We woke to face the reverberations from the threatened tariffs against Canada and Mexico by President Trump, amongst others and the EU and possibly the UK next. The markets are wobbling and the Dollar strengthening as it is feared the US will have to raise interest rates to support its policies as well as staving-off self-inflicted imported inflation…
Here at home, last month the Government had to borrow the most for any month since during Covid and primarily as a consequence of the higher costs to its borrowing; some of that is ‘global’ but too much is as a result of investors across the world taking a more negative view of the Chancellor and her Budget (and its ramifications).
Indeed, this is despite a further big rise in Inheritance Tax receipts too – £6.3billion from April to December. Of course we are also starting to feel the pain from ousting the multi-millionaires under the political expedient of subjecting the very wealthy and non-doms to colossal taxes with ‘one leaving every 45 minutes’. As I have said many times, not only then do we not collect more tax from those people but we lose 100% of what they were already paying and more crucially, we lose their enterprise, initiative, employing, spending and tax-paying on all those activities too – a very foolish route adopted first by the Conservatives then escalated dramatically by Labour. That means the masses (the rest of us) will end-up paying more and receiving less. I don’t see that as wise nor successful.
The other signal is that the UK is not attractive to the wealthy and investors to come and live here – what we don’t receive in the future is perhaps worse than what we lose now and the ‘damage’, even if over-turned, would take decades to undo in sentiment. The principle of fair taxes has legs but the application by politicians is abysmal and very costly to the Country (and no, to the cynic, as a Firm we don’t have any wealthy non-dom clients). And finally (for now anyway), we hear that Astra Zeneca, Britain’s biggest quoted company, has pulled the plug on a new £450billion investment here – as a consequence of the Government’s failure to endorse the previous Chancellor’s agreed support.
Then, UK consumer confidence drops in December on all five points measured, with a whopping decline in economic expectations (30% saying ‘worse’ in one month). We could do with some of the Trumpian spirit – a very different approach to matters than ‘this lot’ presently… No, froth doesn’t deliver but pessimism and negativity as seemingly promoted by our government impact sentiment and how people and businesses react – let alone international investors in their view of us.
Still, people are saving more but they do that when fearing even darker days ahead. Unemployment is already rising and vacancies are dropping too and at the same time wage growth is way above inflation and in itself, leading again to inflationary increases for us all and remember, this is before the 5.3% April increase in Living Wage much above inflation.
This is reflected too in Begbies Traynor’s review and the dramatic rise in the numbers of businesses in critical financial distress, especially hospitality, leisure and retail – all big employers too. The figure rose 50% from September to December and the actual impact of the Budget hasn’t even been felt yet.
Spark UK
We are very pleased to be sponsoring Spark UK again and this time for its Talent Fest in Ilfracombe on 21 February. It features 12 acts and tickets are only £5. The event aims to ‘spark’ a conversation about mental health and provide a platform for local talent.
You can read more about the charity and the event HERE and if you would like tickets, please follow this link
Sainsbury’s
Sainsbury’s has announced 3,000 job cuts in response to increasing costs. Alongside persistent increases in the underlying employment rates and indeed expressions of concern over the cost of employing ‘anyone’ by the private sector and charities and other organisations alike (let alone government itself with the biggest payroll bill), are the Chancellor’s National Insurance hikes and the latest significantly above-inflation increases in the Living Wage the final straws that broke the camel’s back? The Conservatives increased taxes and costs to employ people but seemed to ‘get away’ with that in the economic conditions which prevailed but the sentiment is now very different. Once these direct costs rise, it is impossible to cut them again… and Mrs Reeves didn’t read the signs.
Oh dear – we’ll all suffer. Self-employment will rise again I expect – because there even if you work all hours going, your customers don’t have to ensure you are even paid the Living Wage; a point The Chancellor didn’t really understand in her attack on farmers and their families. Following that, Tesco has also announced 400 job cuts.
Indeed, we hear now that non-dom tax adjustments are to be relaxed slightly but it’s all too little and too late. If she’s making an adjustment, she is realising the damage has already been done and the Genie already out of the bottle.
