Indholdsfortegnelse for 1163 i MoneyWeek

“Politics is the art of the possible,” said Bismarck, the man behind the world’s first state pension. As the duties of the state have mushroomed, governments have found that persuading the population to accept harsh medicine or spending restraint has become less and less feasible. So I was struck by a Deutsche Bank note last week saying that the UK ran a primary budget surplus (an annual underspend before interest payments on outstanding debt) for most of the time between 1822 and 1913. Of course, there were practically no voters to keep happy, and barely any social programmes to fund. Anybody who complained could be sent to the Tower – after being heavily fined. No wonder, then, that public debt as a percentage of GDP slid from 194% to 28%…

UK government debt has exceeded 100% of GDP for the first time since 1961, says Mehreen Khan in The Times. Net public debt hit £2.6trn at the end of May. High interest payments are making it harder for Whitehall to get a grip on debt levels. The UK government is paying 4.4% to borrow for ten years, more than Italy (4.2%). British debt has been higher before, says Jim Reid of Deutsche Bank. A debt-to-GDP ratio of 194% after the Napoleonic wars was reduced by the government running “a near-continuous 90 years of primary surpluses” through the Victorian era. After World War II, debt hit 259% of GDP in 1947. It fell to 23% by 1989 through a mixture of economic growth, “high inflation and financial repression”. Financial repression describes…

“We used to have a ‘risk-free rate of return’. You could buy Treasury bills and make a safe, guaranteed return, often 5%... the least-educated labourer had the opportunity to save their money and watch it grow. A basic level of capitalism was open to all... That is no longer the case... much of post-2008 ‘capitalism’ is no longer worthy of the name... artificially low interest rates produce malinvestment. They fund... projects that would be... rejected if they had to justify real-world financing costs... The root cause... is the fantasy that a small group [of central bankers]... can sit around a table and decide what capital should cost for everyone [rather than letting the market decide]... It has some benefits; modern central banks have prevented the kind of financial panics... common…

Until last week investors in the sneaker giant Nike were most concerned about China, which accounts for 20% of sales and used to be “one of its most profitable markets” until sales slumped during the pandemic, says Lex in the Financial Times. But now the “sharp slowdown” in North America has become “a bigger worry”. Customers rattled by inflation have “slammed the brakes on discretionary spending”, with sales rising by just 5% in the three months to the end of May. Meanwhile costs are also rising faster than revenue. As a result, net income slid by an annual 28% to $1bn. There is now a sense that the $152bn “global sneaker bubble is bursting”, says Leticia Miranda on Bloomberg. Nike is sitting on $8.5bn of unsold merchandise “despite a slew…

The rise in interest rates has hampered unprofitable companies, says WirtschaftsWoche. Many of them are in the biotechnology sector: it costs several hundred million dollars to push a promising drug through a clinical pipeline. Therein lies opportunity: Switzerland’s BB Biotech, a closed-ended fund whose investments are mostly profitable, has been caught in the sell-off. Thanks to its reputation for combining medical and financial expertise, it usually trades at a considerable premium to net asset value (NAV), but it is currently on a rare 3% discount. What’s more, new investors can secure a juicy dividend yield of 5%.…

Politics & economics On Monday, China announced restrictions on the export of metals critical to making semiconductors, says Clement Tan on CNBC. The new regulations, which have been imposed “on grounds of national security”, mean exporters will need a licence to ship certain gallium and germanium compounds as of 1 August, giving details of importers and end users as well as how the metals will be used. The move comes in the week that US Treasury secretary Janet Yellen is travelling to China in a bid to ease tense US-China relations. Gallium and germanium are among dozens of minerals deemed “critical to economic and national security” by Washington as well, says the Financial Times. China controls 98% of global gallium production, it cannot currently be recycled and there…

A few weeks ago I took a look at the by-election at Uxbridge & South Ruislip, caused by the departure of former PM Boris Johnson. It’s now a good time to have a look at the other three by-elections in Mid-Bedfordshire (Nadine Dorries), Somerton & Frome (David Warburton) and Selby and Ainsty (Nigel Adams). As with the election in Uxbridge, all three will take place on the same date, Thursday 20 July. In the case of Somerton & Frome, the markets have pretty much decided that the Conservatives will lose the seat. With £10,345 matched on Betfair, the Liberal Democrats are favourites at 1.05 (95.2%), with the Conservatives out at 15 (6.7%) and Labour at 26 (3.8%). The Tories had a majority of just under 20,000 at the last election,…

