|It seems we are entering a temporary ‘wobble’ period prefaced by developments on Ukraine’s border. These are disturbing and I hope will abate rather than escalate.|
However, this could be the precursor to a meltdown of US Tech in that the falls on Nasdaq have been savage and swift and these will percolate through to ‘safe’ index-tracker investments too, as some of the biggest companies bloated with excitement over the last few years are ‘just’ bigger examples of the speculative smaller stuff in many regards.
The markets, oil prices and Brexit
So, quietly and without fanfare the Japanese Yen slipped or is slipping to its lowest levels against its major trading partners for 50 years (although it is admitted the records prior to that are not very accurate). Why? Are the authorities allowing this to happen and will it turn into a rout?
Alternatively, for the contrarian is it worth shuffling a little into Yen as a hedge against what could happen to other major currencies – perhaps, perhaps.
You may not have noticed either but Brent Crude Oil has nudged a nigh five-year high and if it bursts through that, then it will have been the highest since 2014. This too all has inflationary influences of course and the UK and US inflation rates have been bubbling higher at either the 30th or 40th-year highs.
There will be the ‘pig-in-the-python’ effect of high energy prices but that will take a year to work through the system.
Meantime, we have to be grateful for an economy which is now bigger than it was pre-pandemic – and it is continuing to grow as the rules relax again. I wonder too how the projection of a flat and then declining population for the UK in only three years will work through (and on house prices) as the rate of babies is dropping?
In the States, US oil production will scale new peaks next year, to 12.4million barrels a day. Natural gas production will also set records over the next two years, in both instances a reversal from the descent following global carbon targets and the pandemic’s advent.
As the big firms are subjected to more stringent Green laws, the new production will be done by smaller companies and private ones at that without shareholders to cause trouble. Emissions will be higher again in the US though lower than in 2019, the report suggests.
Global oil and gas investment in 2022 will increase by $26billion to $628billion, analysts at Rystad Energy estimate. Drilling is climbing with 729 rigs in Northern America now, up a half on last year as prices are so high. Fossil fuels still make-up 83% of the energy mix with oil and gas alone at 56% with global demand at 100million barrels a day.
Despite savage reductions as more atomic and green energy comes on stream, by 2045 this demand is expected to still be 108million barrels a day, albeit counting for ‘only’ 28% of global energy demand.
Well, it’s done it. Not with fanfare but the Euro has now seen its lowest levels against Sterling since July 1, 2016 before rebounding slightly. That’s over E1.20:£1 versus E1.0784:£1 on August 9, 2019, slippage of 11%. Oddly enough I was saying this will happen, at the time and also as Sterling languished at 35 year lows against the US Dollar too.
Interestingly and to confound the sceptics who said there would be limited new investment in property after Brexit, Google is buying a London property for a cool $1billion and pledging to invest the same again in making it exactly what it wants.
In early January, US Treasury Bills’ rates rose to their highest since early 2020, so perhaps the days of the super-high transfer values for those with final salary (deferred) schemes are well and truly behind us – not that this is the only factor of course. Rates of 10 year Treasuries in the middle of 2020 hit 0.5% and have since been back over 1.85%.
Dropping death rates and life expectancies are also playing a part in reducing trustees’ hypothetical liabilities to members. This also plays on the capital values of ‘safe’ government bonds of course, as I noted earlier. If these treasuries were undated, the value of £1,000’s worth in June 2020 would have fallen to £285.
How safe are your ‘safe’ investments and how much do you have in these? I write this as I read that three million pensioners hold all their ISA money in Cash ISAs earning them little or nothing and losing against inflation every year now – the most pernicious of all taxes on our capital.
Pension transfer values
Has the best boat been missed now? Transfer values from deferred schemes were apparently at their highest ever levels in November. If you need to have a review, maybe it is best sooner rather than later as you may catch some sleepy trustees who haven’t adjusted their actuarial calculations yet…
Remember that in December 2020 bond yields were at their lowest and there was a record $18trillion of debt instruments where you had to pay for the privilege of putting your money in them. That figure has contracted savagely and is now ‘only’ $10trillion on minus interest rates!
Blue Planet Investment Trust
We have held this Trust for a very long time. It did a particular job and was basically half fixed-interest and currencies, etc and the other half was mainly higher yielding old economy stocks with a small amount of ‘growth’ plays around the edges. The Trust was small but always available at a deep discount to the underlying asset value so a further reason to hold it.
However, in the depths of the pandemic the manager lost the plot. All the equities were sold in the trough and in fact he bought some geared reverse-index funds and then went-on to sell all the safe assets. Then, when the vaccine roll-out began, he bought a spivvy portfolio of primarily US tech ‘rubbish’, all in direct contradiction to the advertised investment objectives, sectoral standing and so on.
The awful behaviour has continued and the share price not only did not bounce alongside pretty much everything else from the low (our best ever investment performance period) but asset values have slumped, with the reverse index-funds costing money but then these spivvy plays falling heavily, compounded for the Trust by borrowed money which has been losing too. We had increased our stake to 22% on the basis that there was still a fat discount but the manager has now lost most of that and what is left is looking even sorrier.
We tried to negotiate an alternative plan with the managers but that has been faced with defamatory rebuttals and arrogance. We have raised it with the FCA on numerous occasions and possible breaches of Companies Law for which the FCA has responsibility too, let alone regulatory requirements and other than some changes to the website (we assume demanded by the FCA), no action has been taken against the management company nor the Trust’s Board.
The FCA has presided over a share price which has plummeted from 28p on April 28 when I first raised my serious qualms with it to today’s 17p at which some shares were sold. The net asset value on April 26 was 36.75p and the last announced was 20.29p and will be lower again after the latest drops. I had been watching avidly since the previous spring of course.
