10 Nov 2025

Why is it that lockdown, introduced as a measure to combat the Covid19 pandemic, is such a non-subject? Is there anyone who still thinks it was a good idea? As a reminder; from a Parliamentary website, recording the hundreds of new laws that needed to be passed….. First national lockdown (March to June 2020) All “non-essential” high street businesses were closed and people were ordered to stay at home, permitted to leave for essential purposes only, such as buying food or for medical reasons.. Minimal lockdown restrictions (July to September 2020) Reimposing restrictions (September to October 2020) The Government rationalised local restrictions by introducing a “three tier system”. At first, most of the country was placed in the least restrictive tier one, which had similar restrictions to the previous national rules. As time went on, more of the country was placed in the higher two tiers. Second national lockdown (November 2020) On 5 November, national restrictions were reintroduced in England. During the second national lockdown, non-essential high street businesses were closed, and people were prohibited from meeting those not in their “support bubble” inside. People could leave home to meet one person from outside their support bubble outdoors. Reintroducing a tiered system (December 2020) On 2 December, the tiered system was reintroduced with modifications. On 19 December, the Prime Minister announced that a fourth tier would be introduced. The tier four rules were like those imposed during the second national lockdown. On 30 December, after the first review of tiers under the new system, around 75% of the country was placed under tier four restrictions. Third national lockdown (January to March 2021) Following concerns that the four-tier system was not containing the spread of the Alpha variant, national restrictions were reintroduced for a third time on 6 January. The rules during the third lockdown were more like those in the first lockdown. People were once again told to stay at home. However, people could still form support bubbles (if eligible) and some gatherings were exempted from the gatherings ban (for example, religious services and some small weddings were permitted). Leaving lockdown (March to July 2021) On 8 March 2021, England began a phased exit...

2 Oct 2025

The Q2 outperformance of the FTSE 250 was rebuffed in Q3. The FTSE 100 rose by 500 basis points more than the 250, suggesting a greater appetite for international shares than for those mainly exposed to the UK economy. This outcome speaks for itself as the government has given itself as long as possible (26 November) to make difficult decisions in the autumn (winter) budget. The bond markets are threatening to charge ever more for UK borrowing. Some say that “the bond market” is trying to force Rachel Reeves to raise taxes but the truth seems to be that yields would be yet higher if it were thought that she lacks the resolve to do so.  It should be remembered that “the bond market” is simply a collection of potential lenders who need to decide how much faith they have in the UK economy. It’s not politics or personal; it’s business.  Gilt yields in the quarter went nowhere, especially not down. (4.67% to 4.71%).German Bund yields also edged higher, though the US saw a decline in borrowing costs, perhaps as a result of President Trump’s strength of will, or his apparent subduing of the labour market.   Many of the economically damaging shibboleths of recent years appear to be being abandoned. These notably include ESG (sunk without trace?), DEI and the myopic faith in renewable energy. Although the official policy for UK wind farms is to build more there are two widely recognised negatives. First the £1billion and rising costs of paying wind farms to switch off when they are over-producing power that cannot be used. Secondly, the assertion that the companies that run wind farms are not provisioning sufficiently for decommissioning costs – as ever, the taxpayer will be in line to repair the damage long after the dividends have left the building.   We await the winter budget with high...

