done since pre-pandemic. I wonder why the media or the politicians haven’t bothered to do the maths…  

Is the Ombudsman an ‘ass’?  

An advisory firm has been told to compensate a client. That is fine when an error or loss from negligence has occurred. However, in this instance, the client wanted to exit the markets in February last year – when the falls were happening. The advisory firm’s systems recounted values of the client’s third party pensions which were showing a little higher than they really were, taken from the system’s feed which was a day earlier and no doubt as they always had been. The advisory firm seemed efficient in the delivery of its service too. The client decided to liquidate and when the instructions went through, in a nutshell the Ombudsman has made the advisory firm compensate the client for monies lost which had already been lost… The firm did not delay acting on the clients’ instructions and inevitably there are always short delays between an instruction, possible clarification and of the possible best process for disposal and then the enaction of the instruction. I am not defending anyone else’s systems nor any inappropriate delays but this compensation is ridiculous and sadly, when it happens, the industry pays and that means somehow the cost has to be borne by clients who deserve the protection against real things happening. The other problem is that effectively the advisory firm has no recourse, no challenge opportunity. What it can do, however, is tell the client that he is an ex-client… just think though, our clients are not in this boat but most advisory firms which pick-up price feeds are more than a day behind in pricing terms, especially unitised holdings which invariably are only done once a day… The biggest foolish issue is that investor liquidating when they did to be frank and not listening to wise counsel then and that will have been the biggest loss they suffered.  

And Now For Something Completely Different…  

It is curious how received wisdom arrives and states a particular thing which subsequently is not proven to be true? I am wondering how this can be applied to investments and the choices we make and of course the ‘background noise’ which can propel a myth to extreme levels before ultimately crashing back down to earth again. The Harlequin ladybird was introduced from Asia to help contain aphids and has been doing a good job but is now the most prevalent invader of any species globally apparently. Originally naturalists suggested they were a threat to our native species and thus should not be encouraged or supported but look now:-   https://www.gwct.org.uk/farming/research/pollinators/do-non-native-harlequin-ladybirds-interfere-with-how-native-species-feed/   We do indeed believe that often some of the investment choices we can make (and do!) as a Firm are buying many things which are out of favour – or even shunned – and because there can be other qualities which the bigger players are ignoring. This can be especially so with quoted investment funds which can be trading at deep discounts to the underlying asset value. We don’t mind though; we are happy continuing to buy and hold such opportunities for clients and new clients alike and waiting for the science to prove all the sellers they were all wrong in the first instance!

And for the real nature enthusiasts amongst you:-   https://www.theguardian.com/environment/2021/sep/14/butterflies-finland-parasitic-wasps   So the context here? That a really rare butterfly can have a parasitic wasp which eats the poor butterfly alive but it has an even rarer and smaller parasitic wasp which eats the bigger wasp’s larvae and kills that before emerging but wait for it, that itself then has a bacteria which lives upon that. If this does not demonstrate both the phenomenal sophistication of our world but also its adaptability and frailty at the same time.. If we believe we know ‘everything’ and that even yes, that every investment decision is a clear black and white one… and if we really believe that ‘we’ know everything about ESG (environmental, social and governance issues), let alone human rights and Climate Change, think again. No one has exclusivity and we, as investment managers, must do our utmost to sift from all the information, discard all the noise and then buy where we see special value and opportunity too. And remember, the received wisdom will change – it is not perfect and it can improve but it can also prove that the earlier views were wrong too.  

Mention In Dispatches  

Mr Felix Milton seems to be mentioned more often than me these days in the media – here he is having to make suggestions for a lady in the Telegraph:-   https://www.telegraph.co.uk/money/money-makeover/makeover-makeover-downsizing-retiring-should-invest-400k/   Well done Felix!  

Very sad to learn that industry heavy-weight Mr Alan Steel has passed-away from Covid. I never met him, but we were scheduled to meet but it never happened. He was such a giant of our advisory industry and I held him in high esteem. We often shared discourse and agreed on so many things. He will be sorely missed. He was one of our most avid readers and supporters of these eshots too.  
My best wishes

Philip J Milton DipFS CFPCM Chartered MCSI FPFS FCIB
Chartered Wealth Manager
Fellow Of The Personal Finance Society, Fellow Of The Chartered Institute Of Bankers