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...

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....

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...