For readers here, the biggest pieces of good news were what she didn’t do, such as attacking pension tax-free lump sums or tax relief on contributions, no lifetime Inheritance Tax on gifts or changes to present allowances and no changes to CGT. We did our best to discourage people from taking their cash from pensions in fear but hey ho – some did and can’t put it back-in now. The cynic could say that a socialist chancellor could have seen several other things as low-hanging fruit but perhaps ‘they’ benefit from them as much as all the others who do…
The other positive benefit for the UK stock market and business and consumer confidence generally is that the extended period of ‘uncertainty’ has ended (we can cope with ‘bad’ certainty) and that had been stifling. This will lead to interest rate cuts too, reducing the cost of government borrowing and the costs to businesses to borrow.
Sadly too, she didn’t incentivise changes to the Benefits’ system. All of us will know many cases where those receiving benefits are discriminated against and disincentivised to bother to seek work (or to work at all) or to do a minimum amount if that qualifies them for a bigger handout. That must change.
There remain plenty of nasty things in there and also negative things. She has not learnt that economics are about ‘balances’ too – if you do one big thing there are reverberations – such as a ludicrous increase in wage rates for the young leading to even higher unemployment for them and fewer job openings.
Indeed, raising the Minimum Wage over inflation again is daft too – increasing the cost of employment (and raising inflation as costs have to be passed-on) and guess who employs the most people? The State does, so that has a cost and tax effect too. These costs on employing, amongst the highest in the world, are already leading to increased unemployment and vacancies falling.
If you really want to cut the ‘cost of living’, do it in targeted ways to help people who would benefit the most, like cutting their costs and even by nudging people to gain if they choose a particular behaviour. Cut taxes in the things which people buy and that cuts inflation too. Employers (from businesses to charities) will be investing more in AI and more quickly too, to cut their dependence on employment – I fear what will happen in areas like hospitality, catering and retail, where the cost of employing just one (extra) person has risen to just under £32,000 when all on-costs are included – that’s over £600 every week.
Because of the colossal losses suffered by gamblers and the financial pain caused to so many who are easily addicted, I agree with the increases in betting duty but offshore sites need attacking to avoid loopholes. I note the cap on ‘salary sacrifice’ for pensions but why not allow those on Minimum wage to qualify – they can’t presently because it makes their pay fall below minimum wage limits – how pathetic. However, she thinks she will raise money by attacking this system but inadvertently, she has now legitimised the method for employers and employees, as it was always a grey area before. Only half of employers offer that but now they all can and that includes the public sector.
If you are employed and in your employer’s pension scheme (as I hope you are!), then press for your employer to do this to save them and you National Insurance! I cannot see any reason either why such a change is not from say April next year – not ‘2029’. As opposed to raising £4billion, it could end-up nudging action which costs the State more – like the abolition and reinstatement of the Winter Fuel Allowance has.
And yes, it is only right that those with very expensive houses pay higher Council Tax. Band D in Westminster for example is just over £1,000pa whereas in North Devon it is just under £2,500 – something even more needs to be done frankly. However, there are exemptions… if you live in one of the 110 Council houses worth over £2million – I am sorry but no social housing should be provided at this sort of valuation level in the first instance…
She has also discriminated bizarrely against over-65-year-olds with Cash ISA subscriptions… again, as socialists who take from the ‘rich’ to give to the poor, if you can afford £20,000 to subscribe every year (and double for couples) that is no small sum so why not indeed cut the limit universally to only £12,000 so that the other £8,000 has to be more meaningfully invested? However, how on earth can that be administered, I don’t know – you can transfer from or to a Cash ISA now so all that will change.
However, sadly there was little to stimulate ‘the economy’. That is where higher tax revenues will originate and indeed, fewer demands on welfare as more work and earn more. There is also no relief for farmers and small businesses on Inheritance Tax and no effective stimulation to use our own North Sea energy reserves – at the same time Norway is ramping-up what it extracts there so it can keep-up with the demand from us (from the same fields). Business Rates on hospitality are also increasing and deferred increases in this pernicious tax are not ‘cuts’. More pubs, etc will be closing.