3 Sep 2025

The Conservative politician RAB Butler (1902-82) was known for his success in achieving cross-party consensus. His memoir was titled The Art Of The Possible. In the end he was famous for never being Prime Minister, despite a long and senior career. Perhaps a clue to that can be found in the character of Margaret Thatcher who once said dismissively that a consensus is “something in which no one believes, but to which no one objects.” The UK’s public finances are in some kind of crisis. Logic suggests that Chancellor Reeves has three choices, all of which may prove impossible: In theory she could cut expenditure. But this is apparently politically too difficult. Her own backbenchers all seem to want public spending to rise. There is no Javier Milei waiting in the wings with a chainsaw. Second, she could borrow more and more. This is politically possible but financially risky if the bond vigilantes demand yet higher interest rates. We are now paying £107bn interest to service  debt of £2.65 trillion, or 4%. It will be a struggle to refinance at this rate. This week, the government is refinancing at 4.75% (a new ten year gilt offering).  Third, it looks like she will try to raise taxes. Wise commentators are shaking their heads and using words like inevitable. But is this even possible? Perhaps the country has been squeezed dry.   The Laffer Curve Arthur Laffer (who is still going, aged 85) drew the attention of the Nixon/Ford administration to the curve in 1974 and it was the intellectual justification for Reagan era tax cuts. As everyone probably knows, it says that after a certain point (the cusp of the curve) tax rate increases have a negative effect on revenues. By contrast, tax rate cuts can increase revenues, (the point popular with right-leaning politicians).  Looking at the reported political leanings of today’s college lecturers, I suspect that the Laffer Curve is not taught at all. Today’s economic advisors appear to think that the only driver of economic policy is to promote fairness via redistribution. If this is a correct interpretation, it is little wonder that the government and civil service have such a struggle to find...

26 Aug 2025

Despite daily headlines of “uncertainty” internationally, stock markets were rather benign in Q2. The stand out was a gain vs Q1 of 11.2% for the FTSE 250 which implies to me that there were value seekers around. All UK indices are up by 7% over the last year. I hear many punters trying to rationalise the continuing support for equities (AI, of course) but I simply see a great deal of defensive behaviour. Our current government appears to understand less than nothing about private investment and has blunderingly discouraged it at every opportunity. When the question is asked of who would like to buy into the Milliband Green Fund, no hands go up.  There is also understandably little appetite for government debt. There is a price for everything, of course. The yield on 10 year gilts continues to creep up (now 4.67%) as the public finances continue to deteriorate. A year ago the government could borrow at 3.8%. As the debt and the servicing costs both keep rising, we are trapped in a vicious circle. Why lend today when you could probably lend more profitably tomorrow? Companies are forming defensive circles and protecting themselves and their shareholders. An example is BP (or bp) which I wrote about...

The first quarter ended just before Donald Trump’s “liberation day” when his tariff announcements sent world stock markets into something close to panic. So it is notable that UK stock markets were more concerned with what was happening at home. Rachel Reeves made a Spring Budget Statement which was provoked by cuts in growth forecasts on the part of the facetiously named Office of Budget Responsibility, a political vanity project by the 2011 Chancellor George Osborne.  In the opinion of many people, the Reeves Autumn Budget contained a number of measures that hurt growth prospects, especially for domestic businesses which have seen their costs of employment rise. Whatever your political leanings, transferring resources from the private sector to the public sector is rarely good economics. So, it is arguable that the Spring difficulty was largely due to the Chancellor’s own Autumn blunders.   Consequently, the FTSE 250 index, which is populated by domestically exposed companies dramatically underperformed the FTSE 100, which is represented by international businesses – that is -5.4% compared to +5.1%. I do not recall ever having seen such a stark divergence.   Lower growth prospects are normally at least good for lower borrowing costs. But not this time. The ten year gilt yield was 4.57% on 1st January and that is where it remains today. The UK government is developing a small perceived counterparty risk. In the long run, economic growth is key to any government’s ability to repay. Debt servicing costs are now uncomfortably high and some Labour MPs are already making squeaks of protest about “austerity”, a word whose meaning has changed from deliberately inflicted short-term deprivation to any tiny disruption in the flow of public money.  It is hardly surprising that the UK stock market has been in a depressed mood. When the “liberation day” fallout was at its depth, I put in some grudging low bids for a few shares, because you have to buy when everyone else is selling. As for the tariffs, Donald Trump has thought for many years that international trade takes place between nations and this should be discouraged. To this end, he taxes his own people with import tariffs. It also seems rather immoral...

