Innehållsförteckning för 1237 från MoneyWeek

“How can you govern a country which has 246 varieties of cheese?”, Charles de Gaulle once complained. As France faces another political crisis and the imminent arrival of yet another prime minister, the more pertinent question for the medium term is how you persuade an economy with a compulsive spending problem to cut back – just a little, at least. France’s budget has been in deficit every year for half a century: it last balanced the books in 1974. All that yearly overspending and borrowing has built up a huge debt pile worth 112% of GDP, second only to Greece and Italy. Far-right leader Marine Le Pen described prime minister Michel Barnier’s budget as “dangerous, unjust and punitive”; rather intemperate language, you might think, to describe a plan designed to…

Coffee futures have hit a 47-year high as a severe drought in Brazil has decimated next year’s crop of beans, says Reuters. At $3.3545 per pound, arabica (the premium type of coffee) futures hit their highest level since 1977 on the Intercontinental Exchange (ICE) last week. Cheaper robusta beans also reached a 47-year-high. Add in the effect of a strengthening dollar, and in sterling terms arabica beans are now nearly 70% pricier than they were a year ago, say Shreyas Gopal and Sanjay Raja of Deutsche Bank. As the chart shows, arabica futures usually affect UK coffee prices with a roughly one year-lag. The estimated 100 million cups of coffee that Britons drink every day are about to become much more expensive.…

Intel’s CEO Pat Gelsinger has retired “abruptly”, say Sarah E. Needleman and Dean Seal in The Wall Street Journal. He pursued a “costly” turnaround strategy to start manufacturing chips for other companies, but Intel has “struggled” to attract big customers. At the same time, a failure to foresee how the “explosion of interest” in AI would redirect demand toward a type of chip made by rival Nvidia means that Intel’s shares have slumped and the company has “lost its spot as the standard-setter in chip technology”. Gelsinger certainly “struggled” to turn things around, says Jonathan Guilford in Breakingviews. Still, Intel’s problems started long before he became CEO in early 2001. While Apple’s boss Steve Jobs wanted Intel to make chips for the iPhone, Intel “worried about the new handset’s sales…

Prosus, listed in the Netherlands, is one of the most interesting companies in the Euro Stoxx 50, the eurozone’s blue-chip index, according to WirtschaftsWoche. It is one of the world’s largest technology investors, concentrating on consumer-internet companies such as financial technology (fintech) groups. It has stakes in roughly 80 companies, including a 25.6% share of Chinese internet giant Tencent, whose activities include e-commerce and social media. India is currently a key focus. Prosus has just brought food-delivery group Swiggy to market, while the next candidate for an initial public offering is PayU, a digital payments group.…

Ireland’s political landscape after Friday’s general election looked “strangely familiar”, says Fintan O’Toole in The Guardian. Familiar, because the two main incumbent parties, Micheál Martin’s Fianna Fail and Simon Harris’s Fine Gael, received almost exactly the same combined share of the vote as they did in 2020, and will therefore continue to govern. Strange most obviously because Irish voters have “bucked the trend” in this “global year of elections” by failing to give the incumbents a “good kicking”. But also strange, because given that Ireland is enjoying full employment, overflowing public coffers and a booming export-led economy, the endorsement was “lukewarm”. As recently as 2007, the “twins’” combined share of the vote was 70%. It is now 43%. Their declining popularity is not, as one might expect, due to a…

American stocks have become a headache for many investors. Over the past 15 years they have raced ahead of other major markets (see chart), to the point where they now account for more than 70% of the MSCI World index. If you manage a fund benchmarked against that, you cannot afford to have too little in the US, because if it keeps beating everything else, your performance will lag badly and your job will be on the line. This may be why some managers are saying that Donald Trump’s threats of raising tariffs on imports mean that the US will keep beating the world – they need a plausible reason to keep buying the US as it rises. In theory, tariffs should be bad news for growth and for stocks…