Orkney hit the headlines this week as it started discussing the possibility of breaking away from the rest of the UK. Feeling neglected and ignored, especially by a Scottish executive in Edinburgh overwhelmed by political scandals, its council decided to “explore alternative forms of governance”. According to local politicians, Orkney was part of various Norse kingdoms for a lot longer than it has been part of Britain; it was only handed over to Scotland in 1492, and given that memories are long in that part of the world that may seem like only yesterday. With local communities feeling let down by governments in both Edinburgh and London, they would like to look at whether they might be happier elsewhere. An associate relationship with Norway might well work a lot better.…

“It gave me the best lunch every day. I loved the food at the training ground. And I was able to save money.” England footballer and sports presenter Alex Scott (pictured) on working as a “scrubber” in the club laundry at the start of her Arsenal career, quoted in The Guardian “I feel these days like a very large flamingo. No matter what way I turn, there is always a very large bill.” Irish novelist Joseph O’Connor, quoted in the San Francisco Chronicle “Well, now my kids are saying, ‘Daddy, did you really spend £1m on drugs?’ The marketing tag of me sprazzing all my money on booze and drugs has been difficult to explain to them.” Alex James, bassist of Britpop band Blur, on his autobiography A Bit of…

fee.org In Ayn Rand’s novel Atlas Shrugged, the motor of the world stops turning when the rich, fed up with leftist whingeing, sabotage and punishing taxes, go on strike. It seems that something similar is happening in Norway, says Jon Miltimore. In 2022, Norway’s richest man, Kjell Inge Røkke, upped sticks for Switzerland. More than 30 Norwegian billionaires and multimillionaires followed his lead in 2022, a bigger exodus of the super-rich than the total of the previous 13 years. The reason is obvious. Following its 2021 electoral victory, Norway’s Labour party made good on its promise to “soak the rich”, increasing its wealth tax to 1.1%, despite warnings that such a move would trigger capital flight. That is just what has happened, leaving the Norwegian government with less revenue –…

Activist investor Bluebell Capital Partners is calling on Glencore to replace its CEO Gary Nagle, says the Financial Post. Bluebell has been calling for change at the mining giant since 2021, asking the group to reconsider its climate policy, hive off its thermal coal business and tackle governance problems. In a letter sent to Glencore’s board on 23 June, the fund accused the group of misleading investors in its pursuit of Teck Resources. Bluebell, which manages roughly $250m, believes Glencore wants to buy Teck for its coal assets, not, as the miner claims, to boost its exposure to green-economy metals. “Glencore is not interested in Teck’s metal business, but is proactively pursuing an increase of its presence in coal,” insists Bluebell.…

● Mortgage rates have followed the base rate and gilt yield upwards, with the average interest rate on a five-year fixed mortgage eclipsing 6% this week. The average two-year fix has reached 6.47%. Mortgage rates haven’t been this high since the market turmoil following last September’s mini-Budget, says the BBC. The latest increase means mortgage rates have doubled from about 3% in 12 months. ● Higher interest rates on savings accounts will give the taxman’s takings a hefty fillip, says Ali Hussain in The Sunday Times. HMRC is pencilling in £6.6bn of tax on savings interest in 2023-2024, up from £3.4bn last year and £1.2bn in 2021-2022. A cut in the additional-rate threshold is a key culprit. It declined from £150,000 to £125,150 in April 2023. Additional-rate taxpayers receive no…

● Is your business considering selling overseas for the first time? If so, support from the Institute of Export and International Trade could help. The organisation, which partners with the government to drive British exports, offers a range of free support and resources for businesses exploring international markets. New research from the Institute suggests around a quarter of businesses in the UK don’t currently make any exports at all. But among those that do sell overseas, export revenues now account for an average of 49% of overall sales. ● Four in ten small and medium-sized enterprises have no insurance, new research claims, with many firms abandoning policies in order to save money. The study, from Money.co.uk, suggests small companies are taking considerable risks because of their cash-strapped position. A lack…

