Indholdsfortegnelse for Issue 957 i MoneyWeek

Read most of the commentary on the election of our new prime minister and you won’t envy him at all (see page 8). Boris Johnson has boxed himself in on Brexit. No deal will destroy the UK and slam everyone else in the process (to the extent that the International Monetary Fund has announced it as one of the biggest threats to global growth there is). The UK is on the edge of recession, and of course our population is “hopelessly divided”. “With Boris Johnson’s election, it really isn’t impossible to feel positive about the UK” There are elements of truth in all of this. But there is also an undercurrent of unwarranted hysteria. The UK economy isn’t perfect. But many of its projected miseries are based on the expectation…

A 25-year-old woman whose “extremely disruptive” behaviour caused a flight to be diverted has been handed a bill for £85,000 by the airline, Jet2, to cover the cost. The passenger’s “catalogue of aggressive, abusive and dangerous” behaviour ended with her trying to open the cabin doors. The plane, which was on its way to Turkey, had to be escorted back to Stansted airport by two RAF Typhoon fighter jets. Credit reference agency Equifax is to pay $700m after agreeing a settlement with US regulators over a data breach in which 147 million customers’ details were exposed. The Federal Trade Commission said it had failed to take reasonable steps to secure its network, reports the BBC. The UK’s Information Commissioner’s Office has already fined Equifax £500,000 over the breach.…

“So, you want to quintuple your money in a day?” asks Lex in the Financial Times. Investors in one newly listed Chinese firm got just that. Shares in Anji Microelectronics surged by 520% on the first day of trading on Shanghai’s new technology-focused exchange. Billed as China’s answer to America’s Nasdaq, shares on the “Star Market” rose by an average of 140% last Monday. With the US turning the screws on the likes of Huawei, Beijing wants to show it can nurture its own technology ecosystem without American input, says James Cook in The Daily Telegraph. The Chinese government hopes that the new market will “encourage investment in domestic technology firms” and give mainland innovators “an alternative way to float” that bypasses rival markets in New York and Hong Kong.…

Concern over global growth has depressed the prices of many metals in recent weeks. Nickel has been an exception, however, soaring by almost a quarter to a 13-month high in just a fortnight. In mid-July Indonesia, the second-largest exporter of nickel ore after the Philippines and a major supplier to China’s steel industry, said it would stick to plans to stop exports of unprocessed ore in 2022 in order to encourage domestic stainless steel production. The price jump also reflects robust steel production in China in the first half and dwindling stockpiles: demand has eclipsed supply for five years. Traders are also looking forward to higher long-term demand as nickel is a component in batteries for electric vehicles.…

Last week saw the biggest Wall Street debut by a Chinese company this year. DouYu is a popular e-sports streamer (it shows people playing video games against each other), whose interactive streams encourage users to chat and watch further content created for the platform. It started trading on the Nasdaq with the shares priced at $11.50 each, raising $775m. That eclipsed the $645m secured by Starbucks’s rival Luckin Coffee in May. Several other Chinese technology firms have put US flotation plans on hold due to the trade war, but tensions have ebbed in recent weeks and DouYu is keen to build up a war chest to take on a major rival.…

Ted Baker’s shares have soared thanks to reports that founder Ray Kelvin is set to “throw his significant shareholding behind a buyout”, says Neil Craven in The Mail on Sunday. The deal would leave the existing management in charge. His intention to take the business private is good news for shareholders who have seen their shares collapse from a peak of over £32 a share last March to around £8.38 last week. The fall has been due to an “investor retreat” after Kelvin was forced out after staff accused him of inappropriately hugging them. A “brutal” environment for retail hasn’t helped matters either. A buyout may provide some relief for shareholders, but it makes less sense for the buyers, says Lisa Jucca for Breakingviews. While Ted Baker’s shares are relatively…

Few investment topics garner as many headlines as market bubbles, and little wonder. They represent an opportunity to make a lot of money – or a chance to rail against the irrationality of the herd. But how do you spot a bubble, and how can you profit from it? A new paper from Rob Arnott, Bradford Cornell and Shane Shepherd at US asset manager Research Affiliates, titled “Bubble, Bubble, Toil and Trouble”, provides useful answers to both of those questions. “Ignore bubbles and invest in ‘anti-bubbles’ instead” The good news is that a bubble is pretty easy to spot. It has two main characteristics. Firstly, “the asset or asset class offers little chance of a positive risk premium relative to bonds or cash, using a generally accepted valuation model with…

