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...

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...

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...

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 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...

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...

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...

16 May 2023

Ever since the Global Financial Crash of 2008/9, some commentators have worried that there are too many “zombie” companies that are unable to make a profit or even a self-sustaining cash flow, but which are being kept alive by the availability of cheap credit. The argument goes that in a truly capitalist world, the unviable would die and their market share would be swallowed up by companies more deserving of success.   It must be said that in today’s world, where the political centre is so far left of where it used to be, many people would approve of the use of public money to help struggling businesses. Let’s face it, there is no use of public money incapable of attracting support from someone.  UBER But the extent to which “zombie” businesses have become established household names is quite astonishing. The Oscar arguably goes to Uber which most people would regard as the epitome of a disruptive (a horribly overused word) success. Uber’s IPO price in 2019 was $45 and today it trades at $38. In the last five years it has made operating losses of $22.2 billion on revenues of $85.9 billion. In aggregate it has lost 25 cents for every dollar of fare.  The fact that the share price is still as high as $38 tells us that Uber is well funded. Its fixed borrowings mature from 2025 to 2029 and it pays an interest rate of c.7% on average. Maybe that’s all fine. Many, many people are happy and trusting customers and have no doubt been delighted to be subsidised at the expense of Uber shareholders and creditors.  Yet, how about the taxi drivers and cab companies that have been forced out of business by Uber’s comprehensive yet (so far) financially unsustainable service? This disruption of the taxi world  is not an unmitigated boon.   OCADO  Back in the UK, how lucky we were during Covid lockdowns to have Ocado bringing groceries to the doors of the sheltering furloughed classes. Householders pinned notes to their front doors saying “Dear delivery driver. Please leave the package in the porch, ring the front door bell for five seconds and then retreat back to the world...

5 Mar 2023

When I talk of stupidity I do not refer to my own which, save in painful retrospect, is an unknown unknown. For better or worse I am limited to my own perception of the stupidity of others.  My proposition is that when some people are wrong, others can profit. Like all judgements, observations of stupidity need to be subjected to a probability test.  Warren Buffett says that sometimes prices are “foolish”, absolving people of some responsibility for the valuations of “Mister Market” but he is a kindly man and evidently much nicer than me.  One advantage of our publicly-traded segment is that – episodically – it becomes easy to buy pieces of wonderful businesses at wonderful prices. It’s crucial to understand that stocks often trade at truly foolish prices, both high and low. “Efficient” markets exist only in textbooks. In truth, marketable stocks and bonds are baffling, their behavior usually understandable only in retrospect Warren Buffett, Berkshire Hathaway shareholder letter, February 2022 THE LONELINESS OF THE LONG DISTANCE INVESTOR It makes sense that the greater the number of people that are wrong, the greater the potential rewards for those who know better. If you haven’t read The Big Short by Michael Lewis, or watched the film made of it, you should. It was a lonely life, defying consensus ahead of the great financial crisis of 2008 and it is never easy. As Keynes said, most investors would rather fail in the comfort of a crowd than risk standing out.  Holding a minority opinion can be worse than lonely. For some reason, rejecting consensus appears to provoke hostility, particularly at times of perceived emergency (see my last post). After Neville Chamberlain agreed to Hitler’s annexation of the Sudetenland in Munich in September 1938, Winston Churchill denounced the deal (“England…has chosen shame and will get war”). This may look like a historical footnote but Churchill’s own constituency party attempted to have him deselected and very nearly succeeded. The appeasers of 1938 were in a large majority and the idea that Hitler could be bought off was treated as believable because people wanted “peace in our time” so much. Stupidity is surely the eager and dangerously loyal...

5 Feb 2023

“Power tends to corrupt, and absolute power corrupts absolutely. Lord Acton, 1887 On 6 May 2020 I published ECONOMIC SHUTDOWN! EMERGENCY!!. This has aged quite well, in my opinion. I forecast a form of stagflation; essentially economic slowdown and rising prices. At the time, in common with almost everybody else, I took the government’s need to exercise emergency powers for granted. The Public Health Act of 1984 was supplemented by The Coronavirus Act, hurried through after four days of whatever passed for Parliamentary scrutiny in March 2020.  The act allowed the government to detain anyone suspected of having the virus (a pretty alarming negation of civil liberties by itself), to close borders, to record deaths without inquests, to restrict the right of assembly, to close schools, to suspend elections. As I recall, it did all of those. Legislation, which normally needs to be laboriously passed through Parliament, is not practical in an emergency. Obviously the question of what constitutes an emergency is a matter of opinion. And a perpetual state of emergency is ideal for anyone who wants to restrict or compel the behaviour of others. This explains why the language of crisis (catastrophe, extinction, mass murder) is employed by Net Zero enthusiasts. There is a website that monitors the progress of extinction claims over time. So the Thunberg team knows what it is doing. But while we may fend off the most extreme demands, the plausibility of Lord Acton’s words was supported all too well during the pandemic.  The leaders of Canada, New Zealand, Scotland, Wales and many other places appeared to relish the power and to believe that authoritarianism was a measure of responsibility.  LABOUR’S FIRST YEAR I recently read a book, published in 1947, about the parliamentary debates of the first year of the post-WWII government. In July 1945, Labour was elected with a dominating 150 seat majority on a manifesto of stunning radicalism. Almost everything that moved was to be nationalised; coal, coking, railways, airlines, healthcare and the Bank of England.  During the war, an Emergency Powers Act was renewed by Parliament annually. Given that the country was fighting the most notorious dictator the world has ever known, who passed...