20 Mar 2025

A thousand or more years ago, the Catholic church sold protection, known as salvation, after death, known as the afterlife. This was controversial but lucrative. Over the years, this practice faded, due both to the rise of the Protestant movement and the lack of supporting evidence. As far as I am aware, no one from the afterlife has been in touch to say whether it worked. INDUSTRIAL REVOLUTION – PROGRESS FOR HUMAN RIGHTS, SLOWLY Happily, some gifts of health, comfort and security became available for free as modern, industrial economies developed. In the UK, average life expectancy rose impressively, doubling from around 40 in 1870 to 80 in 2020. (Though one should remember that this is a skewed statistic due the high infant mortality rate in Victorian times. Anyone who actually lived to 21 had a decent chance of some more decades.)   Parliamentary legislation very gradually reflected the idea that poor people should not be expected to die young. Child labour laws were implemented at glacial speed. The minimum working age was raised to twelve in 1901, fully 67 years after the abolition of slavery act.  From here, the slowness with which respect for common rights evolved seems surprising. Two world wars may have accelerated some aspects – the right to vote after WW1 and the right to education after WW2. The Clean Air Act of 1956 deserves to be remembered better than it is.  As we know, the rights to unemployment and various disability benefits have gradually entrenched themselves until they have become a public liability of monstrous proportions with no political party daring to address the issue lest it lose votes. This is arguably how democracy works but it is also how national bankruptcy works.  And here is the core of the issue. Claims of safety from all kinds of things like ill-health and economic disaster come with an invoice that somebody has to pay and ultimately that somebody will be you. THE PRECAUTIONARY PRINCIPLE – NOW WE’RE TALKING REAL MONEY The cost becomes ruinous when we begin to be protected from unknown threats, an attitude sometimes known as “the precautionary principle”.  The precautionary principle is presented as a responsible way of...

3 Jan 2025

The UK indices fell by 1-2% in Q4. If the stock market is a reflection of how investors feel about the UK’s economic prospects, it is not a very pretty sight. Over the year the FTSE 100 rose by 5.6%, the All Share by 5.5% and the FTSE 250 by 4.7%. The UK ten year gilt yield rose from 4.1% to 4.6%, implying lingering worries about inflation and meaning that the cost of servicing the UKs vast debt is likely to be as uncomfortable as ever. I have noticed that my stockbroker is now offering me direct access to government debt issues. From memory, the last time this was done was in the 1990s. This is welcome to me but also carries a faint whiff of desperation. The rise in US ten year government bond yields matched those of the UK (4.0% to 4.55%) while other European yields rose more gently. German ten year yields, at 2.35% (from 2.2%) suggest that investors in Europe are more worried about low growth than inflation.  A number of UK companies made cautious comments about their prospects, typically allocating some blame to the now notorious budget effort by the UK Chancellor Rachel Reeves. In particular retailers are dismayed by the rise in employers’ NI contributions as well as the expected increase in minimum wage. My portfolio suffered warnings from Shoe Zone, Kingfisher and Pets At Home. Shoe Zone (18 December) Consumer confidence has weakened further following the Government’s budget in October 2024, and as a result of this budget, the Company will also incur  significant additional costs due to the increases in National Insurance and the National Living Wage. These additional costs have resulted in the planned closure of a number of stores that have now become unviable. The combination of the above will have a significant impact on our full year figures Kingfisher (25 November) Solid underlying trading in August and September; weak market and consumer in the UK and France in October, impacted by uncertainty related to government budgets in both countries Pets At Home (27 November) In the October Budget, the government announced planned changes to the National Living Wage and employers National Insurance Contributions....

