What Could Possibly Go Wrong?
Everything seems fine in markets for now, both here in the UK and in the US; rather than speculating about what will stop this excellent run for investors, let us have a look at domestic politics to end the month.
Sadly, David Cameron seems to have attracted ire.
I have heard him called a born chancer, with negligible convictions of any sort, who rose to lead a major political party almost by chance. Did he swim with any passing tide, and was he indifferent to the fate of party or country? To me he looked like the perfect palimpsest for the London media, at the very outset; a proto-Blair, all boyish charm and no bottom.
He apparently always saw, much it seems like Blair did (whose property empire is already large), party politics as a stepping stone to making big bucks from a grateful establishment. Nor did he rate the sinister ranks of either his own back benchers or civil servants, as anything but temporary impediments, instead he was forever dressing up his administration with apparently like-minded commercial types or plausible media darlings; no loyalty or political principles seem to have been needed.
So, while it would be nice to think that it was bad luck that he fell in with Lex and his boys, in truth heâd sold that pass years ago, in the perennial belief that quick, slick answers lie at hand to all the fuddy duddy laws of economics, and that reward has little to do with risk.
Was Brexit ever an Uncertainty?
On the other hand, I am not inclined to blame him for Brexit, which for many foes is his true crime. I recently read the excellent and painstaking work by Bob Worcester of Mori, who worked for Harold Wilson and spotted what his research had located, was gold dust. His tome (with Mortimore, Baines and Gill) âExplaining Cameronâs Catastropheâ sets out month by month what the British public thought of the EU, from the moment we joined. Suffice to say you needed to be lightning fast to find a sliver of time, when it was anything but deep loathing.
So, there was no gamble: unless he was a total idiot, he knew the score, if they bothered to ask, the public answer was always going to be âNoâ. The time for the nation to force that pass was a decade earlier, if Blair had thought he could finesse the Euro, that would have embedded us in Europe, not left the UK semi detached (and detachable). Blair saw the same polling data, and knew he could not muster the troops. The spurned Tory back benchers, eased aside by Cameron, again saw the same data, and that the fissure was clearly there, they just needed to drive the stake in.
So, Cameron played his poor hand as fast and as politely as he could and quit. The press may yet nail him for some sleaze, although I have seen no evidence of illegality; the knowledge that he had just become the pleading messenger boy for so shabby an outfit should be shameful enough.
Does it matter? Of course, but will any serious attempt be made to avoid such situations? I canât see it, the problem with putting a pickaxe through the trough, is those swinging it must in so doing destroy their own retirement. Not going to happen - not with the media ensuring our politics is more facile, ephemeral, and poisonous than ever (and it applies in other Western democracies too).
Forthcoming Elections in the UK
We do have a stack of elections shortly so these faux pas might count. Although the general feel is that they donât matter, or the electoral answer is obvious, which I broadly agree with.
The London Mayor should be important, but I think Boris gave up on London a while ago, besides he has little sway over the party there. The Birmingham Mayor looks safe, mainly by selectively distancing himself from the party, or at least its leader. Tory Associations are only dimly aware of local boundaries and take a good century or so to align with any geographical reality, so their grip is weak in the urban Midlands.
I sense the Shires, the Tory heartland, will be rocked a bit, as these seats were last fought just before Theresa May produced the daftest manifesto in many a long year, from her own absurd clique of sleazy imported magicians. So, the seats now being defended by Tories still reflect the landslide she never had, but that her local representatives did enjoy; from triumph to disaster in four short weeks.
So yes, the Cameron debacle will cost votes, but not enough to make much difference. You can see Labour are not going for it just yet, although the sight of Keir ambling past an open goal and telling himself it is too early to score (is it ever too early too score?) is most endearing. Still as Cameron ably showed, keep your powder dry, donât get involved and almost anyone can be elected.
In the longer run, I see no sign of the Tories holding power at the next General Election; policies are still being sputtered out in a fairly random fashion, attempts at grass roots soundings seem pedestrian, and history does not suggest they can win again. It will be their third PM and fourth election in a row, you need a true implosion in the opposition to get that. Which seems a stroke of luck that is unlikely to be repeated. Still, it is a bit early to prognosticate even so.