Conventional theory holds that an inverted bond yield (in this case where the two year pays more than the ten year) is a negative economic forecast. I have never been quite clear on whether this is regarded as a causal relationship or simply an observable correlation. The former seems unlikely – that the sight of a threatening yield curve sparks widespread fear and recession follows as a result of cautious behaviour – but I have heard people talk as if that is the case. It seems more likely that inverted bond yields are a response to or a forecast of tough economic times. I prefer to remember that bond prices are the terms on which borrowers and lenders choose to trade. High short dated yields might imply inflationary fears but they also reflect the credibility, or lack of it, of the governments that need to borrow. Lower long dated yields imply scepticism about future growth but they also suggest the belief that returns from safe investments will revert to the modest levels that became normal in the last ten or so years. A DECADE OF BOND MARKET MANIPULATION MAY HAVE DISTORTED INVESTORS’ PERCEPTION The obvious flaw with the idea that low long term yields are normal is that it is probably wrong. We have been conditioned by more than ten years of government bond market manipulation by central banks. In some countries like the US, the UK and the Eurozone, central banks have led the way with QE. It is a matter of opinion as to how independent of government influence these central bank actions have been. The fact that they have de facto financed unprecedented government borrowing, first through the Great Financial Crisis aftermath and then through Covid-inspired lockdowns, speaks for itself. HISTORY OF UK 10 YEAR GILT YIELDS Here are UK ten year gilt yields since 1980. In the 80s they were in a 10-15% range and then a 5-10% range basically until 2008 when the estimated $60 trillion of outstanding credit default swaps began falling like dominoes, threatening numerous financial institutions around the world. The chart illustrates nicely the result of the critical need for cheap money around the world. In...

28 Sep 2022

The rapidly falling pound sterling is, according to the opposition coalition of political and media commentators, proof that confidence in the three week old Truss administration is fading away. There are certainly plenty of economists saying that the chancellor’s tax cuts will not stimulate growth and that, whatever, it’s all not fair. The Bank of England is probably wondering whether to raise the bank rate to defend sterling, though it will also be nervous that any indications of panic will make things worse. The gilts market is anyway taking the decision out of its hands. Two year government paper yields 4%. The Bank of England does not command the rates at which actual transactions take place in the real world. I suggest that the Bank continues its policy of pretending to be a cork in a jacuzzi. I have written many (many) times about the remarkable growth of UK government borrowing and how the costs were artificially disguised by the QE through which the Bank of England, as an agent of the Treasury, purchased gilts in the open market while the same Bank of England sold new gilts on behalf of the same Treasury. It really was as circular as that. It must be time to quote Lewis Carroll. “But it’s no use now,” thought poor Alice, “to pretend to be two people! Why, there’s hardly enough of me left to make one respectable person!” While QE was still in operation (until the end of last year) there was an implicit market agreement to see no folly, hear no folly and speak no folly. The wonder is not that the gilts market is being yanked back to reality now but that it spent so many years in a hallucinogenic stupor. The Bank of England bought £445 billion of gilts to smooth over the fallout from the subprime crisis and Brexit and a further £450 billion to fund lockdown. Due to the fact that it drove prices up and paid top dollar it lost £112 billion on its transactions (a hundred billion here, a hundred billion there – whatever) which means, to be clear, that it lost that money on our behalf. And, to be...

