Death by a thousand cuts

Is the UK facing death by a thousand cuts?
Volatility has been unrelenting. Contrary to our media’s interpretation too, it’s not just ‘us’ and the whole world’s meltdown these last few weeks is not all because of our Mini Budget where only two small unannounced tax cuts were made, if we ignore bringing forward one year Rishi’s promised 1p off the Basic Rate of tax. US Inflation is higher than here and they don’t have the extreme energy crisis we do as they have their own supplies but higher interest rates there are infectious and the primary killer but any ‘uncertainty’ (including political shenanigans) destabilises markets too.  
So the Chancellor’s gone and back-stabbing and silly commentary by senior politicians who should know better don’t help confidence. However, the Bank of England Governor has again not helped with his crass and clumsy comments – not the stabilising remarks of an astute operator. I am afraid his reputation at the FCA wasn’t good and he doesn’t have gravitas in his new role though losing him ‘today’ wouldn’t be especially calming either.

Interestingly, Jamie Dimon, the CEO of J P Morgan Chase (so no lightweight) stated that the new Government should be given the benefit of the doubt with the economic strategies. He backed the tax plans and reinforced the need for ‘growth’ to rebuild the economic prospects going forwards. He noted it will take time but stated ‘there’s a lot of things the UK has going for it and proper strategies to get it going faster’. He is just the sort of person the message needed to hit. Maybe give it time and watch, wait and see what trade begins to come here. The influence someone like this at the helm of one of the world’s biggest financial corporations can have cannot be understated.

There is some impressive value in the markets now where buyers have been on strike (though yesterday the Dow shocked everyone with its rise). I can report again on one of our larger collectives (well, only 2% of our client assets…) – a big fund which invests in Private Equity Funds so diversity on diversity. Its latest net asset value is nigh double the present price to buy shares in the fund. That is ridiculous. So, the best investment it can make is to buy-in and cancel its own shares as it can make 100% on that ‘investment’. We shall be buying as many as we can, within reason, too. And yes, we shall be buying from some idiots who are selling (maybe the odd pension fund under pressure because it relied too heavily on ‘safe’ government bonds…).

When the markets are constantly red, it seems like it is death by a thousand cuts. It is then you realise that you ‘hope’ you still have one or two of the gainers on the day and none of the major losers and we seem to have been ‘fortunate’ in both respects more often than not, even if ‘losing far less than the average’ is little consolation. However, a day like yesterday can make all the difference and the reason why you have to be ‘in it’ before it happens rather than waiting till after and it’s too late.

As I have said before, however, uncertainty of all types impacts consumer confidence and with that, spending and prices – inflation, so expect the headline rate to drop like a stone and interest rates (even on government bonds) to stabilise and at lower levels. However, the biggest concern into the future is the housing market and mortgages as too many borrowed far too much. That could be carnage for millions as affordability becomes impossible even at rates as low as 4%pa but still double that at which they may have ‘fixed’ a couple of years ago, let alone a possible 6%.

Sorry everyone too… I should have bought J D Wetherspoon’s shares about which I commented last time – the results were announced last Friday and perhaps a better reflection of general economic activity and confidence than the media to which we are being subjected but the shares are up 25% on stronger figures than expected.   However, it again reflects my point that many assets are ludicrously undervalued and to be bought – not sold (though it seems hordes of unadvised investors are selling-out of funds left, right and centre – a sure-fire sign that we are trundling along the bottom of the market. Indeed, as more inexperienced people think they have control of their assets and pensions over their mobile telephone ‘apps’, it is far too easy for them to do the wrong thing at the wrong time and without wise counsel to discourage them. History shows people like buying at the top and selling at the bottom… Investment Trust discounts to net asset values are also at average levels not seen for years too. This gives two opportunities – the bounce back on the value of the assets they own and a shrinking of the discount, which is in there for ‘free’, let alone corporate events which can lead to closure and a special bonus. We shall be buying more of those at deep discounts.


