OPINION P22 PROFILE P29 PLUS

Global stocks Big Tech’s A mad dash

will keep avuncular to Brighton
climbing patriarch TRAVEL P31

MAKE IT, KEEP IT, SPEND IT 10 FEBRUARY 2023 | ISSUE 1142

Up, up
and away
Helium is heading higher
Page 20

BRITAIN’S BEST-SELLING FINANCIAL MAGAZINE MONEYWEEK.COM

 10 February 2023 | Issue 1142 Britain’s best-selling financial magazine

From the editor...

Good things come That explains why it was one
to those who wait – of the few indices to eke out
but there are limits. a gain last year. As it is likely
Investors who had to take some time to subdue
the misfortune to inflation, as US Federal Reserve
buy the British blue-chip index at chairman Jerome Powell noted
the peak in late 1999 had to wait this week, value stocks should
until 2018 for the index to reach remain relatively appealing.
a new high. It has taken another
five years for the FTSE 100 to Shifting the narrative
eclipse that peak. Remember too that the FTSE is
Last week it finally crept also skewed towards the world
through the 7,877 mark. economy, with around 75%
For most of this publication’s of its constituents’ sales made

©Getty Images
existence (we launched in British blue chips have spent most of overseas. So it should continue
November 2000) the index has MoneyWeek’s existence treading water to benefit from the improvement
been marking time. French and in global sentiment for now,
German stocks, on the other even if negative sentiment
hand, have doubled since 1999.
“It is value, not price, that matters. The FTSE towards Britain affects it too.
America’s S&P 500 index has 100 is on a 33% discount to global equities” On that subject, the narrative
almost trebled. among global investors that we
Still, better too late than never, and the as Bestinvest’s Jason Hollands points have become an unstable basket case could
fuss over the new record obscures some out – another juicy payout to reinvest. take some time to shift, in the same way
important truths. For one thing, capital On a forward price/earnings (p/e) ratio of that investors took ages to get over their
gains are important, but income is even 10.2, the index is also a third cheaper than attachment to dodgy tech stocks after
more so: reinvested dividends account for global stocks as a whole. the bubble burst in 2000. Similarly, the
the vast majority of long-term returns. The index is cheap because it is current bounce in Big Tech names could be
With dividends reinvested the FTSE 100 unpopular: last year private investors a sign that they are having trouble letting
has risen by 297% – almost fourfold – in pulled £12bn out of funds investing in go of their favourite growth stocks that
the past 20 years, according to Hargreaves UK equities, according to the Investment dominated the easy-money era (though
Lansdown. That doesn’t seem quite so Association. Institutional investors weren’t Max has a more bullish take on page 22).
bad, does it? keen either, removing an overall £24.4bn In the meantime, though, remember
from UK-based funds. that a cheap market is more likely to
Cheap and unloved Nonetheless, in one sense the index bounce on good news than a pricey
And the index’s prospects look auspicious, is creeping back into fashion. Its skew one, while high payouts will ease the
Matthew Lynn’s pessimism (see page 14) towards commodities, banks and tedium. Good things come to those who
notwithstanding. It is value, not price, that pharmaceuticals – traditional value stocks wait… eventually.
matters, and the index is extremely good in other words – is helpful at a time of
value. The forward yield of 4.5% is the structurally high inflation and lacklustre Andrew Van Sickle
highest of any major developed market, global growth. editor@moneyweek.com

Good week:
Irony of the week A Canadian teenager has won a C$48m (£30m) lottery jackpot on
Competitors in a TV her first try, says CBC. Juliette Lamour had just turned 18 – the
show based on Squid minimum age to play the Ontario lottery – and her grandfather
Game (pictured) – the suggested that she buy a ticket for the 7 January draw. Lamour
hit Korean series plans to invest most of the money, but will go travelling before
about “sadistic rich returning to university and studying for a medical degree.
people who entice
people in debt to Miner Rio Tinto has located a coin-sized radioactive capsule in the
suffer for their Australian outback after a week-long search on a 1,400-kilometre
amusement with the road, says Reuters. The capsule had been lost from a gauge for
promise of a cash measuring iron ore. The Western Australian state government said
prize” – didn’t enjoy
©Netflix

it may tighten penalties for mishandling radioactive material, which

the experience, says currently stand at just A$1,000 (£575), plus A$50 per day.
Vice. Squid Game: The Challenge, which is being
Cover illustration: Howard McWilliam. Photos: Alamy; Getty Images

filmed in Bedfordshire, offers 456 contestants the Bad week:

chance to win a $4.56m prize in elaborate versions
of children’s games (with the distinction that,
unlike in Squid Game, the challenges aren’t lethal).
But eliminated participants who spoke to sources
including The Sun, Variety and Vice complain of
“chaos and disorganisation”, players collapsing
from “cold and fatigue” in freezing conditions,
and a belief that games were “rigged” to eliminate
them. The producers, which include Netflix, reject
the claims. “Any suggestion that the competition
is rigged or claims of serious harm to players are
©Shutterstock
King Charles will not appear on Australia’s five-dollar banknote
after the central bank unveiled a new design paying tribute to the
culture and history of indigenous Australians, says the BBC. The
five-dollar note, which currently features the late Queen Elizabeth,
is the only note to carry a picture of the monarch. King Charles’s
image will replace Queen Elizabeth’s on the country’s coins.
Highclere Castle, the location for TV drama Downton Abbey, has
had to stop hosting weddings due to staff shortages, says The
Independent. Fiona Herbert (pictured), the countess of Carnarvon,
blames Brexit for difficulties hiring seasonal hospitality workers

simply untrue,” they said, adding that “all the during the peak wedding season in spring and summer. The
appropriate safety precautions” had been taken. castle is normally used for up to 25 weddings per year.

moneyweek.com 10 February 2023

4 Markets

Is India’s market really world class?

Alex Rankine
Markets editor

“India is a vast, vibrant country packed

with talented people,” says Lex in the
Financial Times. Yet suspicions of
“financial chicanery” have caused it
to “undershoot” optimistic forecasts
in the past. Now it is ports-to-energy
conglomerate Adani Group that finds
itself at the centre of market scrutiny,
says Archana Shukla on the BBC.
On 24 January Hindenburg Research,
a New York short-seller, accused Adani
of “‘brazen’ stock manipulation and
accounting fraud”. The Adani Group has
denied the allegations, but the combined
valuations of its seven listed companies have
almost halved.
At the peak, Adani’s shares “accounted

for more than 6% of India’s two main
exchanges; today, the figure is barely 3%”,
says Alex Trevelli in The New York Times.
Gautam Adani, the businessman at the
centre of the furore, is closely allied with
prime minister Narendra Modi: tellingly,
shares in Adani Enterprises, one subsidiary,
soared by 23% in 2014 when Modi became
prime minister. Now the suspicion is
that “the politically connected” tycoon
“somehow got a free pass” from regulators.
The Adani drama has temporarily cost
the country “its place among the world’s
five biggest stockmarkets”, says Subhadip
Sircar on Bloomberg. “The rupee is the
worst-performing emerging Asian currency
this year”, while overseas investors have
already withdrawn “$3.8bn from the
nation’s equities in 2023”. For all their
frustrations with India’s byzantine courts
and sometimes shady politics, investors
have come to regard the country’s
equity markets as “world class”, says
Gautam Adani, founder of the port-to-energy conglomerate
Adani Group, is closely allied with prime minister Narendra Modi
Mihir Sharma on the same site. High levels
of transparency, robust regulation and
“legal protections for minority investors” all
help Indian shares to command a premium
compared with most other emerging
markets. Hindenburg’s report casts doubt
on that reputation, raising “questions about
regulation that Indian decision-makers
would do well to answer quickly”.
More growth, more scrutiny
“A lot of hype has gathered around India”
of late, says Craig Mellow in Barron’s. The
country is poised to “surpass China as the
world’s most populous nation this year”
while enjoying stronger economic growth
than its northern neighbour. With a median
age of 27.6, (compared with 37.9 in China),
economists expect several decades of
demographically driven dynamism.
©Getty Images
The Adani saga threatens to deal a
“reputational blow to a country that is
supposed to be coming into its own as the
next decade’s global growth leader”.
India has become the fashionable
alternative for investors disillusioned with
China, says The Economist. Yet “the
country’s markets face problems that will
limit its ability to take up this role”. The
$3.4trn valuation of Indian stocks still pales
in comparison to the $16trn of Chinese
stocks listed across Hong Kong, New York
and the mainland. On a forward price/
earnings (p/e) ratio of 22, those shares are
more than twice as pricey as Chinese ones.
India’s “burgeoning” technology scene
and growing manufacturing base make
it a “compelling” growth story, but the
Adani furore might make investors question
whether they are getting value for money.

Why both gold and silver are on the rise

“John Maynard Keynes called debt-ceiling battle is also
the gold standard…a weighing on sentiment.
‘barbarous relic’,” says Paul Gold’s ascent is also “a sign
Krugman in The New York that the market anticipates a
Times. Many economists are more accommodative Fed
sceptical about gold – “you policy, and possibly more
can’t buy groceries, or even a inflation” in the year ahead.
house, with gold ingots”. It Silver outpaced gold in the
also pays investors no interest. three months to the end of
Yet it seems there are January with a near 25% gain,
“enough financial barbarians says Myra Saefong in the
out there to sustain substantial same paper. Unlike gold, silver
demand for gold as a store of also has industrial uses and
©Getty Images

value”. The metal has rallied
by 15% since the start of
November. Perhaps crypto’s
scandals have pushed more
investors back into gold, “the
pet rock of ages”.
Highly unlikely, says Randall
Forsyth in Barron’s. Note that
cryptocurrencies have also
enjoyed a strong rally this year,
so higher demand for gold
The white metal has gained almost 25% in three months
isn’t coming from disillusioned
crypto buyers. Analysts at
Strategas Research Partners
note that gold has
outperformed US stocks since
mid-October – the first time in
the past 50 years that the S&P
“has lagged behind the metal
coming off a market bottom”.
That suggests something
bigger may be afoot.
Geopolitical shifts are bringing
the dollar’s global dominance
into question, which increases
the appeal of gold as an
alternative. The looming US
has thus rallied along with
copper and iron ore due to
optimism about China’s
opening. The silver rally is a
sign that “the global economy
is in better shape than feared
in mid-2022”, says Nicholas
Colas of DataTrek Research.
Precious metals seem to be
predicting growth and
persistent inflation ahead.

10 February 2023 moneyweek.com


City to become
a crypto hub
The Treasury has launched a
consultation on plans to
regulate the cryptocurrency
industry, says Ryan Browne for
CNBC. The government wants
to create a “robust world-first
regime strengthening rules
around the lending of
cryptoassets”. The hope is to
turn post-Brexit London into a
“leader in crypto and
blockchain technology on the
global stage”.
Last year’s repeated
scandals in the crypto industry
mean that seeking to become a
Markets 5
Playing chicken with the Fed
“Bliss it is to be alive” in the
dynamic US economy, says
Irwin Stelzer in The Sunday
Times. The US added “a
whopping 517,000 jobs” in
January, more than 0.25 times
the amount forecast. With “1.9
available jobs for every person
looking for one”, workers are
“in the driver’s seat”.
In the past fortnight
“investors have begun moving
away from their obsession with
inflation” amid rising hopes

“global crypto hub” feels “a bit
like volunteering as the landing
zone for the fiery wreckage of a
plane crash”, says Helen
Thomas in the Financial Times.
If anything, last year’s crypto
implosion has probably
induced more realism at the
Treasury, ending the “worst of
the political salivating” over the
industry. The proposed
framework “looks broader and
tougher than expected”.
The UK financial industry
shouldn’t be touching
cryptocurrencies with a
bargepole, says Patrick Hosking
in The Times. Regulation
confers an underserved
“veneer of respectability” on
digital tokens that plays
“straight into the hands of those
wanting consumers to believe
the sector is as useful as, say,
the share market” and just
needs “a bit of policing” to be
safe. In reality, “the entire
industry is an abuse — a bubble
that parts the credulous from
their money, a system for the
crooked to launder their cash
and dodge taxes”.
©Getty Images
of a soft economic landing,
says James Mackintosh in The
Wall Street Journal. Yet with
US unemployment at 50-year
lows and wages still rising faster
than the Fed would prefer,
inflationary fears are likely to
resurface “in the not too distant
future”. Last week the Federal
Reserve raised interest rates
by 0.25 percentage points to
between 4.5% and 4.75%, a
smaller increase than in recent
months.
Policymakers indicated that
they would keep on raising rates
until inflation is under control –
much to investors’ dismay, says
John Authers on Bloomberg.
But things then went pear-
shaped at the post-meeting press
conference, where chair Jerome
Powell failed to convince traders
that he is serious about keeping
money tighter for longer.
Markets reacted positively
to Powell’s statement that “the
disinflationary process [is] now
getting under way”, a sign that
fewer hikes may be needed,
US Federal Reserve chairman Jerome Powell failed to
convince investors he is serious about reducing inflation
says Ipek Ozkardeskaya of investors are betting – without
Swissquote Bank. America’s making themselves “look like
S&P 500 has gained 7.5% since a bunch of clowns”. Bullish
the start of the year, while the investors could be staring at
Nasdaq Composite has surged “big losses ahead”.
more than 14%. The global
economic outlook has certainly Vulnerable to inflation
brightened in recent weeks, Last week the Bank of England
Jonathan Golub of Credit raised rates by another 0.5% to
Suisse tells the Financial Times. 4%, taking interest rates to their
Yet “the market is behaving highest level since 2008.
as if we’re on the other side of “The Bank of England has
a recession that hasn’t even done the right thing... pushing
happened yet”. through another meaty rise
Investors are playing a in the base rate” despite the
“game of chicken with the economic pain, says Patrick
Fed” by betting that this hiking Hosking in The Times. There
cycle will soon be over, says is still too much evidence of
Michael Lewitt on The Credit inflationary pressure feeding
Strategist Blog. The Fed may through to the labour market
lack “credibility” after previous for comfort, while falling levels
errors, but the fact remains that of post-Covid economic activity
US policymakers have raised among those aged 50-65 – a
“rates more aggressively than problem “unique to the UK”
any previous group of central – leaves the country especially
bankers in recent history”. vulnerable to the dangers of
They can’t backpedal – as untamed inflation.

Viewpoint n The gusher in America’s key shale region

“Two years ago... shares in GameStop, a
struggling video-game retailer, hit an
all-time high of $483... up from around
$5 [in January 2021]. Retail traders
co-ordinated in a Reddit forum and
snapped up shares... this [mania]
seemed different: it was enabled by new
technology... the GameStop crew...
pumped up prices for [meme stocks]...
such as AMC, a cinema chain, and Bed,
Bath & Beyond, a home-goods retailer...
Last year was... rough on the meme-
portfolio... 2023 will be a reckoning with
New Mexico vs Mexico crude oil output It’s boom time again in
Millions of barrels per day (mbpd) America’s Permian Basin, says
Myles McCormick in the
2.5
Mexico Financial Times. While the US
shale sector as a whole is
struggling to ramp up
production, output from the
2.0 “vast hydrocarbon trove” that
extends across Texas and New
Mexico hit a record high of 5.6
million barrels per day (mbpd)
in 2022 – “almost half of all the
1.5
Source: US Energy Information Administration/Financial Times

oil produced in the US”. The

reality. A slowing economy is going to
number of drilling rigs deployed
break many of the companies meme-
in the region is up 20% year on
stockers profess to adore... What, then,
year, while generous wages in
is left of the retail era? Individual traders
1.0 the sector have created acute
are more important [now]... When the
staff shortages in the retail
stockmarket rallies, it is [still] faddish
and hospitality industries.
favourites, like GameStop... leading the
charge. Perhaps what will endure Production in the state of
longest, though, is the levity. Investing is New Mexico New Mexico alone has now
0.5 eclipsed the entire oil output of
normally a serious business.”
Mexico, where the oil industry
Buttonwood, The Economist is managed by cash-strapped
2014 2015 2016 2017 2018 2019 2020 2021 2022 state operator Pemex.
moneyweek.com 10 February 2023
6 Shares

Profits gush for Big Oil Newmont pursues

record gold merger
America’s Newmont is
The ongoing gas bonanza for Shell and BP has added to the clamour for hoping to secure the biggest
higher taxes on energy giants. Matthew Partridge reports deal in the history of the
gold-mining sector. It has
Last week energy giant Shell posted one of the offered $17bn in shares to
highest annual earnings figures on record for buy Newcrest Mining,
a British company, say Matt Oliver and Chris Australia’s largest listed
Price in The Telegraph. It more than doubled gold producer, says
profits to a record $39.9bn (£32.2bn) in 2022. Rhiannon Hoyle in The Wall
Street Journal. The offer
Roughly two-thirds of the profits came from comes after Newcrest’s
Shell’s gas business, which sold 16.8 million directors rejected a previous
tonnes of liquefied natural gas in the final offer as being too low.
quarter of the year. CEO Wael Sawan said “the The deal “illustrates how
surge in gas prices in the wake of the Ukraine producers are seeking to do
war demonstrated that supplies were still sorely deals to shore up their gold
needed across the globe”. reserves, cut costs and
Shell has clearly benefited from the fact that improve returns for
the “European natural gas market has suffered shareholders”. Newmont is
clearly attracted by the fact
massive shortages” owing to Russia’s invasion that “Newcrest’s network of
of Ukraine, says Lex in the Financial Times. low-cost mines are some of
European gas prices have almost quadrupled the world’s largest”, and
since 2014. But Shell also deserves credit for the are expected to produce
fact that some key investments, including buying Soaring oil and gas prices helped Shell “between 2.1 million and
gas specialist BG Group for $54bn in 2016, have more than double its annual profits last year 2.4 million troy ounces of
“paid off handsomely”. What’s more, instead of gold in the year”.
allowing costs to run “wild and free”, as was the back climate-change targets” despite doubling You can see what’s in it
case during previous boom periods, it has instead annual earnings to a record $28bn, says Helen for Newmont, says Lex in
the Financial Times. The deal
done much to “sharpen operations”, with its cost Cahill in The Times. It will cut its planned “would reunite the two
per barrel now around half the 2014 level. reduction in carbon emissions from 40% by 2030 companies that split more
to just 25% during the same period. People are than 30 years ago, creating
Good management and good luck also irritated by BP’s plan to raise the dividend by a... $56bn industry
Whether Shell’s bonanza is the result of high 10% and buy back $2.75bn of shares. behemoth”. Newcrest’s
prices, smart investments, or simply better Given the “exceptional circumstances” of production costs are around
management, the surge in profits has increased the energy crisis, increased taxes on energy 11% lower than Newmont’s,
pressure on the government to squeeze more cash companies should be given serious consideration, with the gap expected to
from oil and gas profits, say Simon Jack and Nick says Dan Neidle in The Sunday Times. But it’s widen, which should also
“help Newmont dilute its
Edser on the BBC. While the company already easier said than done. Very few of Shell’s and BP’s own overheads”. Still, it
expects to pay $134m in UK windfall tax for operations are actually in the United Kingdom, looks as though Newmont
2022, and “more than $500m in 2023”, many so a UK tax risks prompting them “and other will have to give more of that
people think that it could do more, especially large multinationals to run away, and move their cost reduction back to
given that in the past Shell – like other energy holding company and headquarters elsewhere”. Newcrest if it wants to close
firms – has reduced the amount of tax it pays The energy companies also have a point when the deal, as $17bn is clearly
“by factoring in losses or spending on things like they argue that the cyclical nature of energy “not a knockout offer”.
decommissioning North Sea oil platforms”. prices means that they “make big losses in bad One big Newcrest
Shell isn’t the only company facing scrutiny. years (2020) and big profits in good ones (2022)”. shareholder is already
objecting to the terms.
BP has also found itself “at the centre of a political Additional taxes would be “unprecedented, On paper, the bid, marking
storm” after it said this week that it was “scaling highly controversial, and not without risk”. a 22% premium to Newcrest’s
share price, is actually quite

Meta’s metaverse money pit

Last week Meta’s shares
surged by 18% after CEO
Mark Zuckerberg
(pictured) promised
a $40bn share
buyback at the
struggling social-
media company,
says Gareth
Corfield in The
Telegraph. The
bounce came even
though Meta’s sales
shrank by 1% to $116.6bn
last year, with profits down by
41% to $23.2bn. Performance
was dented by a “costly round”
of redundancies, with 11,000
people losing their jobs. Heavy
losses on Zuckerberg’s
“reasonable”, says Antony
Currie on Breakingviews.
One potential counterbidder,
$4.3bn in the final advertising, will undermine though, is Barrick Gold,
quarter, also sales further. He would be well which “may not be
drained resources. advised to rethink the firm’s comfortable watching
Zuckerberg is metaverse project, which is Newmont extend its
finally starting turning into a “money pit”. production lead without at
to listen to long- Zuckerberg is still betting a least trying to entice either
suffering large chunk of his company’s bidder or target into a
shareholders, earnings on turning it into a different deal”. While Barrick
says Lex in the “metaverse powerhouse”, says is a smaller company in terms
Financial Times. Lauren Silva Laughlin on of valuation, its higher
He has cut back Breakingviews. While the multiple and stronger net
proposed capital concept might be intriguing, cash position “gives it a bit
spending to the fact that it requires users more balance-sheet flexibility
between $30bn and first to “buy a piece of than Newmont”. Agnico
$33bn from an earlier estimate hardware”, makes its success Eagle Mines is another
of $34bn-$37bn, and also a “long shot” at best. By mining company that “may
plans to “control operating persisting with his obsession, want to dig in”. Overall,
expenses”. But he needs to do Zuckerberg is risking a repeat there’s a high chance that
more, given that increased of Google’s smart-glasses and Newmont’s bid could end up
competition from Amazon and Amazon’s Alexa ventures, backfiring if it allows itself to
©Getty Images

metaverse project, with the TikTok, as well as a general which have failed to justify be drawn into “a value-
reality labs division losing slowdown in demand for digital their investment. destructive bidding war”.