Tech start-ups that have cracked artificial intelligence. Engineers who can make household robots. Internet-based banks or smartphone app developers. There are all sorts of high-growth, emerging industries that you might expect to fuel the next boom in listings on the London market. As it turns out, however, the market is seeing the most action in a business that has been around for hundreds of years, and doesn’t seem to have changed very much over that time. Law firms. There have already been a handful of floats on the stockmarket, and this week we learned that Mishcon de Reya is lining up what would be the biggest and most prestigious legal initial public offering (IPO) yet. The firm could be worth hundreds of millions. It is easy to see why that…

Investors must now head east Rana Foroohar Financial Times Warren Buffett once said that “his favourite investments were… bets on the ability of American companies to continue exporting capitalism around the world”, says Rana Foroohar. But these days his stakes in US multinationals such as Kraft Heinz, Procter & Gamble and Coca-Cola don’t seem such a great idea. There has been a close link between “cross-border trade intensity and US corporate profit margins over the past 20 years”. But globalisation peaked even before today’s trade wars began, and “headwinds” to further economic integration – such as lower cross-border capital spending and parts of global supply chains being brought back under national control – “are not going away any time soon”. The question now is how to invest in “the age…

capx.co “Pigouvian taxes” are another alternative to regulation (see above), says Skakel McCooey. “Externalities” – the consequences of activities that affect third parties, but are often not reflected in the cost of the goods or services involved – are effectively market failures. But if taxes are imposed on such activities to raise the price, as suggested by 20th-century economist Arthur Pigou, then those negative externalities would be disincentivised and their price then would be “more or less correct”. Carbon-dioxide emissions are an example. Politicians have historically preferred market-distorting regulations and cap-and-trade policies. A Pigouvian approach would be better. A higher cost associated with burning carbon would give firms an incentive to use it less and to innovate. The trouble is, tax rises aren’t popular. A rebranding and tweaks to the…

Investors in the biotech sector have had a tough time over the last year. High valuations and concern over regulators and politicians attempting to lower drug prices have hit the Nasdaq Biotech index, which contains 220 companies. This benchmark has fallen by 11.39% over the last 12 months, compared with a gain of 18.7% for the S&P 500 index. The long-term growth story, however, remains compelling. An ageing society is demanding better, more targeted medicines and technology is rising to the occasion, as the genomics-led revolution in care shows. Big Pharma gets the story, which is why it’s been buying into the sector for the last few years in order to replenish its portfolios. The best way in A good way to access the sector is through a fund, especially…

■ Families could shave thousands of pounds off their inheritance tax (IHT) bill with a “little-known rule that allows them to claim back tax paid… if house prices have fallen”, says Harry Brennan in The Sunday Telegraph. House prices in London fell by 4.4% in the year to May as the national housing market sagged. This means though that “many families risk paying too much inheritance tax”. This is because IHT has to be paid before an estate is distributed. So a house is valued, and the tax paid, before it is sold. “If the property is eventually sold for less than its estimated value, the seller could find they have needlessly spent thousands of pounds extra in death duties.” You have up to four years to reclaim tax paid…

This has been a mixed fortnight for my current tips, though the wins have eclipsed the losses. Half of the six long positions have risen and the other half have declined. John Laing Group went up from 378p to 381p, JD Sports rose from 604p to 618p and Bellway has risen from to 2,728p to 2,895p. However, Hays fell from 157p to 147p, Safestore declined from 643p to 637p and Superdry slipped from 447p to 426p. With the gains, especially those on Bellway, outweighing the losses, my long tips are now making a net profit of £1,076, an impressive rise from £572 a fortnight ago. At present Zoom Video Communications and Beyond Meat are still above the level at which I suggested you start shorting them, which means that I…

