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...

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....

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...

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...

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...

21 Apr 2023

The first quarter saw a limited banking crisis, including the demise of the wounded Swiss champion Credit Suisse, but otherwise there was not much to see. The FTSE 100 managed to rise by 2.4%, again doing better than the more domestically-based FTSE 250 (+0.4%). Government bond yields were also largely unchanged in the UK and Germany but lower in the US (3.6% vs 3.9%) where inflation is more obviously falling. It was a curious incident of the dog in the night time quarter – despite much noise about failing banks and impending recessions, the markets snoozed their way through.  For an investor, something not happening is every bit as significant as something happening.  My theory is that large corporations are more comfortably in bed with governments than has ever been the case. Due to the explosion of government borrowing and spending since the “great financial crisis” of 2008-9 and the doubling down that occurred with lockdowns. Governments are the most important customers and, as we know, the customer is always right.  Corporate lobbying may be unedifying but it appears to be annoyingly successful. Politicians who take a principled stand tend to find themselves maligned as borderline mentally ill if they cross an agreed line delineating agreed public/private interests.  As Groucho Marx said, “Those are my principles, and if you don’t like them… well, I have others.”  Essentially, the governments of the US, UK and Europe have huge patronage at their disposal and it is hardly surprising that big business knows where to find it.  This is what is sometimes called Crony Capitalism, defined as – An economic system characterized by close, mutually advantageous relationships between business leaders and government...

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...

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...

4 Apr 2022

The stock market trend that began in Q4 accelerated in Q1. The FTSE 100, with its big oil, gas and mining shares, rose by 1.8% while the FTSE 250, mostly populated with companies that use those products as raw materials, lurched down by 9.9%. I cannot recall such a divergence between those two indices in a single quarter. Despite this, the bond market action was more dramatic still. Ten year UK Gilt yields rose from 0.97% to 1.6% as purchases by the Bank of England ceased. In the US, 10 year Treasuries yielded 1.51% on 31 December and 2.34% at the quarter end. The German 10 year Bund yield rose from -0.18% to 0.56%. Despite the serious risk that Putin, net zero and raw material prices will combine to send us back to recessionary times, the main message from government bonds is that inflation is a problem that historically demands high interest rates. The theory that the cost of borrowing should rise in order to discourage speculative investment looks rather thin in today’s circumstances but markets are not famous for looking around corners to see what might lie just out of sight. . Rishi Sunak’s spring financial statement contained the inevitable tax increases that many seem to find unbelievable and the reason for them. The government is now expected to pay interest of £83 billion in 2022/3. This may include losses on its stock of redeeming gilts but even so it is a shocking number implying that the nation is now paying 4% to borrow, which is roughly twice as much as its more solvent citizens. Though the latter can only expect their mortgage rates to rise in turn. The time may have come for the idea that the credit worthiness of all governments is something that must be factored into the usual calculations about the relative cost of...

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...