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 21 July 2023 | Issue 1165 Britain’s best-selling financial magazine

From the editor...

What goes around and will also make it much
comes around (and easier to save for retirement.
can knock you off If it is easier for people to
your feet if you’re save and move house, overall
not careful). Life investment and productivity
and finance are full of cycles. But should climb. Note that the
the recurring theme of the past average house cost 8.9 times
two decades is that economies average earnings last year, while
have not been allowed to the ratio hovered around five for
complete them. Recessions are much of the post-war era – until
necessary correctives to booms, easy money kicked in.
clearing out dead wood and After decades of distortion,
paving the way for a healthy there is a great deal of mean
upswing. Years of central reverting to do. But the prize

©Alamy
banks wading into markets and We need help to build, not Help to Buy is sweeping away distorted
staving off downturns with structures and laying the
easy or free money, however, “Central banks have spent decades staving off foundations for a healthier
repeatedly postponed or upswing: creative destruction,
greatly ameliorated market
downturns with easy or free money” as economist Joseph Schumpeter
and economic downturns, causing worse have arrived. The Wealth Club notes that put it. The term applies also to disruptive
trouble later. Throwing money at the corporate insolvencies in England and technologies, such as the railways, the
dotcom bubble, for instance, sowed the Wales rose by 27% year on year to 2,163 internet and now artificial intelligence (see
seeds of the credit boom that led to the in June. Between April and June, quarterly page 22).
financial crisis. insolvencies eclipsed 6,000 for the first The hope is that the state will not
time since the financial crisis. An analysis try to interfere in these long overdue
A zombie apocalypse? by Goldman Sachs last year suggested corrections but instead attempt to tackle
The financial world went further and that 13% of US firms could be zombies. some zombified structures of its own. The
further through the looking glass, with In 2017, the Bank for International planning system would be an excellent
the price of money going negative. One Settlements estimated that 15% of listed place to start (see page 19) – help to build
of the key distortions the zero-interest firms in developed countries were zombies, rather than Help to Buy. Reining in the
rate era produced was zombie companies. up from 4% in the late 1980s. range of useless degrees and boosting
These are defined as firms that are alive The sense of a pendulum swinging back the scope for technical education and
but unable to grow: they earn just enough is also discernible in the latest report from apprenticeships would help long-term
to service their debt but aren’t in a position the Resolution Foundation. It notes that productivity, too. These policies may help
to pay off their borrowings or invest in British households’ overall wealth jumped the government avoid its own creative
expansion. Ideally, they would die and the from three times GDP to almost eight destruction at the next election.
capital they hog would be better employed times over the past 40 years as interest
elsewhere, bolstering overall productivity. rates slid and asset prices rose. An era of
Now that interest rates are finally higher long-term rates implies lower house Andrew Van Sickle
rising again, the zombie apocalypse may prices, making property more affordable, editor@moneyweek.com

Good week for:

Fighting Marketa Vondrousova of the Czech Republic (pictured) has
finfluencers become the first unseeded woman to win the Wimbledon tennis
The Financial Conduct championships, last weekend. She won £2.35m. The value of the
Authority (FCA) has total prize money for this year’s tournament was £44.7m, 10.8%
“finfluencers” in its higher than in 2022.
sights. The City watchdog
says it will rein in social- The Police and Fire Retirement System of the City of Detroit
media celebrities and has forced directors at Tesla, the electric-car maker in which
firms that promote risky the retirement fund is a shareholder, to return $735m to the
products to their firm on the grounds they had awarded themselves excessive
followers. Research from pay from 2017 to 2020. The directors also agreed to forgo
consultancy MRM found payment for the past three years to settle the lawsuit.
that almost three-quarters
of young people trust Bad week for:
Cover illustration: Howard McWilliam. Photos: Alamy; Getty Images

financial information US Treasury secretary Janet Yellen was criticised by

provided by finfluencers. “Often these influencers
have little knowledge of what they’re promoting,”
the FCA said. “This lack of expertise is reflected in
the large number of promotions that are either
illegal or non-compliant.” In May, the watchdog
revealed it had teamed up with the Advertising
Standards Agency and Sharon Gaffka, a former
civil servant and reality television star, to explain
to influencers the risks they run in promoting
financial products. As part of its new “consumer
duty”, the FCA will hold the products offered by
©Getty Images
opposition Republicans for repeatedly bowing to her Chinese
counterpart, He Lifeng, who did not reciprocate, during her trip
to China. The internet was rife with speculation that she had
previously ordered four portions of jian shou qing at a
restaurant. The mushroom dish from Yunnan province is
thought to have hallucinogenic properties.
Suumit Shah, the founder and boss of Dukaan, an e-commerce
company based in India, has been accused of being “tone deaf”
when, in a series of tweets, he celebrated his decision to lay off
90% of customer support staff and bring in an artificial intelligence

financial firms to high standards, along with the (AI) chatbot called Lina. Response times to queries fell from 104
social-media posts used to promote them. seconds to immediate. “Whatever I used to spend in terms of the
salaries… is not required any more,” he told The Times of India.
moneyweek.com 21 July 2023
4 Markets

Goldilocks returns – but for how long?

Alex Rankine
Markets editor

US Federal Reserve chair Jerome Powell

says there is “a narrow path to a soft
landing”, according to Michael Feroli
of JPMorgan. A soft landing describes a
scenario where inflation moderates without
upending the wider economy.
That path seems “a little wider now”.
Annual US inflation fell to 3% in June, its
lowest level since March 2021 and sharply
down on May’s 4% figure. While UK
inflation remains high (see page 12), US
price rises have fallen substantially since last
year’s peak of 9.1%.
Disinflation was driven by falls in energy
prices and air fares that could “prove
ephemeral”, says Jeanna Smialek in The

New York Times. Core inflation, which
strips out volatile food and energy costs, fell
to 4.8% from 5.3% the previous month –
good, but still too high for comfort.
Fed officials will “avoid declaring victory
just yet” and look set to deliver another
rate hike at the end of July. “They don’t
want to unleash animal spirits too quickly...
and have everyone go bananas,” says Julia
Pollak of ZipRecruiter.
The job is not done
It is “never wise to read too much
into a single month of data”, says The
Economist. The US labour market
remains extraordinarily tight: “for every
unemployed person in America, there are
1.6 jobs available”, while “some 84% of
prime-age workers are now in work or
looking for work, the most since 2002”.
Tellingly, “hourly earnings in June... rose
at an annualised pace of 4.4%”, far higher
than the Fed’s 2% inflation target. The Fed
has only done the easy part, says Allison
The US labour market remains extremely tight
Schrager on Bloomberg. Much of last year’s
inflation spike was caused by transitory
factors such as “supply-chain disruptions”
and “too much government spending”
during the pandemic.
Supply chains have since adjusted, and a
lot of the extra pandemic cash has now been
spent. What remains is the more entrenched
kind of inflation: rising wages. Dealing with
that could “take higher rates for longer” or
even a rise in unemployment.
Stocks rallied on the inflation news.
Investors are betting that this month’s
interest-rate hike will be the Fed’s last,
and that next year will bring cuts, which
usually boosts share prices. Despite much
doom-mongering, “key equity markets have
ripped higher” this year, says Katie Martin
in the Financial Times.
It may be time “for a lot of investors to
take a deep breath, swallow their pride,
©Getty Images
and admit their grand theories about an
impending stockmarket crash” in 2023
were wrong.
As Fahad Kamal of Kleinwort Hambros
puts it, the US “economy is not too bad,
people have jobs”, while the March banking
crisis showed that the central bank is willing
to step in and backstop markets if things
go south. “We have got the most amazing
Goldilocks situation,” says Kamal.
Equities are getting ahead of themselves,
says John Authers on Bloomberg. Even
if inflation does continue to fall, the Fed
is unlikely to cut rates “absent clear and
present evidence of a recession”.
Powell is “anxious to avoid a repeat of
the errors made in the 1970s and 1980s,
when victory over inflation was declared
prematurely and price rises intensified as a
result”. Investors shouldn’t count their rate-
cut chickens before they’ve hatched.

Has the greenback peaked?

Bets on looser US monetary wide-ranging effects. It would
policy ahead have resulted in boost emerging economies by
the US dollar’s worst week making it easier for them to
since November 2022. The pay for imports and by
dollar index, which measures reducing their debt-servicing
the greenback against a basket costs. It would be positive for
of major trading partners’ commodities such as oil and
currencies, is at a 15-month gold, which are usually priced
low. The index has dropped by in dollars. It would also boost
12% since last September’s US exporters at the expense of
20-year high, although it those in other countries.
remains historically elevated. Finally, a weakening dollar
It’s “time to sell the dollar”, would be bullish for US stocks,
©Getty Images

says George Saravelos of says Martin Peers for The

Deutsche Bank. “The US
disinflation process is well
under way”, and far ahead of
other developed countries,
where inflation remains higher
and where interest rates will
thus need to keep rising for
longer. That has prompted
investors to sell the dollar in
favour of currencies such as
A weaker dollar would boost commodities such as oil
the pound (up to a 15-month
high against the dollar) and the
euro (which has hit a 17-month
high) where they stand to get
better returns. Some analysts
are still cautious, say Alice
Atkins and Carter Johnson on
Bloomberg. “There’s a long
history of investors getting
burned by premature bets on
Fed rate cuts that would sink
the dollar.” Yet “a bevy of
strategists” think “a turning
point is finally at hand for the
world’s... reserve currency”. A
weaker dollar would have
Information. US multinationals
generate much of their
revenue overseas, but those
earnings have looked less
impressive when translated
back into strong dollars of late.
If the greenback continues to
slide, then Wall Street’s third-
quarter earnings stand to get
“a nice lift”.

21 July 2023 moneyweek.com


Rebalancing
the Nasdaq 100
The Nasdaq 100, comprising
the biggest 100 companies on
the technology-heavy Nasdaq
exchange (which contains 3,000
stocks) has soared by 44% this
year thanks to a rally by the
“magnificent seven”: Apple,
Microsoft, Alphabet, Amazon,
Nvidia, Tesla and Meta, says
Matt Phillips on Axios.
Combined, the group has
grown to account for 55% of
the index, so investors who buy
the Nasdaq 100 are no longer
getting the diversification
they expect.
Markets 5
Property rises Down Under
Australia’s property market
Dearer money has so far had scant impact on Australian house prices
“has proved shockingly
resilient”, says Jim Malo in
The Sydney Morning Herald.
The Reserve Bank of Australia
(RBA), the central bank, has
raised interest rates by four
percentage points since May
last year, the fastest series
of hikes since 1994. Some
thought that would herald the
end of Australia’s protracted
property bubble. Yet after a
brief pullback house prices have

Nasdaq is cutting Big
Tech down to size, says Eric
Savitz in Barron’s. On 24 July
the index plans a “special
rebalancing”: Nasdaq’s new
rules should cap the aggregate
weight of stocks with a
weighting of 4.5% or more
at 40%.”
It is only the third time the
Nasdaq has done a special
rebalance and the first since
May 2011. The move will
automatically cause the
estimated $300bn in funds that
track the Nasdaq 100 to sell
down some of their big-tech
holdings, possibly hitting their
share prices.
The rebalancing is testament
to the degree to which the
stockmarket has been driven
by a handful of megacap
corporations this year, say
John Authers and Isabelle Lee
on Bloomberg. The ten biggest
firms now account for a quarter
of the entire Wilshire 5000
index, a broad basket of listed
American stocks. “Not even
the dotcom bubble nearly a
quarter-century ago saw such
clustering in a few names.”
©Getty Images
started to rise again. “Low
listing levels, high migration
and changes in household size”
all seem, miraculously, to be
keeping prices aloft.
House prices did fall by
9.1% between May 2022 and
February 2023, although that
followed a 22% post-pandemic
boom, says Prashant Mehra
for Forbes Advisor. Yet the
bottom already appears to be in.
Prices have risen nationally for
four consecutive months. The
reason? Structural shortages:
“Our population growth has
really accelerated since the
early 2000s, but our rates of
homebuilding didn’t keep up”,
says Tom Devitt of the Housing
Industry Association.
This helps explain why
households are levered up to the
eyeballs. The household debt-to-
income ratio is 211%, compared
with 148% in the UK or 101%
in the US. High debt loads make
homeowners especially sensitive
to interest-rate hikes, says Peter
Hannam in The Guardian. One
projection shows that “first- and trade on a price/earnings
home buyers will be forking (p/e) ratio of 14, compared
out up to 40% of their average with an average of 20 across
disposable income on mortgage developed markets.
repayments” if the RBA rates Almost two-thirds of
peak at 4.6%, as expected. Yet Australia’s export sales
all told, things aren’t so bad: stem from coal, natural gas
Australia’s economy has so far and iron ore, says Nic Fildes
dodged a recession – it grew in the Financial Times.
by 0.2% in the first quarter. Strong demand from Asia for
Unemployment is low and the commodities has fostered an
state is set to record its first economic boom for 30 years.
budget surplus in 15 years Yet that has left the economy
thanks to a strong tax take from underdeveloped in other areas
the mining industry. and induced complacency just
as Canberra needs to raise
Old-economy equities defence spending and pay for an
The benchmark S&P/ASX ageing population. “We have
200 index has gained 5% this been very lucky,” says Danielle
year. Materials and energy Wood of the Grattan Institute,
stocks account for more than a think tank. The commodity
30% of the MSCI Australia windfall “cushioned the blow”
index, while financials make up of the 2008 financial crisis and
one-third. That “old-economy” the pandemic. But after such
composition will be familiar to a long period of prosperity,
British investors, and so will the “Australians are not used to
valuations: stocks yield 4.8% hard decisions being made”.

Viewpoint n Britain’s equity culture needs nurturing

“ESG strategies have [drawn] vast
amounts of money into funds... [But] a
lack of a defined ESG framework means
that investors are often shocked to find
what is lurking in their holdings (hint, it’s
oil, gas, tobacco)... it isn’t as if ESG
strategies have delivered great returns
for investors... wealth manager Investec
found that UK companies with the
highest ESG scores... underperformed
compared with those with the lowest
scores over the long term... putting your
money into a FTSE 250 tracker would
have given you a better return most of
the time than the average ESG fund....
ESG investing now has to [combat] two
key critiques. One: it is a poorly-
performing fad that lines the pockets of
Share ownership by country Britons hold an estimated
Listed equities as a percentage of total £1.8trn in savings accounts that
household financial assets, 2019 are being eroded by inflation,
14 says Nick King in a report by the
Centre for Policy Studies. While
most of us do have some
12 stockmarket exposure via
pension funds, when it comes
to buying shares directly
10 (known as retail investing)
we are strikingly reluctant.
Obsessed with cash and
8 property, UK households have
less than 4% of their financial
assets in shares, compared
6 with about 5% in many other
European countries. In America,
an estimated 36% of
Source: Eurostat / Centre for Policy Studies

investment managers while claiming to 4 households’ financial assets are

deliver more ‘sustainable’ portfolios.
Two: [given a growing backlash in the
US] it is exposed to political risks to a
greater extent than other strategies.”
Christopher Akers, Investors’ Chronicle
in equities – one reason the US
stockmarket is so huge. Britain’s
2 weak equity culture is starving
FTSE companies of investment
and risks eroding public
0 support for capitalism itself.
Finland Sweden Denmark France Germany Spain UK Ireland Italy

moneyweek.com 21 July 2023

6 Shares

Go-ahead for gaming deal? Global luxury goods

giants hit turbulence
Shares in Richemont, which
Only one regulatory hurdle remains for Microsoft and Activision before owns Cartier, tumbled by
they complete a record videogame merger. Matthew Partridge reports 10% on Monday, as a
slowdown in the US and
Shares in Microsoft and Activision bounced worries about China’s
after the US courts rejected the Federal Trade growth dented confidence in
Commission’s attempt to block the firms’ merger, luxury stocks, says the Daily
says The Telegraph – “clearing a path for the Mail. While the company
companies to close the largest gaming deal reported a 19% rise in first-
quarter sales amid robust
in history”. With the European Commission demand in Asia following
having already approved the deal after Microsoft the lifting of Covid
pledged to offer Activision’s games on rival cloud restrictions, investors
streaming services for at least a decade, the UK “fretted” about a 4% slide in
Competition and Markets Authority (CMA) is revenues in the Americas,
the only global regulator blocking Microsoft’s with demand in the US
$69bn (£52bn) takeover of Activision. “particularly weak”.
Microsoft’s case that the merger won’t reduce Meanwhile, the news that
competition will be buttressed by its “unexpected the Chinese economy grew
by just 0.8% in the second
truce” with Sony, previously one of the biggest quarter of the year has “also
opponents of the Microsoft-Activision deal, sparked concern about

©Activision Blizzard
says Robyn Mak on Breakingviews. In what demand for other luxury
is being seen as a “new dawn in videogames”, Activision’s Call of Duty has goods”, with shares in
Sony and Microsoft have agreed that Activision’s proved popular worldwide rivals Burberry, LVMH and
Call of Duty will remain available on Sony’s Hermès declining.
PlayStation for another ten years. This follows that its “principled and coherent” objections Lacklustre growth in
previous deals with Nvidia and Nintendo. had “forced Microsoft to go further than its China is particularly
The shooting game produced $1.5bn of revenue inadequate first remedies”, says Nils Pratley in worrying, says Andy
Hoffman on Bloomberg.
for PlayStation worldwide in 2021, so this is The Guardian. However, it’s not an ideal solution The luxury-goods industry
very good news for Sony, which can “now focus as “the UK gaming market might quickly come to had been counting on the
on a longer-term strategy of how to outplay the be seen from overseas as an oddball place where post-Covid rebound in China
sector’s behemoth”. different rules apply”. That could lower inward compensating for weakness
investment into an industry “where the UK has in the US.
The key to UK approval traditionally done well”. Richemont and its peers
Already the CMA has taken the “unusual” move Even before its latest change of heart, the CMA will now have to contend
of reopening deliberations about its previous had been buffeted by Microsoft’s criticism that “with the prospect that its
refusal, which “revives the potential for Microsoft thwarting the deal “would discourage technology two main growth motors are
weakening”. Richemont’s
to resolve the watchdog’s concerns about innovation and investment in the UK”, leading chairman Johann Rupert
competition in the cloud gaming market”, says to a three-way meeting between the tech giant, now thinks that the US
Tim Bradshaw in the Financial Times. One way the CMA and chancellor Jeremy Hunt, says Kim economy “will go through a
of allaying the CMA’s fear that “the Xbox maker Mackrael in The Wall Street Journal. The CMA’s credit contraction”, while
would have too much control over the nascent “more prominent role in merger approvals” Burberry also said last week
market for cloud gaming” is for Microsoft to “sell means that it will henceforth face “greater that the low end of the
cloud streaming rights to its catalogue of games to scrutiny”. So the more aggressive it is in resisting luxury market in the US
another provider in the UK”. “the dominance of large tech companies”, the has “softened”.
Getting Microsoft to agree to a “regulatory greater “the risk of being perceived as anti- Burberry is in a
particularly tough position,
carve out” of its UK operations would allow the business”, especially “when its stance differs from says Lex in the Financial
CMA to approve the deal while still claiming those of other major regulators”. Times. The mid-market
“affordable luxury” sector

Elon Musk’s personal Twitterstorm

in which it has carved out
a niche is much more
vulnerable to economic
ARK Investment Management, billion dollars of new Twitter turbulence, such as the
a major investor in Twitter, has shares” would mean he was cost of living crisis. By
written down its stake in the “severely diluting” everyone’s contrast, companies such
short-message social-media stake, it would allow him to cut as Richemont and the
platform by 47% because the debt, as well as “invest “juggernaut” LVMH are
advertisers have cut their money in hiring more better placed to weather the
spending, says Dan Milmo in engineers so he can fix the storm as “the really big
The Guardian. Rival asset problems with Twitter’s spenders — in Europe, the
©Getty Images

manager Fidelity is also cutting
the value of its stake. Executive
chair Elon Musk (pictured) has
now revealed that advertising
on Twitter, “the platform’s main
source of income”, has fallen
by nearly 50%, which means
the business “remains cash-
flow negative” – a problem for
a company with big debts.
It is “remarkable”, says
Martin Peers on The
Information, that “after
shrinking Twitter’s workforce
by 80% and stiffing landlords,
other vendors and even
[former] staff, the company is
still not profitable”. Given that
an advertising bounceback is
“unlikely”, Musk needs to “pay
off at least some of Twitter’s
debt by either putting in more
money of his own or finding a
group of investors to do the
same”. While selling “a few
technical infrastructure” – a US and China — are mostly
move that could improve the impervious to the need to
firm’s reputation. cut back.
Selling new shares will Burberry’s management
require “a stomach-churning thus needs to work harder
reduction in valuation”, says on “taking the brand further
Lex in the FInancial Times. upmarket” while at the same
Even at such reduced prices time remaining “relevant”.
the shares may be hard to shift. While it “has made a start”
The money may have to come by ditching licensing deals
from Musk himself, through the and distribution outlets that
sale of some of his remaining it felt “diluted its brand
Tesla shares – bad news for the equity”, there is plenty more
car firm’s shareholders. work to do.