Lookers (LSE: LOOK) is one of the UK’s biggest car dealerships. And with new car sales falling in the UK it is not having a good time of it. Challenging market conditions come on top of a full-scale investigation by the Financial Conduct Authority into the way it sells its cars and the resignation of the chief financial officer after ten years in the post. Lookers made a pre-tax profit of £53.1m in 2018 on revenues of £4.88bn, but last week it warned that despite a strong first quarter, first-half profits would take a 25% hit. The share price has fallen by 55% in the last year to a ten-year low.…

A rather wonderful thing happened the other day. I visited Handford in order to taste some wines for one of our MoneyWeek Wine Club features and, while perusing the awesome selection of bottles on the shelves of this amazing emporium, James and Gav suggested that we might concentrate on one of their fortes, South Africa. You will read about the Wine Club wines next month, but because the flight of bottles they opened was so stellar I was left with an excess of beauties and so here are two of the stars that I could not fit into my Wine Club sextet. Wanderer’s Heart is rich, bold, delicious and complete. It has extraordinary appeal and succulence in spite of its controlled 13.1% alcohol. A relatively new winery on the scene,…

Six years ago, while employed as an “adviser” by miner Rio Tinto, Henry Steel wrote part of his PhD on Rio’s Oyu Tolgoi copper mine in Mongolia (pictured). Although sponsored by Rio, his report wasn’t complimentary – he argued that the Mongolian state’s stake was worthless. He left Rio soon after, reports the Financial Times, and did not get his PhD. However, he did go to work for hedge fund Odey Asset Management. Convinced that the mine was a money pit, he “concocted a massive bet” against it by shorting Turquoise Hill, which owns two-thirds of the mine and runs it for Rio. That paid off when Rio warned last week of costly delays to the project. Shares in Turquoise Hill fell by 40%, and Steel made $50m for Odey.…

“America Inc. mints $1bn every five hours,” says The Economist. The long bull market has rested on booming corporate profits, which are up 455% over the past 25 years. A third of every dollar made by firms worldwide is now accounted for by US businesses. Yet “the era of relentlessly expanding profits is under threat”. Last week marked the start of the second-quarter earnings season, the multi-week period that sees US firms report their most recent profits. The forecasts are gloomy. At the start of the season FactSet data predicted a 1.9% year-on-year decline in the average [second-quarter] earnings of S&P 500 companies. Because earnings fell 0.3% in the first quarter on a year before – mainly due to Trump’s corporate tax cuts falling out of the annual comparison –…

“Tech billionaires now regard [EU competition commissioner Margrethe Vestager] as one of their few true foes. It was she who forced Apple to pay €13bn in back taxes after ruling that its tax deal with the Irish government amounted to illegal state aid. Vestager has also taken on Amazon, Facebook, Google and Microsoft, and forced them to pay hefty fines or reparations… Now she has targeted Amazon’s treatment of third-party sellers, which generate around 58% of sales… Donald Trump says Vestager is motivated by a hatred of the US. And some in the UK believe this roll call of prosecutions is stifling the adoption of digital commerce. Evidence for either view is scant. Washington seems to have forgotten how to implement its own antitrust laws… That leaves the EU as…

Three to buy NMC Health The Times NMC is “one of those FTSE 100 businesses that tends to slip under the radar”. But it deserves a close look. It is the largest private healthcare provider in the United Arab Emirates, and runs 200 facilities, including hospitals and surgeries in more than 15 countries. NMC is “operating in a fragmented and consolidating sector where scale increasingly means power”. It has bulked up with acquisitions, but is growing healthily under its own steam too. Sales rose by 28% to $2bn last year. The shares “feel oversold”. 2,288p The Gym Group The Sunday Telegraph Gym chains “have expanded and contracted like exercise fads”, but no-frills operator The Gym Group looks likely to last. It has notched up a 20% year-on-year increase in membership…

• Apple paying $1bn for Intel’s smartphone operations may seem like “a rounding error” considering the companies are both worth hundreds of billions of dollars, says The Wall Street Journal. But the rumoured acquisition “would be important strategically and financially” for both. Apple would benefit from gaining access to the “engineering work and talent” behind Intel’s attempt to develop modem chips for 5G wireless technology. This could save “years of development work”. Meanwhile, Intel would jettison an underperforming division losing $1bn a year. • Boeing claims that the cost of its trouble with the 737 Max jetliner, which was grounded in March after two crashes, has reached $7.3bn, but “the price tag could still climb”, says David Gelles in The New York Times. There is likely to be a huge…