10 February 2023 moneyweek.com

 Shares 7

MoneyWeek’s comprehensive guide to this week’s share tips

Five to buy

DS Smith ticked up owing to early signs demand for nitrile, a synthetic

The Telegraph
The FTSE 100 still contains
bargains despite its record
high. Packaging giant DS
Smith has shrugged off
the downturn – operating
revenue and margins continue
to climb. That demonstrates
that the firm has the scale and
market power to pass price
rises on to customers, an
advantage at a time of high
inflation. The structural shift
towards e-commerce is not
going away, and on a forward
price/earnings (p/e) ratio of
a mere 8.5 the shares offer a
way to play the trend at a very
reasonable price. 354p
Haleon
The Mail on Sunday
This global £30bn consumer-
health group specialises in
“everyday health” products,
such as pain reliever Panadol,
Nicorette gum for smokers
trying to quit and Sensodyne
toothpaste. These are “trusted
from Beijing to Birmingham”.
Consumers are loyal to health
brands, which should help the
firm fend off the cost-of-living
crisis. Ageing populations
and growing middle classes in
emerging markets also offer
compelling long-term growth
prospects. 330p
Hvivo
The Sunday Times
This Aim-listed tester of
infectious disease treatments
works with the likes of Pfizer,
GSK, Janssen and Merck on
early stage “human challenge
trials” to determine whether
candidate treatments for “flu,
malaria, asthma and Covid”
have what it takes to proceed
to larger studies. There is
always the risk of a trial going
disastrously wrong, but with
60 human studies behind it the
firm has plenty of experience
in managing the dangers. With
memories of the pandemic
promoting greater interest in
respiratory health, this is “a
well-run, defensive stock with
plenty of growth potential”. 16p
Personal Group Holdings
Interactive Investor
Shares in this employee-benefits
and insurance specialist have
that it is rebounding after heavy
Covid-era disruption. Income
seekers have the opportunity to
lock in a dividend yield of more
than 5%, with the potential for
even more generous payouts
if management manages to
at least “restore pre-Covid
earning power” and dividends.
Assuming the UK economy
picks up again next year, the
current “risk-reward profile”
appears “attractive”. 210p
Synthomer
Investors’ Chronicle
Shares in this chemicals business
have tumbled recently as
One to sell
On The Beach
Shares
Shares in this travel retailer have
soared by 87% since bottoming
in October as the travel sector
finally begins to take flight post-
rubber used in surgical
gloves, has ebbed along with
the pandemic. Investors are
especially concerned about
elevated debt levels, but with
the shares now on a 36%
discount to book value the
sell-off appears “overdone”.
The board wants to streamline
the sprawling business, with
a stronger focus on units
commanding higher margins.
The resulting disposals should
yield more than £600m in cash,
greatly alleviating the debt
burden. On just eight times
forecast earnings, the shares
offer “decent value”. 155p
pandemic. The group returned
to profit in the 12 months
to the end of September and
booking activity has remained
strong since Christmas,
squeezed household budgets
notwithstanding. The group
plans to win more market share
through investments in the
brand and technology, but that
is an expensive process that may
take a long time to yield results
and will weigh on margins in
the short term, so it is time to
“take profits”. 177p

...and the rest

Investors’ Chronicle
Independent hotels have
been left reeling by successive
economic shocks, opening the
way for Premier Inn hotel-
owner Whitbread to gobble up
more market share. A strong
brand, confident management
and brisk expansion in
Germany make the business an
appealing growth play (3,076p).
Shares
“It’s not too late to ride the
rally” at pawnbroker-to-
jewellery retailer Ramsdens.
The shares have bounced as the
cost-of-living crisis prompts
more people to use its services,
but with the economic slump
likely to last for some time there
is still scope for a “rerating”
of the share price. Buy, but
“consider this a short-term
trade rather than a long-term
investment” (229p).
The Telegraph
Shares in FTSE 250 merchant
bank Close Brothers have been
given a kicking due to concerns
about the economic downturn
causing more loans to go awry,
and a disastrous acquisition.
Yet on a dividend yield of 7%
the shares look “undervalued”
and could offer “contrarian
value”. Buy (962p).
The Times
Avoid Vodafone. Organic
service revenue is sliding in key
European markets amid intense
competition. The “capital-
intensive” telecom industry
is gobbling up cash, which
puts the sustainability of the
dividend – yielding more than
8% – in doubt (91p). Repeated
profit warnings have left
insurer Direct Line struggling
for credibility. The group is
faring worse than its rivals
amid high inflation and fierce
competition in the motor
market. “Scrapping the
dividend altogether this year is
not out of the question,”
so the shares are
set to stay on
the investment
naughty-step.
Avoid
(176p).

An American view... more picks from the Barron’s Roundtable

Gambling in Las Vegas and Macau is
enjoying a post-pandemic upswing, says
Mario Gabelli of Gamco Investors.
Gambling-resort operators Wynn Resorts
and Caesars Entertainment are well placed
to take advantage ($93.57; $44.11), .
Textron is enjoying solid demand for its
business jets and Bell helicopters. It has
©Getty Images
exposure to rising global defence
spending. Competitors have filed an
appeal, but if it keeps the contract then the
“stock could go up sharply” ($725).
The diversification of supply chains out
of China bodes well for Mexico, so there
should be upside at local cable-television
play Grupo Televisa. The company also has
advertisements before next year’s
presidential election ($5). Oil-field services
giant Halliburton will profit from rising
capital spending on new exploration ($40).
Consider also aerospace giant Airbus, says
William Priest of Epoch Investment
Partners. It has emerged from the
pandemic as a leaner operation and should

also been awarded a US government a stake in Spanish-language TV on the US enjoy strong demand for its jets now that
contract to develop the replacement for side of the border and should thus enjoy a “air travel is on a trajectory to return to
the Black Hawk helicopter, which gives it decent boost from spending on political pre-pandemic levels” (€117).

moneyweek.com 10 February 2023

8 Politics & economics

Liz Truss re-enters the fray

The former prime minister is back for another stab. Emily Hohler reports
Having served the shortest term of any
prime minister in British history after
sending mortgage rates soaring to 6.5%,
bringing pension funds to “within hours
of collapse”, and dragging her party to a
record low of 14% in the polls, you would
think Liz Truss might “concede” and “move
on”, says Paul Goodman on Conservative
Home. Instead, in a 4,000-word essay for
The Sunday Telegraph, Truss “digs in and
reimagines the past”, all on the basis of her
continuing “misapprehension” that she had
a “mandate” when she entered Downing
Street. Yet her mandate was Boris Johnson’s
2019 manifesto: Tory Party members did
not give her one. Having recklessly chosen
to pursue a radical agenda, it’s no use

blaming her fall on a “left-wing economic
establishment” (“Bond traders? Really?”),
or poor communication skills. It was
“less about communication than character”
and in any case, why become a politician if
you can’t communicate?
A low-growth death spiral
Truss’s defence is also that the economy
was “extremely delicately balanced, in ways
that she did not fully realise”, says The
Daily Telegraph. For instance, the Treasury
failed to warn her the pensions market was
“dangerously overexposed to falling bond
prices”. And she acknowledges that she was
probably “trying to fatten the pig on market
day”, says Katy Balls in The Guardian,
accusing the Tory government of long
failing to make the “small-state, low-tax,
free-market” case. She’s not alone. Many
Tory MPs agree that the party has “lost
touch with its core principles”.
Her analysis resonates with right-wing
Tory MPs and it poses a “threat” to Rishi
Sunak, says Chris Giles in the Financial
Times. Already weakened by Tory sleaze
scandals and facing tough decisions on the
From leadership campaign to fiscal misadventures and back again
Northern Ireland protocol and small boats
legislation, Truss has “opened up a new
front”. It was already opening, says Ruth
Comerford on iNews. More than 50 Tory
MPs have joined the Conservative Growth
Group set up by Truss’s former cabinet
minister, Simon Clarke, which advocates
the low-tax, deregulatory approach she
favoured. Then there’s the Conservative
Democratic Organisation, viewed as a
“rebel front supportive of Boris Johnson”;
the Northern Research Group, comprising
mainly Red Wall Tories “demanding
more levelling-up cash”; and the “culture
warriors” in the Common Sense Group.
Having Boris Johnson “jostling from the
sidelines” as well doesn’t help, add Esther
Webber and Annabelle Dickson in Politico.
It’s a good thing that the debate among
Conservatives about the best way out
of Britain’s “low-growth death spiral”
has started and, in that sense, Truss’s
intervention is “critical” and “essential”,
says The Daily Telegraph. The party is
©Shutterstock
“cratering in the polls” and the “free-
marketeers must now speak up”. Ideas
need to be sold to the public well in advance
of the next general election. To “turn
the tide on high-tax social democracy”
requires a huge amount of work. “Profound
institutional reforms”, including to the
Office for Budget Responsibility and civil
service, need to be “planned extremely
carefully”. Good personnel are “scarce”
and a “vast and talented team” needs to be
recruited. For now, Sunak’s relative inaction
is understandable, says Rafael Behr in The
Guardian. Truss’s “fiscal misadventures, on
top of Johnson’s bombast and general Brexit
turbulence, cost Britain its market premium
as a serious, reliable country when bidding
for foreign investment”. To restore its status
“leads to a trap”. Caution signals stability,
but “at the expense of bold decisions that
might get the economy moving again”. No
wonder chancellor Jeremy Hunt, for “fear
of spooking markets”, does little but “tinker
at the margins of a stagnant status quo”.

Will Turkish trauma dictate Erdogan’s fate?

Turkish president Recep Tayyip
Erdogan has declared a state of
emergency in southern Turkey
as the death toll from the worst
earthquake in decades rose
past 11,000 there and in
neighbouring Syria. Severe
winter weather conditions
have added to the logistical
challenges of providing aid to
13.5 million people in a region
that is home to roughly 15% of
the country’s population, but
Erdogan also has himself to
blame, says Bobby Ghosh on
Bloomberg. By enacting laws
that expand government
control over the years, many of
the NGOs that he now needs
have struggled to access
©Getty Images
announced emergency
measures, a “visibly angry”
Erdogan took a “pre-emptive”
swipe at those criticising relief
operations, warning that his
government would eventually
“go after” those seeking to
“cause social chaos”.
The “trauma” of this event
may “dictate Erdogan’s
political fate”, says Ishaan
Tharoor in The Washington
Post. The autocratic nationalist
is “gearing up for pivotal
presidential and parliamentary
elections” in May, when voters
will decide whether to extend
the 20-year rule of Erdogan and
his ruling Justice and
Development Party (AKP).
the value of the Turkish lira
collapsing” and, according to
Erdogan’s critics, the “future of
Turkey’s democracy itself
hanging by a thread”. So far,
not even Erdogan has officially
declared his candidacy for the
presidency, says Selin Girit on
the BBC. Article 101 of the
Turkish Constitution states
that a “person may be elected
as president of the republic for
two terms at most”. However,
Soner Cagaptay of the
Washington Institute for
Near East Policy says it might
boost his election chances if he
was forbidden from running,
given that he brands himself as
“the underdog fighting the

finance and been forced to shut “Much seems to hang in the elites”. “If Erdogan wants to
Erdogan: still in the running
down. Tellingly, as he balance, with inflation soaring, run, he will run.”

10 February 2023 moneyweek.com

 Politics & economics 9

Biden’s punchy performance

Betting on politics
Last year saw the rise of
Florida governor Ron
The US president lays out his stall for reelection. Matthew Partridge reports DeSantis to become the
frontrunner for the
On Tuesday night programmes on Republican nomination
Joe Biden delivered “one health care, child care, and for the US
of the punchiest public climate change, taxes, presidency itself. But
interventions of his infrastructure and with £2.35m matched on
presidency” during the more”. This edition Betfair, he is now joint
second with Donald
annual State of the Union was less ambitious Trump at 4.7 (21.3%) to be
address, says James Politi and represented “a the next president, with
and Lauren Fedor in the nod to the reality of Biden now in poll
Financial Times. The divided government” – position at 3.85 (26%).
US president defended Republicans now control Trump is now back as
his economic record the House, which gives favourite to win the
and accomplishments of them the effective Republican nomination
the past two years and power to block any at 2.34 (42.7%), with
sought to draw a contrast controversial initiatives. DeSantis at 3.1 (32.2%).
I think DeSantis still
between his policies and has a better chance of
those of the Republicans. A turning point winning the GOP nod

©Getty Images
It seems from the speech, Biden: his hands are now tied, An exception to the than the markets are
which was interrupted but not with respect to China rule that nothing giving him. He is closing
multiple times by unifies Democrats the gap in national polls
heckling from Republicans, that Biden will make and Republicans in Washington is opposition to and several recent polls
the impact of the investments and subsidies in his China, which “has now become a rallying point in put him ahead in the
multi-trillion-dollar economic package on the lives US politics”, says Stephen Collinson on CNN. So crucial early primary
of middle and lower-income households a key part although Biden mostly focused on domestic policy, states of Iowa and New
Hampshire, despite
of his re-election campaign next year. he also took time to call out Beijing “as diplomatic Trump’s superior name
tensions with China soar and new details emerge recognition. I also think
Not very much, little, or nothing of an expansive balloon surveillance programme”. there will be a much
But if Biden’s long list of legislative and economic Responding to criticism that he was too slow to more concerted effort to
achievements – his spending on social programmes shoot down the Chinese balloon that had “spent rally behind DeSantis as
and public works, subsidies for computer chips, days wafting across the continental US and the “stop-Trump”
and even more subsidies for green energy and the Canada”, Biden warned China that “he will protect candidate as the
labour market – is the key to a second term, it does America against Chinese threats to its sovereignty”. campaign gets
rather raise the question of why America does not This could be a turning point in US-China underway, though if you
have already taken my
seem to appreciate it, says The Wall Street Journal. relations, says Richard Fontaine in Foreign Policy. advice to bet on him
Polls suggest that, although Biden’s overall approval Most Americans had not considered China a top don’t put any more
rating has recovered a bit, voters give him poor political priority, but that may change as many are money down.
marks for management of the economy and overall now rightly angry about this “physical violation Either way, one bet
policymaking – 62% of voters say that he has of their sovereignty”. This will give Biden political that looks almost certain
accomplished “not very much or little or nothing”. cover for sticking with his existing policies, such to pay off is on the US
Whatever you think of Biden’s policies, his as spending more on defence, pursuing a new Supreme Court. At the
speech made it clear that you shouldn’t expect industrial policy, and imposing export controls, and moment many
any more major changes, says The New York additionally to consider pursuing “an affirmative Democrats argue that it
has become too
Times. The two previous addresses in 2021 and trade policy in Asia, a strategic approach to politicised in favour of
2022 contained calls for “trillions of dollars in immigration, and a military transformation to Republicans, who have
new spending to significantly reshape government prepare for a possible clash in the Pacific”. appointed six out of the
last nine justices. As a

Hong Kong puts democracy on a show trial

Hong Kong’s leader John Lee
lays out the welcome mat
A national-security trial that is in
effect “a trial of the territory’s
pro-democracy movement
itself” began in Hong Kong this
week, says The Guardian.
A group of 47 former politicians,
activists, campaigners and
community workers are accused
of “conspiracy to commit
in July 2020 that aimed to select
the best candidates to run
against pro-Beijing candidates.
The accused face life in prison.
The trial shows how quickly
the national security law, which
was imposed by Beijing in 2020,
has transformed life in Hong
Kong, says Tiffany May in The
New York Times. The “one
country, two systems” pledge
that guaranteed the city a high
degree of autonomy after Britain
gave it back to China has been
abandoned, and more than 200
people arrested; more than
3,000 have also been prosecuted
on other charges over their roles
in protests. Boisterous
demonstrations have “all but
result, many argue that
the court should be
either expanded or term
and labour unions, pro- limits should be imposed
democracy coalitions and other limiting how long
civil society groups have justices could serve.
“disbanded, one after another”. Smarkets is currently
It all comes at an awkward running markets on
time for the government, says whether the Supreme
Selina Cheng in The Wall Street Court will be expanded
Journal. It has been running a or term limits
PR campaign to showcase the introduced. The market
city as a tourist destination and on expansion isn’t liquid
attractive base for international enough, but £1,566 has
business in an attempt to undo been matched on
the damage done by almost whether term limits will
three years of harsh Covid be introduced by next
year. Given Republicans
restrictions. The crackdown on
control the House of
basic freedoms risks damaging
Representatives, there
Hong Kong’s image as a safe
is next to no chance of
hub for global business where
such limits being
the rule of law trumps politics.
approved, so take the 1.2
It is already leading to an
©Getty Images

(83.3%) on no limits
subversion” over the holding of disappeared”, newsrooms have “exodus” of local residents and being imposed by 2024.
unofficial pre-election primaries been “raided and shuttered”, foreign executives.

moneyweek.com 10 February 2023

10
Union, New Jersey
In bed with BBB: Retailer Bed Bath &
Beyond (BBB) has landed a deal with $19bn
hedge fund Hudson Bay Capital to stave
off bankruptcy. Shares in BBB, a popular
“meme stock” during the pandemic, have
swung wildly, says The Wall Street Journal.
Hudson seems to be out to profit from the
high trading volumes and at the same time
give the retailer the funds to dig itself out
of its hole. The risk is that Hudson will end
up saddled with declining equities – BBB
News
has already burned through the lifeline it
received in September. The retailer also
received a $100m credit line from one of
its existing lenders. BBB is seeking to raise
$225m up front and $800m over time
from an offering of convertible preferred
stock (which guarantees at least a return
and a chance for profit once converted into
regular stock) and warrants (which oblige
investors to buy stock at intervals at what
are likely to be discounted prices). The
offering dilutes existing shareholdings,
and the stock value fell by almost half on
the news. BBB failed to capitalise on the
meme-stock craze of 2021, and an earlier
Chapter 11 bankruptcy filing could have
helped the retailer to get its debts down to
size in a more orderly fashion, says Lauren
Silva Laughlin on Breakingviews. Then it
could have used the cash to invest in better
parts of the business “and perhaps keep…
shareholders from taking a bath”.