9 Dec 2024

WAR WAS TRADITIONALLY DELEGATED TO MEN In the last thousand years or so, nations that considered themselves civilised generally delegated the task of fighting wars to their male populations. On average, men were stronger and probably more violent and possibly less prone to the introspection that might question whether an order to engage in a near-suicidal action was stupid and pointless.  Napoleon and Wellington live on through war gamers who deploy men in ways that might have led to a different outcome at Waterloo. The US civil war (also a gamers’ favourite) was for a while peak slaughter of loyal male soldiers. In addition there were unsurprisingly many civilian casualties but these were regarded as regrettable mistakes.  And then came World War I. The women kept the home fires burning (and much else) but the reputation of that conflict is that it was a foolish and immoral waste of young male life.  AFTER WWI WE ALL BECAME INVOLVED The result was widespread pacifism with a twist. George Orwell said that if nations insisted on going to war they should accept that the cost would and moreover should be borne by the whole population. The Spanish civil war and in particular the attack on Guernica in 1937 by German and Italian bombers brought to international attention what this meant – that civilians would be casualties of contemporary warfare.  Consequently, appeasement was an extremely popular response to the demands of the Nazis in the late 1930s. When Churchill voted against Neville Chamberlain’s Munich agreement of September 1938 he was nearly deselected by his own constituency party. A few months later Hitler broke his word and invaded Czechoslovakia. At that point war was seen as nearly inevitable and, correctly envisaging that London would be a bombing target, the government began to prepare for the mass evacuation of children, gasmasks in hand, to rural and seaside areas. WWII is notorious for the attempted genocide of Jews but also for the bombing of cities. The “Battle of Britain” aimed at London, first by the Luftwaffe and then by V1 and V2 rockets, the destruction of German cities by British and US bombers in early 1945 and the atomic bombs...

4 Nov 2024

Here is a top tip for finding something that you have mislaid. Don’t look for it. Instead, adopt a Rodin posture and think. I call this the Sherlock Holmes method based on his mystery-solving technique that once you have eliminated all the most likely explanations, whatever remains, however improbable, must be the truth. The strong chances are that you will find what you are looking for during the process of eliminating the most likely explanations. I can report that the Holmes method often irritates other people because their instinct is to race around in pursuit of the most unlikely answers. But they like it when you have correctly worked out where their sunglasses/passport/pet hamster are most likely to be. Holmes’ technique is often misleadingly referred to as “eliminating the impossible”, which is nearly the exact opposite of his advice. As an investor I am committed to judging probability. Possibility is by definition always assumed. It is very rare that an outcome can be judged to be impossible. And when something that is highly unlikely is treated as impossible, disaster can follow. See the global financial crisis of 2008, sometimes characterised as a “black swan” event. The circumstance in which impossibility might be profitable for an investor is when the world, or a large part of it, appears to be in denial. I am thinking of two examples now. They are the idea that government debt can rise inexorably and still be treated as if it will be serviced and repaid and secondly that “Net Zero” will be achievable or acceptable. It is an unspoken assumption that major first world governments are good for their debt. This might be credible in the case of the US which borrows in the world’s default currency – even Bitcoin and gold depend on the continuing credibility of the dollar. The fact that Japan is the global emperor of state borrowing (268% of GDP) is remarkable but it is usually explained that domestic institutions and individuals are loyal buyers of government debt, long conditioned to low nominal returns. For Eurozone countries the topic is much hotter, as we saw when “Grexit” seemed to be a thing. (Grexit was a...

2 Oct 2024

It was another steady quarter for stocks. The FTSE 100 rose by 0.8%, the All Share by 1.2% and the more domestically exposed 250 by 3.7%. Once again, excitable global news headlines were not reflected by the financial markets.  Government bond yields are lower as central banks appear to have started to ease rates. The UK ten year gilt fell from 4.2% to 3.8% but is now back up to 4.0%. While inflation headline numbers have been trending down there must be underlying concern about the relentless rise in government debt (pretty much everywhere).  Despite staged warnings from the new Labour government about the legacy of the excessive spending by its predecessors (previously known as “Tory austerity”) there are reports that another £50 billion of borrowing headroom will be discovered by reclassifying some borrowing as “investment spending” and saying that it doesn’t count. This is all good except that it still has to be paid back and it will still compete with less virtuous borrowing for the attention of lenders. Ultimately interest rates are a function of the credibility of the borrower and inflation will trend up as credibility falls. Not the other way around.  But ahead of the budget this good “headroom” news will probably allow the government to reverse its scrapping of the pensioners’ winter fuel allowance. Perhaps that will be good for energy stocks as well as general well-being and fewer deaths from climate change. Flagons of mulled wine all...