Soak the rich? We already do EditorialThe Wall Street Journal When Congress debates whether to extend Donald Trump’s 2017 tax cuts next year, progressives should bear in mind that taxes are “already highly progressive”, says The Wall Street Journal. The top 10% of income tax filers “carried 72% of the tax burden” in 2022; the top 1%, 40.4%, according to data analysis by the Tax Foundation. In 2017, tax rates were lowered until the end of 2025. Democrats will want the top marginal rate (37%) to revert to 39.6% to make the rich pay their “fair share”. The top 1% (1.5 million tax returns) accounts for 22.4% of total reported earnings and pays 40.4% of income tax. Is this “fair” or “punitive”? Meanwhile, the top 2%-5% earn 15.9% of the…

nixons.substack.com When a public company’s auditors refuse to sign off its accounts, “all hell breaks lose”, says Simon Nixon. Investors take it as a sign that something is “seriously amiss” and “dump the shares”. So what are investors to make of the fact that the UK Treasury admitted last week that the head of the National Audit Office had done just that? The civil servant responsible for testifying to the accuracy of the public accounts found that nearly 90% of Britain’s 426 local authorities failed to submit reliable data and that of these 44% did not submit any data at all. He was therefore unable to say whether the government accounts provided a “true and fair” view of the public finances. That is “extraordinary” and “raises troubling questions about how…

European stocks have struggled this year thanks to the continent’s economic troubles. European equities are now trading at the most significant discount to their US counterparts since at least 2003. The 12-month price-to-earnings (p/e) multiple of the MSCI Eurozone index is 60% of the MSCI US index, compared with its 20-year median of about 80%. Some of this gap is warranted. Europe has registered anaemic growth since the financial crisis, and since Covid the economy has ground to a halt. High energy costs and political chaos have hit the core economies. According to the International Monetary Fund, Europe’s ageing workforce, low productivity growth and “lack of business dynamism” will reduce the continent’s GDP growth rate to just 1.45% per annum over the rest of the decade, compared with 2.3% for…

The Bank of England predicts that half of homeowners will see their mortgage payments rise in the next three years. That means 4.4 million households will have to find extra cash: 37% of people on a fixed-rate mortgage haven’t had to remortgage since interest rates started to rise in 2021. “Of these, 2.7 million are expected to refinance onto a rate above 3% for the first time and roughly 420,000 will see payments increase by more than £500 per month,” says the Bank. Then there are the people who have remortgaged since 2021, but onto short-term fixed-rate deals. They will remortgage again onto potentially more expensive deals. The Bank of England believes this means households will see an average 22% increase in monthly payments – adding £146 to the typical…

A key change in the Budget was that from April 2027, cash left in your pension plans when you die can still be left to your heirs, but unlike now, its value will count towards your estate for inheritance-tax (IHT) purposes. If your estate is worth more than the IHT allowances at the time of your death, IHT will be payable on the money. The good news is that careful planning can help you mitigate the impacts of this change. And it’s perfectly legal and sensible to organise your finances in the most tax-efficient way possible. Happily, there are lots of different options. The most obvious strategy for reducing an IHT liability is to cut the size of the final estate on which IHT is due. In practice, that means…

Global markets reacted immediately to Donald Trump’s election victory. Japan was no exception, with key indices enjoying a lift. While the initial impact will fade quickly, concerns over the pursuit of protectionist trade policies are set to linger. It is necessary to judge carefully how policies announced at the time of the election are actually implemented; how might they affect individual companies? In this environment, mid caps focused on the domestic economy – which are generally well insulated from external macro factors and beneficiaries of reshoring – represent attractive opportunities. Meanwhile, Japan-specific developments, such as reflation and corporate-governance reforms, are multiyear structural factors creating new investment ideas. “A shift in price and wage-setting behaviour is fuelling inflation and household spending” Brought to the boil Miura (Tokyo: 6005) is a global…

The number of companies delisting from the London Stock Exchange (LSE) has reached 45 this year, the highest number since 2010, says Bloomberg. This week TI Fluid Systems was snapped up by Canadian car-parts maker ABC Technologies for £1bn and US private equity firm General Atlantic, which has a stake in language app Duolingo, bought Britain’s Learning Technologies Group for £800m. Meanwhile, mining giant Rio Tinto is “facing pressure to quit” the LSE from an activist investor. Just Eat Takeaway has said it is leaving (see page 16) and a string of other sales are expected to complete in the coming months, including Czech billionaire Daniel Kretinsky’s takeover of Royal Mail. Add a dearth of initial public offerings (IPOs) to the mix (11 this year) and “replacements are few and…