Santa Monica
CoD wallops: Video-games maker Activision Blizzard is back on form, says Dan Gallagher in The
Wall Street Journal. Its Call of Duty: Modern Warfare II helped to drive net bookings (sales, including
products and services) to $3.6bn in the fourth quarter, beating Wall Street’s forecasts by 12%.
Bookings surged 43% year on year during the crucial Christmas quarter, its fastest quarterly
growth in five years. It also embarrasses rival Take-Two Interactive, whose quarterly
results fell 5% short of analysts’ expectations, as did Electronic
Arts’ last week. It would have been more helpful to tech
giant Microsoft, maker of the Xbox games console and
prospective buyer of Activision, if Activision “had put
out another clunker”. After all, Activision has come a
long way since 2021 when the games maker was beset by
internal scandals, delayed releases and an ageing franchise of titles,
centred around Call of Duty (CoD). Its CoD: Vanguard, released
that year, garnered the worst reviews of the series and bookings fell
18% that December quarter. In January 2022, Microsoft agreed
to buy Activision for $75bn, but that deal has since hit obstacles
with regulators in the US and the European Union out to block the
deal on competition grounds. Despite this week’s rally, Activision’s
shares are still around 20% below the $95 deal price.

Quito
Lasso loses referendum
gamble: Ecuador’s centre-
right president Guillermo
Lasso (pictured) suffered
“unexpectedly heavy
defeats” in mayoral contests
and a referendum on reforms,
sparking calls from the leftist
opposition for an early election,
says Joe Parkin Daniels in the
Financial Times. Despite fulfilling
Covid vaccination targets and successfully
restructuring debt with China, Lasso’s agenda
has stalled halfway into his four-year term as
he struggles to contain a rise in drug-related
violence. Omar Menéndez, a candidate for mayor
of Puerto Lopéz, was murdered just hours before
polls opened, BBC News reports, while Julio
César Farachio, the candidate for mayor of the
coastal town of Salinas, was shot dead two weeks
earlier. Facing a hostile congress, Lasso, a former
banker, put
eight reforms,
including a proposal
to allow the extradition
of drug traffickers,
to a nationwide vote
on Sunday. All of the
proposed changes were
rejected, raising questions
about his ability to complete the
final two years of his term. Meanwhile,
in the mayoral polls, candidates loyal
to the former leftist president, Rafael
Correa, who is living in exile to avoid
corruption charges, “swept major cities and
prefectures, including Guayaquil, Ecuador’s
largest city and a former conservative
stronghold”. “Without a doubt Correismo
is back,” says Sofia Cordero, a Quito-based
political scientist, “and looking towards the
next presidential election in 2025.”

The way we live now... Japan’s horror at teenage licks

“Sushi terrorism” is terrorising
Japanese society, renowned for its high
standards of hygiene, says Justin
McCurry in The Guardian. A wave of
videos are appearing on social media in
which miscreants interfere with food on
the revolving conveyor belts at the
popular kaitenzushi restaurants and
play tricks on their fellow diners. In one
48-second clip, viewed almost 40
million times, a teenager licks his
fingers and touches the sushi ordered
by another customer at a branch of the
licked them, but still the shares in the
parent company fell 5% last Friday.
Two other chains, Hama-sushi and Kura
Sushi, are planning legal action against
the perpetrators as well as installing
cameras above conveyor belts. The
videos have sparked uproar in Japan,
where the industry is worth an
estimated ¥740bn (£4.7bn) a year.
At least some online commentators
have seen a silver lining, however.
Yuya Tegoshi, a singer, posted on
Twitter: “I’ve always wanted to go to
©Alamy; Getty Images

Sushiro chain in the central city of Gifu. Sushiro but haven’t been able to
Sushiro replaced all of the soy sauce because it’s always crowded… so I’m
Not all youngsters are sushi terrorists
bottles and tea cups after the teenager definitely going to visit”.

10 February 2023 moneyweek.com

 News 11
Paris
Rothschild bank to go private: The Rothschild family is planning to buy out
Paris-quoted investment bank Rothschild & Co, in a move that values the bank
at €3.7bn, says Harriet Agnew in the Financial Times. Concordia, the
Rothschilds’ family holding company, which owns 38.9% of the shares and
47.5% of the voting rights (with a further 20% held by aligned relatives), has
three divisions – global advisory, wealth and asset management, and
merchant banking – none of which needs access to capital from equity
markets. The buyout would reduce the “dispersion of voting power” at a bank
now run by the seventh generation of the Rothschilds, Alexandre (pictured),
says Lex in the same paper. Expect a “renewed push” into wealth
management and private assets. This is the “latest case of private buyers
exploiting stockmarket indifference”, says Chris Hughes on Bloomberg. The
family argues that investors don’t appreciate the bank’s potential – although it
has performed well, you “wouldn’t think so from the share price”. With a weak
©Getty Images

starting valuation, and a “pretty meagre” offer (a 19% premium to last Friday’s
share price), the minority shareholders may “grumble”. Unfortunately for
Alexandre is the seventh generation to run the bank
them, “their hand isn’t strong and there’ll be no rival buyer”.

Tokyo
SoftBank’s hard fall: Tech start-
up investor SoftBank
reported a ¥783bn
(£5bn) net loss in the
fourth quarter, with its two
Vision Funds (VFs) hit by the
turndown in the sector last
year, says Kentaro Iwamoto on
Nikkei Asia. It was SoftBank’s
first loss in two quarters, having
logged a massive ¥3trn gain in the
summer, largely thanks to sales of its shares in
China’s online retail giant Alibaba. It was also
the first quarterly earnings presentation that
Masayoshi Son (pictured) did not attend – the
CEO and founder says he is focused on arranging
an initial public offering of British chip-designer
Arm by March 2024. His faithful investors need a
reason to hang on, says Tim Culpan on Bloomberg.
Together, the VFs have been net losers since
inception – the second is down $16.7bn on $49.9bn
of acquisitions since launch in 2019. And
while Softbank only owns a third of the
first fund (up $11bn), it owns all of the
second. VF1 expires in just six years, and
VF2 in nine, and that is “not a lot of time… to
hit stratospheric valuations”, let alone beat
the US benchmark S&P 500. Launching
a third VF would be like “an inveterate
gambler convinced his next pony will be
the one that makes him rich”. That leaves
share buybacks as SoftBank’s only real option
and as “good a bet as any right now”.

Blyth
Britishvolt recharged: Recharge Industries, an emerging
Australian company, beat three others to take Britishvolt off
administrators EY, say Jonathan Barrett and Graham Readfearn
in The Guardian. Its “aggressive” package revives plans to build
a £3.8bn 30GWh “gigafactory” in the north-east to produce
batteries for electric vehicles, alongside its pre-existing plans to
build a similar facility in the former Australian car-manufacturing
hub of Geelong. Australia, the world’s dominant lithium producer,
has sought to promote itself as a reliable source of the raw materials
used in making batteries, as well as expertise. Recharge is part of
New York-based investment firm Scale Facilitation, and should
the deal be finalised in the coming days, the process of paying back
creditors will begin. But this deal looks “underpowered,” says
Alistair Osborne in The Times. Recharge’s plan to acquire a field
on the Northumbrian coast and some intellectual property was
“risibly light on detail”. Its interest was facilitated by cricketer-
turned-trade-envoy Ian Botham, and we don’t know how much
Recharge is paying. The government was right to refuse Britishvolt
a £100m taxpayers’ subsidy. It’s in Britain’s interest for Recharge
to succeed, but there are “lots of potential roadblocks ahead”.
moneyweek.com
Beijing
AI challengers: Baidu, China’s answer to Google, will complete
testing on its artificial intelligence (AI) chat program next month,
say Yingzhi Yang and Brenda Goh for Reuters. Called Ernie
(enhanced representation through knowledge integration), it will
be able to generate text and images as part of Baidu’s search engine
results. When Microsoft-backed OpenAI revealed its own chat AI
program ChatGPT in November, it spurred a flurry of bets on the
much-hyped technology. Likewise, Baidu’s Hong Kong and New
York-listed shares rose. Microsoft hopes ChatGPT will be the star
attraction in its revamped Bing search engine, which accounts for
around a tenth of the online search market dominated by Google,
says Jeffrey Dastin, also on Reuters. The US tech giant values each
additional percentage-point share it wins at $2bn in advertising
revenue. Google has taken note. On Monday, it
unveiled its own AI chatbot, called Bard,
and Google is even working on a tool that
will put together an answer when no
simple answer exists. Rivalries aside,
investors anticipate the AI revolution
will benefit all players.
10 February 2023
12 Briefing

Tapping the income of the stars

David Bowie started the ball rolling when he issued “Bowie bonds” in the late 1990s, and the
financialisation of the music industry has proceeded apace since then. Simon Wilson reports
What has happened?
The entertainment industry’s bible Variety
reported this week that the estate of
Michael Jackson was close to agreeing a
sale of half its interests in the singer’s
music catalogue. Sony and a financial
partner are set to acquire the half-stake
in Jackson’s publishing and recording
catalogues, in a deal worth around
$800m-$900m, the magazine reported
– making it by far the biggest deal ever in
music rights. Sony previously acquired
Bruce Springsteen’s publishing and
recording catalogue for a reported $500m,
and paid a reported $150m-$200m for
Bob Dylan’s recorded music catalogue.
The music giant, and its various divisions
and predecessor firms, is the long-time
label of all three artists. But they are far
from the only ones keen to splash the cash.

©Getty Images
Who else is buying? Justin Bieber has sold his music rights for $200m
The Jackson deal follows last month’s
news that Justin Bieber, at the age of 28, Why does that change things? bonds – have risen. The fund took its biggest
had sold all his music rights (up to 2022) Because although Spotify and similar blows in the late summer, as the tightening
for a reported $200m to Hipgnosis, the platforms have been criticised for paying cycle gathered pace. The other issue is
Blackstone-backed investment fund that artists peanuts and making it hard for the inherent difficulty in valuing song
has revolutionised the market for song smaller acts to break through and build an catalogues and how to account for likely
rights. Merck Mercuriadis, founder and audience, the bonus for the top stars and future flows. The market currently values
CEO of Hipgnosis Song Management, big heritage acts is that streaming provides Hipgnosis at around half of its claimed
who bought the rights, said: “This new revenue streams and makes it possible net asset value (164p in September – the
acquisition ranks among the biggest deals to predict future royalty payments with same figure calculated according to IFRS
ever made for an artist under the age of more certainty. That has made catalogue accounting standards was 102p).
70”. Private-equity groups, including KKR rights much more valuable to potential
and Blackstone, have also spent billions on investors, and led to outfits such as Is the music industry still growing?
the back catalogues of artists – including Hipgnosis and Primary Wave buying up In justifying their valuations on music
hits from The Weeknd, Stevie Nicks, rights and pitching them to institutional investments, private-equity analysts like to
and Childish Gambino – with the aim of investors on the lookout for reliable, cite Goldman Sachs’ prediction that revenue
securing income from issuing bonds. bond-like returns. One Chicago-based in the global music industry will grow at
start-up, Clouty, is working on taking this a compound annual rate of 12% between
Didn’t David Bowie start all this? “financialisation” of the music industry a 2021 and 2030, says Anna Nicolaou in the
In a way. The great musical innovator was step further. It has created a “Musiq 500” Financial Times. That would see revenues
indeed a financial pioneer, launching so- index that tracks the streaming revenues almost double to $153bn. But the revenues
called “Bowie bonds” in the late 1990s. of the top 500 songs globally, and is in being earned from streaming – which
In a deal put together by banker early stage talks with US exchanges about show a maturing market and slowing,
David Pullman,
Bowie raised $55m by
“Clouty has plans for a music- launching a futures
product that would
single-digit growth – suggest treading
with caution. Last month, Spotify’s chief
promising investors hits exchange-traded fund allow investors executive, Daniel Ek, announced that the
income generated
from his back
aimed at retail investors” to speculate and
streaming companies
company was laying off 6% of its staff,
nearly 600 people; it currently has close
catalogue of 25 albums. Pullman went on and rights owners to manage risk. It also to 10,000 employees. Its share price more
to issue similar bonds on the future income has plans for an exchange-traded fund than doubled during the pandemic, but is
stream of artists such as James Brown, aimed at retail investors. currently trading at where it was in March
Ashford & Simpson, the Isley Brothers and 2020, and the firm announced an operating
the Holland-Dozier-Holland publishing Will the fad survive rising rates? loss of €231m in the last quarter of 2022.
catalogue. As the industry began to suffer Rising interest rates make things much Meanwhile, the music labels are
from fears over piracy, the Bowie bonds tougher. When you invest in a song upping the pressure on the streamers: the
were downgraded by Moody’s in 2004 catalogue, you are paying for an anticipated biggest player, Universal Music Group, is
from an investment-grade A3 rating to stream of future cash flows. When rates go negotiating with big streaming platforms
Baa3, one notch above junk. They did up, future income and earnings are worth to overhaul the industry’s economics –
eventually return the full $55m that they less today, and the prospect of a steady including tackling the use of bots to game
raised, plus an agreed rate of interest, with return from such a niche, emerging asset the system – and direct more money
the rights reverting to Bowie after ten years. class looks higher risk and less attractive. towards artists. The question now, says
But the wobble had spooked Wall Street, Sure enough, the Hipgnosis share price has Nicolaou, is “whether financiers can find a
and the potential for music rights as a basis fallen from its high of 129p in late 2021 to way to profit despite soaring inflation and
for bonds was not widely exploited – until 85p now, as interest rates – and therefore higher interest rates – and what will happen
the rise of streaming. the yields available on secure government to investors’ cash if they find they cannot”.
10 February 2023 moneyweek.com
14 City view

Why the FTSE is soaring

The stocks are cheap and the UK is not a total basket case. But we should be aiming higher than that
more than doubled, and so has the CAC
Matthew Lynn 40 in France. It is unfair to compare it to
City columnist
the Nasdaq, home to many of the world’s
leading tech companies, but if we compare
Investors in UK stocks have not had a lot it to its immediate peers it has done very
to feel good about over the past few years. badly. In reality, the FTSE 100 should be
But 2023 has at least got off to a good start. at 14,000 or 15,000 by now, and even that
The FTSE 100 is up by close to 5% since would be nothing special. It is not even close
Christmas. Coming off the back of a strong to those levels, and won’t be for a long time.
December, that was enough to take it past
its last all-time high five years ago. It might …and a bleak outlook
only take one or two strong sets of company Finally, the FTSE’s prospects are still
results to take it all the way up to the giddy bleak. The index has hardly any tech
heights of 8,000 or more. It probably won’t businesses, and very few companies that
be long before Rishi Sunak or Jeremy Hunt show any potential for dramatic growth.
makes a speech citing the stockmarket as a It is dominated by a handful of oil giants,
vote of confidence in their government, and mining conglomerates, drugs majors, and
a sign that the UK has come back from the one or two consumer-goods companies.
crisis around the catastrophic mini-Budget Some of its biggest members, such as
last September. If the FTSE is this strong, Unilever and GSK, have been poorly run,
the UK must be doing okay. and have underperformed for years. The
There would, in fairness, be an element UK has a few exciting companies, such as
of truth in that argument. The “economic Dyson and Ineos, but generally they prefer
crisis” of the past six months was always not to float their shares. Until that starts

slightly overblown. For all its long-term
challenges, the UK is still a viable, investable
economy, with plenty of major companies
that are delivering decent profits and paying
out healthy dividends year after year. It is
not a total basket case. And, overall, British
equities have performed better during the
global bear market than most rivals, which
is helpful for anyone with money in the
market. The S&P 500 is still 15 percentage
points off its all-time high and the Nasdaq is
even worse. Even so, the fresh all-time high
is nothing to get too excited about.
A miserable two decades…
First, the main reason the FTSE has
performed relatively well compared with
some of its rivals is that, after a long stretch
of underperformance, UK shares are very
cheap. On any measure you care to look
©Getty Images
Hunt should not get too excited:
the UK is a zero-growth economy
at, whether it is dividend yields, price/
earnings ratios or book values, London
trades at far lower prices than equities in
Paris, Frankfurt or New York. Add in the
low levels of the pound, and global investors
have noticed and decided that it is not a bad
place to park some money. All the recent
strength of the index tells us is that, when
something is really cheap, the bargain
hunters will notice and start buying.
Next, measured over a longer time
period, the FTSE has still performed
miserably. It is still only barely ahead of its
1999 high, while other major indices have
raced ahead since then. The S&P 500 has
tripled in value since the end of the 1990s
bull market. The DAX in Germany has
to change, and there is not much sign of it
yet, the index will never really start to rise.
It is stagnant because most of its major
components are ex-growth.
In reality, the FTSE is still a zero-growth
index reflecting a zero-growth economy.
It still churns out dividends, and that is
something, but it is hardly growing, and it
is not likely to for a long time. With taxes
set to rise again and again, demand from
consumers is going to remain weak, and
the brightest entrepreneurs will base their
businesses somewhere else. Until the
UK summons up the political will to
make the reforms that will enable the
economy to start expanding again, it will
remain one of the most miserable major
indices in the world – and hitting another
all-time high after a wait of five years
doesn’t do anything to change that.

City talk
l GSK’s CEO Emma
Walmsley (pictured)
temporarily silenced
her critics when
she spun off the
firm’s consumer
healthcare
business as
Haleon, says Alex
Brummer in The
Daily Mail. “But as a
relatively small life-
sciences company, one
cannot but feel that GSK is
vulnerable.” The group has a
market cap of £58.4bn,
compared with £159bn for
AstraZeneca. GSK has
strengths: HIV, respiratory
treatments and vaccines.
Shingrix for shingles has been
the “great hope for the CEO Ken Murphy “wasting his
future”. It still lacks time and energy bartering over
heft in oncology, the remnants of a card shop
but there is that has lurched from one crisis
potential for its to another” when “Aldi and Lidl
purchase of are eating his lunch”? People
Tesaro in 2019 are turning to the “no-frills
to pay off. kings” as grocery prices surge:
“Taking the pair now hold a 16.3%
treatments market share. Tesco and its
from the peers seem “short of ideas” on
laboratory how to respond. It’s unveiled a
through regulatory shake-up of stores, including
approvals to the market is ditching fresh-food counters
a laborious process. Investors and scaling back the number of
need to show patience.” managers, but“cost-cutting is
rarely a sign of a company in
l Tesco’s decision to buy the rude health”. Some may argue
name and intellectual property that buying Paperchase has
of Paperchase “risks being an few downsides, but it “is also
expensive distraction from the highly unlikely to move the
l “Pets At Home came up with
a corporate phenomenon we
may not see much of in the
coming months — a profits
upgrade,” says Patrick Hosking
in The Times. Sales are rising,
but the exciting numbers are
for sign-ups to subscriptions
for regular deliveries, or to
memberships such as the
7.7 million in its “very important
pet” service. “These kinds of
arrangements not only provide
the company with more
reliable income streams…
but also give it valuable data to
build more lasting relations
and sell more products.”
There’s a big opportunity here
– but also a danger. ”These
membership schemes can be
©Getty Images

a big winner, with £3bn in sales real threat”, says Ben Marlow dial”. This is a deal that seen as cynical marketing
last year, and an RSV vaccine is in The Telegraph. Why is “smacks of desperation”. stunts if not properly run.”