The concept of taking from hard-pressed tax-payers to pay even more to those on already generous benefits is also one creating significant resentment and the pundits are active on reading this chasm with phrases such as ‘shirkers not workers’ and ‘skivers not strivers’ and none of that helps. Benefits were always meant to be a safety net and not a way of living very comfortably for life.
Even Sir Keir Starmer has recognised the benefit trap and the inherent discrimination it creates and the more that benefit levels rise, the harder for people to escape the trap of permanent relegation to worklessness. I did see one idea – make all benefits taxable so that recipients would have tax allowances like everyone else and then pay tax on the balances…
Life’s a pantomime – Dick Whittington and His Cosmic Adventures
Yes, after all the political pantomime it is Croyde Players back after a year’s rest. It’s the last two weekends in January this year and whether yours truly will have learnt all his lines in time – more of them than usual – waits to be seen.
Tickets and more details are available on the Croyde Players website at – https://www.croydeplayers.co.uk
Newsletter
Our latest hard copy newsletter will be winding its way to those on our database over the next few weeks – if you’d like one, please just ask!
Crowd Cube
A Curve-ball was delivered by Curve UK Ltd recently as Lloyds is acquiring it but all those subscribing for stock via Crowd Cube have seen their investment wiped-out. I fear this could be the case with many such investments – it may be a ‘great idea’ (especially fintech applications) but that doesn’t necessarily mean it’ll ever reach a profitable position and when all the money is squandered on costs – including generous salaries and inflated egos, of course.
Maybe the Regulator might need to investigate too where new investing institutions are welcomed on board later (or their capital) and where they then rank above existing investors when things go wrong… rest assured, no client funds involved there.
Passive investing – indexation
I have said before – is the next crash in world markets going to be a ‘Passives-led’ crash? I think it will and more so based on the excessive concentration risk of so few stocks in most of these strategies. Of course we are only ‘reminded’ of such things – even predictions – with hindsight – for example as I was explaining to some new clients last Friday why their ‘low risk’ ISA strategy had still not regained its original cost over four years ago – because it had too many nice ‘safe’ funds in there like Investment Grade Bonds and Index-Linked Bonds. These were anything but ‘safe’ in the years down to 2022 when over $17trillion of Investment Grade Bonds paid a negative rate of interest at the worst! (And why did husband and wife have exactly the same ISA strategy and funds…?).
We were hollering that at the time and didn’t have any such beasts in our clients’ strategies because they were too expensive and paid so little income, if any at all. That puts the concept of ‘risk’ in a different place too (it is everywhere including the risk of ‘lost opportunity’) – the strategy they followed has cost them say 25% of lost return which is what a well-balanced strategy with a low to medium ‘risk’ perspective is likely to have returned. Could they really afford to take the degree of risk they did? They have lost a quarter of their return potential (if not more) as well as inflation diminishing the real value of their capital.
So passive strategies, peddled on the basis of acute cheapness (well, there’s no management other than to replicate the underlying index) and also we are told constantly that active managers cannot outpace the indices anyway. Even diversification is noted but when so few stocks count for so much of the index, like now, that becomes more of an irrelevance.
Our fear is that the risks being created by this ‘buy it anyway because it is there’ concept is deeply flawed when values are extreme. The biggest risk is that most participants in ‘them’ don’t realise what they have – and these are employees with their pension schemes, ISA holders, charities, mainstream investors and so it goes on. Adding to that, even the regulators don’t realise as for them, the inexorable push to ‘cut costs to investors’ favours such passive strategies. Do governments consider ‘what could happen’ if our worst fears arise? No.
Well, allegedly now, investors’ use of passives has exceeded actives for the first time ever, at least in the US. When you add active managers which closet-track the indices, the figures are much higher still. And really, is it ever so wise to have over 70% of all of your share exposure to the US? Remember in 1989 that would have been over 40% of your exposure to Japan before that crashed and burnt and took over 32 years to regain the index level (it is now c5%). ‘Oh but that’s different’ say the passives’ zealots. Of course it is.
