Before anything else, have a really lovely Bank Holiday weekend. I shall be helping at Braunton Fair on Monday and catching-up tomorrow…
Crisis? What crisis? Could be the question our investors pose about the recent Trumpian-created volatility as we seemed to sail-through unscathed and emerging from the other side seemingly in better shape than when we entered it.
It’s a funny old world but if ‘you’ dumped your assets in reaction to the short-term panic, you are not sitting pretty now. Fortunately, we had very few forced sales at the ‘wrong times’ but as ever, we warned investors needing funds to defer if they could. However, the warning persists – expect very elevated volatility and possibly on a daily basis so still don’t do unnecessary transactions where you could fall between the stools, nor take long-term decisions on short-term news.
The US is looking expensive again and echoing Jamie Dimon’s concerns (J P Morgan chief); Moody’s down-rating of US debt (losing its Triple A rating) bodes worse than the markets envisage and ‘stagflation’ may be embedded at the same time – not good news.
Still, the UK continues to offer superior value and far less risk and despite the Government’s apparent self-destruct philosophy. Our own CPI unsurprisingly rose to 3.5% in April as all those tax and cost pressures are added to inflation, pushing the Pound to over $1.35 and its highest since February 2022 and causing concern for further interest rate cuts, especially as government borrowing soared past £20billion for April. Anyway, some good news for renewables, etc… over supply has seen the price of cobalt plummet, down almost three-quarters since 2022.
Here, the perfect storm appears to be developing for the Labour Government. Large increases in wage costs have seen unemployment rise to 4.5%, a four-year high and it is on the ascendency. Hiring is dropping and whilst employers may not remove existing staff, when one goes, they may not be so keen to replace them. Indeed, cuts to public services (which appear necessary to tackle government spending deficits let alone above-inflation pay rises) could escalate the problems with more people out of work and unaffordable at these higher cost levels by more entities to engage.
We’re now told too that the Government’s projections for the numbers leaving private school were wildly pessimistic and with up to four times the pupil losses – whatever one’s view these were not in the calculations for extra State school funding nor the loss of the VAT they were meant to be paying. It was there to raise revenue remember, not cost the State. Bearing in mind that many people’s decisions for private schooling in the future are influenced by their children’s ages, etc, many children will still be completing their present education despite the higher cost. Younger children may now be diverted to the State.
Will as many parents choose this route in the future? No. I know the economy bounced in the first quarter by 0.7%, a little more than expected but partly from a very low base and supported by consumer spending. Meantime, the cost of government borrowing has quietly been exploding again – see below – so Mrs Reeves has to pay a lot more to finance spending and to refinance previous excessive debt. This has rocketed nigh ten-fold since 2020 and way above the time of the ill-fated Kwarteng/Truss clumsy budget (which I wish had been implemented; we’d now be in far better shape…) this is also on the back of 30-year US Treasury yields hitting 18-month highs over 5% and 10-year rates pushing towards that. As for Japanese bonds…
Action Fraud announced that 25,843 cases reported to it in 2024 totalled £649million, with those aged between 55-64 the most susceptible. Cryptocurrency was the highest on the list covering two thirds of all cases (why do people do it!). Case numbers were below 2023 but the losses 13% higher. WhatsApp, then Facebook, then Instagram were the highest source of fraud. Now if the regulators made Meta, which owns all three, responsible for the losses perpetrated by fraudsters which it allows on its platforms, I suspect the case numbers would dry-up significantly. Please don’t join these victims. Invest in properly regulated things through independent financial advisers.
And what are we meant to think when we hear the NHS has set aside £58.2billion to cover medical negligence claims before 1/4/24? It is ridiculous and what a waste of money of which a colossal sum goes to lawyers too. I am afraid I should be ruthless – maximum £100,000 payment for bad treatment via the NHS and if the patient wants more cover, buying a separate insurance policy (it would not need to cost very much each). The State cannot be held to ransom for such a colossal prospective liability for treatments which people seek from this public service – no excuse for failings nor negligence but… Just think of how that money could instead be more meaningfully and productively spent.
Advice
Apparently fewer than 9% of savers sought any financial advisory help last year. 21% of people had less than £1,000 for an emergency and one in 10 had no savings at all. One in five yet to retire has no private pension and only 59% contribute to one. The numbers with sticky credit card debt are high and those taking buy-now-pay-later credit have rocketed.
How can the ‘system’ make people realise that they have a personal responsibility to sort themselves-out and to stop spending? Have there been no advances from the time when people really were ‘poor’ as opposed to comparative opulence yet expecting too much and now with everything at their fingertips and theoretically accessible to them to have and enjoy just because ‘they can’? These figures are frightening. Not having enough even for the necessities, is a core cause for unhappiness, stress and relationship breakdown. ‘Living within your means’ is frowned upon in today’s ‘entertainment now’ and ‘I’m entitled to it’ ‘without responsibility’ culture. What is the answer?