9 Aug 2024

Just the other day, or rather in November 2017, I wrote a post entitled “Prepare to turn left”. After the global financial crisis the UK had endured seven years of “austerity” according to a narrative that was becoming widely accepted as fact. Theresa May’s Conservatives were enfeebled by her hapless attempt to add to her majority with a surprise election (she lost her majority).  This sounds very familiar now but then it was mildly surprising that the Tories didn’t dare attempt any traditional Conservative policies, such as tax cuts, to entice investment. Instead Mrs May decided that her legacy would be to sign the Net Zero abomination (other views are available) into law in order to sabotage any attempts by her successors to spare its innumerable victims. The legislation was waved through in 2019 despite her own Chancellor, Phillip Hammond, saying that it would cost £1 trillion.  With no apparent motivation to challenge the prevailing coalition spirit that had prevailed since 2010 (and endures to this day) I wrote that the Conservatives were doomed to be their own opposition. Below is what I published then and I am delighted to reproduce it now (my new highlights) because the chances are that we have just elected a new government of comparable weakness.  So what does a weak Conservative government do in these circumstances? The answer follows two left wing agendas. First, it interferes in private sector businesses to combat perceived unfairness, but with little regard for the unintended but arguably predictable consequences. This has already happened in the case of private landlords and energy companies. The curious strategy appears to consist of little more than trying to ensure that the provision of housing and energy are as unprofitable as possible. Perhaps there are sound ethical reasons for this but one sure consequence is that investment is discouraged. Why commit capital to an area where the government has a record of applying penalties, apparently motivated by the wish to punish rather than the need to generate tax revenue? Discouraging investment is not a practice normally associated with Conservatives. So perhaps the second left wing policy can compensate – direct investment by the government itself. The new...

8 Jul 2024

Once again, bombarded with deafening assertions that the world is falling apart, blowing up or melting, markets were an example of rather dull stability. The FTSE followed its 2.8% rise in Q1 with exactly the same in Q2. That makes an increase of 8.6%, year on year. Not bad. Government bond markets were slightly more interesting. Once again, yields rose generally, despite the fact that the world is apparently waiting for lower interest rates. Gilts from 4% to 4.2%, Treasuries from 4.3% to 4.3% and Bunds from 2.3% to 2.55%.  Many interest cut groupies are telling themselves that the quantity of national elections, especially in the US, UK and France, would make rate changes look political. I sincerely hope that central bank independence is firmer than that, though the Bank of England arguably has poor form in this respect.  But we should always remember that bond investors care mostly about inflation, the great enemy of fixed returns. If bond prices are falling (yields rising) there will be an underlying mistrust of the inflation outlook.  The UK has elected a Labour government that has for years complained about Tory austerity. Since 2010 national debt has risen from 76% of GDP to 100%. On the basis that you should always experiment with the idea that people are telling you the truth, one can assume that Labour wishes to explode this number through 110% or 120% or something. If you are thinking of adding gilts to your portfolio it might make sense to wait a...