Artificial Intelligence
The launch of an apparent ‘unknown’ Chinese alternative AI application wiped $1trillion from the ‘value’ of US tech stocks and an almighty $593billion from Nvidia alone (the biggest ever one-day decline in any stock – I said risks from volatility were excruciatingly elevated). The market has perhaps been reminded that it has been the prices of these stocks which were artificial and not a great deal of intelligence being shown.
If you look at Nvidia’s longer-term chart however, this decline hardly dents it – so maybe this is a portent of more ‘reality’ ahead. The more generally-based Dow Jones and the FTSE100 ended the day in the blue and despite oil prices being down. Deepseek, the Chinese company founded in 2023, apparently spent a mere $6million developing the AI application.
To put this into perspective about the ludicrousness of the whole situation, that’s like a whole Exxon Mobil or Oracle disappearing – the biggest FTSE100 stock is Astra Zeneca worth £173billion followed by Shell at £157billion. Another entertainment to show the excess – UK companies paid out £92billion in dividends in 2024 (the FTSE100 projected yield is just under 4%). Nvidia’s dividend yield is c0.04%…
Risk and return
Attended an interesting presentation last week. This was one of the takes. Whatever one says about the global leaders in terms of biggest stocks on the US market, on financial matrices those ‘stocks have been cheaper for 91% of the time’ compared to now.
As clients will know, we are managing our clients’ funds with a greater eye on downside risk mitigation rather than dragon-chasing. One of the fortunate by-products of such speculative fervour (and naïve, passive index-tracking blindness) is that deep value is very attractive as ‘they’ don’t want things that aren’t exciting or which have fallen in value despite their business arguments. This includes quoted closed-ended funds where their shares are available at deep discounts to the underlying values of the assets held. We’ll keep buying those and as sure as eggs is eggs, shall continue to enjoy winding-up actions where we then receive that asset value or more of it, so a bonus over the market price payable today.
What is especially frightening is that the same presentation noted that the biggest 10 funds in the ‘Global Mixed sector’ all had basically exactly the same underlying exposures so when or if the correction arises, if investors felt that having more than one fund spreads their risks… well actually, yes, they all have the same. That’s not diversity nor, crucially, risk mitigation. We, on the other hand, cannot be any further from that with significant uncorrelated asset exposure and asset class exposure.
Good news/bad news
The Chancellor has made a pronouncement on the car loans and hidden commissions’ issue and basically suggested that an excessive regulatory reaction is not appropriate. What this means we don’t know but what we do know is that our decision to chase some of the banks affected as their prices plumbed misguided lows has proven somewhat fortuitous and sooner than ever we could have imagined.
Our largest, Close Bros, has jumped usefully and Lloyds is looking much brighter too. We like a good accusation of controversy; very often the market’s short-term behaviour is an extreme over-reaction as people dump stock to avoid the bad news appearing on clients’ reports and so a bargain can be had – not always but we did our analysis before embarking on investment – and repeat constantly that sentiment when we buy more (or hold); which is why we reprioritised these two banks in strategies, as our short-term reaction.
An Investment Week survey noted that 90% of Investment Trusts ended 2024 at a discount to the underlying asset value. Most sense this is bad news and I understand that. We see it as good news as the field remains ripe to acquire assets which we perceive are far too cheap and where further corporate action is likely, if not inevitable and the extra return that generates is in the price for free – thank you very much. Give it a year or two though and it is going to be harder to find and extract value like we have these last few years…
One of our recent additions – Dowlais – which we have been buying very cheaply, enjoys a bid from the US – whilst ‘agreed’ the price is not good enough in our view so we shall await developments. However, a very pleasant uptick, all the same.
Closing on a positive
Despite all the negatives in the world, every so often we need to remind ourselves that there are some great, good points, fuelled in the main by benevolent capitalism which has advanced the needs of the world’s population. Apparently, infant mortality is the lowest it has been since records began. Till relatively recently, half of children died before age five – that is now down to 3.6%. Extreme poverty, measured now as living on less than $2.15 a day, hit another low in 2024 of around 8.5%.
Literacy is another advancement – even in the mid-1960s, most of the world could not read nor write. Literacy is now at 90% and in itself, another key to advancing our standards for ourselves, our families and our societies.
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