The FTSE100 against which the Trust benchmarks its performance (very misleading and wholly inappropriate) has
risen by 6% in that period whilst its shares have fallen 39% (ignoring income and costs). We instructed London lawyers to write but that letter has been dismissed summarily.
The manager has no proven experience in managing the types of investments it has now been buying and performance reflects that. We are really angry as the FCA could have nipped this in the bud but did nothing.
Thankfully, as with any of our holdings, apart from me personally and where we have increased our holding to hope to wield more sway and stop inappropriate activity (such as a wind-up with compensation for themselves as managers and directors), no client has an excessive proportionate exposure and despite its failings, our other stocks were still able to carry this dead duck.
We have never experienced this degree of behaviour and results in any of our mainstream holdings in our whole existence and despite ‘whistle-blowing’ these grave concerns, the manager and the Trust have been allowed to continue, uninterrupted by the FCA.
It is coming to a point where the management and the Board should begin to fear personal financial liability and responsibility for these wholly unavoidable losses right back to the spring of 2020 with the negligent portfolio changes at that time. On March 6, 2020 the share price was more than double its present level.
Brokers and what you can buy
The Telegraph on January 20 ran a piece on the theme I explored recently – that private investors can’t buy everything on the market as their brokers or platforms won’t let them. We can buy ‘anything’.
Some of our most compelling buys are those which some of these platforms consider are too specialist for their investors – how patronising… (they’d say that they might mean they are liable if something goes awry).
Of the six Telegraph tips they know readers struggle to buy, we hold two and they’re doing fine for us, thank you!
You remember I mentioned the ridiculous float of this electric vehicle company? Yes, its shares are now below the float price after Amazon, its biggest shareholder, noted it had ordered vans from Chrysler instead. This is half their peak in November.
Perhaps Tesla will do the same and order Mercedes’ electric cars just unveiled and which are claimed to be able to travel 1,000km on a single charge – why would anyone want to buy a car which can’t match that? We aren’t holders of Tesla nor Rivian shares oddly enough and sell any we occasion across with new clients!
Yes, apparently in 2021 criminals used a record amount of cryptocurrency for illicit purposes last year. The amount of cryptocurrency sent to addresses with known criminal connections rose to a record $14billion.
I wonder why these things don’t want to be regulated and con their followers that there is some benefit in being ‘off grid’… have you been conned out of any of yours yet, if you own any? Bitcoin is now half its peak set only mere months ago – ouch – but we know where the bottom can be for a non-asset, I suppose.
Please beware. I read last week an adviser who said that a third of their clients had some exposure – ouch – and I hope that the adviser will be held to account for that. It does reflect on their whole understanding of real investments I guess.
A recent survey by Opinium suggested that almost half of adults admitted they would be in better financial shape if they had been taught basic financial management skills such as budgeting. The FT has launched a charity – The Financial Literacy Campaign and I commend it. https://ftflic.com
This is indeed also one of the objectives of the Philip J Milton & Company Plc Charitable Foundation. I have always believed that as well as the safety net for those most in need, the best way of helping anyone in financial distress is helping them manage what they do have and to better manage things going forward to help them avoid repeating the mistakes which may have pushed them into problems in the first place.
One simple idea is that if the poorest person can be helped then the benefit to them is disproportionate as the less they have in the beginning, the bigger the impact and improvement even a small change can make.
Behavioural bias – the last two affecting your financial/investment decisions
Do you recognise biases in yourself? If so then you are on the way to sensible life judgements and investing. Not only that, but not recognising these traits will lead you to some awful judgements or inaction – we have seen it time and time again sadly.
You are more liable to superstition versus fact and more prone to scams and pure gambles when the odds are against you – they always are. We are here to help you realise these psychological traits are not good for prudent investing! Here’s the last in the series!
Confirmation Bias is when you look for information which only confirms what you want to believe. These people will even ‘attack’ those who dare to share a contrary view to what they want to believe, as they have become emotionally connected and irrational.
Yes of course we all ‘like’ reassuring news but we have to be open to recognising we may have fallen into this trap with our investing too – from individual companies to even houses!
Blind-spot Bias gives us the joy of recognising others’ failings but not realising the ones in our own strategies. This can be because we are free of the whole subject so can make a dispassionate assessment of the other person’s situation but with our own engagement, we cannot do that the same way. Sharing ideas with someone(s) close to you whose thoughts you respect could help here!
|Risk Warning |
Stock market investments can offer income through the payment of dividends and interest and good opportunities for capital appreciation over the longer term. By this, generally we mean periods in excess of five years, preferably much longer. However, we can never promise you particular returns, especially in the short-term. At any point in time but especially in the short term, your capital could be worth less than the original amount invested as some of the selected holdings may fall in value, regardless of expectations at the time of acquisition. We may also invest in funds that hold overseas securities. The value of these investments may increase or decrease as a result of changes in currency exchange rates. Returns achieved in the past cannot be relied upon to be repeated.
To remind you, why do I send out occasional emails? Because everyone can save money. We have no connection with any companies mentioned and you have to make your own contacts and satisfy your own enquiries. What is in it for us? If we can prove that we are knowledgeable and that our service and advice have good value, then you might contact us for professional financial planning and investment help. You don’t have to do that though and there’s no charge for emails. If simply they save you money, then accept them with our compliments! However, you’ll know where we are!
If you have any queries of any form or indeed any subjects you think I could include, please contact me. I also refer you to our website www.miltonpj.net. We celebrate our 35th anniversary in 2020 and have been publishing a well-respected independent column in the local Paper for most of that time and free client newsletters as well.
Do not forget however the usual caveats – this is not ‘advice’ and you are encouraged to seek that before embarking upon any financial route involving investments, etc.
|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