8 Apr 2024

Surely the most important question when a country goes to war is – What does success look like? Churchill the wartime Prime Minister left no one in any doubt “Even though large tracts of Europe and many old and famous states have fallen or may fall into the grip of the Gestapo and all the odious apparatus of Nazi rule, we shall not flag or fail. “We shall go on to the end, we shall fight in France, we shall fight on the seas and oceans, we shall fight with growing confidence and growing strength in the air, we shall defend our island, whatever the cost may be. “We shall fight on the beaches, we shall fight on the landing grounds, we shall fight in the fields and in the streets, we shall fight in the hills; we shall never surrender, and even if, which I do not for a moment believe, this island or a large part of it were subjugated and starving, then our Empire beyond the seas, armed and guarded by the British fleet, would carry on the struggle, until, in God’s good time, the new world, with all its power and might, steps forth to the rescue and the liberation of the old.” Although this was obviously intended to unite and inspire the population, it was also an implicit invitation to persistent pacifists to speak up, stand up or, if necessary, flee. To Vera Britten, success was to be found in defeat. A singular opinion but admirably clear. “There is a strange lack of dignity in conquest; the dull, uncomplaining endurance of defeat appears more worthy of congratulation.” I am no geopolitics expert (I am no anything expert) but I would say that it is obvious that a nation under attack has a reasonably clear idea of what success looks like. If it is losing the war, this will change for the worse where a primitive form of survival becomes an aspiration. We can all look at Ukraine now and make up our own minds about that. Where nations are aggressors under the banner of morality, the definition of success is much harder. The US and its allies invaded Iraq...

31 Mar 2024

As I wrote the other day, markets have been remarkable for their calmness. In the quarter the FTSE 100 rose by 2.8%, the All Share by 2.5% and the FTSE 250 by 1%, The slight relative underperformance of the 250 typically indicates caution over domestic profit margins and there are some obvious areas of concern. Not least among these are the housebuilders who are delaying completions as they wait for better market conditions. Either interest rates will have to fall or, more likely, people will adjust to the new but old normal world in which positive real interest rates are to be expected.  On 28 February TaylorWimpey announced that 2023 completions were down 23% and on 12 March Persimmon reported that its completions for last year were minus 33%. As usual, nobody in the political or press mainstream appears to notice what is going on and the mantra that “we” need to build more homes pounds away relentlessly.  UK housebuilders were burned fifteen years ago and their memories are, creditably, long enough to retain the near-death experience of the last time the supporting chorus was urging them to “build, build, build”.  On 27 March the Bank of England warned about the rising danger of bad commercial property loans and also noted the trend of private property buyers to choose longer dated loans (where the aggregate interest owed will likely be higher but the individual monthly payments will be lower). As for interest rates themselves, yields on government bonds rose over the quarter: ten year gilts from 3.6% to 3.98%, US Treasuries from 4.0% to 4.21% and German Bunds from 2.05% to 2.29%. On the one hand this implies that economic performance is a little better than expected, which is modestly good news: on the other, it tells us that we cannot assume that rates that went up will just go down...

Fear of unpredictable geopolitical events seems to provoke a collective desire for experts who can reassure with their wisdom. And there is never a shortage of volunteers to satisfy these needs. They rush in like hopeful lottery ticket buyers ahead of a rollover.  COVID – DISEASE EXPERTS I suppose that this has been building for a long time but the Covid-19 panic jolted it into a higher gear. When Boris Johnson said in June 2020 that a cricket ball was “a natural vector of disease” he inspired not howls of derision but rather an implicit challenge to say something even more uninformed and ludicrous and to claim a spurious authority for having done so.  Governments all over the world engaged in competitive dictatorship to see what restrictions, including travel bans and curfews, they could place on their citizens. And they came for the children too.   In 1984 Orwell wrote: “If you want a picture of the future, imagine a boot stamping on a human face— forever.” In my mind this apocalyptic image has been replaced by that of infant school pupils wearing masks and for hours recycling their own breath back into their lungs. According to experts, this was for the greater good of their grannies and, let us not forget, their teachers. In the US, teachers demanding the closure of schools staged their own mock funeral processions. As if school children were inadvertent assassins. RUSSIA – WAR EXPERTS As this lunacy subsided, Russia invaded Ukraine. A mad man with nuclear weapons and a grudge was threatening to start World War III. Help! Fear not. Help was indeed at hand. In fact, many of the old experts were the new experts. “Ukraine will win. I’ve never been more certain” Boris Johnson It is the two year anniversary of the invasion. I have lost count of the variations in the expert narrative. Quickly out of the traps was the story that the end of Ukrainian wheat exports would cause havoc, particularly in countries like Turkey and Egypt that have diets of which bread is a large part.  The price of wheat rocketed to US$450 per ton but is now at US$187. What happened? It seems...