And what about North of the Border?
I suspect what Cameron has done, is let Sturgeon off the hook. It is suddenly easy to say âthey are all the sameâ with renewed conviction, and it makes it a little harder for the pro union parties to show any united front. So, I assume the Scottish Parliamentary elections will cause a slight raising of the temperature, and a lot of unwelcome noise, but I expect the SNP are still broadly happy to wait for Keir to come asking for a deal; it might be bad for the country, but good for him. I have not seen enough to doubt he will take the apple, if offered.Â
Indeed, the pandemic has been an excellent crisis for Nationalists. Someone somewhere let both devolved Parliaments exploit the chaos over COVID to strike a very distinct national stance, as if the virus could read passports. They quickly erected de facto borders against the English; when political separation does come, donât expect those fences to stay down for long. This sideshow can cause real damage.
Here incidentally, is what happened to the public sector jobs since 2000 - and what impact devolution has had on those numbers. I invite you to draw your own conclusions.
on 23 March 2021)
So, will there be a setback to this rally?
So, I see no new political crisis brewing here, nor frankly in the US; Biden has overall had a pretty easy run so far, so I would look elsewhere for the setback to this rally.
We will get one, markets will shy at something before midsummer. We also note that once more the IPO frenzy is sucking a great deal of liquidity out of fund managersâ pockets.
Beyond that belief, looking for specific problems has been well enough covered by others.
In any event having had an early Easter, we will now be writing next after those same elections and perhaps on that very topic.
Charles Gillams
Monogram Capital Management Ltd
END OF TERM REPORT
Easter neatly finishes off the first quarter too, how is the world doing? A mixed bag really, although for many of us, perhaps better than we expected.
MERKEL AND MACRON MIGHT BE RIGHT
Although I am afraid, we have moved from the tub-thumping section on the Astra Zeneca vaccine, into more of the dry analytical camp. Here, I am sad to say the evidence of a rare but fatal side effect is growing more compelling by the day. The case for the UK vaccine policy has always been pure statistics, so the disease will kill more people than the vaccine, but donât confuse that with saying vaccines canât kill and maim, they do.
Given the choice, would I now have avoided the AZ shot? Yes, I probably would, and waited for the Pfizer jab to arrive on these shores. Will I duck the second Astra shot (if offered) well on health grounds yes; but if the state (or another state) is going to impose onerous restrictions on my freedom of movement as a result, well, I probably value my residual sanity enough to grin and bare my arm.
But lower down the risk pyramid? Especially for younger women, where the risk of a fatal COVID infection is vanishingly low (particularly now the wretched thing has indeed vanished here) well, I am certainly not in the camp that wants to sack them for saying âno to a needleâ. Once we have choices, I think restrictions on the Oxford vaccine are now defensible.
As for a commercial product, well good luck to the Italians, having caused a trade row, I am not sure that seized vaccine shipment is much good now. Of course, we could and should export it all, strictly for use on the over 50âs; but is the product now irretrievably tainted? While those handful of fatal cases will now be tragically added to those âroutineâ claims for vaccine damage off the NHS. The US has pushing on for a thousand vaccine claims settled every year, for some half million dollars apiece, it is not that rare an event.
Despite that, the first quarter story still remains a medical triumph. Astra in the scheme of things has already saved thousands of lives. Other less blunt instruments will soon follow. The end of lockdown is coming. Will episodic waves of infection keep turning up, almost at random in time and space? Of course, thatâs the whole thing with a mutating virus.
WHERE NEXT FOR MARKETS
Markets however are still torn, that patchy vaccine roll out and the fiscal bazookas deployed (and in cases still being deployed) are blasting it higher. However, the bond markets have reacted far more quickly than we expected and done so globally. The US having the nearest thing to a free market in town, have seen rates jump first, but they will drag everyone along, and pull every currency down against the dollar.