Certain questions seem never to be asked, such as ‘which index’ or ‘what about currency risk’ and how do you manage proportions? There is now no consideration to geographical issues as if the ‘world’ is a homogenised place so you have it all because it exists too, rather than the old adage of skewing your investments to the home market to counter the simple argument of ‘paying your bills in the same economic outcome as your economic income originates’. We are told UK institutions’ exposure to the UK is now below 2% – really – is that wise? No. Indeed, high risks of ‘these things’ can become self-fulfilling prophecies. In a rout, because of the volumes of stock involved, big sales can be triggered but who are the buyers then? On top of that, synthetic modelling will inflame yet further selling of the ‘same stuff’. Significant price falls then domino more selling and so it goes on. Have participants realised that?
For us, a number of things is valid. We don’t have an axe to grind, we can and do use ‘passives’ but typically specific markets or indices which suit a small part of clients’ overall strategies. Our objective is simply to do the best for our clients and at the best price.
The second is, that this concentration has and is creating even more compelling opportunities away from what the masses are buying – because they don’t want ‘that’ when the passives lull them into a comfort cushion of safety – just like bonds did, I guess. However, for ‘value to out’, we aren’t relying only on yet more buyers tomorrow to push index prices higher but probably, corporate activity whereby real businesses and contrarian investors help to see the asset regain a better tangible value for what it truly represents, as opposed to speculative fervour alone and based on future flows of cash.
Meantime, more often than not, we are being paid a hefty and ‘sustainable’ income to wait patiently – for example, our ‘balanced strategies’ average an income between 4.5-5%pa presently. The S&P500 (US) pays just over 1%. Second, by the use of closed-ended funds like Investment Trusts, we have been able to play the discounts and have done very well from many funds closing-down (sadly). These bonuses are in for free and nothing to do with what the underlying assets do.
Third, there are so many bombed-out assets, dumped by those chasing the passives (and which exacerbate the falls, so ‘poor performance’), that we could easily double our money on so many yet not facing the same risks which a rout in the main indices could create (as we are buying fundamental and boring underlying tangibles). No, we’re not naïve and the usual risk warnings must apply to ‘everything’ but.
Fourth, we spread clients’ money so far and across myriad asset classes too to further mitigate against systemic and excessive risk.
Good news/bad news
GCP Asset-backed announces its third capital repayment at just under 80p. Our last tranches of shares acquired were at c66p. These are all bonuses for our investors – and don’t forget the chunky dividends on top. This fund and its news is ‘nothing’ to do with the share market either, just dull and boring loans paying interest. Remember – these are all simple technical bonuses on top of what the underlying assets are doing in the first place, where we buy cheap stock on the market from investors otherwise too impatient to wait. Yes, the residual pot becomes higher risk as the number of loans shrinks but so far, it’s been so good.
Meantime Macquarie’s sale of its interest in Arqiva sent Digital 9 Infrastructure plummeting 28% as that entity represents 75% of the asset value of the whole fund. That is very frustrating as Macquarie is selling at a bizarre time and where the price is representative of uncertainties which it is trusted will not materialise. The buyer is achieving the best part of the deal apparently. The positive is that it underpins a ‘value’ and that means usefully above the present share price regardless.
Finally, on the smaller company stakes, Petards jumps a third on the award of a defence contract worth £2.2million – all good news for an already seriously undervalued stock. But then, smaller companies and especially AIM stocks, are not in vogue presently but that means, for us, where some of the best value and indeed protection can lie but clearly be more careful and spread your eggs!
Maxims – being a better investor – from the ‘Basil of Barnstaple’
12. We are contrarian investors. No, that does not mean opposite-minded but simply independently-minded so very often we are buying what lots of other people seem to be wanting to sell – for us, because it has fallen to undervalued levels, for sellers, because it has fallen and they have lost money and patience.
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