26 Jan 2024

I forgot who it was who said that he wasn’t afraid of flying but of landing. The same philosophy may be applied to borrowing. Borrowing is rather like flying – rewarding, useful and even exhilarating. The scary part is landing the debt and returning it to its hangar. It is worth asking why the US seems uniquely able to borrow with impunity compared to other countries which feature at various stops on the slope downwards to habitual insolvency. I would argue that the three main impediments to foreign investment anywhere are distrust of a government, distrust of its currency and, recently, distrust of the reliability of energy supply. There is one policy that Presidents Trump and Biden appear to share – that if you want to sell in America you need to manufacture in America: and according to UN investment data, the rest of the world is happy to fall in line. Despite apparently going along with the COP religious movement, Biden’s government has been careful to continue America’s pursuit of cheap and independent energy and to be a willing exporter of LNG to the world. In 2022 the US became the leading exporter of LNG and, to the horror of the lobbying organisation Covering Climate Now, a “massive expansion” of export terminals is proposed. “Taken together, if all US projects in the permitting pipeline are approved, they could lead to 3.9 billion tons of greenhouse gas emissions annually, which is larger than the entire annual emissions of the European Union,” wrote a group of scientists in an open letter to Biden in December urging the president to halt the expansion. . Source: coveringclimatenow.org STOP PRESS : President Biden has just “paused” new export licences. Lobbying works, sometimes. Financing public spending by borrowing feels irresponsible. Politicians rarely dare to advocate it. Instead, they do it stealthily. In the US the Biden administration launched the comically named Inflation Reduction Act to lend a sense of responsible purpose to its continuing accumulation of a debt pile now standing at $34 trillion (it was $10 trillion in 2000). Before we believers in prudent finance throw up our hands in horror we must be quite clear about why...

10 Jan 2024

In Q4, the world appeared to be in a geopolitical crisis. Hamas attacked Israel on 7 October provoking a (predictable?) response that continues. The Ukraine war seems to be stuck in a stalemate about which the major talking point is whether non-combatant powers will provide enough funding to keep it going, seemingly without limit. And the US, now in election year, is mired in “lawfare” with every legal resource imaginable employed to stop the frontrunner from running.  Add in an anarcho-capitalist president of Argentina and a brazen attempt by Venezuela to seize oil reserves from poor Guyana and you have what many unimaginative people would no doubt call a ”perfect storm”. The response of first world asset markets was to turn in a very decent quarter. Government bond markets appeared to decide that the peak in yields was behind them, aided by some reassuring inflation numbers.  The US Treasury 10 yr yield fell from 4.7% to 4.0%,  the German Bund from 2.9% to 2.05% and gilts performed best of all, with the 10 year yield down by 100 basis points to around 3.6%.  The FTSE 100 turned in a fairly limp 1.4% gain in the quarter but the FTSE 250 shone with +7.4%.  I have no predictions save to say that those hoping to have their problems solved by AI will probably be disappointed. I call it Artificial Ignorance because no rational human would be that stupid.  Finally, a mention of the legendary investor Charlie Munger. He was fond of advising people to read history and to learn from it, which is perhaps easy to say when you’re 99. My favourite quote came in an interview with Becky Quick he gave two or three weeks before he died. She asked him what it was like to be 99. His answer was he regretted that he didn’t have the strength he had enjoyed when he was 96....

