Good afternoon – a Happy Christmas and prosperous New Year! Ahead of us we have our traditional Christmas Eve lunch before closing-down for the break. It was my Father’s birthday too and he used to be treated in exchange for doing our annual PAT… I hope that you have a lovely break and that the New Year is generous to you including in health and happiness.
Goodbye dear Monty
This year will certainly be tainted with sadness for us as our delightful English Setter, Monty, passed away on the 23rd and just before his 12th birthday. He was the first dog I had ever had and will be sorely missed – we couldn’t have asked for a nicer companion – clever, wonderful temperament to everyone and all over dogs and we even forgave his lack of hearing when we dared let him off the lead. He will be chasing leaves blowing in the wind and stalking dandelion clocks in doggy heaven hereafter but certainly he will leave a hole in our Family life too.
Well, our Chancellor’s first budget for ‘growth’ has been something of a flop with economic regression for the last two months and a revision of the period since the Election (July) to show zero growth then as well – two quarters of negative figures and we’re into recession. She’s learning the hard way it’s not only ‘what you do’ but also sentiments that you relay by what you do (or don’t do) which impact consumer and business confidence.
According to the latest survey by Make UK and BDO, manufacturer confidence has fallen sharply to 5.8 since the Budget too, the sharpest quarter-on-quarter drop since spring 2020 right in the forefront of covid. The good news is that weaker figures will lead to earlier interest rate cuts. The bad news is that regression means smaller taxation receipts and more welfare spending, so either bigger taxes needed or higher government borrowing.
The other bad (good?) news is all those public sector salary hand-outs fuelled wage growth and that will push inflation up (and Lo! Bearing tidings of bad news for a second month, a jump from 2.1% to 2.6%) and thus possible deferral of interest rate cuts – and government bonds (which the government needs to issue to fund the overspends) have seen rates rise in reaction (and dimmed international confidence in ‘us’ as the risks rise) so the cost of the National Debt is rising again… any honeymoon in people’s wage packets will be short-lived. At least last month’s government borrowing was at a three year low…
Pensioners won’t be rushing to vote Labour next time round like last time… not with the Fuel Allowance removal for so many (and tens of thousands of new applications for Pensions Credit not being processed in time) and now the rejection of Waspi Women’s claims in a rather unfeeling and absolutely cynical way in which it was communicated (and contrary to many pre-election ‘promises’ to secure votes), more than anything but at the same time those inflation-busting public sector pay rises were simply pushed through, without any conditions or comments on true affordability and productivity in exchange.
And then to cap it all, Tulip Siddiq, minister for tackling corruption in UK financial markets is accused of, yes, corruption over a deal with Russia in Bangladesh in 2013 where her family is accused of embezzling £3.9billion… her Aunt fled there in August. All these sorts of things do not give confidence to the financial markets nor the economy.
Market conditions
Over the Atlantic, the Fed’s hawkish stance (suggesting two rate cuts in ’25 are being cancelled) signalled the biggest one day fall in the Dow and the Nasdaq for quite some time and capping the tenth day of Dow declines – the worst run since 1974. So far the UK has proven resilient comparatively – but then our market is so much cheaper and better value in the first place. Then the US rebounded on approval of the motion to avoid the Government machinery being shut-down with budget impasse.
I apologise too that for effect last time I exaggerated the disdain about the lost Bitcoin in Newport City Landfill – the astute of you will have realised that mischief – it is ‘only’ a $1billion of coins ostensibly lost there…
The Premium Bond prize kitty has been cut again to 4% so if you hold (which we only suggest is part of your emergency cash as they are not an ‘investment’ except for the multi-millionaires obliged to exploit all possible tax-free return facilities going). Remember too that when you remove the few very big prizes (which, face it, you are not going to win), the kitty for everyone else is even less. People, we, are fond of them and attached to them in the vain and superstitious hope of a big win but sadly the reality is likely to be a meagre ‘return’, disillusionment and our capital which is shrinking from the ravages of inflation.
The value of advice
Something for you to cogitate over Christmas… ‘Quality input from a professional financial adviser, especially at the right time, can make a world of difference’. The International Longevity Centre UK has calculated to suggest that the boost for those receiving advice was £47,706, however its metrics were engaged. Interestingly and in reality, the value of competent independent advice extends beyond the simple finances.
The report extended into how advice can help a client’s sense of well-being (peace and reassurance too) and having better control over your financial life correlates strongly with satisfaction and the majority with an independent financial adviser ‘feel more in control and more satisfied with life’. Well, anyway, what do you have to lose? When I set-up, I believed there would be something with which I can help anyone and everyone who comes to me – whether poor or rich, informed or not and after nigh 40 years, I can confirm that has been true. Of course, not everyone wants to listen to the guidance even when given…!