Seven in ten Americans think cannabis should be legal, says Jack Hough in Barron’s. In one poll more people “reported smoking pot daily than drinking alcohol”. Yet pot investments have been a disaster. In 2020 and 2021 pot shares boomed in North America as investors bet that full legalisation was imminent. Many big US operators are listed in Canada, where cannabis has been legal since 2018. While attitudes are changing, investors ran ahead of the politics. The AdvisorShares Pure US Cannabis exchange-traded fund (ETF), which tracks big cannabis players, has dropped 80% over the past three years. It’s not just politics, says Lex in the Financial Times. Despite state-level legalisation, illicit markets have kept thriving. The resulting supply “glut” has “undercut billions of dollars in revenue projections” for cannabis businesses.…

“For an industry obsessed with managing risk, [finance] remains greatly exposed to the triumphs and failures of a small number of individuals. From Warren Buffett at Berkshire Hathaway to Ray Dalio at Bridgewater Associates, firms reflect the style of their leaders to an uncanny extent… [Call it] a financial equivalent to the great-man theory of history… It is… still eminently possible for individuals to blow up firms. [Consider] Sam Bankman-Fried… and Nick Leeson (whose derivatives trades nuked Barings Bank in 1995)… For all the succession planning and risk management, finance will never really be a team sport… When firms survive the loss of visionary founders, supine managers often take their place… Risk takers leave and the cycle starts afresh… Today private-market firms and hedge funds may be ascendant, but in…

Nissan is facing a “make-or-break year”, says the Financial Times. Senior figures admit the company may have only “12 or 14 months to survive” if it can’t find a long-term shareholder to replace Renault. The French carmaker is selling down its holding in its “crisis-hit” Japanese counterpart. The relationship with Renault, which rescued the Japanese group from near-bankruptcy in 1999, has been “plagued by constant infighting over its unequal shareholding and voting rights”. The French company has therefore cut its stake in Nissan from 43% to 36%, with a view to lowering it further. Activist investors Effissimo Capital Management and Hong Kong’s Oasis Management are also piling on the pressure. Something must certainly be done, say Bloomberg’s Alice French and Eijiro Ueno. Nissan’s shares have fallen by nearly half since…

Pony AI’s American depositary shares (ADS) fell 7.7% in their trading debut in New York after raising $413.4m in an initial public offering (IPO) and private placements, says Bloomberg. The Chinese autonomous-driving start-up sold 20 million ADS, raising $260m and achieving a market value for Pony of $4.2bn. Pony’s IPO was part of a “modest revival” of Chinese companies floating in the US. They have raised $1.2bn this year, almost double 2023’s tally. Pony AI is tapping US capital markets just as the second Trump administration considers measures to increase competition in autonomous driving, with the US and China leading in both funding and robotaxi start-ups.…

Night after night, tens of thousands of Georgians continue to protest in front of their country’s parliament, deepening a political crisis that has “set the country’s pro-Russian government against those who want closer ties with the West”, says Valerie Hopkins in The New York Times. The flashpoint is last week’s announcement by the ruling Georgian Dream (GD) party to put talks on European Union membership on hold until 2028. As prime minister Irakli Kobakhidze “doubled down” and said there would be “no negotiations”, the president, Salome Zourabichvili, encouraged protestors. For Zourabichvili, the government’s move is a “betrayal of Georgia’s European destiny” and a sign that the country, formerly part of the USSR, is being dragged back into Russia’s orbit, says Felix Light on Reuters. The GD, which is controlled by…

The coalition government led by the Social Democrat leader Olaf Scholz looks certain to go down to a heavy defeat when Germans cast their votes in February. The uneasy alliance between the Social Democrats, the Greens and the pro-business Free Democrats always looked like an unhappy marriage and unlikely to last a full-term. All three partners will be badly punished. The Social Democrats (SD) are scoring 15%, a shocking result for one of the two major parties that dominated post-war German politics. The Greens are down to just 12%. The Free Democrats may struggle to get even the 5% that would secure them seats in the parliament. Yet nothing much is likely to change. The centre-right Christian Democrats (CDU) look certain to come out on top – they’re scoring 32%…

