Shockingly (as we weren’t expecting it!) but the economy grew 0.6% in the first quarter – not quite sure how! Apparently, it was ‘services’ primarily. So, the extra 0.1% over what was expected is being headlined by the Government as wonderful news but sadly one swallow does not a summer make.
On the same day, 10-year Gilt yields, the bell-weather for economic sanity in many respects, exceeded 5% for the first time since 2008 – 30-year ones, as you will remember, are approaching 6% and the ‘worst’ since 1998. There are reasons why investors see our prospects the worst of the big economies.
I am writing this from Australia and here, the news seems all too familiar – escalating minimum wages and employment squeezed, excessive welfare and public spending and an economy which cannot keep-up, headed by a Labour administration. Still, seeing Platypus and Echidna in the wild with superb eucalyptus varietals are enough to distract for a while and some superb Man Ferns (as the Aussies call them) in Tasmania take the mind away from economic concerns. Meantime my new kangaroo hide slippers will put a new spring into my step…
That said, consumers especially were shell-shocked that inflation turned-in lower at 2.8% which is good but it is likely to be temporary respite till higher prices from the closure of the Strait of Hormuz work their way through the system and don’t forget higher wage costs from April. Meantime we have relaxed the rules on buying Russian oil products (as Sir Keir also applauds the new E90billion loan to Ukraine to fight the Russians), whilst at the same time declining using our own North Sea Oil…
And Sir Keir has declared his resolute support for the Party’s candidate in Makerfield, who happens to have sailed through the National Executive’s processes versus rejection last time (which should never have happened then either) and apparently uncontested… We need to remind ourselves the only reason the seat is vacant is so Andy Burnham can stand and the only reason he is standing is to contest Sir Keir… hmmm. The projected result suggests an outcome where Reform could romp home and the shenanigans are likely to encourage die-hard Labour supporters to protest against the Party’s recent behaviour, so that a more ‘Wakefield’-style’ rout will be the result – Reform 58 councillors, Labour retained 1 – this being a previous Labour stronghold.
We’d laugh about the fiasco but this is also our Country they are messing-up… and of course, I mustn’t mention that Norway is reopening gas and oil fields it mothballed 40 years ago… both to meet the increased demand but also enough to heat three million homes. I wonder whether its pipes will be long enough to tap into our wells to sell the spoils to us…
As for fishy goings-ons in Scotland, how unbelievable is it that Ms Sturgeon knew ‘nothing’ about the embezzlements of her husband despite also enjoying their spoils… still, she is fleeing Scotland’s higher taxes to come and live in London we hear. Perhaps ‘they’ have agreed a convenient settlement in their divorce which means he doesn’t say anything to counter her denials either… whatever, it does nothing good to people’s perceptions of ‘politics’ and integrity.
Meantime, a new packaging tax will impact food prices, at the same time that the Chancellor asks supermarkets to hold down the prices of their basic food stuffs – all quite unbelievable naivety. Incidentally, generally supermarkets’ margins have fallen as their baseline costs have risen – and as Morrisons announces the closure of 100 stores as they are no longer economic for them. Consumer confidence slumped to a two-year low (the third consecutive monthly fall) and price rises from the Iran war and higher wages haven’t really been felt yet but a major brick maker has closed one of its sites – a bad portent for the house building programme for those needing new homes too.
One of the consequences of Government policies is the dramatic rise in younger people not working – a sad indictment for their futures in many cases. However, general work concerns have escalated, as the UK suffered the highest tax rises on wages in the richer world (according to an OECD report) and with the advent of AI replacing more jobs, neither will help restore that imbalance. Socialists are no longer the party of the worker but as the latest Mandelson releases noted from comment by man of some integrity, Pat McFadden – the Party of those on welfare, with the ‘rest’ simply golden geese to pay more tax for more benefits. That is not sustainable permanently but the message it sends to business, investors and workers can become so.
The tale of a chart
We aren’t chartists but sometimes, the message they give can be an added aid to a possible perception of prior belief. It is not always the case but sometimes… For example, take Rolls Royce shares – lots of very positive commentary and hopes and the shares are riding high but does the chart suggest forward momentum is struggling and so the shares are due something of a slump regardless – just overpriced and needing a dose of reality?
I do take positions personally sometimes, both as a hedge and also to reflect a view and of course they don’t always reward and hedges can be very expensive but as I say, they are a hedge against other things and really, you don’t want them to work, because that is only when something else ‘negative’ has happened. We can’t do that for clients where instead we hedge with alternative assets and contrary assets instead, not speculative positions on stock we may not even hold.