21 July 2023 moneyweek.com

8 Shares

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

Five to buy
Futura Medical
The Sunday Times
This Aim-listed pharmaceutical
minnow may have an ace up
its sleeve. Its topical Eroxon gel
is the first erectile dysfunction
(ED) treatment to be approved
for sale without a prescription
(unlike rivals such as Viagra).
Trials show the gel worked for
65% of users. The first new
ED treatment to hit the market
in 20 years, Eroxon should
grab a slice of a $3bn global
market that is growing as the
population ages. Futura focuses
on the science, outsourcing
marketing and distribution to
reduce risk. The stock is “worth
a punt”. 52p
Judges Scientific
The Telegraph
This scientific-instruments
group specialises in acquisitions,
having bought 20 companies
between 2005 and 2022. Its
record is impressive, with
returns on equity topping 26%
last year and adjusted organic
operating profit margins
staying at a healthy 21% despite
inflation. The balance sheet
is “solid” too. Weaker asset
prices and investors’ pessimism
provide management with an
opportunity to go shopping for
more savvy acquisitions. 9,220p
MJ Gleeson
Interactive Investor
Gloom is “pervading” the
housebuilding sector as markets
prepare for stagflation. MJ
Gleeson’s stock is at an eight-
year low. Yet with so much
misery priced in, there is room
for positive surprises provided
Britain ultimately manages
to “[muddle] along without a
serious recession”. The group
is well managed and ready to
profit from structural demand
for affordable housing. 383p
Phoenix Group
Shares
This life-insurance specialist is
Britain’s “largest consolidator
of long-term savings and
retirement plans”. Phoenix is
a “cash machine”: even if it
stopped making acquisitions
and simply sat on existing
policies, long-term free
cashflow based on policies in
force would be worth £12.1bn.
That would give the group a net
present value of roughly £8.7bn,
a big premium to the current
£5.3bn market valuation.
There are ample opportunities
for fresh acquisitions in
the “structurally growing”
UK pensions market, while
income seekers will like the 9%
dividend yield. 527p
Serco Group
The Mail on Sunday
This outsourcer has
moved on from “past
infractions” to become a
key supplier of everything
from air-defence radar
maintenance to prisons
One to sell
Trifast
Investors’ Chronicle
This industrial-fastenings
specialist has had an awful
12 months, including a profit
warning in February that
prompted the departure of
the CEO. Trifast declared a
pre-tax loss in the year to 31
March, while net debt has risen
and other government
services worldwide. The
firm’s work in high-profile
areas such as immigration
removal centres does raise the
risk of scandals that rock the
share price, but that needs to
be set against the defensive
attributes of exposure to
immigration and defence,
both growing areas of
government spending. On 11
times earnings, the shares trade
at a discount to the wider sector
and could move higher. 156p
to £53.8m, equal to 2.2 times
underlying cash profit. That
leaves the balance sheet in a
fragile position just as the global
economy slows. On 11 times
forecast earnings the shares
are cheap, but management
“needs a firmer fix on its own
finances” before investors see
recovery potential. 76p

...and the rest

The Mail on Sunday
Renold makes high-
performance chains, gears and
couplings used in everything
from theme park rides to the
mechanisms that control
nuclear fuel rods in power
stations. The order book is
robust and sales are globally
diversified. On a mere six times
forward earnings, the shares are
a buy (29p).
Investors’ Chronicle
Corporate insolvencies rose by
40% in the year to May in
England and Wales, and with
interest rates still climbing there
will be more to come. Corporate
restructuring specialist Begbies
Traynor will be a rare “counter-
cyclical” winner from the
misery. It has also been investing
in areas such as property
finance brokerage so that
Begbies can be a “business for
all seasons”. Buy (133p).
Shares
Shares in Jet2 have hit
turbulence because founder
Philip Meeson is set to retire. He
has done a sterling job but a
“trusted senior management
team” will continue his
successful strategy. Revenue and
profits are regaining altitude
amid the post-pandemic travel
boom. Keep buying (1,126p).
The Telegraph
Shares in oil services and
equipment play Hunting are
down a fifth so far this year
owing to weakening energy
prices. Yet the firm has served
up two profit forecast upgrades
in the three months and the
order book is growing fast.
A “forward price/earnings
ratio of 17 times may not look
compelling”, but if profits regain
the heights of previous cycles
the shares could prove to have
been “screamingly cheap” at the
current level. Buy (250p).
©Alamy; Futura Medical/European EROXON pack for illustration purposes

A German view IPO watch

Severe droughts are becoming more and more common, says Der
Aktionär. There are now fears that in a few years’ time Spain’s
water supply will no longer cover demand from the agriculture
and tourism sectors. All this points to rising demand for
desalination plants in the next few years, which bodes well for
America’s Energy Recovery plan. Its pressure-exchanger
technology makes the desalination process up to 60% more
energy-efficient. The technology is also helpful for refrigeration
systems, which look set to become another growth area. The
group’s earnings per share are expected to jump by 74% in 2024
and double in 2025. Energy Recovery is also debt-free.
Shanghai Biren Intelligent Technology, a Chinese semiconductor
start-up, is contemplating an initial public offering (IPO) in Hong
Kong, says Bloomberg. It wants to capitalise on rising demand
for its chips, which are deemed alternatives to those supplied by
America’s Nvidia. The US government has stopped Nvidia
selling advanced chips to China amid concerns over national
security. Biren, set up in 2019, focuses on chips for cloud
computing and graphics processing units. For now, the
company intends to raise another two billion yuan ($279m),
adding to the 4.7 billion yuan ($655m) it has already amassed.
Last year the firm was valued at 17 billion yuan ($2.4bn).

21 July 2023 moneyweek.com

10 Politics & economics

Sunak caps “elite overproduction”

The prime minister is clamping down on the numbers doing useless degrees. Emily Hohler reports
The government unveiled a “welcome” plan
this week to cap the number of students
studying for “low-value” degrees that are
less likely to lead to well-paid jobs or further
study, says Miriam Cates in The Telegraph.
Rishi Sunak pointed out that many young
people leave university “saddled with
debt and without the skills required for
productive work” and, because many
graduates will never earn enough to pay off
their student loan in full, taxpayers have
been left with an outstanding bill of £206bn
and rising. There just aren’t enough top-level
jobs for at least 500,000 graduates a year,
and this so-called “elite overproduction”
has created a disappointed generation, with
social and political consequences.

False dreams are made of this
Sunak’s attack on what can often prove the
“false dream of going to university” rests
on a statistic from the Institute for Fiscal
Studies that one in five graduates would be
“better off financially if they had not gone”,
says Hugo Rifkind in The Times. Perhaps
it was while studying PPE at Oxford that
he “learnt the sophistry of portraying a
glass four-fifths full as being a fifth empty”.
The fifth, of course, “matters too. I’m all in
favour of the government’s plans to boost
technical education and apprenticeships,
just as I was with Boris Johnson’s plans to
do this (2020), Theresa May’s plans to do
this (2016) and David Cameron’s plans to do
this (2015, 2014, 2010). And indeed those
of Gordon Brown (2006, 2003), Tony Blair
(2001) and John Major (1994)”.
There are plenty of useless degrees
out there, including PPE at Oxford,
says Suzanne Moore in The Telegraph.
Yet, looking at Sunak, Liz Truss, Matt
Hancock, Ed Balls, Peter Mandelson and
a “great many of my esteemed colleagues”,
it “certainly provides bang for its buck”.
For “lesser mortals” who don’t attend
Oxbridge or Russell Group universities
(which are likely to remain unaffected by
Sunak’s plan), this is a “brutal move”. Most
people don’t get jobs related to what they
study (a “huge part of tertiary education is
the invisible value of being carried along by
its slipstream”, says Zoe Williams in The
Guardian). Nor do we know what skills will
be needed in the next few years; what we do
know is that “flexibility” will be required.
“It is not the job of a degree to provide a
job for life,” but the more educated society
is, the better. “To not know this and to not
value it, makes me wonder what Sunak and
his cronies were ever taught.”
The “idea that it is the function of a
university to ‘deliver’ certain labour market
‘outcomes’ to ‘investors’ [is]... palpably
stupid”, and prior to the reforms of 2010,
which included the trebling of tuition fees
to £9,000 a year, “few seriously argued
that higher education was a market”, says
William Davies in The Guardian. After
©Getty Images
Sunak’s plan is an “electoral calculation”
that date, however, as the market then
“repeatedly failed to behave as its architects
hoped, the government has been drawn into
ever more futile efforts to discipline and
correct it”. This included lifting the cap on
each university’s student numbers in 2015,
which led to “massive over-recruitment”
by “revenue-hungry” institutions in the
top half of the league tables, “financial
insecurity for those at the bottom, and
negative experiences for students in either
case”. Sunak’s statement “makes the most
sense” as an “electoral calculation”.
Quite, says Rifkind. He wants to appeal
to an “older cohort” who see the younger
generation as overeducated, “decadent
and useless”. When he “speaks of a ‘false
dream’, he may well be thinking of Tony
Blair’s suggestion that ubiquitous degrees
were the answer to social inequality”. But
it’s a “bit harsh” to now blame universities.
“With mad loans, soaring housing costs
and slumping wages, the problem isn’t at
their end of the equation, but at his.”

This year is set to be the hottest

on Earth since records began Cerberus gets hot under the collar
Heatwaves are sweeping the
planet from China to Europe
and the US, with 2023 on track
to become the hottest year on
Earth since records began,
says Stuti Mishra in The
Independent. China recorded a
“scorching” 52.2˚C in Sanbao
on Sunday, the day 53˚C was
recorded in California’s Death
Valley. Europe’s record 48.8˚C,
set in Italy in 2021, may be
broken soon. The heatwave is
the latest in a series of “climate
extremes” that include record
ocean temperatures. Scientists
say the warmer waters are
contributing to rising
temperatures over land,
exacerbating the effects of
©Getty Images
pattern known as El Nino, and
climate change.
So how much is down to
climate change? According to
the World Meteorological
Organisation, climate change
has led to more extreme heat
events, which have increased
sixfold since the 1980s, says
The Wall Street Journal.
The UN’s top science body
calculates that the world is 1.2˚C
hotter since the 1800s due to
greenhouse gases released by
burning fossil fuels. Increased
surface temperatures mean
longer, more intense heatwaves
and “produce the weather
conditions that keep them
stalled over one place”.
to persist for around two weeks,
the worst effects of El Nino,
which typically peaks between
December and February, are yet
to be felt, adds Mishra.
Meanwhile, in the UK,
we’ve had an unseasonably
cool July despite being in the
“grip” of a heatwave this time
last year, says Ross Clark in
The Spectator. The BBC
suggests that both are a
symptom of climate change.
“Curious.” It is also a “little
inconvenient” for the Earth
“on fire” narrative that
although the 1977 European
temperature record of 48˚C has
been broken, the “all-time
global record” is still the 56.6˚C

stagnant high-pressure Although the so-called Cerberus recorded at Furnace Creek,

systems, a cyclical weather heatwave in Europe is expected Death Valley – in July 1913.

21 July 2023 moneyweek.com

 Politics & economics 11

Putin ends Ukraine grain deal

Betting on politics
On Sunday, Spain goes
to the polls to vote in a
Russia and Nato are on a new collision course. Matthew Partridge reports general election.
Punters seem to have
Russia has ended its grain in order to push very little doubt what
deal with Ukraine over Putin: flirting with a up prices even more. the outcome will be.
dangerous escalation With £28,114 matched
the export of grain, Such a strategy would
“heightening uncertainty not only raise revenue on Betfair, Alberto
over global food supplies to help finance its Nunez Feijoo of the
centre-right People’s
and escalating tensions in military campaign, but Party is the strong
the region”, say Megan would also “put further favourite to be in charge
Durisin and Aine Quinn pressure on Western of the government after
on Bloomberg. The deal, supporters of Ukraine, the next election at 1.12
which had been “a rare already grappling with (89.2%), with the
example of cooperation” burgeoning inflation incumbent Pedro
during the war, ensured caused by rising energy Sanchez of the
the safe passage of almost and food costs”, though centre-left Spanish
33 million tons of crop those in developing Socialist Workers’ Party
out at 6.4 (15.6%).
exports via the Black Sea countries would be It’s not hard to see
since it was signed in July “hardest hit”. why the betting markets

©Getty Images
2022. This helped world are favouring Feijoo –
food-commodity prices Nightmare scenario opinion polls have over
ease from the record Still, there are hopes the past year
levels reached after Russia invaded. Moscow’s that the impact on world prices may be more consistently put his
withdrawal means “the end of guarantees for “muted” than you might think, says The People’s Party in the
navigation safety, the collapse of the maritime Economist. World wheat supplies are “strong” lead over Sanchez’s
humanitarian corridor, and the disbandment of the thanks to exceptionally high exports from socialists. At the
moment, the PP has a
Joint Coordination Center in Istanbul”. Australia and a “rebound in Canadian shipments lead of about 5%-6%,
after droughts disrupted last year’s season”. with the far-left Sumar
Weaponising exports There’s even hope that “expected record sales and the far-right Vox
This isn’t the first time Russia has quit the deal from Brazil” could also help compensate. Sadly, effectively tied for third
– it exited briefly in November before rejoining this will be of little comfort to Ukraine, as “the place with around 15%
a day later, says the Financial Times. This time, high costs of alternative routes for exporting its of the vote each. This
however, Russia seems less likely to immediately grain will force Ukrainian farmers to slash prices, leads many to predict
reconsider. Moscow argues that efforts by the US discouraging planting”. Grain production there is that the result will be a
and EU to relax the rules on Russia’s own food and already 35%-40% lower than before the war. coalition between the
PP and Vox.
fertiliser exports have not gone far enough, and Whatever the outcome, Russian leader Valdimir Although the PP is the
Turkish president Recep Tayyip Erdogan’s recent Putin’s ruthless aggression means that he “is once most likely to prevail,
cosying up to the West could make it harder for again flirting with a dangerous escalation” of there are several reasons
him to broker a new agreement. Many diplomats the conflict, says The Times. “Starving your why the odds on
report that Russia has “appeared more set on enemies into submission is no way to win over Sanchez are just about
derailing the deal”, possibly because it wants friends to your cause.” There is a chance that, if long enough to make it
emerging markets to buy its own grain instead. Erdogan fails to persuade the Russians to rejoin worth putting some
Indeed, there is a risk that Russia could take the deal, the Turkish president “may take the money on him. Firstly,
advantage of the disruption to supply caused by radical step of ordering Turkish vessels to escort Sanchez has a track
record of pulling off
the ending of the deal to further “weaponise” grain ships across the Black Sea”. This could surprise victories in the
its own exports, says The Telegraph. There are lead to the nightmare scenario of Russian vessels past. Secondly, the
worries that Russia could increase export taxes on directly engaging with their Nato counterparts. prospect of Vox gaining
a foothold in

Should we bring Afghanistan in from the cold?

Ellwood: “Breathtakingly naive”
Tobias Ellwood, chairman of the
House of Commons Defence
Committee, “could face a vote of
no confidence in his leadership”
after releasing a “breathtakingly
naive” video praising the
transformation of Afghanistan
since the Taliban regained
power in 2021, says Rachel
criticised” video, which has
been described as “bizarre”, and
gone down “like a lead balloon”
with fellow MPs, former defence
minister Ellwood argues that
security has “vastly improved”
under the Taliban regime. He
thinks the UK should reopen the
British embassy in Kabul and
“re-engage” with the regime.
Our discomfort with talking to
the Taliban is understandable
given their “widespread
repression”, especially of
women, says Tobias Ellwood in
The Telegraph. But the reality is
that under the new government
security has improved, people
are free to travel and the
widespread corruption of former
government could
alienate many centrist
voters, and encourage
“disappeared”. Engaging with those on the left to get
the government could lead to behind the PP.
the unfreezing of $9bn of assets There is also, of
held abroad and improve the course, the chance of a
situation for women’s rights. last-minute shift in the
Nonsense, says David Loyn in Socialist’s favour.
The Spectator. The “thin” list of Embarrassing photos of
benefits Ellwood describes were Feijoo on holiday with a
actually down to the previous person convicted of
government, and international money laundering and
bodies have detailed endemic drug trafficking,
human-rights abuses. Most although not new, may
raise questions about
ominously, terrorist groups now
“enjoy greater freedom” and his judgement in the
mind of voters. At the
there is a “strong and symbiotic”
same time the heatwave
relationship between the current
over the past few days
regime and Al-Qaeda. Instead of
may remind voters
appeasing the Taliban, we
about the differences on
should support the efforts
climate policies. I
“being made by those outside
©Getty Images

suggest that you place a

Wearmouth in The New president Ashraf Ghani’s Afghanistan to form a united bet on Sanchez to win.
Statesman. In the “widely- government has all but constitutional opposition”.

moneyweek.com 21 July 2023

12
New York
Goldman Sachs gloom:
Profits at Goldman
Sachs “plunged” in the
April-to-June period
“as the Wall Street giant
notched up one if its
weakest quarters under
CEO David Solomon
(pictured)”, says Sridhar
Natarajan on Bloomberg.
Earnings fell 58% from a year ago, to
$1.2bn off the back of an investment-
banking “slump”, property markdowns
and a goodwill writedown in the consumer
business, totalling about $1bn. The bank
News
had been “tamping down” expectations
ahead of the release of its second-quarter
results on Wednesday, and investors are
now wondering whether “a steadier run
of earnings gains [lies] ahead”. After all,
Goldman Sachs’ 4% return on equity, a
measure of profitability”, was “the worst
among the top US banks”.
Second-quarter earnings at Bank of
America (BoA) by comparison rose by
nearly a fifth, “buoyed” by “surging”
income from higher US interest rates,
says John Foley on Breakingviews. BoA,
Citigroup and JPMorgan collectively
made an extra $10bn, year on year, from
interest. Rates will of course fall, “but
not soon”. And all the banks are on the
look-out for cracks in commercial property
loans. Trading revenue, meanwhile, is
down for most (BoA bucked the trend), but
nevertheless remains one-third higher than
at the end of 2019. On the flip side for the
US banking sector, expenses in the form of
wages, compliance costs and competitive
pressures are rising, and regulators are
pressing for the banks to hold more equity
on their balance sheets – money that could
otherwise be paid to shareholders. For Wall
Street overall, “the road ahead is better
paved, less certain and slower going”.