2 Sep 2022

Fifteen months ago I pointed out that ESG (Environmental, Social and Governance) investing would make a few people rich (via the vast public subsidies directed their way) and many people poorer. I tried to appear even handed without disguising my characteristic scepticism. Subsequent events have proved to me that I was much too restrained. ESG is not only rubbish but it is toxic rubbish. It fills up companies’ financial reports with box ticking nonsense that replaces facts that investors need to make decisions based on, you know, the financial outlook. Tom Kerridge is a “celebrity” chef who owns three successful gastropubs. He says that his energy bill is about to rise from £60,000 to £420,000 a year. The UK hospitality sector, having spent the best part of two years in imposed lockdown, is now staggering out of control towards a new disaster. All UK businesses that need significant retail outlets have seen their share prices dive because investors fear that rising energy costs will push them into loss or worse.  On 16 June Halfords released upbeat results for the year to April 2022. The dividend was 9p a share and the dividend policy is described as “progressive”. Today the shares are at 130p, down 60% this year, offering a theoretical yield of 7%. So I turned to Halford’s annual report and accounts to seek some clue about the company’s sensitivity to energy costs.    It seems that for Halfords risk management is based around a Task Force on Climate-related Financial Disclosures (“TCFD”). As the lights are about to go out Halfords’ ESG committee is meeting monthly to discuss the effect of climate change on the business between 2030 and 2050. The significant risk to Halfords retail sites is said to be extreme weather that results in flooding across the UK.  This might be the stuff of satire were it not for the fact that it replaces rather than supplements useful analysis.  Sainsbury’s shares are down 30% this year and the dividend yield appears to be 6.5%. As with Halfords, investors probably have visions of winter shopping in mittens by candlelight. Sainsbury’s annual report has seventeen pages of risk assessment. The company is watching out for...

20 Jun 2022

I am struck by the knowledge that the stock market hit its Covid panic low on 23 March 2020 (FTSE at 4994). That was the very day that the first UK lockdown was announced. This is a splendid example of how desperately keen share prices are to discount bad news. Because the actual news got much worse for much longer than anyone could have believed – but the low was already in for the stock market. Today, it is hard to see how much worse the news could get for UK consumer shares or government gilts. So here are some deservedly unpopular ideas that might just pay off. THREE SHARES VULNERABLE TO CONSUMER SPENDING National Express (buses and coaches) 217p Since the beginning of March it is an amazing fact that three of the four UK listed bus (& train) companies have received takeover bids Stagecoach – bid 105p (now unconditional) vs March low 76p (38% premium) FirstGroup – indicative bid of 163.6p vs 89p in March (84% premium) Go-Ahead – bid of 1500p vs 550p in March (173% premium) That leaves only National Express which is now just a bus company (plus a few trains in Germany). It is huge (£2.7 bn in revenues this year)  and supposedly in the sweet spot for new transport habits (out of those wicked cars, people, and get on board with the monarchs of the road). It raised £235million from shareholders in May 2020 at 230p per share and the price has gone nowhere (now 217p). It plans to restore a dividend in 2022. It has hedged its fuel costs 100% for this year, 64% of 2023 and 25% for 2024. It has guided to a 7% operating margin in 2022 (10% in 2019).  I do not love this company but it has the potential to benefit from a certain scarcity value. Halfords (auto centres and bikes) 157p Another theoretical sweet spot – second hand car servicing and cycling. This statement of the bleeding obvious last week sent the shares down by 20%. While rising inflation and declining consumer confidence will naturally present short-term challenges for any customer-facing business like ours, we remain confident in Halfords’ long-term...

10 Feb 2022

The rising cost of living is suddenly all over the news. The Bank of England is forecasting that inflation will rise to 7.25%. Transparently ineffective and arguably misleading measures have been taken to mitigate the raising of the ridiculous energy price cap. Talking of ineffective, the Governor of the Bank of England is calling for pay restraint. Excellent. Political commentators have called for the abandonment of April’s proposed rise in the rate of national Insurance on the simplistic grounds that people will actually have to pay it. This is not unusual in the case of taxes. No one wins votes by being in favour of them. For some reason the Chancellor seems to have persuaded the Prime Minister to hold his nerve, for now. It’s almost as if Rishi Sunak understands the state of the nation’s finances.  The nagging feeling that something is wrong and that “something must be done” causes excitement when there appears to be the chance to raise someone else’s taxes. Currently there is a call for windfall taxes for the oil companies who have had the effrontery to recoup in 2021 what they lost in 2020. BP and Shell are preparing to pay $16 billion in tax between them as it is (not all to the UK treasury) and the dividends they pay will be received by the pension funds that most of us own, directly or indirectly.  The truth is that the scale of the national debt is too intimidating for proper public discussion.   At the end of December the value of gilts in circulation was £2,011 billion (just over £2 trillion, as people like to say now when they want to intimidate with numbers that are nearly impossible to contemplate) of which 28% have been issued since March 2020 i.e. in large part due to the cost of the response to the pandemic. Over the twenty one Covid months government expenditure has exceeded its receipts by £467 billion and £563 billion has been raised in gilt sales.  It may be that the treasury decided to take advantage of exceptionally low interest rates to sell as many gilts as possible. The reason why rates have been so low for...