The issue is simply how far and how fast will rates rise. But the squeeze is already on, neither Archegos, nor Erdogan are in our view co-incidences. Both are real world impacts striking hard at billions of dollars and millions of people; there is more to come. Deliveroo may also be telling us something about the competition for single horned ungulates too, which would be rather good news.
Here is the Freddie Mac housing note, for the assiduous. We would expect markets to overshoot, as usual, so the path of the US 10 Year interest rates, may have already peaked for the year.
While the US Federal Reserve also have a (secret) number in mind, above which it canât let interest rates go. The current US administration has become complacent on wealth creation and hates markets too, so would rather enjoy a hard correction and a softer dollar.
My guess is this gets ugly at 2% (from 1.75% now), either because markets are spooked or Central Bank action follows, so the idea that it is already close to the top looks solid, but it is becoming about fine margins. While that 2% ceiling will itself drift upwards through the year if inflation is really back.
However, for now, many people doubt if inflation or rates are going that high, or if they do, they are confident the Federal Reserve will call the bond marketâs bluff. None of this is particularly good news for long term investors navigating the next six months; the fuse has already been lit.
METALS SHOW THEIR METTLE
One of the pleasures of Easter is time to tackle a growing pile of Annual Reports. These are now (for single stocks) well beyond the capacity of any sane person to absorb, but fortunately 90% of their content has become heavily standardised virtue signaling, or almost meaningless numerical disclosures, plus the familiar pang of disgust at just how useless remuneration committees really are. The system is still not working.
Out of that pile a couple of global mining stocks come to hand, which are instructive on a few levels: it is a story of steady profits, restored dividends, falling production volumes, reined in cap ex, a bit of a mess on anything you canât easily store in bulk and flashes of resource nationalism, as Chinaâs persistent meddling and manipulation in commodity trades continues.
None of that speaks to me of the fabled commodity super-cycle, there is no single consistent story in those tomes. No one high volume product with no possible substitute exists; I guess copper is close, but once COVID restrictions (and workforce discontent) are removed, I expect it will just about add enough capacity to cover the expected infrastructure surge.
So, while profits were up, if production was down, that remains a story of subdued demand and price increases will now pull forward more production. So once more, this time from commodities, inflation (as all the Central Banks keep telling us), is probably going to spike higher and fall back. To embed inflation, you need persistent pricing power, not temporary shortages. Miners are not opening big new holes in the ground; indeed, they trend towards divestment still.
Overall, because of that vast liquidity surge, market rises are possibly more deferred than cancelled, but what felt a âno brainerâ in the autumn and winter, feels a lot less compelling, as spring arrives.
We hope you have had a rest over the break. We will be taking a pause from writing for May Day, as opposed to Easter, although not from fraternal solidarity, but because Easter has come early this year.
Charles Gillams
Monogram Capital Management Ltd
What doesnât sink me makes me stronger
First published on 20 December 2020
A strange old year winds down, with proof once more of the exceptional power of suggestion and the great strength of cohesion.
Tired Markets, Bullish Investors
So what now? Clearly markets are tired, we have the odd position that investors are almost universally bullish on next year, that fund managers report unusually low uninvested cash, and yet it still feels like thereâs no great power behind the mainstream markets. Indeed, over much of the developed world after the November vaccine/Biden sudden jump in markets, not that much has happened overall, a slow grind higher at best.
We see that lull as temporary, reflecting the month or so of pain and uncertainty before the onset of spring. Yet if anything we ourselves also want a little more liquidity, driven in part, by our awareness that markets are always thin and unstable going into the year end, so we can see little to be gained by jumping in this week.
Typically positions for 2021 will be taken in mid-January, once we have a reasonable steer on how 2020 ended. Not that that matters greatly either, neither of the next two quarters (or indeed the last two) will be in any way normal, Q1 2021 will be heavily influenced by COVID, but 2021 Q2 will see it fade very fast in the sunlight. Lots of scope for extreme volatility in that switch around.
But then, why rush in?