Indianapolis
Alzheimer’s drugs: Results from a phase-three trial of Eli Lilly’s new drug for treating
Alzheimer’s disease, called donanemab, have been hailed as a
“landmark” achievement, says Clive Cookson in the Financial
Times. The drug was shown to slow cognitive decline by
around 35% in the early stages of the disease. Eli Lilly
has submitted donanemab for regulatory approval, with
a decision expected before the end of the year. Earlier
this month, the US Food and Drug Administration (FDA) approved
a treatment for Alzheimer’s, developed by US biotech Biogen and
Japan’s Eisai, called lecanemab. Both drugs are based on antibodies
that target the build-up of a toxic protein in the brain, called
amyloid. Lecanemab will have a list price in the US of $26,500 a
year, under the brand name Leqembi. Eli Lilly has said it is not yet
ready to set a price for donanemab. “Neither drug has a clear edge,”
says Lex in the same paper. And while there are some concerns with
regards to possible side-effects, Eli Lilly’s breakthrough has lifted its
share valuation. It now trades at 49 times forward earnings, double
what it was three years ago. The findings “further validate pharmaceutical
research following new weight-loss medicines and Covid-19 vaccines”.

Burbank Screen Actors Guild, which has

Iger stays on: “Give Robert Iger (pictured) credit
for this much – the Walt Disney chief executive
knows how to make an entrance,” says Dan
Gallagher in The Wall Street Journal. “Or a re-
entrance, in this case.” Iger has agreed to stay on
at the entertainment giant until the end of 2026.
Considering all the challenges the company is
facing, that’s not surprising. He has floated the
possibility of selling some TV assets, including
ABC. Even “crown jewel” sports network ESPN
“could be somewhat on the block”. Reducing
Disney’s exposure to the declining cable-TV
business could be attractive. Films from Disney-
owned production companies Pixar and Marvel
– two major acquisitions from Iger’s first tenure –
are underperforming and footfall at theme parks
is falling. Another headache comes from the
joined writers on the picket line – the
first time the two unions have been
on strike together since 1960. And
the question of who will eventually
succeed Iger remains.
Meanwhile at Netflix, the film
and TV-streaming service’s crackdown
on password sharing was expected
to have yielded results this week.
Analysts had pencilled in a 4%
rise in second-quarter revenue
from a year earlier, to $8.3bn.
In Britain, Netflix has also axed
its basic subscription, meaning
those viewers will have to pay
£10.99 a month – £4 more – to watch
programmes without adverts.

The way we live now... out of office and at the beach

Laptops and water don’t mix
“Sun, sea, sand and spreadsheets
may not sound [like] the ideal
combination, but ‘working from the
beach’ is becoming the latest
corporate trend,” says Andrew
Ellson in The Times. A growing
number of companies are allowing
their staff to “work from anywhere”
during the summer months as a way
to reward and boost productivity.
Price comparison site Idealo is
encouraging employees to take
“workations”. Thomas Cook also
places where people enjoy our
products,” a spokesman explains.
And marketing agency We are
Romans has a “remote week
policy”, which allows staff to work
from anywhere in the world during
the first week of October.
It sounds like paradise, but it’s not
all it’s cracked up to be, says
freelance journalist Kate Wills in the
same paper. The reality is that you
get “in a sweaty panic trying to find
a spot with half-decent Wi-Fi”
©Alamy; Getty Images

lets staff work from abroad. “Given before discovering keyboards and
we’re a holiday business, it means sunscreen don’t mix. Also, “sand
people can spend more time in gets everywhere”.

21 July 2023 moneyweek.com

 News
London
Inflation falls: The pace of rising consumer prices slowed from
8.7% in May to a better-than-expected 7.9% in June over the
prior 12 months – and from 0.7% to 0.1% on a monthly basis.
“Finally, some good news on the inflation front,” says Danni
Hewson of AJ Bell. Falling petrol prices were one of the biggest
contributors to the slowdown and, while food prices are still
going up, they’re not rising quite as fast as they were.
Admittedly, that will come as scant consolation for households,
who just want to see prices falling as opposed to rising more
slowly. “With one or two exceptions, we’re still a fair way away
from that.” Strip out energy and food and “core” inflation is
“still looking scarily sticky”. Markets are now pricing in a “less
strident” interest-rate rise in August of a quarter of a percentage
point, with rates expected to peak at 5.75%, rather than 6%. “As
seems the way of things during this topsy-turvy time, the good
news comes with a slice of bad, and the pound has fallen back a
touch as rate expectations have been tempered.”
Moscow
Danone subsidiary seized: Yakub
Zakriev (pictured), a 32-year-old deputy
prime minister of Chechnya and the nephew of warlord and
Kremlin ally Ramzan Kadyrov, has been appointed to head Danone
Russia, say Guy Faulconbridge and Lidia Kelly on Reuters. Russian
president Vladimir Putin signed a decree on Sunday ordering the
temporary seizure of the French yoghurt maker’s subsidiary, along
with Carlsberg-owned Baltika Breweries. Danone announced last
October it would write off up to €1bn in relinquishing control of
its dairy business in Russia, bringing Danone’s 30-year experiment
to an end. The group had opened a dairy shop near Red Square
in Moscow in 1992 after the fall of the Soviet Union. “Explosive”
purchasing power growth and relatively low levels of dairy
consumption lured in investment, leading to Danone acquiring a
fifth of the country’s dairy market. But since Russia’s invasion of
Ukraine last year, the West has put Russia under “the most severe
sanctions in modern history”. The appointment of Kadyrov’s
nephew to run the company is “another indicator of the scope of
the transfer of assets” to the Russian state, as well as the continued
“considerable clout” of the Chechen leader within the Kremlin.
moneyweek.com
13
©Getty Images
Food prices are still rising, albeit more slowly
Beijing
Developers in the dumps: Evergrande, the
Chinese property developer that defaulted
on its bonds two years ago, has finally
revealed it lost 582bn yuan (£62bn) over
the two years to 2022, says Thomas Hale in the
Financial Times. In 2021, revenues had halved
to 250bn yuan from a year earlier. Evergrande
got into trouble when it doubled down on China’s
property boom only to wind up embodying “the
sector’s struggles when its defaults shocked global
markets”. The group’s Hong Kong shares have been
suspended since March of last year, pending the
release of the results for 2021 and 2022. Releasing
them only now suggests Evergrande “cannot simply
wait [any longer] until the current [property] crisis
passes and then release results in a more favourable
environment”, Brock Silvers of private equity firm
Kaiyuan Capital tells the paper. Indeed, it can’t,
says Lex in the FT. A short-lived rebound in the
property sector, which produces almost a quarter
of China’s GDP, “has proved to be a false start”.
It’s also telling that local developer
Dalian Wanda preferred to raise money
last week by selling its stake in China’s
biggest cinema chain – a cash cow – than
by selling real estate. That rather “undercuts
claims from developers that they can raise
money whenever needed by disposing
of prime land and properties”. Plunging
share prices have left a number of listed
developers scrambling to arrange share buy-
backs to avoid being kicked off bourses, says
Caixin. “For some, it’s already too late.”
Singapore
Corruption scandal: Singapore’s ruling People’s Action Party has
“long relied on its reputation for clean governance to win elections
and attract capital from around the world”, say Philip Heijmans
and Faris Mokhtar on Bloomberg. That image is now being “put to
the test”, less than three months before prime minister Lee Hsien
Loong steps aside after nearly two decades in office. Last week,
transport minister Subramaniam Iswaran, commonly known as
S. Iswaran, became the first member of cabinet in nearly 40 years
to be arrested in connection with a top-level corruption probe,
along with Ong Beng Seng, one of Singapore’s richest men. Both
were later released on bail. The city state could turn a crisis “into
an opportunity” to reassert its “willingness to act tough”, says
Anshuman Daga on Breakingviews. Singapore’s anti-corruption
agency boasts an “enviable” record with a 99% conviction rate
last year – mostly involving incidents in the private sector. Public
expectations of the independent body are also “sky-high”, because
ministers are paid salaries comparable to the private sector to deter
corruption. Investors appear to be “shrugging off” the drama for
now, say Heijmans and Mokhtar. Since the probe was announced
on 12 July, the benchmark Straits Times Index has risen 2.9%.
21 July 2023
14 Briefing

Road tolls are coming to Britain

The idea of charging drivers according to when and how much they drive is an old idea, but one that
is newly urgent given the collapse in fuel duties as we switch to electric cars. Simon Wilson reports
What’s the issue?
The energy transition means that the Mayor Sadiq Khan: a political headache
question of road pricing can no longer be
ducked. According to calculations by the
Office for Budgetary Responsibility (OBR),
published last week, the government is set to
lose £13bn a year in revenue by 2030, and
double that as combustion engines disappear
altogether. After all, if nobody’s buying
petrol and diesel, they’re not paying tax on
it. So in a net-zero future in which our roads
are full of electric vehicles (EVs), the risk for
the government is that the revenue raised
from drivers will head towards zero too.
Chancellor Jeremy Hunt recently announced
that EVs registered from April 2025 will no

©Shutterstock
longer be exempt from road tax (“vehicle
excise duty”, or VED). But VED is a far
smaller earner for the Treasury than fuel House of Commons cross-party transport monthly bill. There could be one set of
tax, which accounts for about half the pump select committee published its own report charges that’s easy to understand, for
price of every litre of petrol, and raises a calling for a transition to road pricing. example with the network divided into five
massive 4% of government receipts. But their findings got no backing, and little classes of road, each with its own tariff.
engagement, from the government. For
What’s road pricing? many politicians, road pricing remains the Will drivers accept it?
Rather than charging tax on fuel, a road- tax that dare not speak its name. Privacy concerns would be a big issue, say
pricing system levies a charge on motorists Dillon Smith and Tom Clougherty, the
according to how far they drive. It can also Why’s that? authors of the Centre for Policy Studies
take into account what they’re driving, Because they’re frightened of spooking report, “The Future of Driving”. They
where they’re driving, and when they’re voters. The first British PM to fret about argue for a phased and gradual approach,
driving – charging more for bigger vehicles, excessive congestion and order an inquiry rather than a big-bang reform, in which
or busier roads, or peak times, for example. into the practicalities of a road-pricing pay-as-you-drive road pricing applies
The idea, from an economic point of view, scheme was Harold Macmillan in the initially only to zero-emissions vehicles
is that traffic congestion should be seen early 1960s. But with an election looming (ZEVs). Each vehicle would be assigned
as a cost like any other – and nor is it the in 1964, the resulting Smeed report was a per-mile rate, based on weight, with
only cost driving imposes on others. Every kicked into the long grass for fear of charges collected monthly by direct debit.
journey we make increases congestion, angering motorists. Four decades later, in But they suggest a range of technological
local pollution, and the risk of accidents 2006, the Blair government announced that solutions that take account of different
for other people. A pricing scheme that the UK would be the first country to adopt attitudes towards privacy, from the low-
charges more to travel at the peak times a nationwide system of road pricing and tech (submitting your mileage manually),
and on popular roads would encourage promised it would be “fiscally neutral”. It and mid-tech (on-board black box)
drivers making less pressing journeys said large-scale trials would be in place by to high-tech (GPS tracking). To allay
to avoid busy periods – just like on the 2008-2009, going fully national by 2016. It concerns about fairness, they propose a
railways. London’s congestion charge, and promised a graduated scale of charges (from “free mileage allowance” for every driver
its Ultra Low Emission Zone (the expansion 2.4p on a country road at night, to £1.34 based on where they live (people in remote
of which is currently causing political on the M25 at rush hour) with satellite areas, with little public transport, get
headaches for Labour
mayor Sadiq Khan),
“For many politicians, road tracking deployed to
record every vehicle’s
bigger allowances). And they argue for
greater hypothecation – linking revenues to
are basic forms of pricing remains the tax that movement. But the specific spending – to win over the public.
road charging that whole thing got nixed
rely on camera
dare not speak its name” by a backlash. Almost Is it going to happen?
infrastructure. But technological advances, two million people signed a petition against It won’t be easy, says Dom Lacey in City
including in-car telematics and GPS it, and Blair’s own MPs rebelled to stop it. AM. The most pressing challenge is the
tracking, now make a much more universal sheer size of the infrastructure needed
scheme feasible, according to proponents. So what’s changed? to process payment. Another, politically
The economics of the energy transition sensitive, issue is data privacy. Many drivers
Who’s in favour? and the looming fiscal black hole make might accept the need for an overhaul of
A wide range of voices, from motoring road pricing a much more urgent question, taxes, but balk at the idea of having all
organisations to the Green party, have long and there’s evidence from opinion polls their journeys tracked. A third caveat is
been in favour of road pricing. The Institute that public attitudes have shifted. Similar the question of jurisdiction, oversight and
for Fiscal Studies has been calling for road schemes in Australia and Singapore show co-ordination across the various national,
pricing since 2012, in a study funded by that it can be done. Using a combination of devolved and local authorities responsible
the RAC Foundation. A 2022 report by in-car telematics and automatic number- for the UK’s roads. But “none of this is
the centrist Social Market Foundation plate recognition, a nationwide scheme insurmountable” – and, importantly, there’s
concluded that road pricing was the fairest would allow all tolls, congestion charges no alternative. It’s time to “accept that road
and most efficient way of replacing fuel duty and emissions charges to be rolled into pricing is the best – indeed only – option for
– as did a 2023 report by the centre-right one system, argues Ross Clark in The closing the funding gap created by the end
Centre for Policy Studies. In early 2022, the Spectator. Motorists could be sent a of current motoring taxes”.
21 July 2023 moneyweek.com
16 City view

Britain must now pivot towards Asia

It’s where our new free-trade partners are, and it’s where the growth is
Matthew Lynn
City columnist
When trade secretary Kemi Badenoch
formally signed Britain up to the CPTPP
Indo-Pacific trade bloc last weekend, it
was the biggest shift in trade policy in a
generation. Covering countries such as
Japan, Australia, Malaysia and Vietnam,
the CPTPP represents the world’s single
largest trade bloc, with a combined GDP
of $12trn, or 15% of global output. It is
easily set to outstrip the EU, partly because
all its members, with the possible exception
of Japan, have much faster growth rates,
and also because it is likely to recruit more
members, and larger ones as well. China
may well join one day, depending on the
politics, and so might the US.
True, the Pacific is a lot further away
than the EU, and apart from Japan and
South Korea its markets are not as wealthy
or as developed as most European ones.
should make sure that is not a barrier to
Badenoch: the biggest shift in listing shares in London. And boards are
trade policy in a generation
typically less diverse, and often controlled
by a clique, so we should ease the rules on
that too. We can’t always expect Asian
firms to adapt to our standards: sometimes
we will have to adapt to theirs.
Second, professional services. Sectors
such as engineering, consultancy, legal
services and marketing, design and
communications, are all huge industries
in the UK, with lots of firms that have
developed world-leading expertise. There
are big markets for all of those right across
the Pacific. But they’re not simply going to
grow by themselves, or not as fast as they
could. One way the government could help
would be to relax visa rules for CPTPP
members, so skilled professionals can move
easily without getting bound up in red tape.
And as the bloc develops, it should make
sure that British professional qualifications
become the gold standard for the region.
Third, education. Our universities are

Hardcore Remainers are far too dismissive
of the potential of the CPTPP, but they are
right to complain that it will not replace the
trade lost by leaving the EU, at least in the
short term. Almost 40% of our exports go
to the rest of Europe, while only 7% head
for the Pacific region. That said, it is still
a big opportunity for the UK, and those
numbers could change very quickly. The
growth areas of an economy are always
evolving, depending on where the demand
is strongest, and which skills and products
are attracting the most interest. The
important point, though, is that joining
the trade bloc is not enough. The British
economy will need to pivot towards Asia.
First, financial services. The City is still
just about a world-leading finance centre,
even if the number of quoted companies
has collapsed, and the UK stockmarket is
©Getty Images
in the doldrums. It can’t seriously expect
to remain the financial hub for the EU now
that we are no longer a member. But the
CPTPP gives it the chance to compete with
Singapore, Shanghai and Tokyo as an Asian
hub, as well as being a bridge between that
continent and Europe and North America.
Grasping the opportunity
To grasp that opportunity, the government
needs to move a lot more quickly on
reforms. We are already relaxing listing
rules for initial public offerings, but we
should be aiming to be the place where
Asian countries raise capital. Across Asia,
however, controlling family or founder
shareholdings are more common, so we
already effectively the finishing schools
for the Pacific elite, with huge numbers
of students coming to the UK every year
for first or second degrees. We need to
make sure that the political need to cap
immigration doesn’t stop undergraduates
from coming here or stop our universities
from growing. Likewise, over the next
decade we need to make sure that our top
universities establish outposts right across
the Pacific. A British degree still carries a lot
of weight, and that can be a valuable asset.
Finally, we need to exploit our cultural
heritage. The English language is the
dominant medium for films and television,
and our publishing companies have vast
catalogues of books that can be sold in
new forms. English will be the standard
language of the CPTPP, and no other
member will have the head start that we do.

City talk
l ”Sainsbury’s is
regaining form
after several
years in the
wilderness,”
says Ben
Marlow in
The Telegraph.
The supermarket
chain’s 2016 takeover
of retailer Argos was a
disappointment, while it
wasted a year and tens of
millions of pounds on an
attempted merger with rival
Asda in 2019 that “never stood
a chance of being approved”.
Yet under the “unflashy”
Simon Roberts, who took the
top job in 2020, “there are
signs of a quiet resurgence”.
Recent updates show it
the face of fierce competition
from Aldi and Lidl, even as
Tesco, Asda,
Morrisons and
Waitrose all
lose ground.
Still, more
needs to be
done. Earlier
this year, Anwar
Pervez, founder
of the Bestway
cash-and-carry chain,
took a 4.5% stake in the group.
Roberts should tap Bestway’s
“retail nous”, using Tesco’s
very successful acquisition of
Bestway’s rival Booker as
inspiration. “A tie-up of some
sort [with Bestway] may
represent Sainsbury’s best
chance of taking on Aldi and
l Investors in Ocado’s “great
jam-tomorrow story” are
easily pleased, says Alistair
Osborne in The Times. Shares
in the online grocery group
rose 19% after reporting a
record half-year loss of £290m.
CEO Tim Steiner reckons that
cash flow will turn positive by
2028 as Ocado rolls out more
automated warehouses for
clients around the world, but
after 23 years, the UK retail arm
– the “shop window to current
and future partners”, in
Steiner’s words – still can’t turn
a reliable profit. The results of
its joint venture with Marks &
Spencer (M&S) have been so
“iffy” that it may not meet the
targets for M&S to hand over
the final £191m that it originally
message does [that] send to
prospective Ocado clients?”
True, Ocado’s “snazzy tech”
could make it a takeover target.
But “Steiner finds himself in
his usual spot — still with a lot
to deliver”.
l Good news for cyber-
security firm Darktrace
following a short-selling attack
in January, says Alex Brummer
in the Daily Mail. A review by
accountants EY has found
some accounting errors, but
nothing to support allegations
of widespread fraud, the firm
says. The shares soared 26%.
“If the shadow of the 10%
holding by former Autonomy
chief Mike Lynch, accused of
fraud in the US, could be lifted,
©Alamy

maintaining its market share in Lidl properly.” agreed to pay. “What sort of there might be a further boost.”