Carl Icahn was born in New York City in 1936. After studying at Princeton, he enrolled briefly at the New York University School of Medicine before dropping out to join the army. In 1961 he joined Dreyfus & Co as a stockbroker and by 1968 he had put money he had saved, along with an investment from his uncle, into buying a seat on the New York Stock Exchange. He later branched out into activist investing, a strategy that involved buying stakes in undervalued or poorly-performing companies and then using this as leverage to get them to change their strategies. What was the trade? In 2009 Icahn took a stake in Forest Laboratories, a drugs company that had grown strongly during the tenure of CEO Howard Solomon, who had joined…

“Banks are facing a Treasury inquiry into claims that they are closing customers’ accounts because they do not like their views,” say James Beal and Poppy Koronka in The Times. Nigel Farage (pictured), the former Brexit party and Ukip leader, claimed “serious political persecution” when his Coutts account was closed. It later transpired he had been offered a free NatWest account after falling below the private bank’s wealth requirements – but only, according to Farage, after he complained. The GB News presenter stuck by his claim that the real reason for the account closure was his status as a “politically exposed person” (PEP) – political representatives and their families, with whom banks are required to carry out extra due diligence. The bank, he says, used PEP status as cover. Professor…

Nuclear fuel is safer than oil, at least for investors, says Jinjoo Lee in The Wall Street Journal. Prices for most energy-related commodities have slipped this year along with the global economy, but uranium is “still glowing”, with spot prices up 18% so far in 2023. Uranium makes up only a modest part of a nuclear power station’s operating cost, so demand is fairly insensitive to price. Economic slowdowns don’t strongly affect demand: nuclear plants typically provide “baseload” power, the backbone of the electricity grid that gets generated whatever happens to GDP. Demand is rising as emerging markets invest heavily in grid capacity, but supply will struggle to keep up: “new uranium mines and enrichment facilities can take ten to 15 years to build”. Bank of America Global Research analysts…

Apple has become the first public company to close a trading day with a market capitalisation above $3trn (£2.4trn). The shares have gained 55% so far this year amid investors’ enthusiasm about prospects for the iPhone in fast-growing emerging markets such as India and the Middle East. At current valuations, the company is worth about $500bn more than its nearest rival, Microsoft. Apple alone is also more valuable than the entire market capitalisation of the FTSE 100 (approximately £2trn). Apple has beaten the wider Nasdaq Composite index’s 32% gain this year, says Aaron Tilley in The Wall Street Journal. The company has massively outperformed the wider market over the past decade, as the chart shows.…

Elon Musk may be in training for a cage fight with Mark Zuckerberg, but this week Zuckerberg’s Meta was expected to “deliver a knockout blow to Elon Musk” by launching a rival app to Twitter, says Mark Sellman in The Times. The new “text-based conversation” app, Threads, will be closely connected to Instagram. The launch of Threads seems to have been brought forward “to capitalise on the latest turmoil at Twitter”. In particular, Musk has sparked a backlash by limiting the number of tweets that users can see, while the popular TweetDeck app will henceforth only be available to paying customers. Meta’s new release represents a “direct challenge” to Twitter and comes as many users and advertisers have sought alternatives to it, says Hannah Murphy in the Financial Times. They…

China’s online fashion retailer Shein is reportedly preparing an initial public offering in the US, says Reuters. The group, worth around $60bn, would be the most valuable Chinese firm to list since Didi Global, the ride-hailing group that made its debut in New York in 2021, achieving a valuation of $68bn. Shein faces formidable regulatory and political headwinds. Lawmakers have asked the Securities and Exchange Commission (SEC) to ascertain whether it uses forced labour, while they have also complained that Shein has abused a tariff exemption used by Chinese e-commerce retailers to dodge import duties and bring illegal products into America.…