A lot could still go wrong. We assume Brexit disputes are just typical posturing for the crowd, but given those involved, maybe thatâs brave. We assume the vaccines will work, which is one of the key points in this whole saga. Indeed, almost everything has been conjecture and spin, with the virus seeming to come and go regardless of our frantic efforts and illusions. It has been barely possible to discern cause and effect for all our demented jumping about. However, the vaccine is going to be at last a single, vital, fixed data point.
By late January if we (and the markets) are right, the most vulnerable will have been given a 95% effective shot, excess mortality should tumble, indeed you should almost be able to watch the vaccine defences build week by week, as ICUâs empty. The rush to start vaccination, played far better by the UK (a rare event it is true) was all about getting the vulnerable sheltered before the very worst of the winter. In that case this epidemic is over, and the fearsome fangs will have been drawn in a few weeks.
So, in that case, why dive in now, if waiting a short while answers that most fundamental question. Besides nearly everything looks too good to be true. Our own returns are clearly too good, typically they have been double figures for most managers, even our low volatility products are (depending of course on the next week) going to end up there, which is truly exceptional for a good year. For a year in which economic growth has been halted for so much of the time, it is downright amazing.
Overbought?
We have already (in the VT-GTRF) shifted into slightly higher risk areas, such as Listed Private Equity, where we see good value. But we are reluctant to go much deeper just yet. Every emerging market that feels half credible is already at a twelve month high, and frankly the data from those is even less reliable than ours. All the Wall Street overbought signals are flashing red. There is clearly too much speculative cash racing about looking for a home, be it DoorDash or those irrepressible SPACs.
Government debt is in an elegant swallow dive onto the zero axis, you are getting very little return to lend to some odd places.
So, we will enjoy some pensive digestion after the feast, if we are somehow wrong to the upside, we almost donât care, whatâs better than best? Being wrong to the downside, seems the graver error.
Echoes of the Weimar
We started with a quote from one of the trio of great Weimar philosophers; now there is a history to conjure with. In a year when democracy seemed set to topple, when there are indeed no facts only interpretations and when it became government policy globally to stoke up inflation to destroy the value of money and create negative interest rates, Weimar has many echoes. Throwing in its capture by a communist dictatorship and assault by ideological zealots, leading to near terminal decline, means comparisons just get too spooky.
So, to leave you with one of the Weimar trio, as you head into whatever glee Boris has left with you, âMan muss noch Chaos in sich haben, um einen tanzenden Stern gebaren zu konnenâ.
That is, we all need, in whatever we do, a bit of luck, inspiration or indeed plain chaos to pick up the inspiration to move on to better things.
We wish you well for Christmas and the New Year.
We will return to the fray on the 10th January, no wiser, but we will hopefully know more.
Charles Gillams
MUST THE POOR BE CLEAN?
First posted on 10th January 2021
Attempting to comment on the last few weeks seems largely futile, save perhaps for the apocryphal remark attributed to Chinese premier Chou En Lai, that âit is too early to tellâ, when asked about the impact of the French Revolution.
We suspect the markets are a little too relaxed about the assumption that Biden will spend furiously, effectively and in a way to spark inflation, but without any significant extra taxation or regulation. Lost in the exuberant desire by the market (and voters) for yet more debt are those inevitable downsides. While clearly the amount of speculative froth in the US market, is a clear warning of disaster to come; it never ends well when valuations get this daft.
As for these shores, it is not clear why it is almost mid-January, before the blindingly obvious need to vastly ramp up vaccination rates, for drugs that were available weeks ago, has only just penetrated Borisâs head. We are all rather immune to his elastic grasp of promised numbers now. Like the Relief of Khartoum, I suspect they will have dithered into disaster. Vaccines by the barge load will be coming in, just after COVID has over-run our defences.
It is reassuring to learn that the seven days a week NHS so touted by David Cameron, still remains a distant hope. And indeed, that this is not so much of a crisis, that vaccinating people on a Sunday can be contemplated. Over the next fourteen weeks that will cost a further fortnight of unforgivable delay. Luckily for the government, the EU is even more hidebound and inflexible, so we can claim a comparative victory.