10 February 2023 moneyweek.com

 Investment strategy 15

Active funds: a better year Guru watch

Mark Spitznagel,
founder,
Universa
Last year was unusually helpful for Investments
active managers, but passive funds The amount of
still have a consistent advantage debt that’s built
up across the
global economy over
Cris Sholto Heaton the past decade will cause a
Investment columnist market crisis on a par with
the Great Depression,says
Mark Spitznagel, the founder
Last year wasn’t a good one for most investors. of “tail risk” hedge fund
The MSCI World index lost more than 7% in Universea Investments.
sterling terms, while the MSCI Emerging Markets “It is objectively the greatest
tinderbox-timebomb in
index fell more than 9%. Still, at least one group
financial history – greater
seems ready to slap themselves on the back. In the than the late 1920s, and
past few weeks, there have been several stories likely with similar market
about how active funds finally outperformed consequences,” Spitznagel
passive funds in some sectors – notably large- writes in his latest investor
cap US stocks. This shows that active managers Being underweight in Tesla was a disadvantage letter, reports Bloomberg.
can do a better job of protecting your wealth in for many years, but a benefit in 2022 Central bankers kept
downturns, say advocates of active management. interests rates too long for
I’m a little cautious about over-interpreting benchmarks compared to normal. Full-year too long, leading to asset
price inflation and excessive
these numbers. Measuring the performance of figures for 2022 for this study aren’t out yet,
borrowing, says Spitznagel,
active funds against index funds is more subjective but the half-year results showed more funds a long-time critic of the
than it sounds: you have to choose which passive beat their benchmarks than usual (although the policies that most of the
funds should be compared to which active funds. average fund still underperformed). So active world followed after the
A couple of examples will show how thorny this management probably did have a comparatively global financial crisis. “If this
gets. If a large-cap active fund is allowed to hold good year, even if some of the headlines about credit bubble ever pops, it’s
a proportion of its assets in smaller stocks, is a active beating passive turn out to be overstated. going to be the most
FTSE 100 tracker a fair benchmark? After all, There are a couple of likely reasons. One is very catastrophic market failure
small stocks tend to beat larger ones over time. familiar: active funds tend to hold more cash, to that anyone has ever read
about,” he told Bloomberg
If a UK fund can hold a proportion of its portfolio be ready to meet redemptions. That’s a drag on
last year. The type of sell-off
in non-UK stocks, does it make sense to compare performance when markets are rising, but cuts that we’ve seen in markets in
it to a tracker that only holds UK stocks? UK losses when they are falling. The other is more recent months could turn
markets have lagged much of the developed world specific to US equities and the recent bull market: into a wide-reaching crisis as
for years. Both of these situations are common in both the gains and the losses were led by a small a result. “The correction that
large-cap or UK equity funds. number of hot stocks. Many managers were was once natural and healthy
underweight in these, which has been a huge drag has instead become a
Technical factors on returns but was a benefit last year. contagious inferno capable
The result is that you get different numbers Does this mean that active managers are likely of destroying the system
entirely,” he writes. “The
from different studies. When I look at this, I to keep doing better in future? Probably not.
world is just too levered
tend to put the most weight on S&P Dow Jones Last year was more about specific technical today, the debt construct just
Indices’ twice-yearly scorecard – not because factors (cash, positioning around a few stocks) too big.”
I’m certain that it’s the best methodology, but that won’t repeat often. Ultimately, the higher cost Spitznagel’s fund is
because it’s been published for years and so you of active management makes it hard for a typical intended to profit from tough
can at least see if more or fewer funds are beating fund to beat the market over the long term. market conditions, such as
major downturns or sudden
of the price of the underlying shocks (often referred to as
I wish I knew what a put option was, asset (options on more tail risks) . The fund invests
but I’m too embarrassed to ask volatile assets will be more
expensive). So option prices
in strategies that pay off
during crises – such as put
A put option gives the holder 70p, you would make a profit of tend to rise during market options on stocks – and
the right (but not the obligation) £150 ((90p − 70p − 5p) × 1,000). turmoil. The length of time makes small losses most of
to sell an asset, such as a share, However, if the shares go up – to that an option still has to run the time. Hedge-fund
for an agreed price, on or before 120p, say – you let the option before it expires is also investors would usually hold
a certain date. When you buy a expire. In that case, you lose important, with options that a small portion of their
put option, you pay a fee your premium of £50 but expire further into the future portfolio in a fund such as
(known as a premium) to the nothing more. being more expensive. Universa in the expectation
seller of the option (also known You can use put options to Options may be physically that it would produce large
as the writer of the option). If bet on the price of a share or settled (the seller must gains when everything else
you exercise the option, the other asset falling, or to protect deliver the asset to the buyer is falling. Universa returned
seller must buy the underlying against the risk of that. You in exchange for payment), or more than 4,000% in the first
asset from you at the agreed might buy a put option on the cash settled (the seller makes quarter of 2020 as the
price. Otherwise the option FTSE 100 because you think the a payment equal to the pandemic struck. Still,
expires worthless and the seller market could crash. If shares difference between the strike Spitznagel’s forecasts of
has no further liabilities. then fall sharply, your put price and the current price of specific disasters haven’t
Let’s assume that Acme options should make a profit, the asset). Options on shares always been accurate. In
Widgets is trading at 100p per helping to offset the fall in the are usually physically settled. 2013, he said that the US
share and a put option to sell at value of your investments. Options based on something market could plummet by
90p costs 5p. You buy a block of The price of an option is that is hard to deliver – eg, a 40%. Stocks continued to
©Getty Images

1,000 options at a cost of £50 determined by a number of stock index such as the FTSE rise steadily for several years
(5p × 1,000). If the shares fall to factors, including the volatility 100 – will be cash settled. until the pandemic.

moneyweek.com 10 February 2023 MoneyWeek

16 Best of the financial columnists
China needs Chinese vice-premier Liu He left a “strong impression” at Davos with
assurances that “China is back”, says Minxin Pei. Few Western CEOs can
Money talks
to win back “afford to miss out on China’s anticipated 5.5% GDP growth in 2023”.
However, Chinese entrepreneurs, who have “suffered years of increasingly
“I don’t subscribe
to the idea

business
that money
statist policies and arbitrary crackdowns”, are the ones who matter, as their doesn’t buy
scepticism could “derail” the recovery. China’s private sector plays a “far happiness…
Minxin Pei more crucial role” in the economy than foreign or even state-owned firms. that’s not
Bloomberg In 2019, private firms contributed more than 60% of China’s GDP and one of my
invested $4.57trn in fixed assets, “dwarfing” the $138bn China received in mantras.
foreign direct investment. To win back confidence, the Chinese Communist I want people
Party should immediately issue an official document pledging support to live their
purpose, and if
for the private sector, as it did each year in the early 1980s. It should also
they can be profitable and
release falsely accused entrepreneurs from prison and abandon the use of purposeful, they’re going
“golden shares” to control private firms. Finally, it should put its money to live an amazing life.”
where its mouth is and invest in its “far more innovative” private firms. Former monk turned
Such concessions may sound “radical” to Chinese leaders, but if they don’t wellness guru
win over the private sector, what the Davos crowd thinks won’t matter a jot. Jay Shetty (pictured),
quoted in The Telegraph

Oh, OK, Older Brits may have to suffer the “OK boomer” put-down, but it turns
out that, by and large, they are not “frittering away” their cash on cruises,
“The case [for land-value
tax] is great. But it can’t

thanks
happen – that would mean
says Chris Giles. James Sefton of Imperial College, London estimates that change on an impossible
£100bn a year is passed on in the form of bequests – more than 4% of scale. More likely? It is
boomer! national income. Parents gift their children another £11bn a year. Then
there’s the estimated £132bn a year in unpaid childcare. Care goes the
introduced but piled on
other taxes. Which is the
Chris Giles other way, too, in the form of caring for the sick and elderly. Last year, worst of all worlds.”
Financial Times this “private welfare” of nearly £300bn exceeded the public welfare Bloomberg columnist
bill for pensions and other social security of £261bn. Private welfare Merryn Somerset Webb,
reduces pressure on public services and is also very popular, which is why on Twitter
suggestions of higher inheritance and wealth taxes “fall flat” among all
“I know there are going
voters. People see wealth as “largely earned from taxed income by virtuous to be recessions, ups and
savers”. We should therefore “stop looking at the wealth of boomers as downs. I don’t spend that
a magic pot to be taxed” and focus instead on what else can be done to much time worrying about
promote social mobility, limit housing costs for those without access to it. I do worry that poor
parental help, and increase university access to disadvantaged students. public policy damages
“More imaginative, practical and popular policies” are needed. American growth.”
JPMorgan’s CEO
Jamie Dimon is more

The coming The “undoubted leader” of the digital advertising market is Google, but its
dominance may be under threat, with the US Department of Justice (DoJ)
concerned that interest
rates go up to prevent
inflation rather than
break-up filing a lawsuit against it, says Dominic O’Connell. Thanks to the ubiquity
of Google search, the firm already had an advantage; it then tried to get
recession, quoted on CNBC

of Google in on the other side of the transaction, buying DoubleClick (advertising

management software) with its 60% market share for $3bn in 2008. In
“FTX [the bankrupt
cryptoexchange] and SBF
Dominic O’Connell this way, says the DoJ, Google positioned itself simultaneously as “buyer, [its former CEO, arrested
The Times seller and auctioneer” of digital display advertising. The lawsuit alleges a on suspicion of fraud]
“long list of other anti-competitive practices”, from plans to “manipulate are not an exception —
they’re a rule… Literally
advertising prices” to attempts to “co-opt Facebook and Amazon into
99% of crypto is a scam.
sweetheart deals”. The solution is for Google to sell its publishing service A criminal activity. A total
and advertising exchange even though this would undo deals that have real-bubble Ponzi scheme
previously been approved. Google will doubtless draw attention to this and that is going bust.”
argue that no “obvious harm” is being caused to advertisers, who pay less for Nouriel Roubini, quoted on
online advertising than traditional adverts (even though competition would Yahoo Finance
lower costs further). The bottom line is, few firms “win a complete victory
against the DoJ”. Alphabet should start preparing “to break itself apart”. “I don’t invest in the
stockmarket outside my
pension. I’ve never looked

Don’t let
into it. I realise many
“Isolation is nothing new for Mongolia,” but the Ukraine war and Covid people find it interesting
have left the nation “ever more dependent” on Russia and China, and and make money out of it,
Mongolia without “substantive re-engagement from other states, and international,
corporate and financial institutions”, there is a danger that it could “slip
but it has passed me by.
Maybe I’ve been looking at
slip away away from the global community”, says Marissa Smith. While the IMF
has been helping to put its finances on a “firmer footing”, Mongolia, a
the clouds for too long.”
Weather presenter
rich source of commodities used in the emerging green economy, depends Clare Nasir, quoted in
Marissa Smith
on China for income and on Russia for maintenance of its infrastructure The Mail on Sunday
Nikkei Asia
(transport, power and fuel). Air links have also been “pummelled” since
“The people who run
2019 and Mongolia’s access to the international financial system, much of British universities are
it via Russian institutions, has been severely affected by Western sanctions. slags – all they care about
The government has struggled to “tackle worsening inflation, poverty and is their next pay cheque.
looming debt obligations”; this, along with corruption scandals, has led to [Their embrace of woke
protests. Should these escalate, there are fears Russia may send in troops ideology and cancel
(notably, Mongolia has not condemned its invasion of Ukraine). Though culture is] outrageous.”
©Shutterstock

imminent debt default looks unlikely, its outlook will “remain worrisome” Actor Rupert Everett,
until Mongolia’s dependence on its “encircling neighbours” is relieved. quoted in The Telegraph

10 February 2023 moneyweek.com

 Best of the blogs 17

It’s time to enter There are more deadly things than radiation

the atomic age

palladiummag.com
Industrial civilisation was made
possible by coal, says Benjamin
Leopardo. It is around twice as
energy-dense as wood, and in
1770 a typical coal mine could
produce as much energy as a
5,500-hectare forest every year.
By the mid-19th century, annual
English coal consumption had
1993 and many more have been
decommissioned. Globally,
nuclear power output peaked in
2006. What went wrong?
By the early 1970s, “in
defiance of all principles of
industrial organisation”, the
price of a nuclear-power plant
began to rise. New plants
became 102% more expensive

grown to the equivalent of a
forest covering 96% of English
farmland. To this day, coal
accounts for nearly 28% of
global primary energy use.
That is a sign that “something
has gone very wrong”, for we
now have a fuel that is more
than 50 times more energy
dense than coal: uranium.
Why nuclear power failed
Seventy years on from the
advent of nuclear technology,
uranium still accounts for only
19% of the US electricity grid.
Only three new nuclear plants
have been built in the US since
©Alamy
in real terms per doubling of
total capacity, and lengthy
construction delays became
commonplace. Even before the
Three Mile Island meltdown
in 1979 and other accidents,
orders for new reactors in the
US had fallen to zero by 1978.
Why? It is often justified
as a consequence of making
the technology as safe as
possible. Nuclear was already
among the safest methods
for generating electricity,
but it is treated differently in
regulatory frameworks. A life
lost to thyroid cancer from the
Chernobyl accident is valued
differently from one lost to
air pollution from burning
coal in India. That makes no
sense. And the real risks from
radiation are much lower than
people tend to think, even in
the wake of nuclear accidents.
The Fukishima incident, for
example, affected only plant
workers, and even they are
looking at only a marginal rise
in lifetime cancer risk. The
evacuation of the hospitalised
and elderly caused more deaths.
The industry also has to
contend with ideological
opponents (including those
in regulatory agencies), bad
economics (the monopolistic
utilities that pay for nuclear
plants have little incentive to
improve efficiency) and a brain
drain as a generation of nuclear
engineers retires. Add it all up
and it’s no surprise nuclear has
failed to live up to its potential.
Yet the costs of that failure – in
terms of increasing air pollution
and economic stagnation –
continue to mount. If we are to
enter the atomic age in earnest,
serious changes are needed.

Britain’s Soviet-style economy

economist.com
There are two
sides to a fraud
glineq.blogspot.com
During lockdown, waiting times at driving-test centres rose to more than six months, so “enterprising Netflix’s new documentary on
sorts” created a secondary market, says The Economist’s Bagehot columnist. They built online bots to Ponzi fraudster Bernie Madoff is
“hoover up scarce slots”, then sold them on. Sovietologists will recognise the phenomenon. Propaganda excellent, says Branko
portrayed the Soviet command economy as totally centrally planned, but a flourishing “second Milanovic. But although it is
good at showing how he carried
economy” of capitalist entrepreneurship operated on the black market, lubricated by blat, or favours. out his fraud, it doesn’t explain
“In a land of queues, getting hold of a fridge, theatre tickets or a better apartment relied on a network why he did it. To steal the
of contacts, cunning and petty bribery.” This system has arrived in Britain. “Universal public services” money, you might say, but not
is the closest thing Britain has to a state ideology and, just as in Soviet Russia, the reality is falling short so: Madoff was already wealthy
of the promise. You can now wait hours for an ambulance, months for a visa, years for a criminal trial. and did not need the money.
As a result, demand for one-off private medical procedures is soaring. There is a nascent market in The true reason, alluded to in
private ambulances and police forces. Tips are traded online on how to secure an appointment with the the documentary, might lie in
GP. Contacting your MP used to be a last resort and is now a “means of doing business”. Britons, it has Madoff’s desire to be “loved,
been said, love a queue. That is now for fools. Better to push your way to the front of it. even adored”, and to “achieve
that devotion” by delivering his
investor-friends returns they
could never obtain elsewhere.
Trial by job
arbitrary tests, and complex the end of it. Indeed, you might
exercises and presentations” never have really been in the “The cause of the fraud thus lies
that entail hours of work in running at all, just strung along in psychology” – and not just in

interview preparation, all the while

vox.com/the-goods
Job seeking can be an “exercise
in immersive futility”, says
Emily Stewart – you throw your
CV “into the abyss and pray
to the gods” for a favourable
outcome. But be careful what
you wish for, because a positive
response might be only the
first step in a complicated
and extended assault course.
©Getty Images
continuing to hold down your
day job. It can come to seem
like you’ve got a second job, and
with no guarantee of success at
They have ways of making you talk
as a back-up, or as an extra pair
of hands for some unpaid work.
The reason employers do this
is straightforward enough – they
are trying to avoid making a big
mistake and hiring the wrong
person. If they seem to be going
over the top, that might be a
sign they’re not a good company
to work for anyway. It may
also damage their reputation.
But for the interviewee, the
options are limited – ultimately,
Madoff’s. Why did the rich and
famous clamour to invest with
him? The answer is greed, and
not just among the rich and
famous, either: hundreds of
medium and even small
investors could just as easily
have invested with Fidelity and
Vanguard, but greed for higher
returns led them to Madoff.
Some will say this is blaming the
victim, and there’s no doubt
Madoff was the guilty party
legally. But ethically, if Madoff
was doing it to be loved, weren’t

You might have to go through you’ll just have to “go with it, or his victims exploiting that
“endless rounds of interviews, walk away”. weakness out of greed?

moneyweek.com 10 February 2023

18 Funds

The lure of trusts on big discounts

Real estate has yet to adjust to reality, but private equity trusts are starting to offer better value
are larger, and we’ve already
David C Stevenson
Investment columnist had a few quarters of haircuts.
There will be painful months
ahead as recession looms, but

I n my last column, I urged

investors to be cautious about
real estate and private equity.
private equity is closer to a
trough than real estate is.
There are also some
Still, while it may be early for tailwinds for listed private
bottom fishing, at some point equity. Stockmarkets are up
attention will turn to sectors since September, which could
that have posted huge losses. reassure investors on valuations.
Both of these are trading at There is also evidence that
large discounts, making them the valuations of high-quality
likely candidates. So is all the businesses in their portfolios are
pessimism fully justified? justified. HgCapital has seen
For real estate, news flow deals representing more than
isn’t looking hopeful. For 25% of the portfolio at average
example, AEW UK Reit uplifts of 36% to its December
(which is about 50% industrial 2021 valuations, say analysts at
property, with the rest in Numis. HarbourVest and ICG
warehouses, retail and offices) Enterprise have averaged uplifts
is one of the first to report on exit of 40% and 25%.

each quarter, and its latest
update showed a 13.9% drop
in net asset value (NAV). All
the headwinds you’d expect
were there, yet the fund is only
trading at a sub-5% discount.
Transaction volumes have
declined in the past few quarters
as sellers pull back. They realise
the inflated values of recent
years are gone and reckon it’s
better to stay on the sidelines.
Still, eventually the pain has to
be realised in the form of price
cuts as the headwinds become
more obvious: rising interest
rates, increased vacancy rates
and higher operating costs.
In the all-important office
segment, we are only now
seeing the structural impact of
the pandemic. Landlords are
trying to hold the line on big
rental increases, even though
It’s too early for bottom fishing
demand is beginning to tail off
rapidly, especially for lower-
quality space. But consider
the huge wave of tech-sector
redundancies in the last few
months. Do you really think the
tech giants won’t play hardball
on new leases? The average
UK commercial property trust
trades at a 17% discount to
NAV, according to broker
Numis. In this situation, that
is not enough to offer a margin
of safety.
Getting real
Listed private equity is in a
different place. The average
discount on a portfolio of
directly owned assets is now
roughly 25% and has been
as high as 45%. In the fund-
©Alamy
of-funds segment it’s closer to
40%, and has been above 50%.
The market demands these
discounts because it sees a gap
between the valuation of the
private firms that these funds
hold and the market value of
comparable listed stocks (most
private-equity valuations are
still based on numbers from
30 September). We can also see
that average valuation multiples
on new deals have been falling.
Investors also fret about the
rising cost of debt to pay for
deals, and declining profit
margins for the underlying
businesses as costs rise.
There are echoes of the case
against real estate here, but
private equity is more advanced
in “getting real”. The discounts
I’m not arguing that investors
should rush to buy. My hunch
is there will be weeks or months
of weak prices as the global
recession hits. Still, calling the
bottom is a mug’s game. I’m
already more comfortable that
listed private equity is closer to
reality than real-estate funds.
So for those looking to invest,
I’d recommend Hg Capital
(LSE: HGT) and Oakley
Capital Investments (LSE:
OCI) of the funds that invest
directly, alongside Pantheon
International (LSE: PIN) and
HarbourVest Global Private
Equity (LSE: HVPE) among the
funds of funds. For a long-term
quality play, you won’t go far
wrong with 3i (LSE: III), the
sector mainstay, but I’m less
convinced it’s good value at the
current price.