21 July 2023 moneyweek.com

 Investment strategy 17

Betting on lower rates Guru watch

Terry Smith,
chief executive,
Fundsmith
Inflation is only slowly ticking down,
but markets are already pricing in “Large
technology
relatively low interest rates companies have
in a sense
become victims of
Cris Sholto Heaton their own success,” says
Investment columnist Terry Smith, the manager of
Fundsmith Equity, which at
£24bn in assets is the UK’s
Markets seem optimistic that the global inflation largest fund. “Their growth
surge is over. UK inflation has dropped to 7.9%, over the past decade means
the lowest for more than a year; US inflation has that they are now such a
large part of the economies
fallen even more to 3%. The trends in Europe
in which they operate that
have been a little more mixed, but mostly positive: they have become inevitably
Spain’s rate is now down to 1.9% – a spectacular more cyclical.”
fall from almost 11% a year ago. In response, At the time of the global
investors are increasing their bets that central financial crisis, Apple,

©Getty Images
banks will soon be cutting rates, and beginning to Lower food inflation is helping reduce price Microsoft, Alphabet and
rotate back into interest-rate sensitive sectors. pressures in Spain and elsewhere Meta had combined sales of
Take real estate investment trusts (Reits), for $125bn; today the figure is
example. British Land rose 9% on Wednesday seeing real incomes. If job markets remain tight almost $1trn. Thus growth is
inevitably slowing as the
and many of its peers posted gains of 6% or more. – and there aren’t that many signs of weakness
economy does; Meta’s sales
Many US Reits have rallied by 20% or so over yet – it’s hard to see that pressure easing up. Wage increased by 20% last year,
the past month, despite plenty of bleak headlines demands could keep feeding through into steady but will be closer to 8% this
about how working from home is undermining inflation, regardless of jawboning about “pay year. Despite that, the stock
the office market in many city centres. restraint” from the Bank of England. has been the top performer
This matters relatively little to solid in Fundsmith’s portfolio over
The implications for valuations companies from a fundamental perspective: they the first six months of 2023,
Some of this confidence seems a little early: the will mostly be able to pass on costs over the long as it rebounded from cheap
picture still seems very uncertain. The spike in term. If margins shrink a bit, it will be from near- valuations and bearish
sentiment last year. “Meta’s
energy and food last year and the way that they record highs and there’s little point in fretting
share-price performance has
subsequently fell back creates a very favourable about this, especially since higher wages is good been volatile… much more
year-on-year comparison for prices now, and that for demand and the economy in the long run. volatile than its fundamental
makes underlying trends less obvious. Bears will The implications for valuations are greater. A performance, which should
point out that core inflation (ie, inflation minus 2% medium-term inflation rate might imply that be our primary focus.”
food and energy) is proving sticky – although it’s interest rates average about 3%-4%, based on Notably weak performers
worth noting that core inflation does not seem to typical trends outside of the high-inflation 1970s included cosmetics firm
be a reliable predictor of future inflation, so this and zero-interest 2010s. A 5% one might imply Estée Lauder, which was hit
may tell us less than a lot of people assume. 6%-7%. UK ten-year gilt yields are now just over by lower than expected
demand in China as the
Still, the risks of runaway double-digit inflation 4%; US ten-year Treasuries are 3.75%. That’s
economy there reopened.
are clearly reducing – we’re just not seeing that towards the lower end of the spectrum, consistent “It seems that Chinese
kind of trend. What’s far from clear is whether we with around 2%-3% inflation. This may yet prove consumers are buying
settle back to, say, 2% inflation, or more like 4%. right – but it certainly doesn’t imply valuations of watches, handbags, and
After all, many employees have been able to push bonds (and, by implication, of other assets) are other luxury goods first,
for pay rises for the first time in years, yet are still excessively cheap by historical standards. which it was harder to shop
for online during the
from the nominal interest lockdown,” says Smith,
I wish I knew what a real interest rate rate. So in the first example going on to imply that the
was, but I’m too embarrassed to ask above, the real interest rate is
1% (you are earning a real
fund is considering the
future of this investment.
A “real” interest rate is simply have grown (in nominal terms) return of 1% a year). In the “We await to see how the
an interest rate that has been to £1,020. Of course, the second example it’s minus recent debacle is handled.”
adjusted to take inflation into advertised rate on a savings 1% (you are losing money in Meanwhile, consumer-
account. (A “nominal” interest account will be the nominal real terms). staples companies such as
rate is one that has not been one, not the real one. One way to get an idea of food and personal care – the
adjusted for inflation.) Real The formal definition of the expectations for inflation is to largest sector in Fundsmith’s
rates matters because inflation real interest rate is given by the compare yields on index- portfolio, at 34% of
reduces the value of any future Fisher equation (named after linked government bonds investments – “continue to
stream of income. economist Irving Fisher) and is (whose payments increase in generate decent top-line
Take a bank account into calculated as(1+i)=(1+r)×(1+ π) line with inflation) with normal growth, albeit mostly price
which you plan to place £1,000. where i is the nominal rate, r is government bonds. The led”. But “rising input costs
If inflation is running at 1% then the real rate and π is the difference between the yield have put pressure on
a 2% nominal interest rate looks inflation rate. However, for most on UK gilts and index-linked margins”, says Smith.
respectable – your savings will purposes it’s much easier to gilts of similar maturities (or “Conditions are tougher and
have more purchasing power a estimate the real rate by between US Treasuries and our companies are mostly
year from now. However, if subtracting the inflation rate Treasury inflation-protected having to cope with slower
inflation is running at 3%, your (either the current rate or the securities (Tips)) gives the revenue growth and/or
savings will have less expected rate, depending on “break-even” rate – the level higher input costs. However,
purchasing power when you whether you are calculating of inflation that means an that’s what happens from
withdraw them in a year’s time, what you have earned in real ordinary bond will return the time to time so we are
even though the £1,000 will terms or what you expect earn) same as an index-linked one. mostly sanguine about it.”

moneyweek.com 21 July 2023 MoneyWeek

18 Best of the financial columnists
Trustbuster Trustbusters both in the US and Europe have “made no secret of their
distaste for big firms and big deals”, says The Economist. But while their
Money talks
zealotry “zeal” is welcome and competition is, of course, vital (corporate profits
have been 20%-40% higher in the past decade than the preceding three
“I’m quite young
and I’ve got

goes too far

my whims,
and this is a sign of growing market power), their “expansive agenda” but I’m very
also raises questions, not least whether it has distracted regulators from natural,
Editorial “tackling genuine hurdles to competition”. Bigness “need not be bad”. The normal,
The Economist five largest tech firms fund 25% of all research and development in the humble.
US. Growing corporate concentration appears to have been caused mainly I don’t really
by “growing economies of scale from technology, not market power”. pay much
Mergers and acquisitions can help develop markets and challenge the status attention to
brands and cars. If I
quo, making firms more competitive not less. Offputting levels of scrutiny
like something,
have led the average value of deals to shrink by around 40% this year. I try to buy it, but in the
Regulators should focus their efforts carefully and acknowledge the limits end my father takes care
of anti-trust. Blocking deals and anti-competitive practice is “just one piece of everything.”
of the puzzle”. Rising barriers to trade and land-use restrictions also protect Wimbledon champion
firms from competition – tackling them is just as important. Carlos Alcaraz, 20,
quoted in Vogue

Banks have The Federal Reserve’s “recently completed ‘stress tests’ gave high grades to
banks” for passing the “wrong exam”, says Sheila Bair. Rising rates mean
“It made me doubly
determined to become

passed the banks

independent by making
can charge more for loans, but banks eventually have to pay higher money. When the RNIB
interest on deposits, too, and if short-term rates rise higher than longer- [Royal National Institute
wrong exam term rates – a situation known as “yield curve inversion”, which has been
happening for more than a year – the interest banks pay can exceed the
of Blind People] explained
that they could teach me
Sheila Bair returns they can charge even on new loans. There’s also the risk that banks to use public transport, I
The Washington Post are forced to sell long-term securities before they mature to meet depositors’ replied: ‘Don’t worry, I’ll
withdrawals (banks seen as weakly capitalised suffer from rapid capital have a chauffeur.’ Ugly rich
flight). The Fed’s stress tests do not assess banks’ ability to “withstand these men could get beautiful
girlfriends. I decided rich
very real challenges”. Instead, they make them “magically” disappear by
blind ones could too.”
assuming that “interest rates will return to zero fairly quickly if there is an Robin Millar, one of the
economic downturn”. However, this is not what happened in the 1970s. world’s most successful
Indeed, it “took two more recessions” before Paul Volcker’s Fed could record producers, quoted
finally beat inflation and interest rates down in the early 1980s. We need a in The Times. He went
more accurate picture of banks’ ability to handle the “nightmare scenario” blind in his late teens
of “high inflation, high interest rates and recession” than the tests provide.
“Why is there so much
month left at the end of

A smidgen Nigeria and South Africa, the two largest economies south of the Sahara,
have “spent at least a decade flat on their back”, says David Pilling. From
the money?”
US actor John Barrymore,
quoted on Threads
of hope 2009 to 2018, Jacob Zuma ran South Africa into a “moral and economic
ditch”. Nigeria’s “decade of woe” came courtesy of president Muhammadu “Your inoperable
for Nigeria Buhari, who left office in May, after growth per head “plunged to zero”.
Until recently, most investors would have bet that South Africa would
business-class seat
scratched my Birkin and
David Pilling “stand up first”. Yet Nigeria has “more quick fixes”. By ditching the caused mega-damage.”
Financial Times “ruinously expensive” petrol subsidy and distorting “foreign-exchange Brittny Ward, wife of
regime” that had “allowed middlemen and crooks to make money while formula One star Jenson
Button, blames British
depriving productive parts of the economy of cash”, Nigeria’s new president
Airways for ruining her
Bola Tinubu will have helped unleash entrepreneurial talents. Meanwhile, £20,000 handbag, quoted
South Africa, despite its “more sophisticated economy” and stronger in The Mail on Sunday
institutions, has the most unequal income distribution in the world and still
struggles with the legacy of apartheid. With the country’s “wealth in white “I had always wanted
hands”, “political power in black hands” and a “messy era of coalition to be in business since
politics” beckoning, the country is in “for a rocky ride”. In Nigeria, there is I was tiny – I never
at least a “smidgen of hope” that things are improving. imagined any other job.
That’s why I had my
first flower stall at the

China’s
age of seven.”
China, already the world’s unrivalled “hydro hegemon”, is quietly building Businesswoman and
the world’s first “super dam” close to its “heavily militarised” border with Dragons’ Den star
secretive India, says Brahma Chellaney. The dam, located on a treacherous stretch
of the Brahmaputra river where it drops almost 3,000 metres, is a “ticking
Deborah Meaden, quoted
in The Telegraph
super dam time bomb”. Not only is it being built in a “seismically active area” – some
scientists believe that the tectonic stresses caused by water impounded “I was flown there
in the reservoir above Sichuan’s Zipingpu Dam may have helped trigger with my husband for a
Brahma Chellaney
the 2008 earthquake that killed 87,000 – but the dam will also threaten 30-minute show.
Nikkei Asia
They paid me £10,000 to
down-river communities if “torrential rains trigger flash floods”. There will
do hardly anything.
be other negative ecological consequences, including recurrent drought, as That was amazing.”
can be seen downstream of China’s existing 11 dams on the Mekong. The Kelly O’Brien, a
dam will allow China to “leverage transboundary flows” with India, wreak Dolly Parton lookalike
particular “havoc” on Bangladesh, which lies on the last stretch of the river, and tribute act, on
and desecrate a holy Tibetan area. “Only sustained international pressure performing at the
can force Beijing to drop the veil of secrecy.” The “far-reaching strategic, Singapore Grand Prix in
©Getty Images

environmental and inter-riparian implications of the largest dam ever 2010, quoted in
conceived make it imperative that China be transparent”. The Sunday Times

21 July 2023 moneyweek.com

 Best of the blogs 19

Why Britain Milton Keynes, a New Town founded in 1967,

was one of the more successful developments

doesn’t build
worksinprogress.co
Housing in Britain has become
“increasingly expensive and
scarce”, says Samuel Watling.
More houses were built in
the 1930s than ever before or
since. But after World War II,
disaffection with urban sprawl
led the Labour government to
pass an act that gave birth to the
land for development (ditto), the
building of New Towns outside
areas of contention (which
have struggled economically
and eventually met with the
same kinds of opposition), or
attempting to loosen planning
controls (scotched by house-
owning voters).
By the 1971 census, a

UK’s modern planning system.
Its aim was to ensure that only
development in the “public
interest” would go ahead.
Governments ever since have
had to work within strict rules
that give local councils power to
block nearly all housebuilding,
especially on protected “green
belts”. Successive governments
have tried to get round these
rules by delegating the task to
regional planning bodies (which
were successfully opposed
and eventually scrapped),
setting up a centralised
land commission to boost
bargaining power to buy up
©Alamy
majority of the electorate were
home owners, insulated from
the direct increased costs of
housing shortages. This led to
a “triumphant local Nimbyism
that has persisted to the present
day”. Despite claims to the
contrary, Nimbys tend to be
opposed to all housebuilding,
regardless of affordability or
attractiveness, because their
concerns are to do with their
own convenience, property
values or standard of living.
The result has been a drastic
cut in the area where it is lawful
to build houses, regardless of
how high demand may be. This
may be dysfunctional for the
nation as a whole, but there are
powerful incentives at work.
“When local communities
obtain no direct benefit from
new housing, but bear all the
costs, attempts to build
more homes hit a wall of
opposition from the residents
who are already there and their
elected representatives.
The developments are then
delayed, scaled back, and often
scrapped altogether.”
So what is to be done?
Various ideas have been floated.
One is for tax reform that would
make local authorities depend
upon local income or property
taxes to fund public services,
giving them an incentive to
permit house building and
turning the proposition into a
“win-win” for locals. But “no
scheme will succeed which
fails to understand that the
main constraint on
housebuilding in Britain today
is a political one. No attempt to
remedy it will succeed without
being designed explicitly to
overcome those who lose out”.

A better measure than GDP

edconway.substack.com
Let AI help you
with the emails
managementtoday.co.uk
The quest for a better measure of economic progress than GDP has been going on pretty much Apple’s CEO Tim Cook is said to
since GDP was invented, says Ed Conway. Some have suggested life expectancy as an alternative. read every email sent to him by
My suggestion would be to look at the amount of steel a country has. Steel is everywhere. When you customers, says Hasdeep Sethi.
travel by train, you are travelling in a steel tube along steel rails using steel escalators and steel lifts to This “raised eyebrows” as the
reality is that not many firms, let
get you to the platform. The more infrastructure you have in your country, the more cars and trains alone their CEOs, make good
and hospitals and schools, the more steel you have. Simply adding up how much steel there is in use, use of this freely available data.
for which good data exist, and dividing by the number of people, will give you a pretty good sense of That’s understandable from a
how developed that country is. Most developed economics, places such as the UK, US, Japan and most practical point of view – who
of Europe, have around ten to 15 tonnes of steel per capita. In the UK it’s 13.4. For the US it’s 13.8 and wants to wade through
Germany 11.9. China has something like seven. In sub-Saharan Africa, it’s mostly below one. In Mali thousands of emails in the hope
and Niger, the figure is barely 0.1. “This, to me, is a far more visceral way of explaining development of finding one nugget of insight?
and the gaps between nations than GDP […] And happily, using this metric is far more intuitive (and This is where artificial
less prone to things like purchasing-power parity adjustments) than things like GDP per head.” intelligence (AI) could be a help.
It’s suited to extracting insights
from such “unstructured data”.
It could, for example, read 50,000
Why is airline
Airlines ran an executive flight a dozen almonds, a shrivelled
for men only – a gentleman’s turkey jerky stick and a granola emails from customers to
club with wings – “where the bar. Why were the food options identify their top ten areas of

food so bad? attendants were single and hot,

atlasobscura.com
Airline food has long been
an object of ridicule, but
in recent years it’s become
“downright depressing”, says
Diana Hubbell. It wasn’t always
this way. In the pre-Reagan
era, flying still had a “whiff of
glamour”. Pan Am passengers
in the 1950s dined on stuffed
guinea hen; those in first class
enjoyed scoops of caviar and
©Alamy
the gin martinis cold and your
cigar provided free”.
Today, in the cheap seats at
least, you’ll be lucky if you get
so much better in the past? One
reason is that in that era airlines
in the US were prohibited from
competing on price, so they
competed on quality of service
instead. The introduction of
frequent flier loyalty points
means that people, especially
corporate types, now tend
to stick with their airline no
matter what the food is like.
In short, the airlines got stuck
in a race to the bottom, and
flights are now about as
concern. These insights, and any
others a business might be
interested in, can help better
understand customers’ needs
and areas for improvement.
Such an approach is likely to
be more revealing than surveys
because unstructured data can
uncover “unknown unknowns”
and give natural, unprompted
information that researchers
may not have thought to ask
about. AI could even help
predict changes in preferences
and market conditions so that
firms can “act upon, rather than

eggs made to order. United The whiff of glamour has gone glamorous as a trip on the bus. react to, change”.

moneyweek.com 21 July 2023

20 Funds

Niche funds shine in a tough sector

Emerging markets have suffered a dire decade, but some specialist funds have done well lately
Max King informed investors. “We don’t
Investment columnist like banks and our limited
Chinese exposure is Hong

T he accepted wisdom of
fund managers is to avoid
most new issues when they are
Kong, not mainland listed,”
says Hardenberg. But “this is a
good time to be buying quality
plentiful, but invest when assets”, so there is still plenty
they are few and far between. to choose from. Importantly,
On that basis, Ashoka the management team, mostly
WhiteOak Emerging Markets Mobius himself, has £40m
(LSE: AWEM), which raised just invested. The trust trades on
£31m in its April flotation, is a a discount of 2% to net asset
surefire winner, since it is the value (NAV) and yields 1%.
only new issue in the investment- Meanwhile, the £540m
trust market since 2021. Utilico Emerging Markets (LSE:

The performance of emerging
markets since 2012 has been
dire. They have underperformed
developed markets by around
60%, losing nearly all the
outperformance not just since
2000, but also since 1987, when
the first broad emerging-market
indices begin.
Since then, there have been
two huge booms (1987-1994
and 2002-2011) followed by
two huge busts. These busts
can be attributed to the reversal
of speculative fund flows to
emerging markets in the boom
years, as well as a fall in profit
margins, reckons ED Butchart,
chief investment officer of
investment-trust specialist
Kepler Partners. While US
companies’ margins have risen
from 6.5% in 2009 to 12%,
those in emerging markets fell
to 6% in 2016 (there has since
been an erratic recovery).
As a result, the US trades
on a cyclically-adjusted price/
earnings multiple of 24 while
emerging markets trade on 11,
Brazil has begun to bounce back
a 25-year low, he says. There
is no guarantee valuations will
converge, but Butchart thinks
a combination of continued
growth and a weaker dollar
herald better times.
A bull market may already
have begun, suggests Louis
Gave of Gavekal, an economic-
research firm. He notes that
emerging-market bonds have
outperformed US Treasuries
by 20%-50% in the last 18
months, while Mexican, Indian,
Brazilian and Indonesian
markets have outperformed or
matched the US.
Why China is crucial
The broader emerging index is
dominated by China, but China,
which still accounts for 30%
of the index, has performed
terribly since 2020. Thus
better Chinese performance
would be good news for the
larger emerging-market trusts,
Templeton Emerging Markets
©Getty Images
(LSE: TEM) and JPMorgan
Emerging Markets (LSE: JMG),
which have struggled due to
their exposure to the region
during the past three years.
Among specialist trusts,
Mobius Investment Trust
(LSE: MMIT), with £150m
of assets, has returned 11.7%
per annum over the last three
years (including dividends).
The trust is headed by Mark
Mobius, who launched it in
1989, and managed by Carlos
Hardenberg, who worked
with him there. It owns just 26
growth-orientated companies.
Nearly two-thirds of the
portfolio is in technology and
15% is in healthcare.
The companies are small
to mid-cap – so there is very
little overlap with the MSCI
Emerging Markets index –
and have little to no debt and
profit margins averaging 16%.
Few of the portfolio names
will be familiar even to well
UEM) has returned 10.8% per
year. It follows a very different
strategy: investing in utilities,
whose returns lagged when
emerging markets were on a roll,
but have accelerated in recent
years. Its field includes logistics,
ports, airports, data services and
digital infrastructure as well as
telecoms, gas, electricity, water
and waste.
This means that there
is plenty of growth in the
offing: emerging markets
are decarbonising just like
developed markets and strong
economic growth means that
demand is not mature even for
basic infrastructure. Brazil is the
largest position, at 23% of the
portfolio, with 15% in China
and 11% in India. The current
discount of 14% results in a
3.9% dividend yield.
These trusts are not
alternatives to TEM, JMG or
other generalist or index funds –
instead, they complement them.
But keep an eye on the Ashoka
trust. History is on its side.