A repurchase agreement, commonly known as a repo, is a form of short-term borrowing based around the selling and buying back of an asset (typically government bonds). A large financial institution, such as an investment bank, that owns the asset sells it to another institutional investor, such as a fund manager, with a commitment to buy it at a slightly higher price on a given date (usually the following day). The difference between the prices, which is equivalent to interest on the loan, is quoted as an annualised percentage base and is referred to as the repo rate. If the seller defaults on their obligation to buy back the asset due to insolvency, the buyer is able to sell it on without risk of this being blocked by a bankruptcy…

“No one got rich doing a Merchant Ivory film. I did it for the curry nights Ismail put on, which made it feel like a family. He also stole my mother’s car for a week once.” Actor Hugh Grant (pictured) notes that the films produced by Ismail Merchant and directed by James Ivory had notoriously small budgets, quoted in The Sunday Times “In rehearsals one day, Ronnie Barker and I were laughing and he said to me: ‘Aren’t we lucky? We’re getting paid very well to make ourselves laugh,’ and it summed it up. God, how my life would have been different if I’d continued being a mechanic or an electrician. It would have been hell on wheels.” Actor David Jason on his gratitude for his accidental acting career, quoted in…

sfstandard.com Cindy Race, a private chef for the Silicon Valley elite, remembers the moment she realised the absurdity of her position, says Priya Anand – watching a colleague wrestling with a dog to brush its teeth with chicken-flavoured toothpaste. Welcome to the world of the private chef, “where no request is too fussy, expensive or bizarre”. One tech diva, for example, loved the first sip of an ice-cold can of Coke – but only the first sip. Another had a folder for every visitor, giving guidance on how much of each ingredient to use, down to the nearest gram. One client would demand tea steeped for three minutes and 15 seconds, then cooled to 70˚ before serving. Most such chefs shifted to private work to “escape the grind of restaurant…

Share buybacks, or repurchases, took off in the US in the mid 1980s. In 1982, the Securities and Exchange Commission (SEC) adopted Rule 10b-18, which provided a safe harbour for corporate executives from stock-price manipulation charges. Previously, any executive who had used a company’s cash to buy back its own shares could be found legally liable for stock manipulation. The use of buybacks surged, and by 1997, buybacks had eclipsed dividends as the main way corporations distributed cash to investors. But what exactly is a share buyback? Every single limited-liability company, whether private or public, issues shares at the start of its life. Shares are issued for cash from investors, and any profit or earnings are shared with investors based on the number of shares each investor owns. For example,…

Tokyo Gas is contemplating steps to unlock the value of its property assets, including potentially selling some that are under used, following pressure from Elliott Investment Management, says Bloomberg. Japan’s top gas provider, with ten million customers, also plans to raise its 8% mid-term return-on-equity target once it has been met. The US hedge fund recently disclosed a 5% stake in Tokyo Gas as it increases investment in Japanese firms to help release value for shareholders. Elliott wants Tokyo Gas to sell 75 assets that do not align with its main energy business. It thinks some properties are worth ¥1.5trn (£7.9bn). In Japan, there is a ¥22trn (£116bn) gap between how firms value property assets on their books and what they would fetch if sold.…

Your energy bills are heading up in January for two reasons. Firstly, as the cold weather has arrived, many of us have turned up the heating. Research by Uswitch has found that the average household’s gas usage goes up from 1,840 kilowatt hours (kWh) in November to 1,940kWh in December, but peaks annually in January at 2,339kWh. Secondly, the price of the gas you are using is set to rise. From 1 January gas prices will be capped at 6.34p per kWh and electricity at 24.86p per kWh. Ofgem’s price cap will rise to £1,738 for the average dual-fuel household from 1 January – a rise of £21 from the current cap and £170 more than it was back in July. “Analysts at forecaster Cornwall Insight… expect prices to fall…

Chancellor Rachel Reeves wants to shake up local government pension schemes by merging many of the smallest plans into much larger funds. She believes these will be simpler, more cost-effective and capable of delivering better investment returns. It’s a reasonable argument, and one that individual savers should also consider. Too many savers currently have multiple small pots of pensions cash, often connected to different jobs. The problem with saving this way is that it’s difficult to keep track of your progress. You may also pay much more in charges than necessary, particularly since small schemes often carry uncompetitive fees. And it’s hard to invest coherently; you need your money properly spread across asset classes and targeted at the best growth opportunities. For all these reasons, it makes sense to take…