Activist watch Short positions... a dire year for UK fund managers

Kelso, an activist firm founded last
n Britain’s fund managers have been “under n Open-ended funds run by Jupiter have
year to invest in UK-listed companies,
siege from the rise of passive investment and sold their stakes in Starling Bank and
has taken a 0.4% stake in e-commerce
competition from retail platforms”, says the “sworn off buying any unlisted shares in
firm THG, says This is Money. The
Financial Times. Now they are “under assault future”, says The Times. Several of
beauty and nutrition specialist –
from falling markets”. Net outflows from open- Jupiter’s funds, including the £1bn UK
which last month issued a profit
ended funds reached £50.1bn, the highest since Mid Cap, had invested in Starling, which
warning and announced a strategic
the Investment Association, the industry’s trade was permitted under Financial Conduct
review – is “a hugely exciting, but
body, began keeping records two decades ago. Authority rules (the regulator imposes a
significantly undervalued business”,
Retail investors withdrew £25.7bn, including cap of 10% of assets in unlisted stocks
says Kelso. THG (formerly known as
£12bn from funds that invest in UK stocks. for funds of this type). But the practice of
The Hut Group) listed in 2020 and hit a
Net retail sales of UK equity funds have been holding illiquid, unlisted shares in open-
peak share price of 800p shortly
negative every year since the Brexit referendum, ended funds has come under scrutiny,
afterwards, but now trades at around
with total outflows of £33.6bn. “Scale is since it was considered to be one of the
55p after a slowdown in growth and a
strength” in the funds business, so shrinking main factors behind the collapse of the
series of corporate governance
assets are a problem for UK managers, which are Woodford Equity Income fund in 2019.
concerns. THG’s nutrition division
far smaller than US giants such as BlackRock Chrysalis Investments, the listed
alone is potentially worth as much as
and Vanguard. Overall, 2022 was “a calamitous investment trust also run by Jupiter, is
the firm’s current market cap of about
year for the UK’s fund management industry”, not affected by the decision: it was
£800m, based on valuations for
says Laith Khalaf of broker AJ Bell. “The rot is among the existing shareholders that
comparable deals in the sector over
now so deeply entrenched… that it is difficult to bought Starling’s shares, increasing its
the past few years, argues Kelso.
see this trend reversing in any significant way.” stake from 12% to 15% of its portfolio.

10 February 2023 moneyweek.com

20 Cover story
Up, up and away: helium
prices are set to soar
The second-most common element in the universe is rare on Earth – and supplies are falling.
Yet demand from a wide array of industries is on the rise. That spells opportunity, says Dominic Frisby
Liquid helium is the coldest substance on Earth. It is
also the only material that never exists as a solid, only as
a cryogenic liquid and as a gas. Helium is the second-
most common element in the universe after hydrogen.
The problem is that most of it is up there, and down
here there is a shortage. On Earth it is relatively rare:
0.00052% by volume in the atmosphere.
The global market for bulk liquid helium (how it is
usually transported, if not as a compressed gas) is hardly
huge – it’s worth around $3bn. Annual global demand is
estimated at around six billion cubic feet (Bcf).
The price can be hard to establish because there
is no spot market, but Cliff Cain, CEO of rare gas
consultancy Edelgas Group, which studies the market
and consults with most of the companies operating in
it, gives me the figure of $1,800 per thousand cubic feet
(mcf). A year ago the price was closer to $500/mcf.
Demand stems mainly from the medical, technology
and aerospace sectors, and “it will keep growing”, says
Cain. “If you are an aerospace company whose business
relies on putting satellites in space, ideally as many as
possible, or [a] manufacturer whose business relies on
selling magnetic resonance imaging [MRI] machines,
you are not going to let helium shortages get in the way
of your business. You are not going to stop producing
the machines you produce... You will pay whatever
price is necessary for the helium and pass the cost on.
Phones, computers, all modern life – it requires helium.
There’s no substitute.”
Helium is seven times less dense than air. Replace
the air in a hard drive with helium, and there is less
turbulence. The discs spin better, so more of them can
be packed into less space while consuming less power.
Helium-filled hard drives increase capacity by 50% and
energy efficiency by 23%. Almost all high-quality data
centres therefore now use helium-filled high-capacity
hard drives. Helium is also used in barcode readers,
computer chips, semiconductors, and fibre-optic cable.
A wide array of uses
Another rapidly growing industry gobbling up helium is
the space sector. Helium is used in fuel tanks for rockets
and satellites. Physics requires it in particle accelerators.
Perhaps its most essential use is as a coolant, especially
for the magnets in MRI machines. They must be kept
near absolute zero to operate effectively. A typical MRI
machine needs 2,000 litres of liquid helium.
I recently broke my ankle, and also discovered that I
broke my neck in my younger days (it was never properly
diagnosed), so I can attest to the importance of MRI
machines and the diagnostic clarity they bring. Some
“Demand 38 million MRI examinations were carried out in the
United States last year. Forbes suggests helium shortages
will continue may be the world’s next medical crisis. And then there
to grow in are the party balloons.
Helium is a byproduct of natural gas refining. The
the medical, world’s largest producer is the US (accounting for 40%
tech and of supply), followed by Qatar, Algeria, and Russia.
However, the world’s largest single source of helium
aerospace for the past 70 years, the US National Helium Reserve,
sectors” recently stopped its supply. It is letting its staff go and the
10 February 2023
pressure has come off in its pipelines. “It is now at 700
pounds per square inch when it needs to be at 1,200 to
be producing,” says Cain. The system is for sale, at least
in theory.
The paperwork has met with delays in the White
House, and this is likely to take some time to resolve.
We won’t see a market until then. There are also supply
purity problems and ongoing lawsuits.
A major supply squeeze
Meanwhile, Russian supply from the massive new
Gazprom helium plant in the eastern city of Amur is also
shut down. That is unlikely to see any production before
the end of 2023 as, Cain tells me, it relies on Western
engineers and the West is currently reluctant to send staff
to Russia. In any case, Russia will struggle to sell much
beyond China and its own domestic markets. In fact,
Russia has the potential to become the world’s largest
producer – but it’s Russia.
The solution is to invest in prospective helium
producers and developers. Three or four years ago,
there was just one helium play on Aim in the UK, one in
Australia and two on the Canadian markets. Now there
are many. But they are a bit of a rum bunch, and they all
have their warts. Nor is there an exchange-traded fund
(ETF) that can take the risk out of individual company
selection. The closest thing is energy giant Air Products
(NYSE: APD), which sells gas and chemicals to industry.
Last year sales reached $12bn. It pays a yield of 2.5%.
It recently landed a $1bn deal with Nasa to supply it
with helium, illustrating the importance of the substance
to aerospace. But it is far from a pure play. It will lack
the spice of smaller caps, but is a fairly low-risk way to
get exposure to the industrial gas sector.
London-listed Helium One Global (Aim: HE1), a
stock I have never owned, is in the exploration and
development stage. It ultimately hopes to become a
producer of high-grade helium in Tanzania.
The market capitalisation is £50m. Its 4,500 square
kilometres of land contain very high grades of up to
10% helium. Those bonanza grades are why it had a
barnstorming 2021, going from 7p to 28p. But having
promised glory, it delivered something rather different:
a duster (a dry hole). The problem was not the resource
itself, but an undersized rig that could not reach the
required depth. Helium One subsequently fell back to
5p. For all sorts of logistical reasons, getting these assets
producing will not be easy.
Royal Helium (TSX Venture Exchange: RHC), said
to be listing in London soon, is another option. There
are things to like about this company, worth C$78m,
and things not to. It has various promising assets in
North America. It is well financed. It has an off-take
agreement with a “leading aerospace company”,
which it had before production (or even financing for
production) was even in place. It says it’s going into
production in March or April.
Yet it has been promising production for years, only
for it never to materialise. Once bitten, twice shy. I still
own some stock in this company, but I have also just
sold a load. My subscribers and I bought at C$0.23 in
moneyweek.com
©Getty Images
Cover story
Helium is used in fuel tanks for rockets
December, and we just took a nice chunk of profit.
If it gets producing, it will make a lot of money. But I’ve
heard the pitch about imminent production before.
A previous winner for MoneyWeek
Another one I’m ambivalent about is a company I
mentioned on these pages many years ago, and one that
proved a big winner for MoneyWeek readers: Desert
Mountain Energy (Vancouver: DME). In 2020/2021
the stock rose from C$0.25 to almost C$5 on the back
of the high grade (5%-8%) helium discoveries the firm
made in Arizona. It’s a fine example of what can happen
to an exploration company if it makes a discovery.
Today it sits at around C$2.75 with a market cap just
shy of C$315m. Desert Mountain Energy could also
soon be producing: plants are being erected as I write.
It has the capital and it has the assets. Management is
talking about revenues of US$2,000-$2,800/mcf for its
helium. The potential annual revenues even in year one
have left me salivating. So why the ambivalence?
Firstly, the company’s press releases are so badly
written and so thin on essential detail, they make me
suspicious – very suspicious. Secondly, talking about
helium production and actually achieving it are quite
different beasts. Which is more probable – that the
company gets into production without a hitch and
makes tonnes of money, or that something goes wrong? I
still own stock. But not as much as I once did.
First Helium (TSX Venture Exchange: HELI), market
cap $20m, is a spicy small-cap option. It has just raised
C$2m, with which it plans to put its oil wells back into
production. It then aims to use the capital from that
moneyweek.com
21
to put its helium assets into production later this year.
There are a lot of ifs and buts. It’s a beaten-up company,
“First
but with some promising assets that could produce a lot Helium is a
of revenue. I’ll believe it when I see it. I have a tiny bit of
stock in this one too. But my advice is to hang around for
spicy small-
a good time, not a long time. cap option
Renergen (Johannesburg: REN; Sydney: RLT), worth
the equivalent of £175m, already produces natural
with some
gas and is just trying to get helium into production (it promising
previously ran into problems). We are waiting for news
on this one. The pilot plant’s production deadline was
assets”
missed – first because of Covid-lockdown related
delays, then a faulty oil-heating system. It shows how
bringing helium into production is problematic and
often ends with a rude awakening. That said, the
company turned a corner last month, announcing its
first deliveries of liquid natural gas. Hopefully, the
helium will soon follow.
It is not an easy stock for UK investors to buy, but
I include it here to illustrate that helium production is
so much harder than natural gas. I don’t own it. Other
small-cap options to look at in Canada – all on the TSX
Venture Exchange – include Avanti Helium (AVN),
Helium Evolution (HEVI), and Total Helium (TOH).
There is also Global Helium (Canadian Securities
Exchange: HECO). All these small caps formed as a
result of the helium shortage. One might prove a winner,
but I doubt it. Australia’s Blue Star Helium (Sydney:
BNL) is also worth a look.
Dominic Frisby writes the investment letter The Flying
Frisby – www.theflyingfrisby.com
10 February 2023
22
The silence of
the bears
Having priced in the worst, investors have realised things
aren’t that bad after all, says Max King. Run with the bulls
There is an old adage in investment that you should
buy a share or market whose price rises on bad
news. The bounce shows that the bad news was fully
discounted so the outlook has improved. The worst
of the bear market in 2022 was in growth – especially
technology – stocks in general and the Nasdaq in
particular. But, with the Nasdaq up by 16% this year,
compared with less than 9% for the S&P 500, this is
where the best gains have been seen. A perfect example
was provided by Meta, probably the most despised
and hated “growth” stock of all.
Last week it announced quarterly earnings that had
halved year on year and were 22% below consensus
forecasts. Yet the share price, already up by 60%
from its November low, gained another 25% instantly.
The almost equally hated Tesla actually beat
earnings estimates by 5%, on turnover up by an
annual 37% (although many were expecting much
worse). Its shares are up by 50% this year.
In spring 2022 Netflix was one of the first to
announce disappointing results, but the first to take
remedial action. Its fourth-quarter revenue was flat
and earnings poor, but the shares gained on strong
growth in the number of subscribers. They have now
doubled since their June low. What about Amazon,
Apple and Alphabet, whose share prices, we were told
by the media, had fallen on disappointing earnings?
True, but the falls were minor and they are still up
by 27%, 16% and 20% respectively this year. They
have all concentrated on reducing costs and becoming
more efficient. When this improved focus comes
through in better than expected quarterly results, the
share prices could jump by 10% before you can blink
and 20% before you can get a buy order in.
Ed Yardeni of Yardeni Research points out that,
with 38% of the S&P 500 having reported for the
fourth quarter, the earnings season is off to a poor
start. Revenues have beaten reduced expectations by
1% and earnings by 2.5%, the weakest metrics since
2013. The year-on-year revenue gain is 6.8% and the
earnings gain 4.5%. JPMorgan, with data on 45% of
the S&P 500, reports earnings down 5% year on year
but up 4% in Europe.
From recession to mere slowdown
What this misses is that the pessimists were expecting
much worse: a dramatic collapse in earnings that
sent valuation multiples sky-high with no visible
prospect of recovery. As economic forecasts of a severe
recession turn into a mild one, or just a slowdown, and
cost pressures abate, that looks increasingly unlikely.
The share prices of housebuilders and property
companies have been recovering too, even as their
business outlook deteriorates. Even more dramatic is
the turnaround in the private-equity sector where high
discounts to net asset value were attributed to valuers
being totally out of touch with the current market.
Last week 3i announced a year-end valuation, based
unfortunate
on strong earnings growth from its portfolio, of 7%
above brokers’ estimates. This caused the share price
to jump to a record peak. The market is coming down
buy high and
on the side of the valuers, not the Armageddon crowd.
10 February 2023
Opinion
©Getty Images
The technology-heavy Nasdaq index has gained 16% in 2023
Even more remarkable has been the response to last
week’s interest-rate rises. Equity and bond markets
jumped for joy. The yield on ten-year gilts dropped to
3% and on US Treasuries to 3.4%, reflecting investors’
confidence that the average inflation rate over the next
ten years will be respectively well below, and below,
3%. This in turn boosted growth equities – as it made
future earnings more attractive – and those with
good yields. The fall in energy prices has also raised
confidence that inflation will fall and the economic
downturn will be shallow.
Nobody should be surprised that equity markets
have started the year well and look set to improve
further. US stocks rose by 6.6% in January while the
FTSE 100 rose 4.2%. January’s performance has
always been a harbinger of the overall year’s returns.
Long-term US returns have been heavily concentrated
in the pre-election and election years, which bodes
well for 2023 and 2024.
Sentiment among both private and professional
investors was at extreme lows in 2022, suggesting it
couldn’t get any worse. The year saw record outflows
from retail funds in the UK of £25.7bn, far ahead of
the second-worst year, 2008, which saw inflows of
£4.2bn. Yet the financial system was shaken to its core
in 2008, making 2022’s exodus look bizarre. Retail
investors have an unfortunate tendency to buy high
and sell low: they are a contrarian indicator.
What could go wrong? Commodity prices could go
back up (they are already off their lows), but if that is
due to rising demand, notably from China, rather than
restricted supply, it would not be negative for markets.
The dire warnings about the health consequence of
China opening up have not been fulfilled. China has
“Retail surely lost interest in invading Taiwan and is focused
on improving the standard of living of its people.
investors Equity valuations, especially in the US, could get
have an too high, leading to a setback or a consolidation as
earnings catch up. This is quite normal after the initial
recovery from a bear market. With valuations already
tendency to optimistic, bond yields could rise, but this would slow,
not reverse, the recovery in equity markets. The bulls
aren’t yet roaring – a good sign – but the silence of the
sell low” bears is deafening. Equity markets are going higher.
moneyweek.com

A first-rate Reit with room to grow
Industrials focuses on a thriving market and looks far too cheap compared with its net assets
Rupert Hargreaves
Deputy digital editor
I n my last column, I looked
at Supermarket Income Reit
(LSE: SUPR), a real-estate
investment trust that appeared
cheap relative to its high-
quality asset base, inflation-
linked income streams, strong
balance sheet, discount to net
asset value (NAV) and 5.7%
forward dividend yield.
This time I’m going to look
at another Reit that appears
cheap, Industrials Reit (LSE:
MLI). As I noted previously,
not all Reits are created equal.
While the sector as a whole
looks a bargain today, with
most companies trading at
a significant discount to
NAV, some of these stocks
are trading at a large discount
for a good reason, be it high
levels of debt, poor quality
assets or bad management.
Investors therefore need to
pay very careful attention to
the underlying assets in each
Reit’s portfolio.
A niche asset class
Industrials Reit focuses on a
niche asset class, UK multi-
let industrial (MLI) estates.
These are usually found
outside town centres and
have historically been let to
industrial companies, such as
manufacturers and engineers
– small companies that need
a large, flexible space at a low cities is more
cost with good transport links. than £100 per
However, these units
are increasingly being taken
over by online retailers and
service companies that require
well-connected locations to
fulfil orders, but can’t afford fulfil orders, or a service
a large so-called big-box
facility (the vast fulfilment
Industrials REIT (LSE: MLI)
Share price in pence
200
150
100
50
2019 2020
moneyweek.com
Companies 23
hot for these units, and without
new buildings coming onto the
market, Industrials Reit has
ample room to hike rents.
There is a lot of “built-in
growth” in the portfolio,
according to Carey. Most of the
Reit’s buildings are currently
“let cheap”, meaning all it
needs to do is “churn the leases
to get the growth”.
The average lease in the
portfolio is “20% below the
market rate”, suggesting that
the Reit can grow its income
just by standing still and rolling
over existing leases to the
market rate.
Moreover, as most
occupiers have only “one or
two buildings”, the units they
occupy tend to be “their main
place of work”, so they’re more
likely to stick with the company
and meet higher rent demands.
©Getty Images
The numbers support this
The group’s locations are highly prized by small companies thesis. Industrials has seen
an increase in the value of
centres used by companies such these out-of-town facilities are rent collections over the past
as Amazon). Small businesses an excellent option. few months, and while it
in particular find the good The company’s occupancy has noted a slight uptick in
transport connections and figures testify to the desirability tenant failures, the number of
cheap rents appealing. In its of these locations. Portfolio inquiries through the website
latest presentation to investors, occupancy has exceeded 93% has risen by 16%.
Industrials reported an average for the past two years.
rent per square foot in its And despite the general An unwarranted discount
portfolio of just under £6. consensus that the economy When it comes to the balance
According to online data is slowing, Industrials is still sheet, 90% of Industrials’
platform Statista, the average seeing rising demand for debt is hedged at an interest
rent for a prime its units. rate of 2.6%, and there is no
high-street “Most of the group’s In the refinancing due until 2025.
location in
the UK’s top
debt is hedged at a quarter to
the end of
Management thinks “keeping
leverage low is a prudent thing
2.6% interest rate” December, it to do” in the current situation.
completed 84 These strong fundamentals
square foot. What’s more, most leasing transactions – a total make the company’s discount
of the units in the portfolio do of 280,376 sq ft. A further to NAV difficult to justify.
not attract business rates. 343,000 sq ft of lettings were With a NAV of £1.62 at the end
If you are an online business under offer in the portfolio, of September, the stock is on a
that needs somewhere to across 43 transactions. discount of 24%. Its historical
dividend yield is 5.8%.
company generating the Attractive supply-and- While the NAV has declined
majority of its business online, demand fundamentals slightly over the past year (it
Even though there seems to was 175p at the end of March
be a growing demand for 2022), Carey believes the
these locations, new supply is market for light industrial
practically non-existent. assets is “bottoming out”, as
Julian Carey, managing the lack of supply means there
director of Industrials Reit, is no “distressed pricing” and
notes there’s no “new supply” there remains a “competitive
of these light industrial parks tension among investors”
coming to the market, and for assets.
the rising cost of capital, as Still, even if asset values
well as higher building costs, slide further, potential rental
is pushing new supply “even growth of more than 20% as
further” into the future. existing tenants turn over is a
The lack of supply gives highly attractive prospect and
the market some attractive should bolster the trust’s future
2021 2022 2023 qualities. Demand is running payouts to shareholders.
10 February 2023
24 Personal finance