Environmental, Social and Governance â an active conscience at work?
So, to a wider issue, the dear old ESG (Environmental Social Governance) standards to which all fund managers must now adhere. This seems to be largely (well intentioned) greenwash, it will not surprise you to hear. But we do have to start somewhere. JP Morgan have conveniently set out a simple guide on this, around whose elastic edges they must invest. We will shortly clamber through this.
The risk in ESG cuts several ways. From a market view, the damage comes from the familiar âbuyers and sellersâ equilibrium, which means every buyer needs a seller and vice versa; where the impact is profound.
Assume that most big liquid stocks grow into their positions over a decade or more, and therefore once in an institutional portfolio, they will also hang about in it for many years, think IBM or GE. Now suddenly condense that holding period into a far shorter span to dis-invest and you will blow the subtle price balance apart. By the same token, a company typical grows, acquires, improves over decades, just as companies like Apple and Microsoft have, plugging away and expanding. Now what happens if the demand for all the buyers of a decade or more, are suddenly packed into a few months? Again, that delicate price balance is destroyed.
So, you can then easily model remarkable over or under valuations, based not on any core worth but on supply and demand. Now there is a whole new world of pain from this, if you get what is called âcommon ownershipâ which is the phenomenon of a trio of giant asset managers, who own 20% plus of the S&P 500 between them. So, if those asset giants decide to switch course, the volume of stock unleashed (or indeed acquired) will clearly be far beyond the marketâs power to react in a balanced way.
The Democrats are already nervous about this feature, and may well look harder at it, although probably after a nasty market crash, of course, not before, when it might actually help.
ESG In Action
So, in JP Morganâs definition, what is ESG? What does the âEâ constitute? Carbon pollution and emissions, environmental regulations and adherence, climate change policies, sustainable sourcing of materials, recycling, renewable energy use, waste and waste management. Seems OK. Under the S we have to look at human rights, diversity, health and safety, product safety, employee management, employee well-being, commitment to communities. Fine too. While finally G is Board structure, effectiveness, diversity and independence, executive pay and pay criteria, shareholder rights, financial reporting and accounting standards and finally a catch all of how the business is run.
So, it has become quite a narrow definition, although a little less so on the environmental side. It favours businesses that are not vertically integrated, those that just skim the last bit of others production. No direct mention of water or indeed of total consumption, in that part of the guidance for instance. Other areas also justify that late-stage business model, a focus on employees, but not workforces, on low skill workforces too (which are easy for diversity targets), no actual production (helps a lot on health and safety, to have no machinery), while ESG advisors love the soft option of âcommitment to communitiesâ, a couple of village halls and a sponsored half marathon and you are there. It is completely silent on fair tax.
Indeed, you can almost see this definition leaning into the big distribution, tax avoiding, gig economy US firms and most strikingly into fin tech. Maybe ESG is the after all the revenge of the bankers?
There are some traps in the G section, Board diversity and effectiveness are easy enough to fix, thatâs what chairs of audit and remuneration committees and indeed HR directors are for, while Board effectiveness is always assessed by consultants they themselves appoint, we have seen some right turkeys âassessedâ as absolutely fine.
Independence used to mean something, but Cadbury et al have made that vacuous box ticking just related to tenure. Pay is sorted by a very low (or zero, for high grade virtue) basic salary and generous yet soft bonus targets, with personal targets again a great loophole. Mine are to try to do a good job (and yes, we have seen that actually used). I can certainly meet that before the year even starts. As long as you donât set pay upsides too eye wateringly high, most things on remuneration still get nodded through.
A hollow laugh then follows for shareholder rights, with so many of the big tech stocks having odd voting structures. Financial reporting? Well, âadjustedâ profits allow pretty much everything on that side now. Some conspicuous angst over valuation of goodwill or deferred tax or lease accounting, none of which have any impact on cashflow, also apparently counts for good accounting compliance.