Indeed, we are told that the number of pensioners now paying higher tax rates has doubled in the last four years so they too need, more than anything, to seek advice as they can lose their already derisory allowances for interest and dividends and suffer higher tax on capital gains. The numbers paying any Income Tax have risen by 2million (30%) in that time. Don’t get me going on the Winter Fuel Allowance and this Government’s handling of that too… reinstate it and make it taxable, like all universal pensioner extra benefits.
Good news/bad news
There’s been a bevy of activity since I last wrote. A small firm we hold in AIM strategies, Kinovo, enjoys a bid and rises a third on the day – still undervalued for this sound company operating in a lucrative sector. However, so are many on AIM after a torrid time these last few years. There’s some great value there presently, an unloved and unexplored market.
However, Victoria Plumbing (also AIM) comes out with fair figures but committing £3million to an expansion plan relaunching MFI hit the shares hard – seemingly an over-reaction by the market. The shares are too cheap again but still double their lows a few years ago.
Meantime, special situation Vanquis Bank rises well from an oversold position, Lancashire Insurance jumps on better results than due and no change on California fire costs and Conduit, another large insurance underwriter, also surprises the market on the upside and rebounds from recent lows but the shares remain under-priced and with good prospects.
Gilt-y times
The Treasury has launched a long-dated Gilt prospectively aimed at retail investors. In simple terms, we do not recommend people subscribe as it is not as clear-cut as it seems. You are better holding such instruments through a sensibly managed portfolio and not as a stand-alone holding. It may appear attractive but what investors forget is that the capital values will gyrate according to the daily market rates for similar debt.
Gilt yields have risen again as investors weigh the Government’s economic prowess and sentiments towards funding excessive borrowings and views for interest rates. It could be a good deal (we shan’t know the coupon, the interest rate, till the issue closes) – or it may not be. However, if you buy-in ‘now’ and interest rates have to rise over the period to maturity in 2056, the capital value will fall and you will be stuck with the initial interest return whereas other investors will be receiving the higher ones.
Likewise, if interest rates fall, you keep a higher return and the capital value increases as well, as you have a premium ‘product’ except you are only paid £1 per £1 at the end! We are watching Gilts and may well add some to clients’ defensive strategies at some point but there are times to buy and times to sell and I could share some past horror stories from investors who don’t understand how they work. For example, the 1.125% Treasury ‘73 has just plumbed its lowest ever level. Those paying nigh £1 in Feb 2022 for £1’s worth of British Government assured, top-quality bond now have an investment worth 31.5p.
Taxing times
I see the Centre for Economics and Business Research suggests that if half of the nom-doms in the UK leave the Country then the Chancellor will be short of £2.4billion a year, let alone the loss of employment income, spending (and inherent taxes) and employing and investing in growth in the Country. It all seems very short-sighted… and signals totally the wrong messages to encourage ’investment in the UK’.
As I said before, the Conservatives started the rot but Labour delivered the death knell – talk about cutting-off-one’s nose to spite one’s face or indeed simply shooting oneself in the foot. In 2007-8 there were 137,000 non-doms, down to 74,000 last year.
Government pressure to invest your pension
What do you think of pension schemes being obliged to invest in UK infrastructure? We have mixed feelings about that and it could end in tears… I’d simply demand a certain percentage has to be held in UK stocks to qualify for UK tax incentives as they enjoy.
Compensation
The FSCS has paid-out over £20million to 953 investors so far, as compensation for the losses via ‘WealthTek’. Allegedly the shortfall was £80.6million but on top of that would be the administrator’s costs of many millions, consuming some of their claim limits too (£15,135 per investor so far, a mere £14,4million – shocking).
Maximum compensation was £85,000 per individual of course so some of the shortfalls would have been unreclaimable whereby the managing director seemed more interested in spending client money on racehorses… Ex-director Gary Stockdale raised concerns with the FCA in 2021 apparently (Lost to the Races: The story of the WealthTek whistleblower) and many may ask why at least an enquiry was not made then – and how much grief and money could have been saved as a consequence of these frauds since. Meantime, the FSCS is funded by the honest operators still in the industry…
Kind words
Thank you, JH for your very kind comments…
Thanks for today’s call which was very helpful in clarifying the way forward in straight forward, no nonsense manner.
This Philip Milton ethos (reflected also in your father’s weekly missives) really is a strong point of differentiation twixt yourselves and other so called financial services organisations.
Long may you continue to flourish and grow (but not too big please).
And SH who we are helping after being scammed:-
Can I please take this opportunity to thank you and your company for all the help and guidance. This is indeed a sorry state we are in; I have never earned a lot of money and somehow thought it would be a good investment how stupid can you get. I will wait and hope I and all the others have a happy conclusion and can finally get a good night’s sleep. I don’t think I can take much more. PS can you also thank Toby for me he has helped in his own way a lot.
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