28 Dec 2021

Post hoc ergo propter hoc, or after this, therefore because of this, is a well known logical fallacy. A sequence of events does not guarantee that there is a causal relationship between those that precede and those that follow.  Wise investors know to beware of confusing correlation with causation. A famous and surely harmless example is the Super Bowl indicator that claims that the stock market has a good year when a team from the NFL triumphs but falls if an AFC team is victorious.  Nevertheless, retrospective explanation for the movement of asset prices is a serious industry that seeks to establish an understanding of the past and, by implication, of the future, available only to a select few. I have written about this before. To an investor it doesn’t or shouldn’t matter why an asset rose or fell in price. All that matters is being aligned with the outcome. Occasionally a company that has been performing badly gets taken over at an agreeable price. Shareholders who had invested because they thought that the managers of the business were competent discover that this was not the case but ultimately are rewarded for being wrong. They give thanks and move on, as unelected leaders of their own portfolios, to their next idea without embarrassment. (Or maybe that’s just me). The so-called nonpharmaceutical interventions (NPIs) to deal with Covid-19 have elevated “post hoc ergo propter hoc” from a fallacy to the foundation of policy. Imposing lockdowns, shutting schools and destroying businesses are all actions that I consider cowardly as well as destructive, though it seems that the majority were willing to go along with them as long as the government would drive itself to the edge of insolvency to compensate them. What is, I think, beyond dispute is that the advocates of these NPIs must appear to be supported by convincing evidence that they made a positive difference. Issues of liberty, free speech, mental health and the treacherous Swedes can be relegated to background noise as long as the narrative holds.  Karl Popper proposed the Falsification Principle. It states that for a theory to be considered scientific it must be able to be tested and conceivably...

15 Dec 2021

There seems to be a puzzling disconnect between the available facts from South Africa about Omicron (that it spreads quickly but has relatively benign health consequences) and the gloomy and even panicky reaction in the UK from the government, the self-appointed “science” and the political opposition, such as it is.  It is almost as if the establishment, if that’s the right word, has an ulterior motive in keeping the fear going, even at the expense of the usual suspects such as children, people with undiagnosed conditions like cancer and, of course, the leisure and travel industries.  As this website is about money, I will speculate about financial motives. Fighting Covid has been extraordinarily expensive. The UK government has borrowed more than £550 billion since April 2020. Clearly this money has gone to some obvious recipients like vaccine manufacturers and the rapacious “approved” PCR testers but also to the NHS, to local councils and in the form of furlough payments to employers of the temporarily unemployed. I don’t suppose that many people associated with any of these groups, the pharma companies aside, actually want the pandemic to continue. But be aware that this is potentially a very big week for the UK Treasury. In March 2020 it was agreed that the Bank of England’s Asset Purchase Facility could be increased from £445 billion (it was full at the time) by £200 billion and later in the year by another £100 billion and again (in November) by a further £150 billion for a total of £895 billion (popularly known as QE or quantitative easing).  Since April 2020 the Bank has duly bought gilts steadily from institutional holders. We have only the detailed figures up to the end of September but at the consistent rate at which it was operating it should have reached its £895 billion target this very week (13th December). Over that period the Bank purchasing arm has bought £3 of gilts for every £4 that it has issued on behalf of the government. In other words, 75% of this extraordinary borrowing has been funded by what one might call an elaborate accounting trick.    Unless the QE facility is ramped up again, the government...

17 Sep 2021

The company once known as British Petroleum (a name revived by President Obama when he wanted to stick it with all the blame for the Deepwater Horizon oil spill) has quietly rebranded itself in the lower case though almost nobody seems to have noticed. As if it is the corporate embodiment of white privilege, bp can only apologise and beg forgiveness for its own existence.  The splendidly named CEO, Bernard Looney (who will soon rebrand himself as Nigel Neurodiverse) has pledged to reinvent the company as a provider of multi energy customer solutions. My opinion is that if he thinks this is going to keep the eco warriors at bay he needs to change his medication, but never mind.   What interests me now is the entertaining contrast between the reinvention rhetoric and the grim reality that bp is probably having a stupendously profitable year due, of course, to the rises in the prices of oil and natural gas. How embarrassing could this get? I will save you the trouble of ploughing through bp’s 2020 annual report (tagline: “Performing While Transforming”) and take you straight to page 183 where you can get an idea of how the company actually earns its money. Essentially it is 94.5% from oil, oil products and gas. There was little bp could do in H1 2021 to avoid the surge of cash that resulted from the pop in gas prices in Q1 and the stronger crude oil price in Q2.  In its presentation about Q2 it was careful to say that it expected gas supply to remain tight and refining margins to remain roughly unchanged. In fact the natural gas price (Henry Hub) which averaged $2.9 in Q2 is now (17 September) at $5.37. And industry refining margins which for bp were strong at $13.7 per barrel in Q2 seem to be sharply higher again across the industry. It seems probable that bp will experience another embarrassingly strong quarter when it reports in late October.  The share price of bp would surely be higher were it not for the armies of Net Zero shamers whose abuse will only increase in volume as the delightful prospect of that orgy of UN...