Clever people  

Do you sometimes find that clever people aren’t all that clever? Recently a client needed to consolidate their investments with their other adviser (we’re always sorry to see one go but understand). But when that happens or a liquidation or withdrawal request for any reason (even an estate), then we try to guide what should result in the best outcome for the client – after all, it is still our integrity and we feel it is our duty. We don’t just ‘push a button’ and not consider the prices which may be attained.
One of the key benefits we provide is to match sellers with our new client buyers so that each party receives the best price – a level not available to anyone else on the market. So, this one particular case had seen the recipient adviser calculate that their brokerage charge appeared lower than ours for bigger positions, so most of the stock was transferred for the fixed per-stock fee, apart from the smaller holdings we had to sell (our brokerage is on percentage terms so very low especially for small deals).

However, what’s funny (sad?) is that then, some time later (as reregistration takes time) we’ve seen the sale of some of our more unusual holdings straight onto the market and at the worst prices there and then, with no counterparty so the ex-client received poor outcomes. If the whole portfolio has been unceremoniously dumped like that, the client will be many hundreds, if not a few thousands, worse-off as a result of that ‘clever person’s’ lack of deftness and benefiting from our better dealing arrangements!

During very volatile times, like ‘now’, we also try our hardest to warn those who are leaving for some other entity to not fall between two stools. They can encash on one bad period and then, even before the money is available, the market can have rocketed higher (like the last two days) and their new firm pushes the money back-in at far higher prices.

We are always dubious anyway when the instruction is to ‘sell everything’ – as if even one or two of our very diversified strategies are suddenly not attractive for the client but of course, they are typically being pushed into some new and restricted ‘product’ for a ‘transaction fee’ for the salesman which they’d have avoided altogether if they stayed put.
We do suggest that ‘any advisor worth his salt would encourage the investor to await stable times before doing the switch’ but of course, the salesman’s own bank balance wouldn’t benefit from the delay would it? Perhaps we are just too cynical… When markets are very depressed like now however, an event can see a significant gain in a short time and that could result in a round-turn of between 10-20% that investor doesn’t see, just by not waiting a week, month, six months or whatever.    


Going for a song  

Hipgnosis Songs Fund Ltd has seen its share price tumble. We don’t have any but the lower it goes, the more interesting it appears. Starting in 2018 at £1, it is a novel concept. The fund (and others) buys the rights to music and songs. So it makes a capital payment to a retiring artist for a flow of future income. On top of that, it borrows money too to make more than the interest cost by buying even more songs.  
However, as interest rates rise on ‘safe’ assets such as government bonds, investors reappraise the returns from such a beast and have decided that the 6%pa running yield is less attractive now than it was (as the value of royalties is unchanged though possibly recession may mean fewer downloads of music if people can’t afford it). In November 2021, it was £1.29 and now it is 86p, a drop of a third. That seems overdone and as an asset not correlated to the average share on the market, it could be an interesting addition. It’s not small – it is worth over £1billion.

We had a slight scepticism always about the ‘security’ of the revenue flows and the rights but at such a low level (exaggerated by a clumsy refinancing or lack of that), it could be a useful alternative defensive asset in one’s armoury with a regular income and even capital appreciation potential, from present levels as the fund’s income should increase and its dividend paying ability too. Today, the Fund announced it will buy-in and cancel 15% of its shares at these discounted levels.


Time in the market  

Courtesy of the Combe Rail Society which reproduced a 1937 Southern Rail article, I thought you’d be interested to learn that the fastest train from Waterloo to Ilfracombe over the 211.5 mile route when the Station opened in 1874 took seven hours 18 minutes. By 1905 that had reduced to five hours 12 minutes. (See HERE for membership/support). The time was improved marginally until the line from Barnstaple closed in 1970.

So what relevance is this to the world of finance? Just that sometimes we need to step-back and take time to peruse and recognise progress we have made but that some things need an investment in the appropriate amount of patience to show the progression which we don’t necessarily notice from one day to the next.

Isn’t life about that all too often? We take progress for granted and keep craving for more, for better, regardless of what we have already? Take politics and the media, which are atrocious at baying for instantaneous judgment on every last policy and decision. And seemingly the populace relies more and more on the State bailing us out as we don’t appear to imagine that we should be responsible for our own choices and decisions, as well as having emergency reserves behind us, let alone ‘living within our means’ even if that means not being able to enjoy the things we might want to have and do sometimes too (it’s not all down to money either).

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