“Europe once again stands at the edge of the precipice, staring into the abyss below,” says Jeremy Warner in The Telegraph. The 2009-2012 eurozone crisis was centred on “tiny” Greece – just think what debt problems in a major economy such as France could do to the single currency. As MoneyWeek went to press, French prime minister Michel Barnier’s three-month-old minority government was on the brink of collapse. Barnier’s “fragile” administration had been trying to close a fiscal deficit of 6.1% of GDP with €60bn in spending cuts and tax hikes, says Liz Alderman in The New York Times. His plans have drawn the ire of opposition parties, with the far-left and far-right ganging up to vote him down. That leaves president Emmanuel Macron in a bind. France’s legislature is…

Shares in Direct Line soared 37% last week after the UK motor insurer rejected a 250p-a-share, £3.3bn takeover bid from larger rival Aviva. Direct Line claimed the approach was not only “highly opportunistic” but also “substantially undervalued the company”, says the Financial Times. Aviva’s offer, a 57% premium to Direct Line’s pre-bid share price, comes during a turnaround plan after the business was “badly hit by a post-pandemic surge in the cost of claims”. Direct Line had already rejected a £3.1bn offer from Belgian insurer Ageas earlier this year. Given that Direct Line turned down Ageas’s offer, any other response “would have been odd”, says Nils Pratley in the Guardian. While the “robust” rejection was “still justified”, though, it is unlikely to be the final word on the matter, and…

Five to buy QinetiQ The Telegraph Defence group QinetiQ’s recent share-price surge was partly due to expected increases in government defence expenditure, prompted by heightened geopolitical instability. First-half revenue rose 7%, with orders up 9% and operating profit rising 7%. The defence firm expects an 11% annualised rise in earnings per share over the next two years. With a “solid financial position, an attractive valuation, and being well placed to benefit from a buoyant operating environment” amid expected monetary policy easing, QinetiQ merits investment on a “long-term view”. 425p DCC The Times Irish conglomerate DCC is slimming down to focus on its energy business (which makes up roughly three-quarters of £529m annual operating profit) and supporting customers with the energy transition. DCC plans to sell its £1.4bn health division and…

● Just Eat’s secondary listing in London attracted only 2% of the trading volume in the stock on an average day, so it’s no wonder the group wanted to avoid the “administrative burden, complexity, and costs” and delist from the capital, says Nils Pratley in The Guardian. “Secondary listings don’t work unless the company is enormous,” because “liquidity naturally tends to gravitate to one venue.” Just Eat’s corporate home has been Dutch since Takeaway.com bought it in 2020. The London market is suffering from a “lack of dynamism, especially in the sub-£5bn” category and needs “exciting arrivals”, but Just Eat’s exit isn’t a case of a British company running away for a higher rating. Instead, it’s for “mundane and rational administrative considerations”, so there’s “no need for mourning”. ● Whether…

There seems to be no end to optimism about US stocks, says Albert Edwards, the famously bearish strategist at Societe Generale. “Nose-bleed valuation multiples are deemed irrelevant by the bulls.” And it’s true that valuations never matter much in the short term. “But one thing that could derail this rally is if the liquidity tide starts going out.” It’s easy to see why investors see America as the world’s best bet. ”Profit margins have exploded to extraordinary highs… And given the undeniable economic problems in Europe, investors are flocking to the US, convinced ‘There Is No Alternative’.” Yet past performance is not a guide to the future. US stocks now dominate global indices even more than they did in the early 1970s. The valuation gap between the US and Europe…

thewanderingengineer.medium.com As lay-offs in the technology industry enter a third year, it seems the “golden days of tech” are over, says the anonymous blogger. The days when a talented coder could come out of school and go straight into a six-figure job are no more. The industry has had an extraordinary few decades, and borne remarkable fruit, from personal computers to smartphones, giving rise to entire new industries, business models and ways of working. But as the easy money dries up, with interest rates likely to stay high and tech giants consolidating, eliminating competition and monopolising the market, the industry is transitioning permanently to a slower rate of growth. There will be fewer jobs and companies overall, and pay will be lower. Innovation and the flow of new products will…