Good news/bad news
Amongst the downside volatility and all major currencies slipping against a resurgent Dollar, just a note to be cautious and wary if you are over-exposed in the markets or indeed any asset class. Of course we hope we are not but we could be entering another period of more pessimism than optimism and certainly not a ‘Santa Rally’ – he can’t climb the heights of the US market anyway, as it is already too precipitous!
One of our longest-held assets, London Finance & Investment has delivered a very nice Christmas present and has decided to delist and return cash to shareholders. We are its second largest investor and merrily bought stock at such a deep discount to the underlying assets’ value. It’s been a sluggard at times but the underlying strategy hasn’t been bad and we’ve had good dividends throughout. Last December, the price was 32p and now we shall unlock over 70p. That’s 123% in one year in total and most of it nothing to do with the market improving its underlying asset values.
Do you know what – that is simply down to patience and true value investing – if you’re a client and you have some – well done for demonstrating such longevity too. If ‘this’ hadn’t happened, it wouldn’t have ‘mattered’ as effectively we were still buying good assets on the (dirt) cheap. I challenge you to find another adviser/manager in the area who holds this otherwise esoteric stock too! Remember, it’s too late buying after the news and already, we’re looking always for tomorrow’s story – that’s also why our clients engage us.
We have also had stakes in two Investment Trusts at quite deep discounts – CQS Natural Resources and Henderson Opportunities. We have sold the former at excellent prices and are reviewing the latter – the discounts have shrunk as Saba Capital, an aggressor US investor, has been building stakes and pushing-up the prices. Remember, whether it is 10% or 30% of ‘extra’ gain by the share price reverting to the underlying asset value, that is on top of what the assets in the Trust themselves are doing – investors in unitised funds will never see that. We like/d both Trusts but would be foolish not to react – and to put the funds in similar discounted opportunities as they abound.
On the downside, some special situation smaller companies have given-up some of their recent value – eg Carclo and TT Electronics (as the bid was cancelled) but that’s short-term negativity from the Budget as much as anything.
The US Market
Thank you to John Hussman of the FT for a prescient piece at the year-end in regard to markets and bubbles.
New eras, same bubbles: the forgotten lessons of history
The trouble is, most people don’t want to hear that at the moment, as they pile into their US tech or indeed global trackers dominated by the US’s over 70% cake slice of all shares across the Globe. ‘Investor confidence in a new economic era has reached extreme levels’ he writes. He refers to another gauge of price used in the last decade or so – the ratio of the market capitalisation (ie the total worth of a company’s shares) of US non-financial companies to gross value-added (or corporate revenues generated at each stage of production). He reports that since early 2022, the metric has rivalled the most expensive times and now exceeds the peaks of both the Great Crash of 1929 and also the dotcom bubble in 2000. Sir John Templeton’s words need to be remembered and perhaps Warren Buffett with his present vast cash reserves from stocks sold is – the most expensive words of all time – ‘it’s different this time’.
He reminds us too that the more we pay for an asset, the less the future returns from it (stating the obvious really) and a share price is simply today’s valuation of a future flow of cash from what the company generates in its markets. All investors too need to remember that all previous bubbles have been based upon the latest technological innovations and hopes and hype for the future – what is different today?
However, can we be sanguine in our holding of tremendous value through so many unloved and deeply discounted closed-ended funds or value stocks which don’t reflect the euphoria? We’re paid a handsome income for real underlying investments too, whilst we wait. One thing is as sure as eggs is eggs and that is that we shall be far better protected if or when a giant rout impacts the US majors and a dose of reality pervades investing over there again. Remember too that the UK market counts for less than 4% of all world shares and international ownership of the UK market (let alone here at home) is at record low levels as ‘they’ have all been chasing the US and dumping ‘everything else’.
Will the US market have to wait for 25 years before it regains its latest peak? That’s what happened after 1929 and yes, it’s highly possible – however implausible to even imagine in today’s world that that could happen. Remember too that Japan took 34 years to regain its 1989 peak. Let us also hope that the US levels of credit card defaults (the highest recorded we understand and higher than at the time of the dotcom bubble), are also not a portent for the necessary equity correction there.
Pension tax-free cash
Ooer, investors who took-out their tax-free cash just before the Budget who have tried (or succeeded) in putting it back-in under insurers’ ’30-day cooling-off’ periods have now been told by HMRC that they cannot reverse the decision at all.
I think this is a good lesson for those now thinking of acting – don’t act impetuously…. if you haven’t had our Budget synopsis (which is very candid about the consequences and other Budget ramifications), read that first! It seems a case of ‘he who laughs last….’ I have to say, I didn’t touch ours and don’t intend to do so… however much our children might encourage and love the idea of big gifts now… and the government’ll change in due time.
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