Britain’s vanishing banks

Help may soon be at hand for those who want face-to-face services
Ruth Emery intends to set up 38 new deposit services
Money columnist around the UK, where consumers and
businesses can pay in cash without having

I f your local bank or building society

branch has closed recently – or intends to
close soon – you are not alone. Thousands
of bank branches have closed in recent
years. Lloyds and Halifax recently
announced they would close another 40
this year, while Barclays plans to shut
another 15. Last year, HSBC said it would
close 114 branches from April 2023.
Consumer group Which noted last year
that almost half of the UK’s bank branches
had closed since 2015. Moreover, almost a
quarter of ATMs that are free to use have
vanished since 2018.
to visit a bank branch.
Meanwhile, Barclays has announced
it will launch a string of “banking pods”
in response to customers’ changing
needs. The pods are purpose-built, semi-
permanent structures in locations such as
shopping centres and retail parks. They
will provide a dedicated, private space,
and can be moved from one area to
another, depending on demand.
The pods differ from the shared
banking hubs, as the pods are only for
Barclays’ customers. At least ten will be
rolled out across the UK by the summer of Barclays intends to roll out at least

The banks say demand has fallen as
more and more customers do their banking
online. Nevertheless, some people rely
on their bank branch to withdraw and
deposit cash (including small businesses),
some customers struggle to use digital
services, and others may appreciate
speaking to a member of staff in person
about their finances.
The good news is that at least some help
is at hand – you may see a new “banking
hub” pop up in your local area. The hubs
offer a counter service operated by the
Post Office, where customers of all major
banks and building societies can deposit
and withdraw money.
These hubs also provide dedicated
rooms where customers can see
community bankers from their own
banks to discuss more complicated issues.
The community bankers work on rotation,
with a different banking provider available
on each day of the week.
ATM network operator Link is
planning to create 38 of these hubs, but
only four have opened so far. These are
in Brixham (Devon), Cambuslang (south
Lanarkshire), Cottingham (East Riding of
Yorkshire) and Rochford (Essex). It also
2023, following the success of the bank’s
first unit in St Austell. Some of the new
pods will be in areas without an existing
Barclays presence.
In addition, six electric banking vans
will be added to Barclays’ existing fleet of
ten, enabling the bank to reach customers
in remote locations. The bank is also
expanding a scheme where it works with
local councils and communities to arrange
a presence in places such as town halls
and libraries.
Where to start
All this amounts to an achingly slow start,
however. “Proposals to plug gaps left by
bank branch closures may well be part of
the solution to protect access to cash,” says
Jenny Ross, editor of Which Money. But
they “must be rolled out in much larger
numbers and far more quickly in order for
people to feel their benefits”.
If your local branch has closed, check
to see if there is a shared banking hub near
you, or if your banking provider has any
community pop-ups. Barclays isn’t the only
provider to go down this route. TSB also
runs pop-ups for its customers, in libraries,
town halls and churches, for instance.
©Alamy
ten pods by this summer
If you have a Post Office near you,
you may be able to use its banking
services, such as withdrawing cash,
depositing cash and cheques and
checking your account balance.
Customers of Halifax, Lloyds, TSB,
Allied Irish Bank, Bank of Ireland,
Bank of Scotland and Virgin Money
can access the full range of manual and
automated banking services at a Post
Office. Other customers, however, may
only be able to use certain services.
There is a handy table on the Post Office
website showing which personal services
and which business services are available
to which banking customers (postoffice.
co.uk/everydaybanking).
Another option if you want to withdraw
money and there’s no bank branch,
Post Office or ATM near you is to get
cashback in a shop. Some supermarkets
and convenience stores offer cashback at
their tills with your debit card – and you
don’t need to buy anything. Type your
postcode into the Link website (link.co.uk/
consumers/locator/) to see what your
options are.

Pocket money... return train tickets set to be axed

l The Bank of England’s (BoE)
base rate is at a 14-year high of
4% after the tenth successive
increase last week. But “a price
war between lenders, and the
expectation that interest rates
will soon peak, has brought
down the cost of fixed deals”,
says George Nixon in
The Times. “The cheapest
mortgage now starts with a
three for the first time since
September, with Lloyds and
Virgin Money both offering
ten-year fixes at 3.99%.”
If you don’t want to fix for a
decade, then Platform, part of
Co-op Bank, has launched a
five-year fix at 4.09%, but lower
rates could be on the way.
Lenders had already priced
in last week’s interest-rate rise
and now the expectation is that
there will be “one quarter-point
rate rise in March, and that the
BoE will then begin loosening
monetary policy by the end of
the year”, says James Pickford
in the Financial Times.
That means mortgage
lenders look set to start
dropping their rates. “There’s a
clear ability in the market now
to offer a five-year fixed rate at
sub-4%,” Ray Boulger, senior
mortgage manager at broker
John Charcol, told the Financial
Times. The average rate on
two-year fixed deals is also
dropping, down from 6.47% at
the start of November to 5.44%
at the start of this month,
according to comparison
site Moneyfacts.
l “Savers are looking forward
to a raft of new increases in
their interest rates after the
Bank of England pushed up its
base rate,” says Toby Walne in
The Mail on Sunday.
Several new savings
accounts have hit the market.
NS&I has brought back its
Guaranteed Growth Bond with
a rate of 4% for 12 months after
a four-year hiatus. The rate is
the highest offered on this
bond for 13 years. Savers need
to have at least £500 and be
willing to leave their money in
the account for a year.
l Return train tickets are to
be scrapped, with the two-way
tickets to be replaced with
“single-leg pricing”, says
Sarah Butler in The Guardian:
two singles will be the same
price as the current return fare.
New plans for the railways are
also expected to include
better use of technology and
a new pricing strategy to
simplify the ticketing system.
The changes could eventually
lead to the use of smart cards,
similar to London’s Oyster
Card system, across the
entire country.

10 February 2023 moneyweek.com


A longer wait to retire
The normal minimum pension age (NMPA) is to rise from 55 to 57
David Prosser
Business columnist
A mid mounting speculation
that the government plans
to raise the state pension age
sooner than expected, some
savers may be overlooking a
crucial change that is definitely
on the way. From 2028, the
earliest age at which you may
access your private pension
savings will rise from 55 to 57.
Since the pension freedom
reforms of 2016, which gave
savers more flexibility over how
to use their pension savings,
the principle that the cash is
available to people from age 55
onwards – known as the normal
minimum pension age (NMPA)
– has become well established
and widely understood.
However, that rule was based
on the state pension age at the
time, which was 65. The age at
which you can claim your state
pension has already increased
to 66, and is due to climb to
67 by 2028. The government
is therefore raising the NMPA
at the same time, in order to
maintain the ten-year link.
The change applies to
anyone born after 5 April
1973. There are also some
transitional rules for those
born between 5 April 1971
and 5 April 1973. They will be
able to take their benefits during
a window from the date of their
55th birthday to 6 April 2028.
In practice, many people with
private pension savings choose
to leave their money invested –
and make further contributions
– well beyond the NMPA. The
earlier you access pension cash,
the harder it will be to make
sure the money lasts throughout
your retirement years.
Nevertheless, significant
numbers of savers do start
taking cash out of their funds
very soon after the rules allow
them to do so. They may not
necessarily stop working, but
the additional income provides a
range of opportunities.
Savers in this group therefore
need to consider whether the
new rules affect them – and how
to adjust their plans accordingly.
You may need to delay the
moment when you start dipping
into your savings. Importantly,
the change in the law affects
moneyweek.com
Pensions 25
Pension fund
fees cap lifted
Savers invested in certain
types of pension funds
through their occupational
pension schemes may soon
face higher fees following a
government review of the
auto-enrolment system.
At present, occupational
pension funds are not
allowed to levy an annual fee
above 0.75%, a maximum set
to ensure that providers’
charges do not erode the
value of people’s savings.
However, ministers have
announced that
performance-related
charges are to be exempted
from this cap.
In theory, that means the
investment managers who
offer pension funds to
occupational schemes would
be able to make additional
©Getty Images
Some retirees will now have to delay charges above the 0.75% cap,
celebrating the end of their working life assuming that they hit pre-
agreed returns targets.
different schemes in different minimum age at all, in which The aim of the reforms
ways. A small number of case the default is the NMPA. is to encourage more
providers to offer funds that
private pension plans (both These schemes will be directly
invest in areas such as the
occupational pension schemes affected by the changed NMPA, green economy and
and personal or stakeholder so from 2028 onwards, savers infrastructure, where the
pensions) specify a certain age won’t be able to get at their government is keen to see
at which people may begin money until age 57. more private capital.
drawing their pension. It is therefore important Such funds are often
This will typically be 55, to check the specifics of your more expensive to run,
in line with the current rules. scheme carefully if you’re which fund providers say
If that’s what your scheme’s thinking about drawing has constrained their ability
to offer them inside pension
policy documents say, these down pension cash in the
schemes that are subject to a
will override the change in the next few years. charges cap.
law, and you will still be able to Ask scheme administrators
begin making withdrawals from for the details of the
age 55. arrangements made in scheme move up too. Currently, the
rules and policy documents. plan is for the state pension
The default scenario If in doubt, take independent age to increase to 68 by 2046,
However, in the majority of financial advice. but there has been widespread
cases, private pensions refer to Finally, bear in mind that as speculation in recent weeks
the NMPA rather than a specific the state pension age rises over that the date may be brought
age, or make no mention of a time, the NMPA will probably forward.
News in brief... a higher lifetime allowance?
l Is chancellor of the exchequer l Savers who build up small to pension savers wrongly
Jeremy Hunt about to offer pots of pension cash in an charged too much when
wealthier pension savers a employer’s occupational they began accessing their
lifeline? In recent years, the pension scheme may soon savings. The figure, included
direction of travel on the see their money automatically in new data published by the
lifetime allowance (LTA), which transferred to their next tax authority, reflects an
effectively caps the amount of employee’s pension ongoing problem with
pension savings that people arrangements. Ministers are HMRC’s IT systems. These
may amass, has been one way. consulting on plans aimed at automatically assume that
In 2010, the LTA stood at £1.8m. helping the growing numbers savers’ first pension
Today, savers face tax penalties of pension savers who build up withdrawals will become a
of up to 55% on funds that multiple small pots of cash from regular pattern and tax them
exceed £1.073m. Now, working for a series of accordingly, even though
however, reports suggest that employers. Such arrangements many savers take a large sum
the chancellor is planning to are hard to keep track of for first and then make smaller
increase the LTA. Hunt is said savers, and small pension funds withdrawals later. Pension
to be concerned that some are often disproportionately experts advise savers to stick to
over-50s are opting out of the affected by scheme charges. small sums when they make
workforce because they are not their very first pension-fund
allowed to continue adding to l HM Revenue & Customs withdrawal in order to avoid
their savings. refunded £134m of tax last year the problem.
10 February 2023
26 Trading

A booming bargain bin How my tips

have fared
Retailer B&M European Value is burgeoning amid the cost-of-living squeeze My long tips have done
well during the last
fortnight, with seven out
Matthew Partridge of eight rising.
Shares editor Construction and
industrial equipment-
rental firm Ashtead rose

I nflation may finally be starting to peak, while

the looming recession is looking a little less
daunting than feared a few months ago. However,
from 5,038p to 5,654p,
retailer Dunelm climbed
from 1,097p to 1,193p and
things are by no means easy, with the combination luxury-clothing retailer
of sky-high energy costs and below-inflation pay Burberry advanced from
rises still biting. No wonder then that discount 2,362p to 2,447p.
retailers such as Lidl and Aldi have done brisk Builder DR Horton
also increased, from
business over the past few months. However, $95.73 to $98.30, while
people’s search for a bargain doesn’t stop there. Savills advanced from
According to YouGov, the opinion pollster, a 938p to 1,102p.
fifth of parents are now buying food from budget Streaming service
retailers where food is not even the main offering. Netflix rose from $357
One of the stores that has benefited from this to $361 and online
is B&M European Value Retail (LSE: BME), retailer ASOS went up
which saw its like-for-like sales in the UK jump from 775p to 922p.
by an annual 6.4% in the final three months of B&M’s UK like-for-like sales jumped by The only share that
6.4% in the final quarter of 2022 fell was telecoms
last year. Of course, the success of B&M, which

©B&M
operator Gamma
operates 2,000 stores, mostly in Britain, is not a Communications, which
fluke, but the continuation of a solid growth trend This strategy, in addition to a focus on keeping fell from 1,200p to
that has seen its sales nearly double since 2017. store rents low, allows B&M to keep its operating 1,178p. Overall, my
While it benefited from the fact that its status margins at around 10%-12% (compared with long tips are making
as an “essential retailer” allowed it to remain roughly 3% for the likes of Tesco) and achieve a collective net profits of
open during the pandemic, it has acquired a cult return on capital employed (ROCE, a key gauge of £5,729, well up from
following thanks to its reputation for offering a profitability) of 15%-20%, compared with about £4,205 a fortnight ago.
mixture of groceries and general merchandise at 5% for the major supermarkets. As a result, the However, my short
tips didn’t do so well,
very low prices. group combines high double-digit growth with a with three out of four
“The stores resemble comfortable dividend yield moving against me.
Tricks of the trade of 4%. What’s more, despite Real-estate investment
B&M keeps costs down in Aladdin’s cave, with all these advantages, B&M trust Digital Realty
two main ways. Firstly, it
focuses on a limited number
products rapidly changing” trades at only 14.2 times
2024 earnings, virtually the
increased from $107.66
to $113.64, AST
of “best-seller” lines in each product category, same level as J Sainsbury. SpaceMobile jumped
rather than trying to give customers a wide B&M’s shares also seem to have considerable from $5.32 to $6.04, and
choice between competing brands. It also directly momentum behind them. While they were caught Live Nation rose from
$75.78 to $79.60. Electric
sources goods from manufacturers, including up in last year’s general market rout, halving vehicle-charging firm
those in Asia, rather than going via an importer or between January and October 2022, they have EvGo stayed steady at
distributor. It buys these goods in bulk, allowing since rallied strongly, increasing by two-thirds $6.24. My five short tips
it to benefit from steep discounts, which in turn over the past three months. At present they are are making a combined
allow it to charge low prices. While this does give comfortably ahead of both their 50-day and 200- profit of £589, down
its stores an “Aladdin’s cave” appearance, with day moving averages. As a result, I suggest you go from £2,303.
brands and products constantly changing, the long at the current price of 483p, at £4 per 1p, with The short and long
approach has proved popular with customers. a stop-loss of 243p. This would give you a total tips are making overall
It also encourages impulse buying. downside of £960. profits of £6,317. I have
nine long tips (Ashtead,
Dunelm, Netflix,

Trading techniques... advertising on TV Burberry, DR Horton,

This weekend the Philadelphia
Eagles and the Kansas City
Chiefs will square off in the
State Farm stadium in Glendale,
Arizona, in the Super Bowl
match to determine the best
American football team.
However, while millions of
Americans will tune in, they will
also be looking at the
advertisements during the
television broadcast, which are
estimated to cost up to $7m for a
30-second slot.
While some advertisements,
such as Apple Mac’s “1984”
(which had its first national airing
during the 1984 Super Bowl),
have achieved legendary status,
the impact on the share price
of the companies involved is
more controversial.
Some traders argue that the
publicity for the firm buying a
Super Bowl advertisement can
only be good for the share price,
as it makes more investors aware
of the firm. But others argue that
the advertisements could be a
sign of wasteful spending or
corporate hubris, with pets.com,
a notorious dotcom disaster, and
crypto exchange FTX both
running Super Bowl
advertisements before they
collapsed. Sceptics also note not
all advertisements are positively
received, with sports shoe
Gamma
Communications,
retailer Just for Feet filing for Savills, ASOS and B&M
bankruptcy less than a year after Value) and four short
airing an allegedly insensitive ones (EVgo, AST
one depicting a team drugging a SpaceMobile, Digital
barefoot Kenyan runner. Realty and Live Nation),
The evidence is mixed. A 2010 which means I need to
study by three US universities find some short ideas
found that airing a Super Bowl soon. I suggest you
advertisement did slightly boost increase the stop-losses
a company’s share price in the on Ashtead to 3,800p
short run, though this depended (from 3,785p), Dunelm
on the period that was examined. to 890p (880p), Netflix
However, while research in to $280 ($275), Burberry
2009 also found that to 1,750p (1,700p),
commercials that were more DR Horton to $78 ($77),
positively rated boosted share Gamma Communication
prices, a follow-up study six to 700p (from 661p)
years later found that this effect and Savills to 600p
had disappeared. (from 458p).