Bonds are IOUs. You lend the issuer money for a set period, in exchange for a regular interest payment (coupon), and get your money back when the bond “matures”. Once issued, bonds trade on the open market, which means the price can rise or fall depending on the appeal of the coupon, and the issuer’s creditworthiness. The coupon as a percentage of the bond’s price gives you the simple yield. The yield curve compares the yield on bonds of the same credit quality, but different maturities (so the Treasury yield curve charts the yields on everything from three-month US government debt to the 30-year Treasury). The curve normally slopes up from left to right, because longer-dated bonds typically yield more than shorter-term ones. That’s because money today is usually worth…

• Dame Louise Makin (pictured right), chief executive of life-sciences company BTG, was paid £3.5m last year, up from £2.7m in 2017, reports The Times. Almost a quarter of the company’s shareholders voted against its remuneration report last year over bonus payments to its outgoing finance director. The FTSE 250-listed company, which was born out of the government’s National Research Development Corporation, is currently the subject of a £3.3bn takeover bid from US medical devices maker Boston Scientific. • Ursula von der Leyen, who takes over as president of the European Commission, the EU’s executive branch, in November, will be paid a salary of €27,903 a month, or €334,836 a year – around £301,000. That makes her the fourth best-paid world leader, says the Daily Express, after the Australian prime…

“The great thing about doing a show about squillionaires is the locations… it’s comforting to see how many $30m apartments aren’t nice.” Actor Matthew Macfadyen (pictured) on his show Succession, in which he plays the buffoon son-in-law of a media mogul, quoted in The Sunday Times “People buy merchandise and flags and you just want to deliver for them so much.” Formula One champion Lewis Hamilton, quoted in The Guardian “We’ve fallen foul of EU bureaucracy and are paying a heavy price.” Businesswoman Amanda Thomson, who had to spend £500,000 rebranding her “Skinny Champagne” and “Skinny Prosecco” to comply with EU regulations, quoted in The Mail on Sunday “The James of today is very different from the one who arrived in LA in 2015. Back then he was just hoping…

microeconomicinsights.org Microcredit is the idea that giving small loans to poor households in developing countries helps them escape poverty by starting or growing their own businesses. The idea was once hyped as the solution to global poverty and took off in the years between the 1980s and 2000s. Global microloans now total more than $102bn and are still growing yearly. But has the idea worked? My analysis of multiple studies in different contexts suggests not, says Rachael Meager of the London School of Economics. “The bottom line is that the best existing evidence suggests, with reasonable confidence, that the average impact of these loans was small.” Microcredit did not transform the poor into prosperous entrepreneurs. Why not? Perhaps the answer lies in the terms of the loans, which have to…

Bill Ackman has been a notoriously active activist investor for years. Now he is getting a taste of his own medicine, notes Scott Deveau on Bloomberg. Asset Value Investors (AVI, formerly the British Empire Trust) has taken a 3% stake in Ackman’s investment group Pershing Square Holdings, and has criticised Pershing’s decision to issue $400m of 20-year debt without consulting shareholders. AVI says Pershing is already more leveraged than its peers and should use a share buyback programme to close its large 30% discount to net asset value (NAV).…

Health is the key to a long and happy life. The biotechnology sector plays a crucial role in providing people with the means to recover from disease and remain as robust as possible – and investors are only beginning to recognise its vast potential. The sector has encountered some short-term turbulence, however. The Nasdaq Biotechnology index (NBI) enjoyed a stellar first quarter of 2019 fuelled by mergers-and-acquisitions (M&A) activity, but it has since declined by 2%. “Firms developing drugs for unmet medical needs will maintain pricing power” The political backdrop has unnerved investors. In the US the pressure to lower drug prices is growing. Healthcare costs and the cost of medicine have taken centre-stage in the Democratic Party’s presidential primaries. The Trump administration recently retreated from a plan to lower…