Activist watch Short positions... PE pounces on Gresham House

The number of activist campaigns
n Alternative asset manager Gresham House n ETF providers have pushed down the cost
launched against European public
is being bought by US private-equity firm of investing even further as they compete
companies has jumped to a record
Searchlight Capital in a £470m deal, says for investors’ money, says The Times. The
high in 2023, according to data from
Citywire. The deal is the latest in a string of Invesco FTSE All-World ETF, which tracks
audit and advisory firm Alvarez &
mergers in the sector as managers try to bulk the FTSE All-World index, started trading on
Marsal (A&M). There have been 105
up in the face of increasing competition from the London Stock Exchange at the
companies targeted by activists this
passive funds and low-cost exchange-traded beginning of last week with an annual
year, including 24 in the UK and 21 in
funds (ETFs). Gresham has become a leader in charge of just 0.15%, undercutting
Germany. Firms that “misfired
alternative asset classes – most notably Vanguard’s All-World ETF, which charges
operationally and potentially exhibited
sustainable funds in sectors such as energy 0.22%. As both of these funds track the
signs of poor governance since the
storage and forestry – as well as a successful same index, they should generate the same
onset of Covid” are most likely to
manager of venture capital trusts (VCTs). returns for investors, but the costs are key.
attract activists’ attention, says A&M.
Assets under management totalled £7.8bn at Invesco’s product should ultimately
Companies in the UK are at greater risk
the end of 2022, with adjusted operating generate better overall returns in the long
than other European countries due to
profit rising to £27.1m versus £20.2m in the run as investors will save 0.07% a year in
their weak stockmarket performance
previous year. One of the company’s largest fees. Still, funds’ fees are only part of the
relative to global peers; 49 UK stocks
funds is the Gresham House Energy Storage equation. Platform fees are also key – for
look vulnerable to activist attacks in
investment trust, with £842m of assets under example, Vanguard’s platform only allows
the next 18 months. Environmentally-
management. Searchlight seems to believe investors to own Vanguards’ funds, but with
motivated campaigns have also
the demand for exposure to these alternative fees of 0.15% per annum, its platform is by
reached a new high, at 12% of the total.
assets will continue to grow. far the cheapest.

21 July 2023 moneyweek.com

22 Analysis

Small companies
with big potential
Michael Taylor of Shifting Shares reviews his 2023
picks and highlights four more promising minnows
Every July I revisit my share tips from January. As I
often point out, investing over a time frame as short
as six months is akin to flipping a coin, especially in a
market where stock prices are falling across the board
(as is the case in my stomping ground of small caps).

Harvest Minerals (Aim: HMI) 7.95p, now 3p

My first pick was Australian natural fertiliser producer
Harvest Minerals. As I wrote six months ago, this stock
is especially susceptible to overall market sentiment.
However, cash generation is strong, with cash rising to
A$2.7m from A$1.7m; A$1.2m in debt has been paid
down too – taking total cash generation to A$2.2m.
This equates to £1.16m, impressive compared with
a current market value of £9.8m. Still, Harvest has
warned that it now expects to sell just 120,000 tonnes
of fertiliser this year, down from the previous target of
200,000 tonnes. Prices have fallen too.
Harvest says farmers have delayed purchases in
anticipation of further price declines. Moreover, the
price of soybeans (Brazil’s main crop) has reached levels
close to the cost of production. The company has the
cash to get through this downturn, but given the poor
share-price performance I am happy to admit that, so
Cocktail bar operator Nightcap is poised to expand further
far, I am wrong on this.
Few people are suffering more than executive
chairman Brian McMaster, one of the company’s compared with last year’s £22.8m. Margins continue
largest shareholders, but the lack of predictability in to meet or beat management’s internal targets. I see no
the business understandably puts many investors off. reason to change my view here.
I consider this a high-risk share because of the potential
for a delisting. Brave Bison (Aim: BBSN), 2.2p, now 2.4p
Brave Bison is a media, marketing, and technology
Altitude (Aim: ALT) 31.5p, now 38.5p company focused on social media. It owns and operates
Altitude is a technology company that provides services more than 650 channels across all major social-media
to the promotional merchandising and print industries networks and boasts some of the biggest brands in the
in North America. The company’s AIM Smarter world, with a client list that includes Google, Panasonic,
platform connects buyers, sellers, and manufacturers New Balance, Currys, and more.
of promotional merchandising. Net income totalled £2.1m last year – putting the
The group has continued to impress and since my company on a price/earnings (p/e) ratio of just above
last article broker Zeus’s expected adjusted profit before ten. Given that sales are set to grow to £42.9m this
tax figure for the year to 31 March 2023 has almost year from 2022’s £31.7m, I think the price is extremely
doubled to £0.9m from £0.5m. attractive. There is also plenty of cash on the balance
Furthermore, continued growth is expected in 2024 sheet. Still, the company said in April that “trading had
with adjusted profit before tax set to total £1.3m. The become more challenging in the first half of 2023 as
shares are not cheap, but I believe the business is scaling customers’ budgets have come under pressure”.
up and there is scope for further progress. I remain bullish on all four stocks. Altitude hit highs
of 48p; Brave Bison reached 3.1p and Harvest almost
XP Factory (Aim: XPF), 21.5p, now 16.75p 10p. For the short-term trader, the opportunities have
XP Factory was formerly known as Escape Hunt. “XP Factory, been plentiful. As always, you must do your own
It operates “escape rooms”, into which players are research and manage risk. Below are four more shares
locked until they can solve a puzzle, and also acquired
which where I feel the upside could outweigh the downside.
Boom Battle Bars in 2021, which added games such as operates
augmented-reality darts and axe-throwing.
In January I highlighted the risk of a slowdown
‘escape Kitwave (Aim: KITW), 285p
Kitwave is an independent wholesale delivery business
in consumers’ discretionary spending. Yet the group rooms’, has specialising in selling impulse-purchase products, such
said recently that “it has been performing ahead of
management’s expectations”. Like-for-like revenue rose
managed as confectionery, soft drinks, snacks, ice cream, frozen
and chilled foods, alcohol, groceries, and tobacco.
by 32% year on year in the first quarter. to keep The company is a rival to Booker and other
The threat of lower household spending hasn’t wholesalers. It uses a buy-and-build model, acquiring
gone away, but investment bank Singer Capital
attracting smaller businesses that are happy to sell and also
Markets has pencilled in sales for 2023 of £42.6m customers” deploying cash generated from operations (rather than
21 July 2023 moneyweek.com

constantly issuing shares). It may not sound the most
exciting business model, but the group is performing
strongly. The forecast for its 2023 post-tax profit has
been raised to £21.2m, putting the stock on a p/e of just
above ten.
Dekel Agri-Vision (Aim: DKL), 2.85p
Dekel Agri-Vision is a palm-oil producer with a
raw cashew nut processing operation. It is based
in west Africa. The shares took a hit last year, as
despite unusually strong-palm oil prices, weather
problems hampered output. That’s not the case this
year, with April’s production up by more than 145%
year on year.
May was also a record month for production, which
means that the first half of this year will have delivered
a materially higher half-year production performance.
Analysts at WH Ireland Capital Markets expect sales
to jump to €42.8m from €30.7m in 2023, with earnings
before interest, tax, depreciation and amortisation
(Ebitda) reaching €7m. The stock is on a 2023 p/e of
8.6. However, by the end of this year Dekel’s debt will
have reached €23.9m, eclipsing its equity. That said,
strong cash generation is more than enough to service
and repay existing debt. And it recently announced an
interest-rate reduction to a maximum of 7%.
Cashew production – originally intended to be up
and running in 2021 – is set to boost the company’s
earnings, as well as diversify beyond palm oil, a single
weather-reliant commodity.
Nightcap (Aim: NGHT), 9.25p
Nightcap operates cocktail bars and is focused on
acquiring and developing “wet-led” brands (those
relying on drinks only, not food) in order to roll these out
moneyweek.com
Analysis 23
across the country. It was founded by Sarah Willingham,
an investor on the UK hit series Dragons’ Den and her
husband (and co-founder) Michael Toxvaerd.
After listing on Aim at 10p in January 2021 the
shares shot up to 36p within six weeks. A few months
later the company set out to acquire Adventure Bar with
a £4m placing, and ended up raising £10m thanks to
significant demand.
Some shareholders at the time complained about the
dilution. However, there is no doubt that this additional
cash buffer put the business on a better financial footing
as it didn’t need to raise money in 2022, when many
companies were doing so at share-price lows.
There was, though, a small placing at 12p in
June 2023 to acquire the Dirty Martini brand from
administration for £4.65m. Given Dirty Martini’s
unaudited 2022 revenue of £23.7m and Ebitda of
£3.9m, this is a very attractive acquisition. Its sales were
worth more than half of Nightcap’s £35.9m in 2022.
The dilution is small, with £2.35m being raised at 12p (a
premium to the share price) with three investors.
This puts Nightcap in a prime position to expand
further. However, house broker Allenby has reduced
2023’s revenue target to £47m from a previous estimate
of £49.3m despite the significant scale of the acquisition.
This is a big reduction and reflects the ongoing
rail strikes and potential for a major slowdown in
consumption. However, I see this stock as a potential
winner once the dust has settled. That could be some
time away though.
McBride (LSE: MCB), 30.5p
McBride is the supplier of private-label household and
personal-care products: washing-up liquid, bleach,
disinfectant sprays, powders and aerosols, for instance.
The shares have been in decline since the start of 2018,
when the price topped out at 234p. They recently hit
©Alamy
lows of 15p.
Investors had been concerned with the company’s
“Palm-oil debt. However, in January it announced that
management had managed to deliver improved
producer profitability and that net debt was in no danger of
Dekel Agri- breaching banking covenants.
McBride released a trading update on 14 July
Vision’s cash claiming that “adjusted operating profit will be
generation materially ahead of current market expectations” and
that net debt had outperformed forecasts too.
will allow it The upshot is that with the share price
to service its having doubled from its lows, the long-term trend
could be changing and we are witnessing a
debt easily” turnaround. That said, the shares do still carry
significant risk. Net debt has reached £166.5m,
compared with a market value of £54m, so the company
is carrying more than three times its value in borrowings
on the balance sheet.
However, if McBride can continue to improve
operational efficiency and pay down the debt
with cash flow, the share price can go higher. The
company reports that there has evidently been a
shift among consumers to own-brand labels in order to
get better value as inflation starts to bite and pockets
are squeezed.
This stock looks ugly at first glance. But it’s when
other people turn their nose up at equities that
outperformance becomes more likely. Popular stocks
are usually priced for their popularity, and fail to achieve
outsized returns. If you do what the average trader and
investor does, you will end up with average results. I feel
the risk-reward ratio for McBride here is firmly skewed
to the upside. But I can always be wrong.
For more market insights you can get Michael’s
free Buy The Breakout weekly newsletter at
shiftingshares.com/newsletter
21 July 2023
26 Analysis

The clever way to

profit from AI
Don’t chase small hidden gems – invest in Big Tech,
which provides the sector’s tools, says Stephen Connolly
The US S&P 500 index has gained 18% this year.
Many money managers have been caught out. Their
defensive focus on rising inflation and interest rates left
them blindsided by big gains in Artificial Intelligence
(AI) stocks. There’s no question that long-term investors
should be exposed to AI in their portfolios. It is no
fad and will drive efficiencies and profitability across
diverse industries for years to come in ways we cannot
yet imagine.
But should investors buy the types of Big Tech stocks
that are capitalising on AI now, but look expensive
because they have spearheaded the market’s advance
this year? Or should they instead try to identify up-and-
coming businesses with a future in the field hitherto
overlooked by other investors?
The idea of finding hidden gems is, of course,
appealing and there will be many as yet unseen winners
from AI. And there is no shortage of ideas about the
ways in which it could be applied and even transform
society. They range from cancer research to robotics to
deep-space exploration.
But all AI’s potential applications rely on processing
vast amounts of data extremely quickly, and just
any microchip won’t do – you need the fastest. The
favourites are graphics chips that can work on multiple
tasks quickly enough to produce the often visually
stunning video-game content, but they are scarce.

A chip supply squeeze

The world faces an overall shortage of the microchips
needed to meet the strong processing demand induced
by AI. New entrants looking to build businesses in
the sector simply do not have the resources to achieve
the necessary scale with a product that is already
difficult and expensive to secure. So they have to rely on
effectively renting use and access to computing power
from the big players.
This means the practical and financial dynamics
of the emerging AI industry favour the incumbent
Big Tech players, and that won’t change soon. These
businesses can provide chips and access to vast
computing networks with powerful processing capacity,
and so this is where the money is most likely to be made,
at least for now. These big players are miles ahead of
everyone else when it comes to having the equipment
that matters.
This means that despite the strong gains so far this
year, they remains promising long-term plays. Towards
the end of June, CNBC, the US business television
channel, surveyed about 400 professional investors,
from chief investment officers to fund managers. When
asked what they think is the best way to invest in AI,
nearly half said via Big Tech. Only 16% suggested going
for up-and-coming stocks instead, with the rest sitting
on the sidelines.
The dominant chipmaker
Drilling down to which individual stocks they like most
for investing in AI, microchip-maker Nvidia scored
50% and Microsoft 28%. Other dominant tech players
lagged far behind: Alphabet, which owns Google, and
21 July 2023
The excitement over AI is palpable, but its future is opaque
Amazon, scored 11% and 6% respectively. Nvidia is the
US microprocessor business that started up in the 1990s
and has become the most influential and innovative
chip designer in the world.
While the launch of ChatGPT fired the imagination
of the broader public about the possibilities of AI, it
was a very bullish profit announcement from Nvidia in
May that put AI squarely in the cross hairs of growth
investors everywhere.
Having achieved sales of $7.2bn in the first quarter,
the group said it expected $11bn just three months later,
a 53% leap. We suggested considering the shares before
the announcement, and they have now risen by about
50%. This has meant that despite already being one
of the biggest companies in the world, Nvidia is now
one of the few companies valued at more than $1trn,
entering a pantheon alongside the likes of Microsoft,
Alphabet, Apple and Amazon.
Nvidia is a hold even though it has performed
strongly because we believe in a long-term investment
“Nvidia’s approach: AI is a multi-year trend. Trying to trade the
shares for further short-term gains could work but
shares have is unduly risky. Its high-speed chips are essential and
gained highly sought after for building the infrastructure
needed to satisfy the take-up of AI, and it supplies 80%
50% since of the market. Demand will keep Nvidia chip pricing
MoneyWeek strong and sales volumes high.
Unsurprisingly, the company is valued significantly
highlighted higher than the market as a whole. It can be justified,
them in May” but the company needs to deliver. There are some 50
moneyweek.com