● Banks once played the role of villains for the left. Now they are championed by the very same for signing up to diversity programmes, pushing staff to declare their pronouns and shutting down Nigel Farage’s accounts. Don’t be fooled, says Ross Clark in The Spectator: the banks are “the same ruthless capitalist institutions they ever were”. When base rates go up, the cost of mortgages rapidly rises. What you earn on your savings, meanwhile, limps upwards more slowly. There is currently a “yawning gap” of four percentage points between the interest charged for an average two-year fixed-rate mortgage and what you earn in an instant-access saving account, says Moneyfacts. Woke posturing is a handy “distraction” for “profiteering banks”. ● Unilever, a purveyor of cleaning products and store-cupboard staples, is…

newstatesman.com No one goes into the Church for the money, and the vicar’s lot – a salary of £25,000-£29,000 plus a roof over your head – is not a bad one, says Fergus Butler-Gallie. So why are Church of England vicars seeking a 9.5% pay rise through their union, Unite? The answer is that it is part of a battle between a centralised and managerial church and its core workers. The Church has long been in decline and the top brass want to reform the system and “liberate the whole people of God into ministry” – in other words, get lay people to do vicars’ jobs for free. Meanwhile, vicars have to labour under a system no modern worker would accept – they earn stipends but not salaries, have no…

■ Artemis fund management has lost its mandate to run the Mid Wynd International Investment trust, according to FT Adviser. Mid Wynd had been managed by Artemis since 2014, but following the exit of its lead fund manager, Simon Edelsten, who announced his retirement in February and was followed the same day by co-manager Alex Illingworth, the trust’s board announced a review of its investment management arrangements. The board has hired investment bank Lazard to take over the £449m portfolio, and its Global Quality Growth team under Louis Florentin-Lee and Barnaby Wilson will now run the trust. Under the stewardship of Artemis, Mid Wynd’s assets expanded by 560% and it produced an annualised net return of 12.4% compared with the benchmark return of 10.7%. Mark Murray, senior partner at Artemis,…

Thousands of bank branches have closed in recent years. According to research by Which last year, almost a quarter of free-to-use ATMs have vanished since 2018, while 4,685 bank branches have shut their doors, meaning almost half of Britain’s bank branches have closed since 2015. The banks say demand has fallen as more and more customers do their banking online, and that customers can also use any of the Post Office’s 11,635 branches to carry out most banking tasks. As branches close, you may see a new “banking hub” pop up in your local area, which allows customers of different banks to deposit and withdraw money. The hubs also provide dedicated rooms where customers can see community bankers from their own banks to discuss more complicated banking matters. The community…

In a turbulent economic environment, both debt and equity providers have become more cautious about backing small businesses in need of capital. Recent data suggests both bank lending and venture-capital investment have fallen back so far this year. However, there is one constituency still keen to back more early-stage ventures: business angels are continuing to write cheques. Collectively, angels put around £2.3bn into UK businesses last year, according to the UK Business Angels Association (UKBAA). Individual investments vary enormously, but the typical amount of funding provided is between £15,000 and £2m, according to the British Business Bank. In return, angels are looking for a stake of around 15%-30% of the company. They won’t usually want more, since this jeopardises some of the tax advantages available on early-stage investment. In practice,…

Blockchain is a relatively new financial technology (fintech) industry that has grown to be worth more than $1trn since the launch of the original cryptocurrency, Bitcoin, in 2009. “Crypto” refers to a type of mathematics called cryptography, which allows people to send and receive this digital-only cash in a very secure way. The world’s largest banks and asset managers such JPMorgan and BlackRock are now building products using blockchain, essentially a digital ledger, to speed up activities such as issuing bonds, or to settle financial transactions more quickly and efficiently. Our exchange-traded fund (ETF) buys shares in the top firms that derive a large proportion of their revenue from blockchain technology, bitcoin mining (the digital process whereby bitcoins are made), bitcoin custody or trading. Mining for profits Riot Platforms (Nasdaq:…

How Westminster Works… And Why It Doesn’t Ian Dunt W&N, £18.99 Recent scandals, from Partygate to the controversy over Boris Johnson’s resignation honours, and policy failures, from Brexit to Covid, have created the perception that Britain is ungovernable. Many are starting to wonder whether our political system is fit for purpose. Ian Dunt’s book is therefore timely. Dunt, a political journalist, believes that the piecemeal way in which our political system has evolved over the years has led to a ramshackle arrangement that needs to be completely overhauled. His argument is that the British constitution gives the governing party and ministers both too much and too little power at the same time. On the one hand we have an electoral system designed to produce majority governments and a Parliament that…