10 February 2023 moneyweek.com

28 Personal view

How to identify Europe’s If only you’d invested in…

Pearson (LSE: PSON)

long-term winners Share price in pence

1,000

900

A professional investor tells us where she’d put her 800

money. This week: Zenah Shuhaiber, co-manager of 700

the JPMorgan European Growth & Income Trust 600

F M A M J J A S O N D J
European markets have started the year experienced a 1% reduction in sales. Despite 2022 2023

on a positive footing. While the energy
crisis affected sentiment throughout 2022,
warmer temperatures and well-filled
gas storage facilities across Europe have
now tempered anxiety. The reopening
of the Chinese economy could also
provide a fresh boost for Europe’s export-
orientated economy.
The renewed optimism is reflected in
recent data, with the European STOXX
benchmark index outperforming America’s
S&P 500 by more than 18 percentage
points since 1 September. Yet we believe
European valuations remain compelling,
particularly compared with the US. As a
result, European equities could now offer
an attractive entry point for long-term
investors looking to diversify.
Resilient luxury-goods group
When looking at European equities, we
the uncertain market backdrop, LVMH’s
profits rose by 23% in 2022, leaving the
business well positioned to withstand
further volatility.
Healthcare remains a key growth
theme, allowing investors to tap into
disruptive technologies with the potential
to change lives. Denmark’s Novo Nordisk
(Copenhagen: NOVO-B) is a market leader
in this sector. It continues to beat analysts’
expectations. Already the biggest producer
of insulin in the world, Novo spends more
than $2bn a year on researching and
developing new drugs. One recent discovery
has been Wegovy, a state-of-the-art obesity
drug. With analysts predicting that the
market for weight-loss drugs could grow to
an annual $50bn per annum by 2030, we
are optimistic about the stock’s long-term
growth potential.
Shares in educational publisher
Pearson (LSE: PSON) have soared,
says the Financial Times. Underlying
sales rose by 5% in 2022, with adjusted
operating profit increasing
by 11% to £455m. Pearson’s CEO,
Andy Bird, has steered the firm away
from a dwindling textbooks business,
emphasising instead the provision of
digital services to students and the
workplace training market. Pearson
operates a popular software
subscription service called Pearson+,
offering students access to a library of
Pearson’s textbooks for $14.99 a month.
The stock has risen by 51% in a year.
Be glad you didn’t buy…
Inland Homes (Aim: INL)
Share price in pence
60
50

focus on well-governed companies with a Driving energy efficiency 40

long history of innovation. This requires us Energy efficiency is a growing priority as
30
to be discerning and carefully identify the more organisations recognise the effect of
long-term winners. inefficient systems on
This is exemplified
“LVMH’s sales barely carbon footprints. We
20

through our slipped during the global are therefore seeing a 10

approach to luxury wave of renovations F M A M J J A S O N D J

consumer durables
financial crisis” as building managers 2022 2023

and apparel: a cyclical sector we expect to seek cost-saving improvements. Housebuilder Inland Homes (Aim: INL)
be affected by a recession. Schneider Electric (Paris: SU) provides has unnerved investors again by
LVMH (Paris: MC) is a company innovative solutions to measure and forecasting a pre-tax loss of more
that continues to stand apart from its improve the energy efficiency of buildings, than £90m for the year to September
2022, up from an initial estimate of
competitors. Home to 75 well-known in addition to automation services. The firm £37m. It reports later this month.
brands, such as Louis Vuitton and Christian employs digital solutions to drive carbon A downturn in the housing market and
Dior, LVMH has continued to strengthen reduction through a proprietary software rapidly rising construction costs are
its global leadership. Historically, there platform, which allows for enhanced safety, the principal culprits. The group is
have been differences in the extent of efficiency and sustainability for homes also carrying almost £100m of debt
the impact an economic slowdown has and businesses. Sales continue to expand. (four times its market capitalisation),
had on this sector, which has depended Schneider Electric also launched its climate while CEO Donagh O’Sullivan departed
on the strength of a brand and how well change advisory services in 2021, the first in early January after a mere five weeks
managed a company is. LVMH has proved service of its kind to share Schneider’s in the role. The company’s share price
has slumped by about 8% over the past
to be resilient. For instance, during the expertise in delivering strategies for 12 months.
global financial crisis, the company only sustainability and climate initiatives.
©The Telegraph 2023

10 February 2023 moneyweek.com

 Profile 29

Big Tech’s avuncular patriarch

Marc Benioff considers his multi-billion dollar software empire to be one big happy family.
But as with all families there are tensions – and a boardroom battle looms. Jane Lewis reports
Corporate America is settling in for shaping Salesforce’s culture.
for what promises to be the most But it was his own tech know-
electrifying boardroom battle how that got him started.
of the year. In one corner stands Benioff started “a one-man
Marc Benioff, Salesforce’s company” as a teenager,
assertive billionaire co-founder. making games for the Atari
In the other, a handful of 800 computer, says Business
shareholder activists led by Insider. By 16, he was pulling
Elliott Advisors, whose own in $1,500 a month – enough
formidable founder, Paul Singer, to finance his way through
was once described by The the University of Southern
New Yorker as “the Doomsday California, where he graduated
investor”. Many chief executives in Business Administration.
are scared of Singer, notes the
Financial Times. But he has Downing an Oracle
chosen quite an opponent in Benioff is a former Oracle
Benioff. The driving force executive who left Larry Ellison

behind one of the great business
success stories of the century,
the Salesforce boss is as intrinsic
to his $169bn cloud empire as
Mark Zuckerberg is to Meta. “Benioff is a flashy salesman who mixes booming database firm straight
go-go capitalism with new-age spirituality” out of college, Benioff quickly
Heavy metal and conches
“The activists’ arrival marks a startling
moment for a company that for years knew
only explosive growth, soaring shares and
an odd, cultish culture built around its
larger-than-life founder,” says The Sunday
Times. “Benioff is a flashy salesman who
mixes go-go capitalism with new-age
spirituality and breathless urgency to
change the world via sales-management
software.” He bought Time magazine,
built the tallest skyscraper in San Francisco Slack’s boss Stewart Butterfield) have quit. feud ensued. One of Benioff’s earliest
and is known for courting celebrities and
politicians – recruiting Neelie Kroes, the
former EU antitrust tsar, to the board.
The tycoon, who has a large estate in
Hawaii, has long insisted that Salesforce
is not so much a company as an ohana,
the Hawaiian word for family. At his
annual Dreamforce sales conference,
where Metallica played so frequently it was
deemed the house band, “keynote speeches
are blessed by conch-blowing Hawaiians”.
©Getty Images
behind to create Salesforce,
says Bloomberg Businessweek.
But that rather under-eggs the
drama. Having joined Ellison’s
caught the boss’s eye and the
When Salesforce was booming, two became close, with Ellison acting as
Wall Street overlooked these eccentricities. mentor, says Fortune. “They sailed to the
But having grown at breakneck speed Mediterranean on Ellison’s yacht, visited
during the pandemic – in an expansion Japan during the cherry-blossom season,
drive that included the $27bn acquisition of spent Thanksgiving together, and even
messaging app Slack at a “staggering” double-dated.” When Benioff quit after
33 times annual revenue – Benioff’s 13 years to pursue the then-revolutionary
juggernaut has hit the skids. Profits have idea of selling business applications via
plunged, shares have halved in value the cloud, Ellison was at first supportive.
since 2021, and key executives (including But as Salesforce established itself, a bitter
In January, Salesforce laid off 10% of its advertisements pictured a Salesforce jet
workforce, or 8,000 people, says Bloomberg shooting down an Oracle plane.
– a dramatic bloodletting that gave the Is Salesforce itself now in a tailspin?
lie to Silicon Valley’s “mystical utopia” of Not really, says The Sunday Times. This
corporate life as one big happy family. crisis isn’t “existential” – sales are forecast
For Benioff, who was born in the Bay to hit $30bn this year and the company is
Area in 1964, it has always been a family sitting on $6bn in cash. But after decades
thing, says the San Francisco Chronicle. of unchallenged rule, Benioff himself looks
He credits both his father, who owned a exposed. For the moment, Elliott is playing
local department store, and his grandfather, “friendly”, one source told the Financial
a city official with a colourful personality, Times. “But it could get nasty.”

The best trades in history… John Neff snaps up Ford

John Neff was born in Wauseon,
Ohio, in 1931. After leaving
school he worked in a range of
factory jobs before briefly
joining his father in the industrial
supply business. He spent two
years in the navy, then returned
to college, graduating from the
University of Toledo before
working as a securities analyst at
the National City Bank of
Cleveland while doing a masters
degree in banking and finance.
In 1963 he joined Wellington
Management, acting as portfolio
manager for its Windsor Fund
for the next three decades, until
his retirement in 1995.
What was the trade?
In the 1970s and early 1980s, the
major US car companies
became complacent, allowing
Japanese rivals to steal market
share. With the US economy
then in the midst of a recession,
investors were so pessimistic
that by early 1984 shares in Ford
were trading at only $12, just
2.5 times their annual earnings.
Neff, who was a value investor,
believed the market reaction
was overdone, considering
that Ford had little debt,
plenty of cash on hand, and a
management team focused on
cost control. He bought $172m
worth of shares over the next
year at an average price of
roughly $14.
How did it do?
Over the next few years shares
in Ford Motor Company soared
as the economy recovered, and
it became clear that US
manufacturers were learning
how to compete with their
Japanese counterparts. Ford
benefited from strong sales of
its Taurus model and pickup
trucks, a market segment most
analysts had overlooked. By
1987 Ford’s share price had
nearly tripled, reaching $50,
bringing Windsor about $450m
in profits.
Lessons for investors
Buying Ford near its low point
was far from Neff’s only
successful call as an investor.
Between 1964 and 1995 the
Windsor Fund returned around
13.7% a year, outperforming the
overall market, which returned
just 10.6%. This shows that a
contrarian strategy of buying
stocks that have fallen out of
favour can work well if you are
able to do the detailed research
necessary to discover when the
market has got it wrong.

moneyweek.com 10 February 2023

 Travel 31

A mad dash to Brighton

Old-fashioned cars and hotel charm never go out of style, says Matthew Partridge
“T his is the wettest it’s
been in the 30 years
that I’ve being doing it; if it was
colder they might have had to
think about calling it off,” said
Cliff Jowsey as he steered his
1902 Renault into a service
station in the west Sussex town
of Cuckfield. It was just after
10am, and Ed, his navigator
Matthew, and I had been on the
road for two and a half hours.
The three of us were wet, soaked
to the skin and loving every
minute of our adventure.
The London to Brighton
Veteran Car Run is a rally,
involving pre-1905 vehicles,
that takes place on the first
Sunday in November each year
(with a concours the day before
in London). It’s organised on
behalf of the Royal Automobile
Club and first took place in
1896 as the “Emancipation
Run” to celebrate the passage
©Getty Imagesit

of legislation the same year that

made it much easier for people British grit on the London to Brighton Veteran Car Run
to use cars, by raising the speed
limit to 14mph and removing tradition for many competitors, of Hyde Park and it is also an The Four Seasons also has
various other restrictions. such as the Jowseys, with Cliff’s excellent jumping-off point its own spa, with a small pool,
The event begins around son Ed (a successful race driver) for those who want to explore sauna and nine treatment
sunrise in Hyde Park, with going from being a young the capital. rooms. What sets it apart from
the finish line at Brighton’s passenger in the early 1990s to The rooms, which are its competitors is its rooftop,
Madeira Drive. In addition to now piloting his own 1904 designed by Tara Bernerd & which allows for panoramic
petrol-powered cars, the line- De Dion Bouton. Partners, are luxurious to the views across London. The hotel
up attracts steam and electric point of decadence. In the offers various spa packages,
vehicles of the period, as well as A hotel stay to savour past, I’ve stayed in suites with including the Exclusive Couple’s
motorcycles and bikes (including Just as a great meal deserves a multiple rooms, but this time Sky Suite Experience. This
penny farthings). fine wine, an event such I counted no less than seven. includes a welcome drink on
Success is by no means as the Veteran Car Run In addition to the bedroom arrival, one hour of relaxation
guaranteed and we passed many deserves to be paired with an and two bathrooms, there in a private steam room,
stricken competitors on the side was a walk-in closet, powder followed by a two-hour spa
of the road trying to fix their room, and a sitting room with experience, consisting of three
machines (Jowsey himself another room leading out onto 40-minute treatments.
admitted that some of his a balcony. The Four Seasons provides
past runs have ended substantial in-room dining
in failure). Overall, a “The Four Seasons options, with a large selection of
quarter of the 364 food available around the clock,
vehicles that entered
Park Lane is an so you don’t have to step outside
the 2022 race didn’t excellent jumping- your room if you can’t bear to
make it to Brighton, tear yourself away. However,
with some even
off point for that would be a shame as it
failing to cross the exploring London” would mean missing out on
starting line. the chance to dine in the hotel’s
What made the My suite contained every elegantly designed Amaranto
event really special amenity you could think of, Restaurant (there is also a
were the spectators who and the hotel’s dedicated and bar and lounge). I enjoyed my
lined the route. Whether friendly staff were on hand dinner of creamy tomato soup,
it was construction workers to cater for your every whim. exquisite king prawns (with
in Brixton, photographers in Indeed, not only was there a truffle French fries) and ice
Streatham or the Scouts and bottle of Champagne in my cream for dessert. Overall, this
Rotarians who greeted us in the excellent hotel. While there suite on my arrival, but I was hotel is one to savour.
villages outside Brighton, this are many nice places to stay in even told that when I wanted
©Four Seasons Park Lane

was an opportunity for people the immediate area, the Four to drink it, I should ring to Matthew was a guest of Four
to come together to celebrate Seasons Hotel London at Park summon a butler who would Seasons Hotel London at Park
British grit. It’s no wonder that Lane is something special. This immediately replace the bottle Lane, fourseasons.com. Rooms
the event has become a family luxury hotel offers great views with one that had been chilled. from around £695 a night.

moneyweek.com 10 February 2023

32 Property
This week: houses for up to £625,000* – from a large portion of a Georgian house in Puddletown, Dors

Trent Meadows, Puddletown, Dorset. Under Lane, Launceston, Cornwall.

A large part of a Grade II-listed 18th-century
Georgian house in a village. The property
retains its original fireplaces and has a large
kitchen with an Aga and French doors leading
onto the garden, which includes a sunken
ornamental pond. 3 beds, bath, 2 receps,
cellar. £550,000+ Domvs 01305-57300.
A Grade II-listed 17th-century thatched
cottage surrounded by gardens leading down
to the River Kensey. It has beamed ceilings
and open fireplaces. 3 beds, bath, 2 receps,
workshop, summerhouse with kitchenette,
kitchen garden, greenhouses, pond.
£575,000 Fine & Country 01566-771919.

Main Street, Fulford,

York. A period property with
a mature garden and off-
street parking. The house has
a sitting room with an open
fireplace with a wood-burning
stove, a large dining kitchen
with fitted units, skylights and
French doors leading onto the
garden, and a bathroom with
a free-standing Victorian bath.
3 beds, bath, 2 receps, store,
garage, electric charging point,
garden, 0.17 acres. £570,000
Savills 01904-617820. *£625,000 is the discounted 5% stamp-duty (SDLT) rate level above the £425,000 SDLT-free threshold for first-time buyers
10 February 2023 moneyweek.com

rset, to a cottage in an Area of Outstanding Natural Beauty in Flintshire, Wales
Washington Street, Chichester,
West Sussex. A Grade II-listed
terraced house close to the city centre.
The open-plan sitting room has a
wood floor, a wood-burning stove,
cabinets inset in alcoves on either
side of the chimney breast, and
French doors leading onto a courtyard
garden, which includes a raised decked
area and a brick shed. 3 beds, bath,
2 receps, kitchen, cellar. £550,000
Strutt & Parker 01243-832610.
moneyweek.com
Property 33
Erwau Cottage,
Ffordd Corwen,
Treuddyn, Flintshire,
Wales. A cottage in a
semi-rural setting on
the edge of a village in
an Area of Outstanding
Natural Beauty. The
cottage has beamed
ceilings, a living room
with a brick fireplace
with a wood-burning
stove, and a stable
block with an adjacent
workshop overlooking
the gardens. 4 beds,
2 baths, 2 receps,
study, conservatory,
breakfast kitchen,
garage, paddock, 1.33
acres. £600,000+ Fisher
German 01244-409660.
The Street, Ash,
Sevenoaks, Kent. An
upgraded Grade II-listed
house with mature
front and rear gardens
and private parking.
The house has sash
windows, wood floors
and a newly fitted
kitchen and bathrooms.
5 beds, 2 baths, 2 receps,
breakfast kitchen,
garage. £600,000 Knight
Frank 017327-44460.
Parva, Church View,
Bampton, Oxfordshire.
A Victorian stone cottage
close to the centre of the village
with an enclosed courtyard
garden with a raised seating
area. The cottage has a sitting
room with exposed stone walls,
a beamed ceiling, a feature
fireplace with a wood-burning
stove, and a large dining
kitchen with flagstone floors
and French doors opening
onto the garden. 3 beds, 2
baths, receps. £445,000 Butler
Sherborn 01993-822325.
Kirkmichael House,
Kirkmichael, Blairgowrie,
Perthshire, Scotland. A
renovated extended former
manse built in 1760 in an
elevated position on the edge
of a village in the glen of
Strathardle. It has wood floors,
open fireplaces with wood-
burning stoves, a family room
with a vaulted ceiling and
bi-fold doors opening onto a
terrace, and a kitchen with an
oil-fired Aga. 6 beds, 3 baths,
3 receps, study, conservatory,
gardens, 0.66 acres. £585,000+
Savills 01738-477525.
10 February 2023
34 Cars

Audi’s last-gasp supercar

The latest R8 is part of a dying breed – grab one while you still can. Jasper Spires reports

T he Audi R8 is one of the best

of the “everyday supercars”,
says Top Gear magazine. Why?
5.2-litre V10 engine… It’s old-
school. A dying breed [and a]
magnificent way to be propelled
tingling as you’d expect of an
engine that’s been designed
without compromise and hand
without breaking a sweat.”
It provides the confidence to
pin the accelerator to the floor
Because it’s an Audi for along any road at any assembled”. But its not just a and enjoy the full acoustic
starters, the cabin speed,” says Stuart car for raw power. “For such experience of its fabulous
will contain Gallagher in a low, wide car it’s a doddle to V10 engine, making the R8
wealthy, “95th Evo. The R8 drive – even if you spend lots “seriously good fun to drive”.
percentile The interior is designed
people”, it’s “The R8 is a must-have to be comfortable and
comfortable for the last generation ergonomic. Even on longer
drives “you’ll easily find your
to ride in,
and it’s of petrol-fuelled perfect driving position”,
reliable high-speed motoring” says Steve Huntington in
WhatCar. The car is also kitted
and well
built. With tops out of time around town – and its out with front and rear parking
a powerful at 205mph, suspension is supple enough sensors, a reversing camera,
engine and a racing from to protect your spine from and a generous infotainment
“huge breadth of 0-62mph in just all but the most monstrous system controlled from the
ability”, it’s a must-have 3.3 seconds. The potholes,” says Mat Watson steering wheel. For around
for the last generation of petrol- adrenaline-pumping soundtrack on Carwow. “Head out onto £133,000, the Audi R8 “looks
fuelled high-speed motoring. that roars under the bonnet faster back roads and the Audi good value”.
“The meat in the R8’s only serves to make the drive R8 feels even more stable and
aluminium sandwich… is the “as intoxicating and spine- soaks up ruts and undulations See audi.co.uk

Wine of the week: a luminous chardonnay

2022 Crystallum, Clay
Shales Chardonnay,
Hemel-en-Aarde, South
Africa
approx. £40,
hedonism.co.uk,
nattyboywines.co.uk
finest white wines Peter-Allan worrying momentum, the hunt is
Matthew Jukes Finlayson has made to date. on for genuinely delicious world-
Wine columnist The Agnes is brittle, class chardonnay to slake our
edgy and iceberg- collective thirst. There is no point
Valentine’s Day is around the shaped with profound simply throwing money at this
corner, and instead of selecting a depth beneath the conundrum, because often the
pink fizz or a Provençal rosé, gorgeous crystalline higher the chardonnay price tag,
I have found the most incredible exterior, while Clay the richer and oakier the wine.
pair of elite chardonnays, and you Shales is luminous, This is not what I am looking for.
can pick the style that most suits luxurious and I prize intensity of fruit flavour
you and your loved one! As I gorgeously without excess weight or
write this article, only a couple structured. These are woodwork, and this Crystallum
of merchants have ordered world-class wines pair nails this brief with unerring
stock of these two spectacular with balance and accuracy. They will send you
wines, but this number is sure to poise that takes one’s into raptures this week.
balloon as word spreads. I have breath away. With
no doubt that 2022 Crystallum Burgundy suffering a Matthew Jukes is a winner of the
The Agnes Chardonnay (£29.95, couple of challenging International Wine & Spirit
fortnumandmason.com), and my vintages and prices Competition’s Communicator of
headliner, Clay Shales, are the two escalating with the Year (MatthewJukes.com).