©Alamy
analysts researching the company and 43 of them
expect further outperformance. We are in one of
the most exciting and transformative shifts in
technology in world history, and owners Nvidia are at
the centre of it.
Microsoft steals a march on rivals
Software and computing giant Microsoft is also at
the heart of the AI revolution and thus likely to be a
leading beneficiary as the mega trend develops over
coming years. It is set to report quarterly results in a
week or so when investors are likely to hear plenty of
plans and developments around AI which could kindle
market excitement.
And when it comes to the numbers, Microsoft has
a pretty good track record of outstripping investors’
expectations. For the second quarter of 2023 the
estimates are earnings growth of 14% to $2.55 a share
on revenues up by roughly 7% to $55.4bn.
Microsoft doesn’t design microchips like Nvidia.
It provides software applications such as Microsoft
Office, and has a data storage arm called Azure.
Anyone can pay to access it remotely via the cloud,
saving a fortune on kitting out and overseeing their own
data infrastructure.
It’s also building a gaming entertainment business,
which is a significant growth area, and after much
regulatory resistance, is close to completing the
acquisition of Activision Blizzard (see page 6), one of the
world’s biggest video-game publishers.
moneyweek.com
Analysis 27
Microsoft has, over recent years, reportedly spent
billions of dollars stealing a march over rivals by quietly
building a stake in OpenAI, the developer and owner
of ChatGPT, the AI conversational interface that has
brought AI into popular use and consciousness. This
places Microsoft at the heart of how AI will transform
computing and how we use it. Programmers, software
developers, business managers, investors, bankers and
politicians are also involved in shaping the debate.
And of course OpenAI needs a company like
Microsoft as it gives it vast computing and data-
processing power, which is in short supply everywhere.
As everyone turns to OpenAI to help get their AI
work off the ground because they cannot build their
own infrastructure owing to a lack of parts and other
resources, Microsoft is in the background renting out
the capacity to make it all happen.
On top of what is in effect a royalty on AI, the
tech giant is busily integrating OpenAI into its own
products, including its cloud offering, sales and
programming applications, the Bing search engine and
the Office suite. Only this week , it launched CoPilot,
a new application embedded within Office, providing
users with AI capabilities.
Has Alphabet fallen behind?
Then there is Google’s parent company Alphabet.
It is also carving out a leading space in AI, although
this year it has often been viewed as falling behind
competitors despite working in the field below the
radar for years.
The stock price is also affected by the fortunes of
its economically sensitive Google search-based
advertising revenues. At times, too, there has been
an existential question mark over the business: if
people can have their internet questions answered in a
polite, succinct conversational style with Microsoft’s
ChatGPT, why do they need the reams of web pages
that Google increasingly seems to produce randomly,
not to mention the creepy, targeted adverts?
The bouts of negative sentiment are probably an
opportunity, again for the long-term. Alphabet has, in
fact, made been making significant investments in AI
over the years, too. The future outlook for traditional
search engines and the advertising model that provides
the bulk of Alphabet’s revenues is murky, and the
prospect of difficulties on that front should not be
“Alphabet is lightly dismissed.
But, like Microsoft, Alphabet is at the centre of AI. It
integrating AI has also spent a lot of money building a cloud offering
into products and is now number three in the sector after Amazon
and Microsoft. This is helping to tilt the overall group
ranging from revenue mix from away from advertising as it also caters
YouTube to to the need for processing power.
It has been consolidating its AI investments such
Android” as Deep Mind. The AI research across the group is
being integrated into its broad range of products from
YouTube through to Android, with a stream of new
AI tools for its users launched recently. Meanwhile,
Alphabet has a very strong balance sheet, and the stock
trades on a valuation significantly lower that Nvidia
and Microsoft.
Sticking with Big Tech should reward investors with
what AI has to offer over the medium term. For now,
the AI landscape resembles a shaken snow globe. No-
one knows how it will settle. What we do know is that
this nascent field needs computing power and we do not
have enough to meet demand. This is where AI money
is to be made until we get a clearer picture.
Stephen Connolly writes on business and
finance and has worked in investment banking
and asset management for nearly 30 years.
(sc@plainmoney.co.uk)
21 July 2023
28
Hold on to our top investment trusts
MoneyWeek’s selection of funds remains a compelling long-term bet, despite a turbulent year so far
Rupert Hargreaves
Deputy digital editor
W e set up the MoneyWeek
investment trust
portfolio in 2012 after readers
suggested putting our money
where our mouth was. We
picked a portfolio of six
London-listed investment trusts
to give investors a global, all-
weather portfolio with a wide
array of investment styles and
asset classes.
We’ve always preferred
investment trusts to unit trusts
– they tend to be cheaper,
and research shows they
outperform over the long term.
The closed-ended structure
of these vehicles also makes
them more suitable for holding
illiquid assets.
Gearing boost returns
What’s more, investment
trusts, which are structured
as companies, can borrow
money to boost returns –
something the latest entrant
to the portfolio, AVI Global
Trust (LSE: AGT) has been
taking advantage of to increase
its exposure to Japan and
reduce foreign currency risk
(see my article last week for
a full overview: moneyweek.
com/investments/investment-
trusts/avi-global-trust-global-
diversification-at-a-discount).
We added AGT to the
portfolio in the first quarter,
the first change since 2020.
We removed RIT Capital
Partners (LSE: RCP), which
turned out to be a good
investment decision.
RIT has continued to sell
off over the past few months
as concerns have gathered
pace about the quality of the
trust’s private portfolio and
the valuation of these assets.
Shares in the trust have fallen
by 16% in 2023, compared
with a decline of 2.4% for AGT
(excluding income).
Following this change, the
portfolio consists of Scottish
Mortgage Investment Trust
(LSE: SMT), Personal Assets
Trust (LSE: PNL), Mid Wynd
International Investment
Trust (LSE: MWY), Caledonia
Investments (LSE: CLDN),
Law Debenture (LSE: LWDB)
and of course AVI Global Trust
(LSE: AGT).
21 July 2023
Portfolio
Marks & Spencer shares
have surged by 60% this year
Discounts drive
underperformance
It’s been a difficult year for
all of the holdings in the
portfolio. Even Personal
Assets, which prioritises
protecting investors’ capital
over growing it, is in the red
this year.
This trust’s problems are
emblematic of the performance
of the rest of the portfolio.
PAT entered 2023 positioned
defensively against the
backdrop of rising interest
rates, high inflation and a bleak
outlook for the economy.
However, unexpectedly
good household spending
numbers have driven a “narrow
equity market rally”, says
Charlotte Yonge, assistant fund
manager of PAT. Combined
with rising real yields and a
strong pound, this has thrown
out projections made at the
beginning of the year.
The most important factor
hampering PAT’s performance,
however, has been a move
“from a 1.2% premium to a
modest discount of -1%”. The
trust uses a discount control
mechanism to try to project
shareholders from these moves
(buying back shares when the
trust is trading at a discount to
asset value and issuing more
when trading at a premium).
However, other trusts don’t,
and a widening of discounts
has been one of the biggest
trusts both have roughly a
third of their assets in private
businesses, and investors have
become very concerned about
the value of these holdings.
That scepticism might be
warranted, but we think there
is a reasonable chance it might
not be, based on conversations
with managers in the private-
equity sector, so we continue
to hold these companies. As
we’ve seen this year, investment
performance can be surprising.
UK equities outperform
Indeed, against all the odds, the
best-performing trust this year
in the portfolio is LWDB. It is
essentially flat year-to-date,
while its total return, including
income, is positive.
James Henderson, one of
©Marks & Spencer
the UK-focused equity income
trust’s managers, tells me the
portfolio has reaped strong
returns from its holding in
negative performance drivers in Flutter Entertainment, which is
the year. benefiting from the growth of
Take the two worst the gambling market, and from
performers in the portfolio, Marks & Spencer. The latter
Scottish Mortgage and has defied expectations for
Caledonian Investments. profit and sales growth, and
Shares in these trusts have the stock has surged by nearly
lost between 9% and 14% 60% this year.
excluding dividends in 2023, Mid Wynd’s exposure to
though they are showing US tech stocks has helped
signs of recovery, but their it in 2023. Its NAV is up by
underlying net asset values 2.9% for the year to the end of
(NAVs) have risen by around June, but a growing discount
8% and 2% respectively. And means the stock slipped by
it’s not just these companies. 3% over the six-month period.
Investment trust discounts Still, we like this company. It
across the market are trading complements SMT’s high-
close to the widest levels since growth approach, focusing on
the financial crisis. identifying long-term global
trends but with a disciplined
PAT stands pat approach to valuation.
For its part, PAT believes its However, we will be
defensive positioning remains keeping an eye on this trust
the best approach for the following the decision by the
current market. “Labour board to replace its investment
market inflation remains too management company,
high and consumer savings Artemis, after the retirement of
from the pandemic mean the long-serving managers Simon
impact of higher rates is not yet Edelsten and Alex Illingworth.
fully visible,” Yonge notes. Lazard Asset Management is
Reflecting this caution, the taking over. Fees are expected
fund has less than a quarter of to be lower as a result, but it
its assets in equities. Instead, remains to be seen how the
it favours inflation-linked trust’s portfolio will change.
bonds instead, “where positive An equally weighted
real yields are available, and portfolio of the trusts has
gold as the currency that can’t produced a total return of
be printed”. -2.5% for the year to 18 July.
It’s no surprise that SMT We intend to update the returns
and CLDN have chalked up table quarterly in future, and
the worst performances in rebalance the portfolio once
the portfolio this year. These a year.
moneyweek.com

Our primal instinct for gold
The yellow metal has been a store of value
since the Stone Age, says Dominic Frisby
As prehistoric man hunted and gathered his way
through the Stone Age, he might have come across six
native metals (those that occur in nature in a relatively
pure state): silver, tin, lead, iron, copper and gold.
Gold appeared in river beds. Nuggets, mixed in with
sediment, were relatively easy to find and shape. Gold
doesn’t naturally combine with other metals, so it is
easy to identify. It shone. People adorned themselves
with it. The first records of copper use came tens of
thousands of years later. Lead, tin and iron’s first use
followed, when advances in metallurgy took us into
the Bronze Age.
Archaeological evidence from Spanish caves used
in the late Paleolithic period shows that gold was
used by humans as early as 40,000 years ago. This
predates agriculture and the development of settled
communities. It is the earliest example of human
use of any kind of metal, and its purpose was as
jewellery. The use of gold for personal adornment
was an established practice, even in prehistory.
(Even copper’s first use was as jewellery.) Gold, as a
symbol of beauty, power and status, also indicates
reproductive fitness: “Look at me, I have access to
this rare, shiny substance.”
Stone Age man had the same basic instincts as
we do today: fear, desire, love, hate, greed. Nothing
inspires greed like gold. Survival is the most basic
compulsion: to find water, food and shelter for
yourself and for those close to you. Then there is the
survival of your species: the need to reproduce. If you
survive, thrive and reproduce, the species as a whole
grow stronger.
Thus can an individual’s self-interest be good
for the species as a whole? What often goes
unmentioned, though, is our instinct for beauty.
What we find beautiful is also often good for
us in some way. We are instinctively repulsed or
alarmed by things that are dangerous (snakes,
spiders, a cliff edge) but things that aid our survival
we find beautiful: the sound of running water, a fit
and healthy potential mate, an open landscape, varied
animal and plant life, good visibility and shelter. And
we find gold beautiful.
The experience of beauty, whether derived from
nature, art, music or even mathematics, correlates
with activity in the emotional brain, the medial
orbitofrontal cortex. Beauty has long been associated
by philosophers with truth and purity – also qualities
commonly associated with gold. Our instinct for gold
and the emotions it inspires from beauty to desire are
basic. There has not been a culture in history that
did not appreciate the value of gold. It is a primal
instinct. “The desire for gold,” said Wall Street trader
Gerald Loeb, “is the most universal and deeply rooted
commercial instinct of the human race.”
The artefacts found in those Spanish caves suggest
that the people who lived at that time had some basic
skills. (Gold, which is relatively soft, is easy to shape
even using simple tools.) Gold would have been used
as a reward as well as for decoration – as early money,
in other words.
Even in prehistory gold was performing the
role it has always performed and always will: to
store, display and exchange value. Given its unique
characteristics – beautiful, eternal, immutable – it is
no surprise that gold found special status at the dawn
moneyweek.com
Opinion 29
©Getty Images
Kings such as Tutankhamun used the metal to authenticate their god-like status
of civilisation. Our prehistoric ancestors cherished
gold even before they were able to speak. Nor did that
captivation fade. Whether Asian, African, American,
Mediterranean, Germanic or Celtic, gold occupies a
place in the history and mythology of almost every
ancient culture, the most valuable of all metals. As
money, it was at the core of all their economies,
however primitive.
A symbol of the sun
Today we know of 90 metals or more. Many you
have probably never heard of: yttrium or zirconium,
for instance. Until the 13th century we knew of just
seven: gold, silver, copper, tin, lead, iron, and mercury.
There were also only seven known celestial bodies:
the sun, the moon, Mars, Mercury, Jupiter, Venus
and Saturn. Each metal came to be associated with a
celestial body: silver with the moon; iron, rusty and
red, with Mars; Mercury with its namesake; Jupiter
with tin. With its glimmering yellow colour, gold was
associated with the sun.
To the ancient Greeks, and other cultures besides,
the sun was a golden chariot driven by the sun god,
Apollo, across the sky each day. The Egyptian sun god
Ra was depicted as a yellow blaze of gold. The Incas of
South America believed gold to be the sweat or tears of
the sun. The Latin word for gold, aurum, derives from
Aurora, the goddess of dawn, who rose each morning
to announce the sun’s arrival. The root of the word by
which the Celts and Greeks referred to gold was the
Sanskrit harat, which means colour of the sun.
The symbol for the Sun (a circle with a dot in it )
was once the alchemical symbol for gold. Plato
and Aristotle both thought gold was obtained by
combining intense sunlight with water.
Kings and queens decorated their bodies with
gold to demonstrate their power, to impress, to
dazzle, to command and to authenticate their
god-like status. Because of gold’s imperishable
characteristics many imbued it with divine qualities,
“The Latin and it is forever associated with the eternal, the
permanent and the incorruptible. Even today the
word for young student gets a gold star, the athlete a gold
gold, ‘aurum’, medal. It is a symbol of achievement.
derives from Dominic Frisby writes the newsletter The Flying
Aurora, the Frisby. His show on gold at the Edinburgh Fringe
will take place at Panmure House, in the room in
goddess which Adam Smith wrote The Wealth of Nations.
of dawn” tickets.edfringe.com/whats-on/dominic-frisby-gold
21 July 2023
30
Beware the savings tax trap
Higher rates mean that many savers may exceed their tax allowances
Ruth Emery
Money columnist
I nterest rates on savings
accounts are rising as banks
pass the Bank of England’s rate
hikes on. But while this is a
welcome change for savers after
15 years of near-zero savings
rates, there’s one pitfall: tax.
The combination of higher
interest rates, the freeze on the
personal savings allowance and
a cut to the additional-rate tax
threshold has led to a jump in
the number of savers paying tax
on the interest they earn.
Savings income is taxed at
your marginal rate, although
tax-free allowances can provide
some shelter. For low earners,
there’s a tax-free starting
rate on savings, which starts
at £5,000, on top of your
personal allowance of £12,570.
Once your other income gets
above £17,570, you no longer
get the starting rate for savings,
but basic-rate taxpayers have
a personal savings allowance
of £1,000 of interest tax-free
each year. For higher-rate
taxpayers, that falls to £500,
while additional-rate taxpayers
get no allowance.
One slightly counter-
intuitive point to note about
the personal savings allowance
is that the amount still counts
when determining your tax
bracket. Consider a saver
who had £49,500 in salary
and £500 in savings income
last year. She was just below
the £50,271 higher-rate tax
Pocket money... the tax-reclaim rip-off
l If you’re thinking about
trying to reclaim overpaid tax
using a tax reclaim service, you
should think very carefully
about what you’re signing up
for, says The Guardian. These
businesses can sign you up to a
deed entitling them to receive
all your refunds of overpaid tax
for up to four years.
As this market is not
regulated, tax-reclaim
businesses can be set up by
anyone, and they usually
demand huge fees for
processing any claim. Fees of
50% of the total amount
reclaimed are common.
While these services claim
to make it easier to reclaim any
21 July 2023
Personal finance
Don’t let rate rises catch you out
band and paid basic-rate tax.
This year, her interest rises to
£1,500, meaning £51,000 in
total income. That pushes her
into the higher-rate band and
reduces her personal savings
allowance to £500.
Don’t bust your allowance
You may be surprised at how
quickly you could breach your
personal savings allowance
now that rates are going up. If
you’re earning just 1% interest,
you would need a balance of
£50,000 to get £500 a year.
However, today the best one-
year fixed-rate bond pays about
6%. So a higher-rate taxpayer
would only need to put £8,400
into that account to exceed
their £500 allowance.
However, there are ways to
shelter your savings and avoid
paying any tax on interest
earned. Cash individual
savings accounts (Isas) are the
easiest way, assuming that you
overpaid tax, it’s important to
note that claiming tax refunds
is free through the HM Revenue
and Customs (HRMC) online
portal, so in most cases
taxpayers don’t need to sign up
for expensive services.
l Taxpayers who miss
deadlines to make their
payments now face a hefty
interest bill of 7.5% on any
overdue tax, says the Times.
HMRC has always charged
interest on overdue payments
at rates set at two percentage
points above the base rate. As
rates have been raised by the
Bank of England over the past
year, the penalty rate for
©Getty Images
haven’t already used your entire
£20,000 Isa allowance for
investments. You can now get
4% on a top easy-access Isa and
5% if you fix for one year.
Another option is National
Savings & Investments’
Premium Bonds. These don’t
pay interest, but hand out tax-
free monthly prizes ranging
from £25 to £1m. The prize
fund rate is currently 3.7%
and is rising to 4% in August.
But this figure is skewed by the
larger prizes, where the chances
of winning are tiny. The typical
return from investing the
maximum £50,000 for a year
would be closer to 3%.
Finally, if you have surplus
savings, you could consider
overpaying your mortgage
or switching to an offset
mortgage. With mortgage rates
also going up, the effective
after-tax return on this is likely
to exceed the return available
on taxable savings.
overdue payments has also
risen. In July last year, HMRC
charged just 3.75% on overdue
payments, so the rate has
doubled in the past year.
On the positive side,
anybody who has overpaid tax
will get 4% interest from HMRC
along with their refund. That’s
higher than some of the rates
offered by banks on savings
accounts. It’s also worth noting
interest paid on tax over-
payments is not taxable.
l The Department for Work and
Pensions (DWP) has set out
plans to tackle the £27bn “lost”
pension pots problem caused
by a worker starting a job at a
Hidden costs of
old pensions
High fees on old pensions
could be draining money from
your retirement savings, says
This is Money. Over the past
eight years, charges on
pension funds have dropped
rapidly, thanks to changes
introduced in 2015. These
changes capped charges on
default funds in workplace
pension schemes at 0.75% per
year. Savers can get an even
better deal if they pick their
own funds, by selecting cheap
tracker funds and holding
them on a low-cost platform
such as Vanguard, which
charges an annual account fee
of just 0.15% – it’s realistic to
get a total all-in cost of well
under 0.5% per year.
However, while fees were
capped in 2015, there was no
obligation for providers to
lower fees for those investors
who’d opened accounts prior
to the change. As a result, as
many as seven million savers
could be paying fees as high
as 2.4% on the old, pre-2015
pension savings. Most of
these older savings are now
administered by “closed-
book” providers, meaning
they do not accept any new
investors. So there’s no
incentive for them to try to
attract new business by
lowering their fees.
Savers could be around
£86,000 worse off over 20
years if they stayed in one of
these older schemes with
charges of 2.4% compared to
a provider charging a total of
0.3%, reckons broker AJ Bell.
That calculation assumes a
£100,000 investment and
returns of 5% per annum.
Someone with a £15,000
pension pot could pay as
much as £13,000 extra in fees
over 20 years.
new company and their old
pension at their previous
employer becoming “deferred”.
Default “consolidator”
schemes will be created to
sweep up small deferred
pensions worth less than
£1,000. This means savers with
workplace pensions they are no
longer contribute to will be
transferred to a consolidator (or
consolidators), although they
will be able to opt out of “auto-
consolidation” if they want to
stay with their existing pension
provider. The aim is to reduce
costs and the administrative
burden associated with small
pensions for both employers
and employees.
moneyweek.com
 Small business 31

Invoice finance in demand Energy audits can

save you money
Could an energy audit
There are two main ways to borrow against the value of your firm’s bills save your business money –
and help it meet carbon-
emission reduction targets?
David Prosser The Energy Savings Trust
Business columnist (EST), an independent charity,
believes so. It points to data
suggesting that businesses
C autious small businesses
are reluctant to borrow in
this economic environment,
following recommendations
made during an energy audit
can reduce the amount of
but demand for one type of energy they use by an
credit is still robust. Data from average of 18%.
UK Finance, the body that However, small and
represents the UK’s banking medium-sized enterprises
and financing industry, suggests should tread very carefully
with these audits. The EST
that while there has been a
also points out that there
slowdown in traditional lending

to smaller firms, invoice finance
advances are still rising.
That’s important, given the
pressure on many small firms’
cash flows. Unlike other types
of lending, invoice finance isn’t
usually used for investment in
the business or for expansion;
instead, it can play a vital role
in ensuring you have enough
working capital to continue
functioning efficiently.
With invoice financing, a
business that has completed
work for a client but is waiting
to be paid hands over its invoice
to a lender. Typically, the lender
will offer up to 90% of the
value of the invoice upfront.
Then, when the client settles the
invoice, the business gets the rest
of its value, minus fees charged
by the finance provider.
Effectively, invoice finance
accelerates the flow of money
into your business. Rather
than waiting for your customer
to pay –in recent research
more than half of small firms
complained that clients pay
late – you have access to most of
the money straight away. That
makes it easier to settle your
This type of credit accelerates your cash flow
will think their use of these
facilities is a signal that they are
in financial distress. However,
invoice-finance providers that
say this is an outdated view.
A far wider range of small
firms now use these facilities to
smooth their cash flows.
There are real advantages to
invoice finance. You get quick
access to working capital, and
you needn’t put assets up as
security for a loan. Also, the
amount of finance you can
access increases as your business
grows, since you’ll have more
invoices to borrow against. And
if you opt for factoring, you are
effectively outsourcing your
sales ledger, potentially saving
you time and money.
Keep an eye on charges
Still, there is a cost to invoice
finance. The fees you pay the
lender mean that you won’t
realise the full value of the work
for which you invoiced your
client. And while charges vary
©Getty Images
are currently no agreed
standards for conducting
an energy audit and that
the results of such exercises
enormously, they can prove are inconsistent. As a result,
more expensive than traditional some projects may be of
credit arrangements. A fee of higher quality than others,
3% of the value of the invoice and businesses may not
always be able to realise the
is typical, a relatively high price
benefits promised.
for a short-term loan. In Scotland, for example,
Bear in mind too that the Scottish government
invoice finance isn’t available to sponsors its own energy-
everyone. You’ll need to be able audit programme. Firms can
to show evidence of a trading then use the results to apply
history, with a book of clients for grants to help with the
who pay their invoices. You may cost of improving their
have to undergo credit checks. energy efficiency. But there
are no equivalent schemes in
The lender may also want to
other parts of the UK, where a
scrutinise the creditworthiness range of organisations offer
of your clients. Businesses audit services.
selling to consumers, rather The bottom line is that
than to other firms, are unlikely you’ll need to do some
to be eligible. Still, many small research before signing
businesses find invoice finance up for an audit. Look for a
works well for them. And the provider that works using
industry has become more an international standard,
such as ISO 50002 or
efficient, with new providers
ISO 50005. Bear in mind
offering digital services that too that an audit won’t
automate much of the process. help you save money in
They offer funds as soon as itself. You will need to be
your invoice is submitted, prepared to follow its
ensuring your cash flows suggestions, which may
become far more predictable. require some investment.