Speculators so loved US real estate, and were so sure that the lowest interest rates in 5,000 years would stick around for years more, that they looked to make easy money buying property in the heart of America’s most dynamic cities. For an entire generation, they were in-the-money. Interest rates went down. The players could refinance… and refinance… even “taking out equity” as the price of the buildings went up while interest rates went lower. Then, in 2009, the Federal Reserve began a “zero interest-rate” policy, holding its key lending rate below inflation for most of the next 14 years. It was a dream come true for leveraged real-estate speculators. Now they face a whole new ball game. The world’s empty office buildings have become a debt time bomb, says…

For more than a decade, equity markets have been dominated by TINA (“there is no alternative”), says Jeff Sommer in The New York Times. Ultra-low interest rates have given investors few options other than overpriced shares. Those who bought bonds regardless suffered average losses of 15% last year as high inflation and rising interest rates shocked the market. But as bond prices have fallen, bond yields (which move inversely to prices) have climbed to tempting levels. TINA is no more. Yielding 4.4%, ten-year UK government gilts now pay more than the FTSE 100 dividend yield for the first time since 2008, Jason Hollands of Evelyn Partners tells The Sunday Times. UK two-year gilt yields have hit 5.3%, their highest level since 2007. Three years ago they were yielding less than…

Never mind Thames Water, says William Farrington on This is Money. “The real boardroom drama” last week was the “vitriolic” argument between cosmetics firm Revolution Beauty and online retailer Boohoo. The latter, which owns 26.6% of Revolution, had tried to gain control of the group by launching a hostile takeover and ousting Revolution’s board. This led to a shareholders’ “showdown” last week that resulted in CEO Bob Holt, chief financial officer (CFO) Elizabeth Lake, and chair Derek Zissman all being voted out – only for non-executive director and sole remaining board member Jeremy Schwartz to rehire all three. Since then both sides have “exchanged vitriolic words”. It’s not just the reappointment of the trio – Boohoo believes they “lack the retail experience to return the brand to growth” – that…

Five to buy Rockwell Automation Barron’sThis Milwaukee-based industrial business provides technology that helps everyone from car makers to biscuit factories automate their manufacturing processes. Shares are already up by 25% this year thanks to Washington’s push to “re-shore” manufacturing in America. More upside could lie in store: about 30% (and rising) of total revenue is generated by sales of software. If investors conclude that Rockwell is really a technology stock, then a rerating could follow. $321 Pershing Square Holdings The TimesThis investment trust gives British buyers access to the know-how of Wall Street’s activist investor Bill Ackman. Key holdings include Universal Music Group, Hilton hotels and the owner of Burger King, all firms boasting enduring competitive advantages, low debt and solid cash generation. In the past five years, assets have…

Nato, which is due to meet for a summit next week, is divided over whether it should offer Ukraine a “postwar pathway to membership”, says Henry Foy in the Financial Times. The US, UK and EU are all “hesitant” and are instead “drawing up plans to provide Kyiv with security commitments” short of accession that would help the country defend itself from future attacks. Others, including Estonia’s prime minister Kaja Kallas and Ukraine’s president Volodymyr Zelensky (pictured), cliam this would not be sufficient to deter Russian aggression. It’s clear “that full and immediate Nato membership isn’t possible while war is ongoing”, says Wolfgang Ischinger for Politico. For one thing, Turkey’s block on Swedish membership shows “just how complicated the admission of new alliance members is”. Immediate Nato membership would also…