10 February 2023 moneyweek.com

36 Collectables

Prancing Horse leads the field Snap up a

classic online
A car doesn’t have to be
Ferraris are fetching millions of dollars at auction. Chris Carter reports vintage to fetch a high price
at auction. Last week,
F errari’s stock is motoring.
Last week, the luxury Italian
sports car marque raised its
Bugatti sold its last purely
petrol-powered car with RM
Sotheby’s in Paris. The
profits forecast for this year, Chiron Profilée sold for
having delivered a record- €9.8m, a new auction record-
beating 12 months in terms high price for a new car,
of net profits, revenues and beating the €8.3m paid for a
cash generation. No wonder. Ferrari LaFerrari Aperta in
Enthusiasts in Europe, China 2017. This year has also seen
a new auction record-high
and the US have been falling price set for a car dating
over themselves to saddle up from before World War I.
the Prancing Horse. In China A 1912 Simplex 50HP 5
alone, sales rose 73%. But it’s Passenger Torpedo Tourer
not just the newer Portofino M (pictured) fetched $4.8m with
and SF90 Stradale models that Bonhams in Arizona at the
are turning heads; older models end of January. The auction
The classic Dino 206 S goes under the hammer next week house advertised the
are too. Nine Ferraris rolled
onto the auction block at RM 111-year-old car in its
catalogue as having a
Sotheby’s Arizona auction at car insurers Hagerty’s Price offering a 1991 F40 without “massive four-cylinder,
the end of last month, five of Guide Index of Ferraris, which reserve next month. But before T-head engine, with power
which sold for more than $1m. averages the values of 13 of the that sale takes place, RM getting to the rear wheels via
An electric blue 2014 Ferrari most sought-after Ferraris of the Sotheby’s is auctioning “the last a prodigious pair of chains, all
LaFerrari was the top lot, 1950s to the 1970s, has risen Ferrari Dino 206 S” in a one-lot in a svelte and sporty
fetching just over $4m. Also last from just shy of $2.5m to $7m sale next Friday, in Pompano package” that delivers a top
month, in Kissimmee, Florida, as of last month, a 180% gain. Beach, Florida. speed of 85mph.
Mecum It had zoomed The Dino is considered to Such big-ticket classic
Auctions sold “In China alone, up to $8.5m by be one of the most beautiful cars used to be exclusively
the haunt of big auction
a 1992 Ferrari January 2015, racers of the 1960s, and this
F40 for $3.1m;
Ferrari sales rose but since then, 1967 example, with chassis
houses, such as Bonhams
another F40, 73% over the year” the index has 032, is one of only two to
a 1988 model, mostly turned have been fitted with the
went for €2.2m with Bonhams around the $7m mark and that most powerful Tipo 233
in Paris last week. looks set to continue. “For engine. It raced in several
But none of those come near now, it seems top-shelf Italian hill climbs during
the prices fetched at auction segments such as Ferraris 1966/1967 season
in the past decade. Of the top will remain rock steady,” says before passing through
ten priciest classic cars sold at Hagerty’s Greg Ingold. the hands of a number
auction, seven are Ferraris. A of collectors in Italy, and RM Sotheby’s. The
1962 Ferrari 250 GTO that sold A beautiful 1960s racer France and Britain. In 2014, it pandemic has helped to
for $48.4m at RM Sotheby’s in Most of the index’s movements received a full restoration at the change that, says Jim
California in 2018 had led the come in March and August Ferrari factory in Maranello, Motavalli in Barron’s Penta.
pack until last May when a silver with the holding of RM where it was “Red Book” BringATrailer, a pioneer of
1955 Mercedes-Benz 300 SLR Sotheby’s Amelia Island and certified, meaning the car has a the online classic-car market
left everybody else in the dust. It Monterey sales. This year, correct type Dino 206 engine, in the US, reported $1.4bn
fetched an astonishing €135m however, could be especially matching numbers gearbox in sales last year. Sellers
pay $99 to list their cars
in Stuttgart, Germany. Still, telling for the wider Ferrari and original body and chassis. and buyers pay a 5% fee of
over the past decade, classic- market as RM Sotheby’s is Ferrari fans will be watching. the final price, capped at
$5,000. The average price

Auctions paid for a car on the site rose

from $47,500 in 2021 to
Going… Bonhams is offering Gone… An F1 Ferrari 643 $54,495 and it sold 145 cars
“one of the most important sold for €3.7m with RM for more than $500,000.
and evocative World- Sotheby’s in Paris last week. That success has led to a
Championship-winning Grand The car was introduced “crowded field”, with
Prix racing cars of all time” at halfway through the 1991 investors flocking online.
the Abu Dhabi Grand Prix in season and made its debut Collectors in Britain
November. US racing legend Mario Andretti outing with French driver Jean Alesi behind the have an added incentive to
drove the John Player Special Lotus-Cosworth wheel at his home Grand Prix. Alesi finished in buy, says Benedict Smith in
Type 79 (pictured) to championship victory in fourth place. The car boasts a 3.5-litre naturally The Telegraph. Cars more
1978. The Type 79 represented a major aspirated V12 engine producing more than 700 than 40 years old are
technological leap forward in F1 motor racing. horsepower, and in its current condition, it is exempt from the £12.50 daily
From 20 starts in 11 Grand Prix races, the “Black eligible to be driven in historic racing events. Ulez charge inside London’s
Beauty”, as the car was known, notched up six Bonhams also sold last week in Paris the ultra-low emission zone.
wins and five podium finishes from 20 starts for Jordan-Ford 191 car, in which German They are also exempt from
racing team John Player Team Lotus. Andretti champion Michael Schumacher made his F1 MOTs as long as no
and his teammate “Super-Swede” Ronnie debut that same season. It fetched €1.5m. “substantial changes” have
©Bonhams; RM Sothebys

Peterson finished first and second four times Meanwhile, in Scottsdale, Arizona, late last been made and the car is
that season, earning themselves the moniker month, the auction house sold a 2001 Ferrari roadworthy; vehicle tax is
the “Mario and Ronnie train”. Andretti’s car is F1-authorised “Michael Schumacher” show car also waived if you register
expected to fetch between $6.5m and $9.5m. for $527,500. with the DVLA.

10 February 2023 moneyweek.com

 Crossword 37
Bridge by Andrew Robson Tim Moorey’s Quick Crossword No. 1142
A bottle of Taylor’s Late Bottled Vintage will be given to
Four Trumps the sender of the first correct solution opened on 20 Feb
This week’s Four Spades gave East a choice. Should he try for a Club 2023. By post: send to MoneyWeek’s Quick Crossword
No.1142, 121-141 Westbourne Terrace, Paddington, London W2 6JR. By email:
ruff, or play the forcing defence?
scan or photograph completed solution and coupon and email to: crossword@
moneyweek.com with MoneyWeek Crossword No.1142 in the subject field.
Dealer North East-West vulnerable
♠ KQ86
♥ J5
♠ KQ86
♦ 42
♣ AQJ86
♠ 4 ♥ J5
N ♠ A532
♥ 9742 ♥ AK1086
W ♦ 42E
♦ Q1097 ♦ J65
♣ 10732 S ♣5
West
♣♠AQJ86
J1097

East
♥ Q3
♠4
♦ AK83
♣♠♥ A532
K94
9742
The bidding
South West North East
1♣ 1♥
1♠ 3♥* 3♠ 4♥**
4♠ pass pass pass
* Bidding pre-emptively to the level of the fit.
** Deducing his partner for a singleton Spade, East knows the
hands will mesh well. Indeed, only a Diamond ruff defeats
Four Hearts, despite the partnership holding just 14 points.

West led the nine of Hearts (high denying an honour), and East
Across clues are mildly cryptic whereas down clues are straight
won the King and cashed the Ace. He was staring at a third trick
in the shape of the Ace of Spades, but from where was the fourth ACROSS DOWN
trick coming? 1 Reversible data (5) 1 English county (6)
Some Easts looked no further than their singleton Club, hoping 4 Proposals for British poet 2 Safety features
a second round would be played before his Trumps were removed. succeeded initially (7) in cars (3, 4)
8 Lunchtime food ordered for seminars 3 Pass over (4)
No good. Declarer won the Club and knocked out the Ace of Spades.
miles away? (7) 4 The cleverest
Declarer could win any return, draw all East’s Trumps, then run his
9 Give one day to tackle fighting (5) moves (13)
Clubs. Game made. 10 Mike cut back on paper (4) 5 Asian kingdom (8)
Other Easts led around to dummy’s Diamond weakness. Also 11 Congratulations for something 6 New Zealand region
no good – declarer could win, knock out the Ace of Spades, win a thoroughly cooked! (4, 4) on South Island (5)
second Diamond, draw Trumps, then run Clubs. Game made. 13 Farewell music from trumpeters? (4-5) 7 Australian capital (6)
It is the forcing defence that defeats the game, and East’s four- 17 Play relies on port in Denmark (8) 12 US philanthropist (8)
card Spade length should point that way. At Trick Three, East leads 19 Butcher keen to get a joint (4) 14 Poetry (7)
a third Heart (key play). Declarer ruffs in one hand and must draw 21 Some dubious language (5) 15 Banquets (6)
East’s Spades. However, provided East holds up his Ace until 22 Have such pets and always be anxious? (7) 16 Hot spring (6)
specifically the third round (voiding the hand of Trumps that ruffed 23 Drills used in coniferous trees, 18 Edible fish (5)
the third Heart), then leads a fourth Heart, declarer has lost Trump one’s heard (7) 20 Above (4)
control and must fail. 24 Difficult question for an affected person (5)

For Andrew’s four daily BridgeCasts, go to andrewrobsonbridgecast.com

Name

Sudoku 1142 Address

To complete MoneyWeek’s
8 3 9 Sudoku, fill in the squares
3 4 1 in the grid so that every row
email !
and column and each of the Solutions to 1140
9 7 8 5 nine 3x3 squares contain all Across 1 Blasted last in bed 5 Bare bar + e 8 Ascot a Scot 9 Seaside anag
the digits from one to nine. 10 Thunderstorm anag incl d 12 Silage anag 13 Mascot M + Ascot 16 Heart-
1 4 3 The answer to last week’s rending trend inside hearing 19 Shot shot + put 20 Alien a lien 21 Dart D +
9 2 puzzle is below. art 22 Repress re press

9 2 Down 1 Beak 2 Alcohol 3 Tot 4 Disney 5 Brass band 6 Rhino 7 Permit

6 4 5 7 2 3 1 9 8 11 Nightspot 12 Schism 14 Concise 15 Jester 17 Aroma 18 Onus 20 Asp.
8 3 1 6
8 1 2 4 5 9 7 3 6
3 7 3 9 7 6 1 8 2 5 4
The winner of MoneyWeek Quick Crossword No.1140 is:
Brian Burch of Solihull
7 2 8 2 8 4 1 9 7 5 6 3 Tim Moorey is author of How To Crack Cryptic Crosswords, published
by HarperCollins, and runs crossword workshops (timmoorey.com)
1 5 6 2 3 4 8 7 9
MoneyWeek is available to visually Taylor’s is one of the oldest of the founding port houses, family run and entirely
7 3 9 5 8 6 4 2 1
impaired readers from RNIB National dedicated to the production of the highest quality ports. Late Bottled Vintage
Talking Newspapers and Magazines 9 7 3 8 4 2 6 1 5 is matured in wood for four to six years. The ageing process produces a
in audio or etext. 4 6 1 9 7 5 3 8 2 high-quality, immediately drinkable wine with a long, elegant finish; ruby red
For details, call 0303-123 9999, in colour, with a hint of morello cherries on the nose, and cassis, plums and
or visit RNIB.org.uk.
5 2 8 3 6 1 9 4 7 blackberry to taste. Try it with goat’s cheese or a chocolate fondant.

moneyweek.com 10 February 2023

38 Last word

The uses of gold

Editor: Andrew Van Sickle
Markets editor: Alexander Rankine
Comment editor: Stuart Watkins
Politics editor: Emily Hohler
Wealth editor: Chris Carter
Shares editor: Matthew Partridge

The yellow metal may not pay a dividend, but it is a very useful yardstick Staff writer: Jasper Spires
Senior digital editor:
Kalpana Fitzpatrick
Deputy digital editor:
a time to do nothing. Markets Rupert Hargreaves
Bill Bonner move in long, broad patterns. Online writer:
Columnist Nicole García Mérida
Stocks are not always going up. Contributors: Bill Bonner,
Sometimes they go down for Ruth Jackson-Kirby, Max King,

G
old has risen 18% from its level long periods of time. After 1929,
in November 2022, and that
has got speculators excited. It has
piqued our interest too. It looks as
though the yellow metal is poised
to break out to new all-time highs
above $2,000. But if you measure
your wealth in gold, a rise or a drop
in the price is (almost) meaningless.
Your wealth is unchanged. Your
ounces of gold only multiply if you
sell them.
Real wealth comes from
Jane Lewis, Matthew Lynn,
David Prosser, Cris Sholto Heaton
it was 25 years before stocks David C Stevenson,
David J Stevenson, Simon Wilson
recovered. After 1966, (inflation-
adjusted) prices took 30 years Art director: Kevin Cook-Fielding
to bounce back. And now the Picture editor: Natasha Langan
Chief sub-editor: Joanna Gibbs
primary trend is down again.
The numbers are misleading; the Group advertising director:
Peter Cammidge
patterns are confusing. Prices go peter.cammidge@futurenet.com
up and down, in nominal terms. Account director: Abdul Ahad
But the only way to know if abdul.ahad@futurenet.com
Account director: Freddie Smith
you’re gaining wealth, or losing freddie.smith@futurenet.com
it, is to look at prices in terms of Chief financial and strategy
officer: Penny Ladkin-Brand
gold. Then, you can see more Non-executive chairman:

providing real wealth – goods and
services – to others. All honest
people do it that way, whether
selling their time or lending their
property. An investor has an asset
(money) that other people can use.
He lends it out for interest, or he
participates in the profits. Those
profits are the difference between
the time and resources that go into
providing a good or a service and
what it is worth
on the open
“Our target for buying holding stocks
clearly what is going on.
In 1966, the Dow hit a major
high. It took 25 ounces of gold
to buy all the 30 Dow stocks. Then,
the Dow/gold ratio turned down.
At that point, Dow stocks were
expensive. In gold (real-money)
terms, they would fall in value for
the next 16 years (until 1982) and
would not fully recover until 1996.
So, putting aside dividends, there
was no point in
©Getty Images
Richard Huntingford
Chief executive:
The hoard grows when you give it away Zillah Byng-Thorne
all-time low in 1980, you would Subscriptions
Email: subscriptions@
have had the chance of a lifetime. moneyweek.co.uk
Web: MoneyWeek.com/
Our target for buying back into the contact-us
stockmarket is a Dow/gold ratio Tel: 0330-333-9688
Post: MoneyWeek
below five. subscriptions, Rockwood
So, if you’d taken the House, Perrymount Road,
Haywards Heath, West
opportunity to trade your gold Sussex, RH16 3DH
Subscription costs: £139.99
coins at five-ounces-to-the-Dow in a year (credit card/cheque/
1978, you could then have enjoyed
the great bull market that followed,
direct debit), £159.99 in
Europe and ROW £179.99.

market once it back into stocks is a Dow/ (and certainly not taking you all the way to 1999,
is ready for sale.
That profit is the
gold ratio below five” stocks
measure by which business owners
get richer and by which society is
enriched. Gold is merely a form of
money, the best form. But even the
best money is worthless, in itself.
It is only valuable inasmuch as it
can either be turned into goods and
services and consumed, or used to
produce more wealth.
There’s a time for everything. A
time to sow and a time to reap. And
The bottom line
that paid
no dividends)
during that whole period.
But if you had cashed out of
the Dow in 1966, you would have
got as many as 27 ounces of gold.
And if you’d merely held your
gold, you’d still have 27 ounces of
gold. But, knowing that the real
money is made by providing real
goods and services, you should
have kept an eye on the Dow. And
when the Dow/gold ratio fell to an
MoneyWeek magazine is an
unregulated product.
when you might have traded out
of Dow stocks at 40 ounces/Dow.
Information in the magazine
is for general information
only and is not intended to
(Our model hedges the risk a bit by be relied upon by individual
readers in making (or not
getting out earlier.) Real wealth, making) specific investment
measured in ounces of gold, would decisions. Appropriate
independent advice should
have increased by as much as be obtained before making
20 times from 1966 to 1999 (or by any such decision.
Future Publishing Limited
eight times, if you had followed our and its staff do not accept
liability for any loss suffered
safer Dow/gold trading rule). by readers as a result of any
investment decision.
For more from Bill, subscribe to Editorial queries: Our staff
his newsletter at bonnerprivate are unable to respond to
personal investment
research.substack.com queries as MoneyWeek
is not authorised to
provide individual
investment advice.

€1.5m How much it costs
Ahtari zoo in Finland each
year to rent and keep a pair
of pandas. China
dispatched Lumi (snow)
and Pyry (blizzard) in 2018.
However, the pandas are
facing deportation as the
zoo says it cannot afford to
house them.
£15bn How much the
government has written
off on the personal
protection equipment
(PPE), drugs, and testing
equipment it bought
during the pandemic and
that will now never be
used, or will be sold at a
loss. Storage alone costs
1.6trn How much in
Norwegian kroner
(£133.3bn) Norway’s
NOK13trn sovereign-
wealth fund (SWF), one of
the world’s biggest SWFs,
lost last year. CEO Nicolai
Tangen blamed rising
inflation, interest rates and
the war in Ukraine for the
roughly 14% fall.
2,000 The face value in
Argentinian pesos
(officially worth $11) of
Argentina’s new highest
denomination banknote,
double that of the current
highest, the 1,000-peso
note. Consumer prices
rose 95% last year, one of
£448 The annual water
bill for an average
household in England and
Wales from April,
industry body Water
UK estimates. The
7.5% rise on last year,
blamed on higher
energy prices, will
be the biggest
increase in almost
two decades,
with customers
paying, on
average, £31
more. One in
five households
are already
struggling to pay
their water bills,
say consumer
MoneyWeek, 121-141
$11.6bn The Westbourne Terrace,
London, W2 6JR
combined gross editor@moneyweek.com
earnings of DC
MoneyWeek is published by
Comics’ 22 superhero Future Publishing Limited.
films released since 121-141 Westbourne
2004, compared with Terrace, London, W2 6JR
Disney-owned arch © Future Publishing Limited
rival Marvel’s 2023. All rights reserved.
MoneyWeek and Money
$28bn from 30 Morning are registered
films since 2008. trademarks. Neither the
whole of this publication
DC’s owner nor any part of it may be
Warner Bros. reproduced, stored in a
Discovery will retrieval system or
transmitted in any form or
launch a by any means without the
competing “DC written permission of the
publishers.
Universe” of © MoneyWeek 2023
interconnected IISSN: 1472-2062
films in 2025. It is
releasing four films
this year,
including The
©Alamy

around £24m a month. the world’s fastest rises. groups. Flash (pictured).

10 February 2023 moneyweek.com

9000