Petty cash... hang up on analogue phones

own bills and cover costs.
Lenders offer two types of
invoice finance. With invoice
discounting, you keep control
of your sales ledger – you’re
responsible for chasing down
the unpaid invoice and your
clients have no contact with
your lender. The alternative,
known as factoring, passes
control to the lender, which will
manage the client’s account.
Some firms are reluctant to do
this because they would rather
their clients did not know they
are using financing of this type.
That reluctance reflects the
stigma that has sometimes been
attached to invoice finance.
Borrowers worry their clients
l Businesses still using analogue telecoms
services are running out of time to switch
to digital alternatives. In 2025, the telecoms
sector will switch off the analogue, copper
wire-based phone network, meaning that
services still dependent on this network will
no longer be available. That includes both
telephone services and systems connected to
your lines including alarms, CCTV and even
some older electricity meters. Talk to your
telecoms provider now about how you might
be affected.
l All small businesses in London should be
eligible for a scrappage scheme linked to the
Ultra-Low Emission Zone (Ulez) by the end of
the month, according to Transport for London.
The scheme offers support of up to £9,500 for
drivers scrapping a vehicle in order to buy a
cleaner replacement that doesn’t incur
charges under the Ulez scheme. With Ulez
due for expansion to cover the whole of
Greater London by the end of August 2023,
that could prove significant. And the owners
of small companies in other parts of the
country should note that many more local
authorities are considering introducing similar
schemes to Ulez.
l Right-to-work checks are hampering small
businesses’ efforts to hire staff, new research
warns. The law requires employers to check
that all new recruits are legally entitled to work
in the UK, but half of all employers complain
that each check takes more than a week to
complete. It’s a delay that businesses must
factor into their hiring plans, employment
experts warn.

moneyweek.com 21 July 2023

32 Personal view
Reap long-term rewards from
consumption and technology stocks
A professional investor tells us where he’d put his money. This week: Nick Train,
portfolio manager of the Finsbury Growth & Income Trust, highlights four favourites
Finsbury Growth & Income Trust invests primarily words, investing in the owner of Johnnie
in British companies, focusing on four core themes: Walker Blue Label gives you exposure
luxury and premium products; beloved, mass-market to technology-driven global
consumer brands; data and software companies; and growth, but without taking the
providers of wealth-management services in the UK. risk of judging which specific
The pace of technological change is evidently technology company is going to
accelerating and in stockmarkets great wealth is being be a long-term winner.
created. But wealth is also being destroyed as new
applications displace old ways of doing business.
Sometimes these new applications make redundant
even recently emerged technologies, and this is
why investing in technology has a well-justified
reputation for being risky.
As portfolio managers we respond to these
opportunities and risks in three ways. Firstly, we
believe it important to maintain holdings in companies
whose products are likely to remain desirable to
consumers whatever happens in the digital world. For
instance, firms whose products taste good. There is no
evidence, for example, that consumption of treats and
snacks is slowing anywhere in the world. I ask readers
to consider that the price of a bar of Cadbury Dairy
Milk has increased 167-fold since 1920, while general

prices in the UK have climbed 39-fold.
This shows that this well-loved brand, now owned
by US company Mondelez International (Nasdaq:
MDLZ), has remained a staple for many decades, at
the same time delivering growth and protection against
inflation for its owners. Look at Mondelez’s recent
results and you will be encouraged that Cadbury and its
other wonderful brands, such as Oreo or Belvita, will
continue to create steadily growing wealth for investors,
probably for many decades to come. This reliability is
enormously valuable in an uncertain world.
“The price Whisky is a growth play
of a bar of Itcreated
is also important to understand that the wealth
by technological innovation will ultimately be
Dairy Milk spent – by entrepreneurs, investors, or the beneficiaries
has soared of the innovation. In previous decades and almost
certainly in decades to come, this new wealth is likely
167-fold to be spent on luxury and premium consumer brands
since 1920; andWe experiences.
have holdings in both Diageo (LSE: DGE) and
overall prices Fever-Tree (Aim: FEVR). Both have been, and will
have risen continue to be, beneficiaries of wealthier consumers
choosing to drink less alcohol, but to drink more
39-fold” prestigious, higher-quality products. In other
©Alamy
Finally, to generate the
investment returns we and our clients
aspire to, we must also invest in technology
ourselves. We seek firms that already have products or
services integral to their customers’ daily business lives,
but where applying technology can further enhance
that relationship. The London Stock Exchange Group
(LSE: LSEG) is a globally-significant supplier of must-
have data, liquidity, connectivity and clearing services
for the world’s financial community. An executive at
LSEG once described the group to us as being “more of
a technology company than a marketplace”.
This has become ever more the case in recent
years. Microsoft entering a joint venture with
LSEG in late 2022 (and acquiring a stake in it too)
highlights the opportunities both firms see in bringing
technology solutions, including artificial intelligence
(AI) tools, to their already captive clients. Ironically
for a stockmarket that is sadly short of world-class
technology, the London Stock Exchange could emerge
as one of the UK’s global tech winners.
©The Telegraph 2023

21 July 2023 moneyweek.com

34 Profile

Taylor Swift shakes off the suits

When the global superstar rolls into town, the whole economy gets a boost. We’re all learning, as the
music business did the hard way – you don’t mess with Taylor Swift. Jane Lewis reports
When Taylor Swift released her so she could pursue a career in
third rerecorded album – Speak country music. Her debut album,
Now (Taylor’s Version) – this released in 2006, knocked the
month, there was no doubt it socks off the critics with its
would debut at No. 1. The only energy, “girl-next-door charm”,
question, says The New York and “emotional talking points”,
Times, is “how forcefully it says udiscovermusic.com. It was a
would smash records”. Here are perfect fusion of pop and country,
two for starters. Swift has now and over the next decade, Swift
become the first female artist to evolved from a “doe-eyed
notch up 12 No. 1 albums. She’s prodigy” to a “global superstar”.
also the first living act to have Controversy followed, says
four albums in the top ten since Vanity Fair, not least because
Herb Alpert in 1966. of her habit of writing “songs
Now in the midst of her about the guys she dates” and
year-long Eras Tour, Swiftie- sending “fans on scavenger
mania is running so high that hunts to find out who they are”.

demand caused a Ticketmaster
meltdown. Safe to say, says
Time, that at the halfway point
of her re-recording project, it
has “paid off big time”. Forbes
reckons her net worth has
multiplied to $740m this year.
The TSwift Lift
Analysts have noted a spike in local
economies when Swift, 33, rolls into
town, says the Financial Times. The so-
called “TSwift Lift” is testament not just
to the artist’s star power, but to the success
of her long-running “battle to shake off the
suits”. Swift began releasing re-recordings
of her back catalogue in 2021 in a bid
to reclaim her music after her record
company, Big Machine Records – founded
by Scott Borchetta, who “discovered” her
as a 15-year-old in Nashville and with
whom she’d fallen out – sold her masters to
Scooter Braun’s Ithaca Holdings in 2019.
Swift erupted, claiming it was
“stripping” her of her life’s work. Faced
with a “bitter, scorched-earth war”, Braun
sold on her masters to Shamrock, an LA
investment fund founded by the Disney
family for $300m. Shamrock made one
major miscalculation – “her commitment
to revenge”.
“Forbes reckons her net worth has
multiplied to $740m this year”
Swift’s reputation as “a one-woman
industry disruptor” was sealed in her early
20s when she took on Spotify (temporarily
removing her back catalogue in 2014)
and Apple Music, in a campaign for “the
financial rights of musicians” in the era
of “free” music, says You Magazine. But
she has always been a force to be reckoned
with. Born in Pennsylvania in 1989 – to
Scott, a stockbroker with Merrill Lynch,
and Andrea, a marketing executive – she
was named after one of her mother’s
favourite musicians, James Taylor.
As a child, Swift “believed in two
things” – that she would become a
successful singer-songwriter, and the
importance of being a “good person”.
An outsider at school, music was her
solace and inspiration. A musical theatre
performer at nine, she learned the guitar
at 12, made demos of Dolly Parton covers
and was soon writing her own songs.
Swift was just 14 when she persuaded
her parents to move the family to Nashville
©Getty Images
Matters reached a head in 2016
when she became embroiled in
a big spat with Kanye West and
his then wife Kim Kardashian.
Swift disappeared for a year, says
You. She bounced back in 2017.
Savvy business brain
“Don’t let the romantic lyrics fool you,”
says Entrepreneur.com. Swift is one of
the sharpest entrepreneurs in the music
business. Her countless endorsement deals
and savvy merchandising are evidence
of that. So, too, is the careful record deal
struck with Universal, which ensures she
now owns her own masters.
Swift’s reputation for forensic
financial analysis was boosted last
year when it was claimed she had turned
down a partnership deal with crypto
exchange FTX, after reportedly asking it
“to explain why its listed assets were not
considered unregistered securities”, says
CNBC. Her “due diligence” was
lauded – even though it later transpired
that Swift had, in fact, signed the deal
and it was FTX that pulled the plug.
Perhaps Sam Bankman-Fried had wised
up to a fact long acknowledged in
the music industry: it doesn’t pay to
mess with Taylor Swift.

The best trades in history… buying an upstart called eBay

After graduating with an MBA
from Stanford, Bob Kagle of
Flint, Michigan, joined
management consultants
Boston Consulting Group in
1980, before moving to venture
capitalist Technology Venture
Investors in 1983. In 1995 he
decided to strike out on his own,
setting up Benchmark with
Bruce Dunlevie, Andy Rachleff,
Kevin Harvey and Val Vaden.
What was the investment?
In late 1996 Dunlevie was
approached by Pierre Omidyar,
founder of online auction site
AuctionWeb (later renamed
eBay). Dunlevie was sceptical,
but after spending time on the
website he and his team
became convinced that it could
be a success. In the summer of
1997, Benchmark agreed to
invest $6.7m in funding in
return for 22.1% of the company.
What happened?
The next year eBay saw
exponential growth in the
number of listings, which
reached 450,000 by May 1998. In
September 1998 it went public,
and its shares tripled on the first
day. By October its market
capitalisation hit $3.2bn. Thanks
to continued revenue growth
and the mania around internet
stocks, its shares eventually hit
the equivalent of more than $600
(taking account of a three-for-
one stock split), compared with
the IPO price of $18, giving it a
market cap of $26bn within a few
months. In April 1999, when
Benchmark decided to distribute
its eBay holdings to its investors,
eBay’s market cap was $21bn.
Lessons for investors
At the time of distribution,
Benchmark had earned a return
of roughly 850 times its original
investment. Part of its success
was undoubtedly down to the
luck of riding the dotcom bubble.
It would take nearly a quarter of
a century for them to regain their
peak value after the dotcom
bubble burst. Still, Benchmark
deserves credit for spotting the
potential of the business model
and having the sense to invest in
one of the few companies that
was profitable from the start.

21 July 2023 moneyweek.com

36
Exploring the Azores
Chris Carter looks for whales off São Miguel and tries a spot of volcanic cooking
“Over there!,” came the cry
from our guide, Gina, a marine
biologist. Our eyes had become
accustomed to the hypnotic
undulations of the waves and
the slow, steady rocking of
the Zodiac we were on. Up
until this point, we had seen
plenty of Portuguese men-of-
war – hundreds of them – their
purplish gelatinous crested tops
peaking above the water and
their long stinging tentacles
snaking out, hidden below
the surface. I wondered at the
efficacy of the life vest I was
wearing were we to have to bail
out. A man-of-war’s sting can
be deadly if you are unlucky.
At the raising of the cry, the
Zodiac thrummed to life and
we skipped across the water
towards the sighted whale.
Only it wasn’t a whale – it was
a large tree branch bobbing up
and down. Would we get to see
anything? A few years ago, I
went on a whale-watching tour
at Kaikoura in New Zealand,
famed for being one of the best
spots in the world for watching
sperm whales. And I didn’t see
so much as a flipper. This time, I
was off the coast of São Miguel
in the Azores. The archipelago,
an autonomous region of
Portugal, lies almost
1,000 miles west of the
mainland, and São
Miguel is the largest
of the nine volcanic
islands. During the
summer, British
Airways flies the
four hours direct
to the capital,
Ponta Delgada,
from London.
Up early the next
morning after stepping
off the plane, I surveyed the
waves. It wasn’t long before we
were zipping off again. Yes! The
tell-tale mist of water spouted
into the air. We focused our
gaze while keeping a respectful
distance, and sure enough, there
were sperm whales. Whaling
used to be a major industry
in this part of the world and
they are still threatened as
a species. Eventually, one of
the whales lifted its tail and
submerged with the rest. It was
time to move on. Next, a pod
of spotted dolphins rushed to
greet us. They swam alongside
the boat, gliding through the
21 July 2023
Travel
water, and even performed the
odd pirouette in the air before
slapping back into the waves.
Gina explained that this is
one way in which they shed
parasites. Lovely.
After a couple of hours, we
started to make our way back
to Ponta Delgada. The waves
had picked up just a little and
the Zodiac seemed to spend
almost as much time in the air
as on the water. But then, we
shuddered to an unscheduled
stop. All was quiet save for the
lapping of the waves against
the boat. But then, there! What
was it? Gina couldn’t say for
sure, but two or three beaked
whales – probably Sowerby’s
beaked whales – had come to
the surface, distinguishable by
their long gunmetal grey noses.
This was an incredibly fortunate
sighting, as beaked whales are
shy creatures who spend most of
their time out of sight.
Sete Cidades makes a spectacular backdrop for a hike
A taste of the islands
Unlike on Madeira, another
Portuguese island away to the
south, the Azoreans are still
getting used to welcoming
visitors. And welcome them
they do – heartily. The islands
have lain off the tourist trail
until relatively recently. During
the 19th and 20th centuries,
large numbers emigrated to
the US and Brazil, but not for
want of natural riches at home.
Over on the western side of São
Miguel, the lake-filled caldera
of the Sete Cidades Massif
“Eventually, one of
the whales lifted its
tail and submerged
with the rest”
provides a spectacular backdrop
to a hike in the hills. On the
eastern side, bathers can relax
in the steaming thermal pools
at Furnas, surrounded by lush,
sub-tropical vegetation.
In Furnas, I caught up with
São and chef Rubén from
Octant Hotels (there is another
hotel in Ponta Delgada) to take
me through the making of a
traditional cozido, a meaty
stew. Everywhere in Portugal
has its own version. But the
Azorean cozido is extra special.
Not because of what goes
in it (although that is pretty
special), but because of how it is
cooked. But first to the peeling
of vegetables. Carrots, potatoes
and taro went into the pot, atop
©Alamy Images
a whole green cabbage cut in
half. Next came the meat – pork
fat, beef with a pinch of salt,
chouriço sausage, local black
pudding wrapped in a leaf to
stop it crumbling, pork belly
and a whole spatchcocked
chicken. No liquid – that comes
with the cooking. On went the
lid, the whole caboodle was
cling-filmed and wrapped in a
cloth and voilà, the cozido was
ready for the oven. Sort of.
We jumped in the car – pot in
the back – and drove the short
distance to the lake, beside
which are bubbling sulphurous
pools. Here, concrete-lined
holes have been dug, into which
cozido pots are lowered with
hooks, to be cooked slowly by
the volcanic steam. The hole
is covered with a wooden lid,
then buried in earth to make
it airtight. Seven hours later
– after a good hike around
the lake and a session in the
Octant’s own thermal waters in
the spa – it was time to eat. The
meat was succulent, cooked in
its own juices and those of the
vegetables and delicately spiced
with the earthiness of nutmeg
and paprika from the sausages.
It was a true taste of the Azores.
The whale-watching and cozido
experiences were organised
for Chris complimentarily by
Octant Hotels. Each costs €60
per person (without drinks).
Stays at Octant Ponta Delgada
and Octant Furnas start from
€135 per night, including
breakfast, octanthotels.com
moneyweek.com
 Toys 37

Awake’s gnarly e-surfboard

The Rävik 3 electric surfboard is ideal for beginners learning to e-surf. Chris Carter reports

No waves are needed for the Awake Rävik 3 e-surfboard

T he laid-back “surfer-dude” lifestyle is even

more relaxed with the advent of electric
surfboards. These travel across the water’s
surface, powered by an electric battery. That
makes them a little easier to master than
electric hydrofoils, “because the experience
at low speeds is less intense, and the board is
more forgiving of piloting errors”, according
to Awake, a Swedish maker of e-surfboards.
Awake has been “improving and expanding”
its range of carbon-fibre e-surfboards since
2017, and the result is that its Rävik S can reach
speeds of up to 35mph, with a run-time of
around an hour, says Hugo Andreae in Motor
Boat & Yachting. Beginners, however, may be
better off clambering aboard the Rävik 3.
“First I have to slot a bung-shaped magnetic
key into a recess on the board to activate the
motor and then gently push down the thumb
throttle on the remote hand-controller while
lying on the back of the board and clinging on
to the two side handles,” says Andreae. Add
some power so that the board starts to plane
and it’s a case of hauling yourself onto your
knees with the ultimate aim of standing up,
without falling off. “In the space of an hour, I
not only got going, [but I also] had a whole heap
of fun doing it.” E-boards can be ridden without
a wave in sight – “the calmer, the better, in fact”
– and they are small enough to go in the back of
a car or the tender garage of a motorboat.
Remove the 1.9 kWh battery and the weight
drops down to 23kg – light enough to carry
under your arm, without the need for a Jet Ski,
says Cristian Curmei on Autoevolution. And
after learning to stand up, “it was only smooth
sailing and [a case of] learning the dynamics of
[the board]”. Once you have got over the initial
fear of riding something electric on water,
“there’s just so much fun to be had”.
Price: €15,480, incl. VAT, awakeboards.com
“In the space of an hour, I not
only got going, but I also had
a whole heap of fun doing it”