So, the ideal ESG business would be something like PayPal, Visa, Verisign, Alphabet, Autodesk, Charles Schwab, in short fintech is simply delightful as it has no factories and makes nothing. Distribution is not too far behind. All cracking market performers too.
Is ESG then just convenient âtaggingâ?
Now that gets us back to âcommon ownershipâ, if enough big managers decide thatâs the way to invest in what they like already, but they now simply tag it as sustainable, then there is a rush into those same stocks, which as we know then go up, more buyers than sellers time again. Magic, you have created both a market outperformer and an ESG winner and yet not stepped an inch beyond your comfort zone.
Well, each of those listed stocks above do indeed feature in the top ten of our very own sustainable fund holding, what a surprise! That also gives us performance, and we know exactly what our holders hire us for. Get enough buyers in line and any stock can be made to shoot up like a rocket.
While just as ESG has been a perfect template for the overvalued US tech stocks and the cleverly presented top slices of the real economy, investment in that part of the globe where the 30% of the poorest people on earth live, has also dropped remorselessly this decade, helped down, by yes, ESG.
Just like the Victorians, we seem to believe that the poor must be clean to be helped, both literally to enter the workhouse, and figuratively to justify our assistance. If you ainât clean, free of drugs and vices, and suitably docile, you are simply not the deserving poor.
So, we reject those dirty countries whose firms make up 5% of the worldâs listed profits, but only 1% of investable assets. In other words, we are all 80% underweight in those so-called Frontier markets, you can guess where the compensating overweight is, of course.
Many such holdings are rejected because they run vertically integrated, job creating, people hiring, output generating, dividend paying businesses which are exactly those that are so despised by the neo colonialists on ESG committees, because they are both poor, and not yet clean. Only sinners that have repented can be helped, we do remain Victorian at heart. While their output, once sanitised by distance, can happily be the base for clean, ESG compliant, fintech services or advertising.
When judgment is made to look like virtue
There are few better tools of subjugation than denial of access to capital and banking services, there are few better ways to keep colonies in check than protectionism, preferably founded on opaque, subjective rules. Just ask the British Raj about those devices.
Somehow that awareness has now crept into how the âghettoâ poor are to be treated, but not into how the poor are treated globally. Yet we also know that the one remorselessly feeds into the other.
ESG has become a means of protectionism, of restricting access to capital for the poorest economies, but also a path to destabilizing our own equity markets, piling on volatility, mis-allocating capital. Well, you canât fault good intentions, but as Boris so often demonstrates, good outcomes are not quite the same.
What the global poor need, is a shot in the arm from unfettered capital markets and an end to protectionism.
Keep an eye on what Biden achieves, with his âsummit of democraciesâ, as colonies, much like ghettos, always adore being preached to with evangelical fervour about their own morality, especially by a country with such a vibrant, exuberant, healthy democracy.
Charles Gillams
Monogram Capital Management Ltd
A Startling Infinity Pool
First posted in January 24 2021
There are a few investment quandaries this week.
The first, tactical, one is that while we largely think we, (along with most market participants) âknowâ that markets are going up this year, we canât overcome the feeling that this is somehow wrong.
It is of course the difficulty in crossing the vale of winter fears directly ahead of us, to reach the sunlit uplands of bright summer beyond.
In our minds we know once the snowdrops are out, and the daffodils pushing though, that the lockdowns if not yet over, are surely on the way out.
We know the absurd stimulus, dedicated to giving every business as well as every citizen, impossible immortality, will keep being splurged, and so inevitably asset prices have to rocket upwards. It is kind of automatic.
Yet we can see the still overfull hospitals and the ceaseless tolling of the vaccine nay sayers, and in our hearts, we know even at 400,000 jabs a day it will still take another five months to vaccinate the adult UK population.
We also know that many businesses will just be taking on more debt which they can never repay, and quite a few countries are doing the same.
When the next Greece or Argentina implodes and you ask what idiots lent them more money, well mark these days of plenty. This is when we stoked the next debt crisis to its full noisome plenty.