The public sector needs a shake-up Tim Knox CapX Chancellor Jeremy Hunt recently announced the creation of a task force to review the performance of government departments and the NHS, says Tim Knox. The initiative is laudable, given that getting “more bang for our trillions of bucks is the only way that we will ever see meaningful economic growth again”. But will it be useful? Hunt failed to highlight how bad things are. Since 1991, productivity in the private sector has risen 26%, but fallen 16% in government services. The NHS still uses 800 fax machines. A recent report I co-authored with Patrick Barbour identified two main causes: the “mismatch of experience and skills” to ministers’ roles, and the “loss of institutional memory and experience” due to high job turnover.…

project-syndicate.org For decades, markets were the main drivers of economic trends and policies. “No longer,” says Michael Spence. “We have now entered an age of political economy.” The actions of governments and the possibility of “drastic policy shifts” have become the main determinants of economic performance. Trade wars have broken the supply chains connecting the US and China, and walled off parts of their economies from global trade. Despite such shifts, macroeconomic stability, rooted in competent economic management and continuity in the economic model pursued, was still recognised as a “prerequisite for growth and development” and to attract investment. In recent years, however, such stability and continuity has become “increasingly rare”. Debates about policy have become polarised, “raising the risk of drastic shifts”. The expectation of policy instability has had…

As technology stocks have surged this year, value stocks, on which the UK market depends, have languished. Rio Tinto’s share price has fallen by 25% since 31 January, while that of the BlackRock World Mining Trust (LSE: BRWM), with a market value of £1.1bn, has slipped by a fifth. The reason is the disappointing performance of metal prices in 2023 as the global economy has spluttered. Nevertheless, Olivia Markham and Evy Hambro, BRWM’s co-managers, are as bullish as ever for the long term. Hambro points out the share-price total return for the trust has been positive for six of the last seven years. Since its launch at the end of 1993, the shares have produced a total return of more than 1,500%, with more than half from dividends. The shares…

The rates on cash Isas (both easy-access and notice accounts) have improved thanks to a series of interest-rate hikes by the Bank of England (BoE), as well as increased competition in the sector. Savers looking to park their cash in the tax-free wrapper should bear in mind that the longer you leave the money untouched, the more interest you can earn. Many Isas are classed as “flexible”, meaning you can replace any funds you withdraw in the same tax year without affecting your annual Isa allowance – which is currently £20,000. The top easy-access Isa account at present is the Cynergy Bank Online Cash Isa, which offers an annual rate of 3.85%. The minimum investment is £1. The Leeds Building Society Limited Access Isa is offering 3.8% with a minimum…

While firms are trying to put Covid behind them, the state continues to offer post-pandemic support. In particular, the Recovery Loan Scheme (RLS) could enable your business to borrow money on preferential terms. The funding can be used as you see fit. First offered towards the end of the pandemic, the RLS was relaunched last year and will now run until at least June 2024. Businesses can borrow up to £2m at a time. The cash comes from RLS-accredited lenders – including the high-street banks and a range of other firms – but is underwritten by the government; this makes it possible for lenders to offer attractive terms and rates. In practice, lenders are offering RLS finance through a range of different products, including traditional loans and overdrafts, as well…

2021 Yering Station, The Elms Chardonnay, Victoria, Australia £10.49, reduced to £8.49 until 1 August, Waitrose The Elms Chardonnay pays homage to the skilful winemaking at Yering Station and the idyllic Victorian climate. This timeless and refreshing white wine gives global chardonnay styles a much-needed wake-up call with its silky-smooth, gentle and elegant flavours. This is the perfect white wine for elite aperitif duties, carefully constructed starters and the entire gamut of seafood and fish main courses. I take my hat off to Yering Station for putting as much time and effort into The Elms as they do their Reserve level wines and I feel that this wine is in with a shout for finest value, cool-climate chardonnay of the year. The new 2022 vintage takes over from the 2021…

Material World Ed Conway WH Allen, £22 We are so focused on our screens these days that we tend to pay more attention to the digital economy than to the real, physical one on which it is based, says Emma Duncan in The Times. Coal mining employed a million people in the UK just a century ago; now the process of extracting raw materials has been “largely automated” and “hardly anybody knows about it”. Those raw materials nevertheless remain “as essential to our economy and society as they ever were”. Ironically, the dirty business of extracting them is more necessary than ever if we are to build a “cleaner future” – we’ll need more lithium mining, for example, to manufacture all those batteries for electric cars. Ed Conway attempts…