8 Oct 2023

At some time I wrote that it is wrong to try to work out how much a company is worth and then compare that to the share price. It’s more productive to do the exercise backwards – look at the valuation of a business and ask if the implied outlook is plausible. You can do this equally effectively with optically high and low valuations. A bonus of this approach is that it indicates what people really think because whatever they say (e.g. about ESG…grrrr) if they don’t invest in it they don’t believe it. But it’s not as simple as that. The propensity to invest in anything is also affected by the cost of money.  If your cash earns zero you are more likely to take a bit of a punt. If National Savings is paying 6.2% (which it was until a few days ago), safety looks far more attractive.  FREE MONEY = GREEN MONEY I think we will look back on the Greta years (2018 – ?) and observe that the perceived virtue of reversing economic development was a luxury correlated with the age of QE and free money. From 2009 to 2021, the white collar classes were coddled by unprecedented government-sponsored liquidity. They worked from home while the less well-paid delivered the essentials of life to their front doors.  You could say that a general complacency crept in. Investments in electric cars and wind turbines were characterised almost as no brainers and if their promised financial rewards were rather long term, many public subsidies (more free money) were available. Low interest rates (10 year gilts still yielded only 1% at the end of 2021) apparently discouraged financial scrutiny and (historic term) cost-benefit analysis. .  In 2022 the Bank of England ceased its gilt purchases and, deliberately or not, infamously torpedoed the new PM Truss by commencing sales of its portfolio in September. Politics aside, the attitude to public and private investment has changed markedly in 2023. THE RETURN OF COST-BENEFIT ANALYSIS The 2010 HS2 rail project was going to cost £33 billion. By 2020 this had risen to £88 billion and allegedly to more than £100 billion in 2023. Naturally the project...

3 Oct 2023

The last time that the UK stock markets put in a meaningful positive performance was Q4 last year when it was obvious that many highly investable companies were oversold. A year ago I even spotted that. This year has been very dull after that rally. The FTSE 100 is up by 2.3% and the FTSE 250 is down by 2.8%. So larger companies have outperformed smaller ones but not in a way that excites comment from me.  Government bond markets have continued to drift down i.e. yields have climbed more. The US Treasury 10 yr yield rose from 4.1% to 4.7% and the German Bund from 2.6% to 2.9%. Only gilts stabilised at around 4.6%. Rising yields imply that investors remain cautious but do not expect serious economic slowdown (bond yields fall in response to recessions). But higher rewards for playing it safe (as exemplified by National Savings paying 6% for a one year deposit) make investors more risk averse. There are speculative and long-term investments that you will try when cash yields nothing but will spurn when doing nothing starts to be rewarding. This dynamic explains why smaller companies that appear to offer more growth potential are being spurned in favour of larger and duller ones that pay decent dividends.  It seems fairly probable that today’s higher yields will become the future norm. If that is so we can expect stock markets to remain...

26 Jul 2023

All the UK share indices fell modestly in Q2 as the wait for recession continued and inflation remained stubbornly high. Year to date, the FTSE 100 has a clear lead (+5%) over the more domestically exposed 250 (-1.3%).  There was some blood spilt in the government bond markets, especially in the UK where the 10 year gilt yield leapt from 3.49% to 4.65%. Germany (2.18% to 2.63%) and the US (3.41% to 4.00%) moved in the same direction but less dramatically. Sensible but shocked financial TV commentators could be heard breaking a lifetime’s habit and actually suggesting that private investors might invest in government debt.  This is a trickle, as the calm stock markets show and most attention has focused on the woes of those who need to remortgage at rates that they apparently never considered to be possible. Crony capitalism has shown a few stress fractures, not least with a ruling from a judge in Missouri that the Biden administration should stop directing the large media organisations to suppress unwelcome opinions. The bizarre sight of the liberal media closing ranks around big Pharma, big Tech and, thanks to Coutts and Natwest, big Finance, is perhaps paused for a moment.  https://twitter.com/i/status/1677289360486457345 But the subsidy truffle hunters are still snuffling away. Tata has secured unknown public money for its battery factory in Somerset and the Swedish company Vattenfall has halted work on its Norfolk offshore wind farm pending….you guessed...