Burgundy has long been France’s premier wine region. The Bordelais may take issue with that statement. But it’s the Burgundians who fetch the highest prices for their bottles at present. It was, after all, a bottle of 1945 Romanée-Conti that fetched a record-breaking $558,000 at Sotheby’s in New York last October, while another sold for $496,000 at the same auction. “These wines are now virtually unobtainable, rare as they were even decades ago,” said the honorary chairman of Sotheby’s Wine, Serena Sutcliffe, after the sale. “Those who bought them have vinous miracles in their possession.” That the bottles had been bought to be drunk is part of the reason they sold for such exceptional prices, the auctioneer, James Ritchie, tells Abby Schultz in Barron’s Penta. No ordinary bottles these. Only…

Irish golfer Shane Lowry (pictured) pocketed $1.935m this week for winning this year’s Open Championship (the prize money for the Open is paid in dollars) at the Royal Portrush golf club in Northern Ireland. It was the first time the championship had been held on the island for 68 years. Property company WeWork is to receive €62m (£55.7m) of “financial inducements” as part of a deal to sublet the European Medicines Agency’s (EMA) 280,000 square-foot London office after it relocates to Amsterdam. The EMA is locked in to 25-year lease with its landlord, which could have cost the European Union up to £500m to break.…

Germany’s Hella is a car-part supplier that should have little difficulty coping with the shift towards electric vehicles, says WirtschaftsWoche. It is one of the world leaders in headlights and lighting systems, products crucial to both electric vehicles and traditional ones. The group’s electronics division is especially promising, with components for stop-start systems and products for managing batteries in hybrid cars among the offerings. Hella is also working on sensors and other systems for self-driving cars. It has also been ditching “less exciting” businesses, such as its wholesale division. The firm is debt-free. The stock looks reasonable on a 2020 price/earnings ratio of 11 and yields 2.5%.…

Early this year the Japanese beer giant Asahi paid £250m to gulp down Fuller, Smith & Turner. Now it has “swooped” on AB InBev’s Australian beer operations in an $11bn (£8.7bn) deal, says Chris Johnson in The Daily Telegraph. Asahi hopes that its purchase of Carlton & United Breweries, “which owns brands including Victoria Bitter (VB), Cascade and Crown” will give it a “significant boost” in Australia, “which is already Asahi’s second-largest overseas market after Europe, where its brands include Peroni, Grolsch and Estrella. Asahi needed to do something, says Kantaro Komiya in Bloomberg. After all, it and its key rival have “seen domestic beer shipments decline for 14 straight years as fewer people reach the legal drinking age”. But the cure for grappling with an ageing and shrinking population…

Our new PM has already outlined a plan for Brexit, says Peter Foster in The Daily Telegraph. Firstly, he wants to make secure the rights of the 3.2 million EU citizens resident in the UK after Brexit. Next, he wants to make payment of the £39bn Brexit bill conditional on a free-trade agreement. Thirdly, he wants to get Brussels to ditch the “backstop” arrangement that avoids a hard border in Ireland, with negotiations over “alternative arrangements” taking place in parallel with trade talks. Finally, he wants to ramp up preparations for a no-deal exit so that the EU knows he is serious about walking away. If Johnson expects the EU to “blink”, by making major concessions, he should think again, says Charles Grant in The Guardian. EU officials believe they…

America is at risk of turning Japanese, says hedge-fund manager Kyle Bass. The US central bank, the Federal Reserve, is expected to cut interest rates later this month, in hope of boosting inflation. Markets already expect a significant reduction in rates over the longer term, but Bass tells the Financial Times that he thinks even the gloomiest projections are wrong. This is based on his view that, despite relatively solid recent economic data, the US will be heading for recession by the middle of next year. As a result, he expects Federal Reserve chief Jerome Powell (pictured) to slash rates to close to zero once again. And “as we have all learned, once an economy falls into the tractor beam of zero rates, it’s almost impossible to escape them”. That…