While cheques are sent out with no thought for their need, flowing effortlessly, in a significant number of cases, past well stocked larders, into Bitcoin or the latest gamblerâs stock. We all sit, with supine regulators behind us, egging on those playing at the tables, with fantastic stories of easy wealth, afraid to be the ones pointing out the chances of a lottery win are significantly higher than that of every SPAC and each market hustle coming good.
MANAGING EXPECTATIONS
So, it is the fund managerâs speeding train dilemma, our clients are desperate for us to board the train but expect us also to time our exit jumps to perfection, before the locomotive ploughs over the precipice.
Well, it is an illusion. This is a bubble and bubbles end badly. As it happens, as long as the punchbowl is refilled, we too must stay at the party, but with an increasing sense of unease, as markets leg higher, driven by all that excess liquidity. We are really keen to leave, until it quietens down a bit and rejoin say after Easter. Would that it was that easy to time markets, we certainly donât claim to do so.
Two thoughts then, the first is what we most fear is the NASDAQ rolling over. Why? Well for the last decade at least, the NASDAQ is what has propelled positive investment returns, globally. The FTSE 100 is still stuck below 1999 prices, the Nikkei has yet to surpass its old top from 1989. For those âlesserâ markets you need great patience and good timing. The easy cruise of buy and hold index investing is a global rarity.
INVESTMENT PERFORMANCE IN THE LAST DECADE
Like a listless blackbird, caged in our dens, we leaf through old debris.
A copy of âTimeâ from 21st January 2008, drifted past my eye line, which recorded the UKâs per capita GDP as $46,380 which was apparently some $500 above the USA. Now I canât source that stat, but I can see another, for 2019, with the UKâs per capita GDP, using purchasing power parity at $44,288, thatâs right, down over a decade of Brown, Cameron, May. The US number, same basis, is $63,051, under Obama and Trump. Reflect on the relative failure of those UK governments and yet look at the undiminished scale of their spending ambitions.
Now, a great deal of that move is currency related, the average dollar pound rate for 2008 was 1.85, the average for 2019 was 1.28.
So, in investing, just those two issues, the dollar value and the NASDAQ market, have determined if your savings can grow or shrink.
Yet we should look at the UK bubble stocks too. In the sensible old stalwart, Law Debenture Investment Trust, the latest factsheet shows its biggest holding is Ceres Power, above real-world stocks like Glaxo and Rio Tinto.
So, what is Ceres, to have a market cap of ÂŁ2.6 billion? Well, the 2019 accounts show revenue of ÂŁ19m and losses of ÂŁ9m. Obviously no earnings or dividend, so a value of some 135 times sales is quite impressive. Its share price has also gone through ÂŁ15 now, having only crossed ÂŁ7.50 per share in the autumn of 2020.
Now I am sure you can make the case that with Biden, hydrogen fuel cell technology is going to the moon, indeed Ceres has notched up some impressive recent collaborations with some big fish. It is a serious technology innovator (with the losses to prove it), and a reasonable history in this area. All granted, but has it really added ÂŁ1.3 billion of value in the last six months?
Well, that type of stock is driving quite a lot of funds, but it looks to us like a speeding train, when it gets to a big curve, the market will crash. The company, like many Japanese firms from 1989 will survive, the passengers (investors) may be less lucky. While Law Debenture is a well-run outfit, and indeed it may even have trimmed Ceres already. Yet when that type of stock embeds in those type of investors, we do sense trouble.
Law Debentures third largest holding is Herald Investment Trust, another small company wonder stock, but one we do track, (Ceres as a single stock is outside our universe) but even for that, we simply canât justify buying at these levels, after so abrupt a recent rise and the closing of a big historic discount.
Other small company funds globally have rocketed up, although it is still a sector, where we do want to add to our exposure.
As we started out saying, we do believe this ride goes on, but 2020 was the easy money, 2021 will be far tougher.
The excess cash now driving valuations is just not the same as value being created, in a crippled and still bleeding global economy. Â Â Â
Charles Gillams