■ The write-downs of stakes in Swedish battery maker Northvolt and German property broker McMakler has wiped 6.5% from Baillie Gifford European Growth’s (BGEG) full-year return, says Trustnet. The third year of underperformance prompted the £295m fund’s board to offer investors an exit in 2028 if its performance does not improve. In the year ending 30 September 2024, BGEG returned 12.1%, less than the 15.3% achieved by the FTSE Europe ex-UK benchmark index. ■ A record £778m was pulled from star fund manager Terry Smith’s flagship Fundsmith Equity in October, says Citywire. This was the fund’s worst monthly outflow since April 2019, when £2bn was moved internally from Fundsmith to its Europe-based sister fund. In the past year, withdrawals have reached more than £2.8bn; over three years the total is…

● The prize rate on Premium Bonds will fall to 4% in January, down from 4.65% last February. The rate represents the average return a saver can expect in prizes over a year. Some may win nothing; some may win far more – the jackpot is £1m. Even if you were averagely lucky with your prize winnings and made a 4% return, it is far from competitive. “It’s time for savers to ditch Premium Bonds,” James Blower from The Savings Guru tells The Sunday Times. “With easy-access rates as high as 4.85%, there are significantly better returns elsewhere.” ● Done your Christmas shopping? Be careful where you hide the presents. Research by Go.Compare has found that 7% of us plan to hide gifts in our car boots. That means up…

● Members of public-sector pension schemes going through divorces are suffering long delays because of problems connected to their pensions. The value of each spouse’s pension is an important consideration in most divorces, but calculating what a pension is worth can be complicated with the defined-benefit schemes many public sector jobs offer. Adding to the complexity, these schemes are working out how to implement a legal judgement related to age discrimination, forcing them to backdate certain benefits. As a result, some public-pension scheme members are having to wait more than a year to receive a calculation of their benefits for divorce settlements. ● Defined-benefit transfer values have fallen to their lowest level for more than a year, new research shows. Transfer values – the amount of cash you would receive…

Jordan Peterson’s new book is entitled We Who Wrestle With God. “Quite what God has done to provoke the fight is not clear”, but those who buy the book to wrestle with Peterson’s prose might find themselves wondering quite what they have started, says The Economist. It was fighting that propelled Peterson (pictured), until recently an unknown Canadian professor of psychology with a small clinical practice, into the limelight. His life changed in 2016, says John Gray in The New Statesmen, when he refused to comply with Canadian legislation that enforced the use of trendy speech codes, and became a cause célèbre on Youtube. Conflicts with the authorities followed and he left academic life to become a freelance lecturer and writer. From that point, his fame has only grown. A…

2023 Ponte da Boga, P Mencía, Ribeira Sacra, Spain, £11.95 We all need a mind-blowing, fruit-soaked, awesome-quality, crowd-pleasing red wine to get us through the festive season. I have recently tasted a couple of thousand wines to find the perfect candidate, and thankfully P Mencía rocked up in a Wine Society mixed case, and my search was over in the blink of an eye. Not that I would have ever guessed that this quirky red grape would be triumphant, but the spice, intensity and sensational lustiness here are exquisite. Dark, luxurious, summer-pudding-imbued and silky, this is a must-buy, and double whatever number of bottles you are thinking of ordering, because this is a super-star wine that sits atop the epic value tree! thewinesociety.com 2018 Graham’s, Quinta dos Malvedos, Vintage Port,…

Stop Waiting, Start Investing Build Wealth With 10 Minutes of Work Ryan King Harriman House, £14.99 The philosopher Blaise Pascal famously apologised to a friend for not having had enough time to write a shorter letter. Ryan King has gone to the trouble and written a guide to investing for those who want to spend as little time on the subject as possible. The idea that the building of an investment portfolio should involve hours and days of detailed research and complicated decisions is a myth, he argues. It is possible to build one quickly – and the result should not only need minimal maintenance, but also generate enough wealth to provide for your retirement. King’s strategy can be condensed into a few key steps. Firstly, you need consistently to…