Another good example was 3i Plc (the old ‘Investors in Industry’) – a well-respected Investment Trust which was trading at a serious premium to the underlying theoretical value for a long time, so long in fact that it was almost always excluded from general Investment Trust statistics as it was such an outlier. The graph just kept going up and up and the ‘value’ of its biggest investment and its prospects just kept being talked-up more and more… but the chart looked too toppy and finally, what happened? The shares imploded and billions were wiped from the Trust’s value as that big investment’s prospects were cut.
The point is, not that the ’charts’ always point to the likely expected future but when something is somewhat over-extended and the hype is all directed one way, sometimes the chart is a reflection of excessive collective human psychology more than people think and beyond the underlying reality. So when that sentiment changes… the reaction can be brutal.
As readers know, I don’t like the charts of the US market and the US tech segment especially but no one rings a bell at the top, just as no one rang a bell at the top of 3i, when naturally the sentiment was all very positive because that is why the share price was high – too much enthusiasm to buy based on expectations of even better future prices than there was to sell – supply and demand. 3i now trades at a discount to the underlying net asset value – about time really but valuing an unquoted entity is always somewhat arbitrary! However, as the shares are below half their recent high, there is less room for ‘mistake’ now. Are we buying? Probably not for the moment anyway!
Bubbles bursting
Thinking of things, from Crypto currency to Nvidia, now heading towards a ‘value’ of $6trillion on the back of the CEO’s visit to China, Moneyweek had an interesting piece on average market corrections and what investors ‘lose’.
You all know our views on over-priced things, especially hype and in some ways, its loss projections, taken as simply an ‘average’, could be skewed as there are so many bloated individual ones out there. $27trillion was noted. Most of that would be from the US because that’s where most of it is. Is Space X’s flotation valuation also a portent of the market top perhaps? It is again investors’ speculative fervour in investing in the unknown – as opposed to buying some seriously undervalued assets in plain sight instead, perhaps.
It also reminded us about NFT Art – do you remember all that hype about art created on computers? How many were duped there and naively and foolishly bought ‘non-fungible tokens’ with one piece selling for $69million? As much as $2.8billion of the stuff was traded monthly and yet now? ‘Values’ have fallen 95% and well, who wants the stuff anyway?
I was scathing about the concept at the time and did my utmost to dissuade anyone from being so foolish. So, whilst I am not King Midas, maybe I have one or two views worth listening-to. As I said last time, even an FT publication referred to me as a ‘veteran’… Moneyweek is a good, well-written publication incidentally!
Thanks again – so much
How nice again – a client expressed her gratitude for the Firm’s ongoing service and specifically complimented the front office staff, describing them as ‘brilliant, very welcoming and very helpful’.
Quick Vote – Nationwide shenanigans
I see the Nationwide’s existing Board is using the ‘Quick Vote’ system to manipulate denying the independent candidate a place on its board, as well as potentially defaming him by saying he doesn’t have the suitable credentials to be a director – I disagree. I hope that enough ordinary members (many of whom usually don’t bother to vote) will turn-out in force to go against the Board.
This sort of behaviour and the ‘Quick Vote’ system itself should be barred altogether – both under financial services’ regulations and also under Charity regulations whereby the National Trust uses these, basically to give the board the ability of rejecting any motions which they don’t like or, the cynic may say, which might challenge them or their comfortable positions and large rewards there, as well as them pushing their partial views.
Democracy is not about barring the votes and candidates which existing board members don’t like or find comfortable – or which threaten their positions. After all, both these organisations publicise how well they represent their members (this isn’t that), so isn’t it time they proved that and allow genuine democracy?
Good news/bad news
How things can change and oh so quickly. We started nibbling-away at Tate and Lyle as it fell easily into our ‘value’ remit. Unfortunately, it kept falling to become even cheaper but we continue chasing it – not from superstition but simply the underlying value and also the depressed price of sugar supporting our view. Then suddenly, on Thursday a week ago, a takeover rears its head and the shares jumped almost by half.
That’s what can happen so often with ‘value’ stocks – if the market itself doesn’t reflect appropriate value, a corporate predator will buy the lot. It’s not in the bag but it rebases the valuation. And what is so good about that is that a bid opportunity is usually there for free. That’s not going to happen to Nvidia is it… anyway, that’s a cool £0.5million for clients, thank you.
Then to cap that week, Gamma Communications rose 8% as it noted it is in talks for a prospective takeover as well so that too is good news. Finally, GCP Asset-Backed Trust announces the sale of three of its loans in line with the book value and a further 6% gain arises in the shares. It all helps.
However, ME International announces that Middle East issues are suppressing trade and the shares slump – quite frustrating after the Company had been buying-in and cancelling shares. This does seem overdone however and we remain holders and likely buyers.
Investment income – the sustainable argument
Yet again, quarterly dividends have broached a new record – $419billion.
Remember, this is the income share of companies’ real profits and paid regardless of what happens to share prices themselves, in the short-term.
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