Wine of the week: six stellar wines to explore

2020 Rocafosca, Priorat,
Costers del Priorat, Spain
£26.95,
jeroboams.co.uk
Matthew Jukes
Wine columnist
This week, six of the best from
one of London’s finest
merchants, Jeroboams. My
lead wine, Rocafosca, is all
about the black slate soils in
which the mighty grenache
and carignan grapes are
grown. More often than
not, Priorat reds are
massive, elemental and
brutally tannic. However,
this is a sensual, bright,
uncommonly juicy
creation. Next, two
incredible and unexpected
rosés, with 2022 Kret Pinot
Grigio Ramato Friuli
Italy(£15.95) drawing its coral-
hued tint from its gunmetal
grey/pink skins. This is such a
beautiful wine, and it slips
down far too easily! 2022 Etna
Rosato de Aetna Terra
Costantino Sicily (£22.95)
brings volcanic soils,
Ionian breezes and the
haunting nerello
mascalese grape to the
fore, making this a super-
dramatic drop with keen
acidity and a raspy, pin-
sharp finish.
2018 Château Chapelle
d’Aliénor by La Gaffeliere
Bordeaux (£17.95) is an
astonishingly adroit wine
with elite parentage and a teeny
price tag. Benefiting from the
gentle 2018 vintage, this is a truly
elegant claret that feels like it is
wearing a half-bottle price tag!
Inexpensive Cali-pinot is a
desperately dull category of wine,
and yet 2020 Pavette Pinot Noir
California (£18.95) bucks the trend
with lush, bright, accurate fruit
and a toothsome savoury finish.
Finally, 2019 Valravn Old Vine
Zinfandel Sonoma County
California (£24.95) is another epic
US discovery.
Matthew Jukes is a winner of the
International Wine & Spirit
Competition’s Communicator of
the Year (MatthewJukes.com).

moneyweek.com 21 July 2023

38 Property
This week: properties with outdoor swimming pools – from a Victorian manor house near Horsham, to a c

Pelican House, Chilton Candover, St Leonards Grange, Brockenhurst,

Alresford, Hampshire. A house built in 2010
in a traditional style overlooking a valley. It has
open fireplaces, a hall with a galleried landing
and an outdoor swimming pool surrounded
by terraces. 7 beds, 6 baths, dressing room,
3 receps, study, breakfast kitchen, tennis court,
8.5 acres. £7.8m Savills 01962-841842.
Hampshire. A restored Grade-II listed house
with a swimming pool and the ruins of a 13th-
century chapel in the grounds. It has beamed
ceilings, open fireplaces and a large kitchen
with an Aga. 5 beds, 6 baths, 5 receps, coach
house with studio, gym, 2-bed flat, stables,
11 acres. £8m Knight Frank 0159-063 0591.

Old Barkyle, Broad Oak,

Heathfield, East Sussex.
A period property with
gardens that include a range
of period stone outbuildings,
a paved courtyard with a
heated swimming pool and a
summerhouse overlooking a
pond. It has beamed ceilings,
and a dining room with a
wood-burning stove and French
doors leading onto the gardens.
3 beds, 2 baths, 3 receps,
study, barn, garage. £1.395m+
Hamptons 01892-640316.
21 July 2023 moneyweek.com

contemporary house in Alresford, Hampshire, with an outdoor pool surrounded by terraces
Fulham Road, London. A
contemporary house minutes from
Parsons Green with floor-to-ceiling
windows overlooking the landscaped
garden, which includes a heated
swimming pool, an outdoor shower
and a two-storey studio with a
bedroom, kitchen and living room.
3 beds, 3 baths, recep, dining kitchen
with bi-fold doors opening onto the
garden, cinema, balcony. £3.85m
Fine & Country 020-8059 9644.
moneyweek.com
Property 39
The Old Rectory,
Dittisham, Dartmouth,
Devon. A renovated
Georgian rectory in an
elevated position with
views over an estuary.
The gardens include
a swimming pool, a
tennis court and wooded
grounds leading down
to the River Dart. It has
an open-plan dining
kitchen with French
doors leading onto the
terrace. 8 beds, 6 baths,
recep, library/drawing
room, kitchen/breakfast/
sitting room, study,
1-bed cottage, renovated
boathouse, 7.91 acres.
£9.75m Knight Frank
01392-848842.
Mansfield Road,
Redhill, Nottingham. A
renovated house dating
from 1900 with a heated
swimming pool in the
garden. It has open
fireplaces and a dining
kitchen with bi-fold doors
leading onto a terrace. 6
beds, 3 baths, 2 receps,
cinema room, library, 1-bed
annexe, gym, outbuildings,
£950,000 Fine & Country
0115-982 2824.
Lock House, West
Grinstead, near Horsham,
West Sussex. A Grade II-listed
refurbished Victorian manor
set in gardens that overlook
the South Downs National
Park, and which include a
swimming pool and a cottage.
The house has leaded-light
windows, panelled walls and
period fireplaces. 9 beds,
8 baths, 3 receps, breakfast
kitchen, cinema room, indoor
leisure complex with an indoor
swimming pool, 85 acres.
£6.5m HJ Burt 01903-879488
Cheddon Fitzpaine,
Taunton, Somerset. A Grade
II-listed Georgian house less
than three miles from Taunton,
with gardens that include a
swimming pool with a pool
house and a kitchen garden with
several productive vegetable
beds and fruit trees. The house
retains its Georgian fireplaces
and has wood floors, a newly
fitted kitchen and there is a two-
storey glass atrium to the rear of
the property. 5 beds, 3 baths,
3 receps, 2-bed flat, 1-bed
cottage, workshop, 2.92 acres.
£2.75m Savills 01392-455755.
21 July 2023
40 Reviews
Play of the week Oliver Alvin-Wilson helps create a Chaos Kings
frightening plausible future world How Wall Street Traders Make
Billions in the New Age of Crisis
Disruption Scott Patterson
Andrew Stein Scribe UK, £16.99
Finsbury Park Theatre, London,
last performance 5 August From Covid to
Ukraine, and now
It’s been barely more than the rise of artificial
six months since the release intelligence, the
of the artificial-intelligence world has not
been a stranger to
program ChatGPT, which
shocks over the
first appeared at the end of past few years.
last year, but some people are Most of us look on them as
already arguing that it may trials to be endured. Others
be one of the most important see them as opportunities to
©Disruption/ Pamela Raith Photography

developments in decades. It make fortunes. In this book,

has not only helped pump air Scott Patterson of The Wall
into the technology bull market Street Journal profiles some of
that had started to deflate, but the key financial wizards
upending the way financial
also left us considering whether
institutions think about and
there is or should be any limit measure risk and volatility.
to the intrusion of technology Around two-thirds of the
into our lives. Andrew Stein’s book focuses on philosopher
Disruption, directed by Hersh “Disruption asks us to imagine a and mathematician Nassim
Ellis, asks us to imagine a world world where our every decision is Taleb, who argues that the
market hugely underprices the
in which our every decision is
made by algorithm. made by algorithm” risk of the most extreme events,
Three upper-middle-class which occur far more often than
conventional models imply. We
couples living in New York Nick wants in particular pared-down set, based around then get a behind-the-scenes
are summoned to dinner by to prove that his program can a projection of digits and look at Universa Investments,
their college friend, technology persuade people to go down the computer code, helps set the Taleb’s hedge fund, which
entrepreneur Nick (Oliver right path, rather than merely scene. The second half doesn’t hedges against catastrophe by
Alvin-Wilson). He offers them reveal it. For Paul (Nick Read), quite live up to the play’s intial buying up cheap put options
the chance to make riches already disillusioned with promise, however. The ending (time-limited bets on falls in the
beyond their wildest dreams both his job and his marriage in particular seems a bit of a price of shares and other assets).
by investing in a company to Jill (Mika Simmons), the let-down given the intensity This is an interesting topic,
based on software that he and algorithm’s advice is relatively of what came before, though written with great energy, and
one that introduces a host of
his business partner Raven straightforward as it is in perhaps Stein wanted to defy
fascinating characters, including
(Sasha Desouza-Willock) have tune with what Paul already expectations by providing an Didier Sornette, who has been
developed, which he claims is wants. The other two couples ending more nuanced than working on ways to predict
set to change the world. present a tougher challenge. you’d been led to expect – he such events. Around two-thirds
The technology grants Surgeon Barry (Kevin Shen) is ends with a smart biblical of the way through, however,
people the ability to make reluctant to get in the way of his allusion. While this play will be the book suddenly changes
decisions with perfect foresight. wife Mia’s (Rosanna Hyland) far from the last word on the tack, shifting to the politics of
It quickly becomes clear, pursuit of her dream house. subject, it is a timely response climate change. This material
however, that Nick isn’t just Suzie (Debbie Korley) is openly to important developments. feels so disconnected from
what has gone before that it
interested in his guests’ money, hostile to what Nick and his The future envisaged, although
might have been better to
which he doesn’t need, project represents. just about science fiction for save it for a separate book.
but also wants them to play now, is frighteningly plausible. That said, Chaos Kings will
a more central role in the Defying expectations provide the reader with plenty of
project in order to verify the The play starts off strongly Reviewed by food for thought – along with
concept underlying his product. and at a fast pace, and the Matthew Partridge some sleepless nights.

Book in the news… the NHS languishes on life-support

for hip surgery. In this book, political aspect of Hardman’s history “is informed
Fighting for Life journalist Isabel Hardman, an assistant and beautifully written”.
The Twelve Battles that Made Our editor at The Spectator, takes a look at She is a “sparky journalist” and her book
NHS, and the Struggle for Its Future “where the health service came from, and draws attention to the tightening financial
Isabel Hardman where it’s going”. squeeze on the health service over the last
Viking, £20 Hardman “makes it clear from the start” decade, says Frances Cairncross in the
The NHS will be 75 years old that her work will be a warts-and-all Literary Review. David Cameron oversaw
in August, and it’s hard to biography, not a hagiograph”, says Alan the largest sustained reduction in NHS
think of an institution that Johnson in The Observer. She is “generally spending as a percentage of GDP since the
“arouses so much emotion”, sympathetic” towards the NHS, but early 1950s. The consequence of that, and
says Karol Sikora in The “doesn’t flinch from recording the darker then the Covid years, is that the NHS
Telegraph. The generally aspects of its history”, including scandals “continues to operate at a pace and level of
positive feelings that most involving contaminated blood, MRSA stress that it simply has not seen in its
British people profess to bacteria and failings in mental-health care. entire history”, says Hardman, and it will
hold about the NHS, however, are gradually Hardman also looks at the various political only get worse as our population ages.
being eroded by most people’s increasingly strategies employed over the years that Patients are “starting to lose faith with it in
bad experiences. Twelve-hour waits in A&E were designed to boost efficiency, from the an unprecedented way”. The NHS “might
and six-week delays before being able to internal market to the new integrated care need to change more dramatically than it
see a GP are now common. Some poor systems that “she rightly sees as a triumph has done since Bevan brought it into
souls hobble around for two years waiting for cooperation over competition”. Every existence 75 years ago”.

21 July 2023 moneyweek.com

 Crossword
Bridge by Andrew Robson
East falls for it
If West had led the Queen of Spades versus Six Hearts, declarer
would have had an easy time, winning the King, cashing the Ace-
King of Trumps, then running Clubs, and restricting the defence to
their Trump trick. However, West’s partner had not doubled the Four
Spade control bid and he led the Knave of Diamonds.
41
Tim Moorey’s Quick Crossword No.1165
A bottle of Taylor’s Late Bottled Vintage will be given to
the sender of the first correct solution opened on 31 July
2023. By post: send to MoneyWeek’s Quick Crossword
No.1165, 121-141 Westbourne Terrace, Paddington, London W2 6JR. By email:
scan or photograph completed solution and coupon and email to: crossword@
moneyweek.com with MoneyWeek Crossword No.1165 in the subject field.

Dealer South Neither side vulnerable

♠ A75 ?????

♥ K72 ????

♦ 97 ????


????
?? ♣ AJ743 ????
♠ QJ63 ??? N ???? ♠ 1042
♥ 104 ???? ???? ♥ QJ9
???? ????
W E
♦ J1086
???? ♦ KQ543
♣ 1065
???? S ♣ 92
????

????
♠ K98
♥ A8653
♦ A2
♣ KQ8
The bidding
South West North East
1♥ pass 2♣ pass
2NT pass 3♥* pass
4♦** pass 4♠** pass
4NT*** pass 5♣§ pass
5♦§§ pass 5♥§§ pass
6♥§§§ pass pass pass

* Showing delayed (ie, three-card) Heart support. Across clues are mildly cryptic, whereas down clues are straight
** Control bids. ACROSS DOWN
*** Roman Key Card Blackwood, agreeing Hearts. 1 Actors – or this alternatively? (4) 1 What farmers grow for sale
§ Zero or (clearly) three of the “five Aces”, 3 Rare show broadcast leading rather than own use (4,4)
(including the King of Trumps). to a film (8) 2 Rugby formation (5)
§§ Asking for the Queen of Trumps. Answer: no. 9 Store is attacked for charges (7) 4 Help (6)
§§§ Settling for Six. 10 Nothing’s right for Romeo (5) 5 Adele’s song (5)
11 End of term special task in 6 Coastal region, eg in
Needing to dispose of his Diamond on the fourth Club, declarer school authorised (12) southern France (7)
would be fine if the defender with the third Trump also held at least 13 Large vehicles getting awards (6) 7 Nobleman (4)
three Clubs. But what if that player held just two Clubs? Winning the 15 Live near Herts town in cave (6) 8 High official in
Ace of Diamonds, he cashed the two top Trumps, then played Clubs 18 Put another way, I’m dot Ottoman Empire (6)
as follows: King, low to the Ace, then low. in place (7,5) 12 Passenger’s safety
By creating the impression declarer was ruffing the third round,
22 A politician has one excuse for feature (4,4)
failure (5) 14 Shop selling medicines (7)
East made the fatal error of discarding on this third Club (rather
23 Solemn procession say, 16 Ace (6)
than ruffing and cashing a Diamond). A relieved declarer won the in Spanish parliament 17 Sharp surgical instrument (6)
Queen, crossed to the Ace of Spades, then led a master fourth Club shortened (7) 19 Manner of speaking (5)
discarding his Diamond as – too late – East ruffed in. Declarer could 24 Guess I’m visible in car (8) 20 Perfect (5)
ruff East’s top Diamond, cross to a third Trump in dummy, then 25 Put pound in kitty for scheme (4) 21 Rouse (4)
discard his Spade loser on the fifth Club. Slam made.
Name
For Andrew’s four daily BridgeCasts, go to andrewrobsonbridgecast.com
Address

Sudoku 1165
5 4 9 1
To complete MoneyWeek’s
email !
Sudoku, fill in the squares
Solutions to 1163
6 8 9 5 in the grid so that every row
Across 1 Caress anagram less t 4 Duenna due +Ann reversed 8 Restate
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2 nine 3x3 squares contain all including U 14 Spitting image a in getting impish anagram Edwina Currie
the digits from one to nine. 16 Terminal deceptive definition 18 King kin + g 21 Alive I v inside ale
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1 puzzle is below.
Down 1 Cards 2 Rossini 3 Scab 5 Underpin 6 Niche 7 Arrange 9 Estonians
3 5 4 6 13 Strident 14 Satraps 15 Asinine 17 Rhino 19 Grass 20 Gaul.
5 9 8 5 7 3 6 4 1 2
1 2 3 9 8 4 7 5 6
8 6 5 1 4 7 6 1 5 2 8 9 3
The winner of MoneyWeek Quick Crossword No.1163 is:
Ian Laming of Chippenham
2 9 8 6 5 6 8 2 9 3 1 7 4 Tim Moorey is author of How To Crack Cryptic Crosswords, published
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moneyweek.com 21 July 2023

42
Having a Minsky moment
Periods of stability inevitably give rise to periods of chaos
Larry Summers sees trouble ahead
Bill Bonner
Columnist
“I
don’t think there’s ever
been a moment when
the trajectory looks nearly as
ominous as it does now.” So
says economist Larry Summers,
speaking about federal finances.
The feds have got into the
habit of spending money they
don’t have and never will get.
Team Biden added $1trn to
US debt in just five weeks.
Team Trump before them did
more fiscal damage than any
administration theretofore.
Transfer payments were
running at an annual rate
below $3trn before Trump took
over. When he left, the money
was changing hands at an
$8trn annual rate – the biggest
giveaway in world history.
And now, both parties are
looking for ways to spend
more. What better reason
than “national security”? The
Chips act provided a $53bn
boondoggle for silicon chip
makers. How long will it be
before the money flows to ship
makers too? TheDrive warns of
a growing gap in the fleet sizes
of the US and Chinese navies –
China’s shipbuilders are more
than 200 times more capable
of producing surface warships
and submarines, according to
the Office of Naval Intelligence.
China’s total number of military
ships and submarines is already
21 July 2023
Last word
ahead of America’s, and the
gap is likely to widen in the
years ahead.
It is generally true that the
bigger and better economy
tends to win wars. In World
War II, for example, it was not
military genius but the fact that
the US could turn out three
times as many fighter planes as
Germany that proved decisive.
Shipbuilding in Germany came
to a near halt in the war, while
the US built nearly 6,000.
So now, what to do? Spend
more money on ships and chips!
So say the loose lips in Congress.
A word of caution: nations
win modern wars by spending
“Spend more on ships
and chips! So say the
loose lips in Congress”
on bombs and guns. But the
economy that can produce an
abundance of guns and bombs
is most often the one that didn’t
waste its money on those things
when it didn’t really need them.
What we’re facing, says
financial analyst James Montier,
is a “slow-burn Minsky
moment”. Hyman Minsky was
an economist who noticed that
periods of volatility seem to
follow periods of stability. The
reason for this is pretty obvious.
The longer it doesn’t rain, the
fewer people fix their roofs.
Then, when the water comes
down, it drenches everything.
©Getty Images
In any complex system,
there are always pressures,
mistakes, and contradictions.
If they aren’t corrected, they
build up. Then, the correction
can be catastrophic. The
phenomenon happens across the
whole range of human activity.
Stability begets chaos. We tried
to explain the yin and yang of
it in our book, Un-Civilising
America. There are only two
ways to get what you want
(here, we’re talking about the
material aspects of life). You
make it and trade, or you take it
by force or fraud. The deals are
either win-win or they are win-
lose. They are either peaceful,
free-market transactions, or
they are political transactions.
The political method appears
to be on the rise. That has a
logic of its own. The nation
that practices politics most
enthusiastically (North Korea?)
is the one least likely to afford
the latest weapons and least
likely to prevail in the ultimate
political struggle – war.
Yes, there are Minsky
moments in politics, too.
At some points in history,
the “zeitgeist” shifts, from
favouring freedom and markets
to getting into a lather for
war and central planning.
Civilisation leads to peace and
prosperity (and the ability to
build ships and guns). Then
come the deficits, the subsidies,
the industrial plans, the
sanctions… and the defeat.
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