The highest-paid public servants in the country tend to be transport bosses, says Graeme Paton in The Times. Heading the list this year is head of the HS2 rail line, Mark Thurston, who is paid £651,488, which includes a bonus payment of £46,000. Full construction on the project will begin at the end of this year. Mark Carne, who retired as chief executive of Network Rail last summer, was the previous highest-earner on £769,000. His successor, Andrew Haines, had to make do with £371,000 in the year to the end of March, while Jeremy Westlake, the chief financial officer, is on £440,000 plus a £48,000 bonus deferred for three years. On that showing, road chiefs may feel undervalued. Jim O’Sullivan, CEO of Highways England, was paid just £375,000 – and…

adamsmith.org/blog Anti-Brexiters often invoke the “gravity model of trade”, which says that places close to each other tend to trade more than places further away. The US and the EU have similar GDPs, the argument goes, but we trade more with the EU because it is closer. Seems logical enough, says Tim Worstall, but if you’re going to invoke the gravity model of trade, which is “one of the great empirical results in economics”, then it would be as well to understand what it says. What it says is that “economic proximity is determined by trade costs – the more economically distant, the greater the trade costs”. In other words, we’re not talking about geographic distance, but economic distance. That includes transport costs, but also such intangibles as language, habit,…

Momentum investing, buying the top-performing shares over a certain period (usually the past three, six ,or 12 months) is a popular strategy, although it can be extremely volatile. At the same time, other investors are fans of value investing, buying “cheap” shares that have low price/earnings or price/book (net assets) ratios. However, both strategies have flaws. While the evidence suggests that value investing produces higher long-term returns, it can fall in and out of favour (witness its poor performance over the past decade) and can involve holding shares for long periods, something that sits badly with many traders. However, some investors like to combine the two strategies by buying cheap shares that have risen rapidly over a short time. The logic is that value investors rely on the fact that…

Mining giant Anglo American (LSE: AAL) is headquartered in London and Johannesburg. It employs 92,000 people in Africa, North and South America and Australia and produces around 40% of the world’s platinum, along with diamonds, copper, iron and coal. Efficiencies and productivity improvements meant that in 2018 the company dug twice as much out of the ground per employee as it did in 2012, boosting earnings and enabling it to pay off more than $10bn of debt in the last three years. The share price has risen by almost 40% in the last year.…

Adelheid Luise Spitzeder was born in Berlin in 1832 and won minor fame as an actress, debuting to great acclaim in 1856. In subsequent years, however, she was unable to achieve a level of success sufficient to sustain her lifestyle. In 1869, desperate for money, she borrowed 100 gulden (roughly £400 today) from a woman she met in Munich, promising that she knew someone who was willing to take the sum and pay 10% a month for it. Spotting her opportunity, Spitzeder advertised similar services via a newspaper and the number of people who were willing to lend to her increased exponentially. She set up the Spitzedersche Privatbank in 1869. By 1872 the bank was so successful that she was considered to be the wealthiest woman in Bavaria. What was…

Going… Marlon Brando’s watch (pictured) from Apocalypse Now is heading for auction. Brando refused to part with his Rolex GMT-Master ref. 1675 during the filming of the 1979 war epic. “If they’re looking at my watch, then I’m not doing my job as an actor,” he told concerned filmmakers. As a compromise, he removed the bezel, which is how the watch appears today, along with his name, which he engraved on the back. In 1995, Brando gifted the watch to his daughter, who in turn gave it to her husband in 2003. Starting bids are expected to be “in the six figures”, Paul Boutros of Phillips tells The New York Times. It will appear as part of the auction house’s Game Changers auction on 10 December in New York. Gone……

$2.79bn How much superhero blockbuster Avengers: Endgame – starring Scarlett Johansson as Black Widow (pictured) – had earned at the global box office as of last Sunday, making it the highest-grossing film in history. The record had been held since 2009 by science-fiction film Avatar. 70 The percentage hike in the price of cucumbers in Tokyo due to unseasonably low temperatures and a lack of sunny weather, according to Japan’s Ministry of Agriculture, Forestry and Fisheries. Sales of hot drinks and foods have more than doubled. £180,000 The amount raised by the Charles Dickens Museum in London to buy a rediscovered portrait of the writer as a young man. The painting, covered in mould, had been bought as part of a mixed lot for £27 at an auction in 2017.…