From junkie to

juice maker
P31

The billionaire
backing Clinton
P34

28 October 2016 Issue 817

How Im sabotaging
capitalism
P42

Britains best-selling financial magazine

Keeping the
world afloat
Central bankers cant fix the
economy, says Satyajit Das
Page 24

771472 206092

4 3

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>

3.95

HOW TO MAKE IT, HOW TO KEEP IT, HOW TO SPEND IT

MONEYWEEK

28 October 2016 Issue 817 Britains best-selling financial magazine

From the editor-in-chief

Last weekend I spoke
on a panel with three
others at the brilliant
Battle of Ideas festival
at the Barbican. The
subject was the British
economy post-Brexit.
Thats a fascinating
topic in itself, of
course, but the really satisfactory thing
about the debate was the fact that all
four of us fast agreed that when it comes
to the UK economy, the coming change
to our trading arrangements with the EU
is nothing but a sideshow for the UK.

of San Francisco and the US Federal

Reserve itself have done the same.
Their conclusions are all pretty much
identical. The more people over 60
there are relative to the rest of the
population, the faster GDP growth
falls (we find that a 10% increase in
the fraction of the population aged 60+
decreases the growth rate of GDP per
capita by 5.5%). The new normal for
GDP growth is therefore significantly
lower than it once was (it will plausibly
fall in the range of 1.5% to 1.75%).
The downward pressure on net savings
rates and interest rates is not, therefore,

Our financial futures will actually be

determined by two much more
important things: debt and demographics
(see Satyajit Dass take on this on page
24). Weve been talking about this for
some years now. But the good news is
that it isnt just MoneyWeek writers
and readers who have now noticed just
what a difference ageing populations
make to countries.

The key factor behind

slowing GDP growth and rising
debt is demographics
as most people seem to think, just a
transitory effect of the global financial
crisis (although this doesnt exactly help).
It is a permanent result of the shift in the
age profile of the American population.

In July the US National Bureau of

Economic Research produced a paper
analysing the effects of demographics
on the US economy. And in the last
few weeks both the Federal Reserve

That means that the tools the state

usually reaches for when it is trying to
make a crisis go away arent working in
the same way as they have in the past.
Central banks cant use low interest

Editor-in-chief: Merryn Somerset Webb

Executive editor: John Stepek
Managing editor: Cris Sholto Heaton
Markets editor: Andrew Van Sickle
Senior writer: Matthew Partridge
Contributors: Chris Carter, Giselle Garcia, Emily
Hohler, Ruth Jackson, Jane Lewis, Sarah Moore,
David Prosser, Alex Rankine
Group art director: Kevin Cook-Fielding
Picture editor: Natasha Langan
Production editor: Stuart Watkins
Chief sub-editor: Joanna Gibbs
Website editor: Ben Judge

Cover illustration: Adam Stower. Photos: Getty Images; Rex Features.

Advertising sales director: Simon Cuff

(020-7633 3720) Commercial director: Vinod
Gorasia (020-7633 3664) Publisher: Dan Denning
Managing director: Helen Hunsperger
Founder and editorial director:
Jolyon Connell Group publisher: Bill Bonner
Editorial queries: Our staff are unable to
respond to personal investment queries as
MoneyWeek is not authorised to provide individual
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com Phone: 020-7633 3651 Subscriptions &
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Road, London SE1 8NZ. MONEYWEEK and MONEY
MORNING are registered trade marks owned by
MoneyWeek Limited. MoneyWeek 2016
ISSN: 1472-2062 ABC, Jan Jun 2016: 45,239

Good week for:

Muse dOrsay: The art gallery in Paris has received

315m in artworks after Texans Marlene and Spencer
Hays, both 80, said they would gift pieces including
ones by Degas, Modigliani and Rodin. It is the biggest
foreign donation to any French museum since 1945.
Numismatists: A bag of old coins kept in a toy
treasure chest that was given to a boy to play with
contained a rare Queen Anne Vigo five-guinea
piece, worth 250,000. Sir Isaac Newton minted just
20 of these coins using 7.5lbs of gold seized from
Spanish ships in Vigo Bay, northern Spain, in 1702.

Bad week for:

The Labour party: A much ridiculed eight-anda-half-foot limestone slab from the 2015 general
election that bore the then-Labour leaders
pledges has cost the party a 20,000 fine. Officials
had failed to declare two payments totalling 7,614
for the stone among the partys election expenses.
The Crown Princes tenants: The Crown Prince of
Norway has been letting out five flats on his official
estate that had been declared unsafe to live in. Last
year, the prince made 140,000 from the rentals.
Phil Collins fans: Tickets priced at up to 175 for
the singers show at the Royal Albert Hall in June
next year sold out in 15 seconds, only to reappear
minutes later online costing up to 2,200.

rates to stimulate 70-year-old retirees

to start businesses and spend money
(mostly theyd rather go fishing). And
governments cant hope to create the
kind of super-charged GDP growth that
will one day make their horrible debt
problems go away (those debt problems
are in large part down to the fiscal
obligations they have to their ageing
populations). Endless stimulus may not
be the answer.
Fixing this is never going to be easy as
poor Philip Hammond will be realising
this week as he runs his eyes over our
dismal public-sector borrowing numbers
(we borrowed 1.2bn more last month
than in September 2015). But the first
step to finding a way out that doesnt
involve hyperinflation or obvious debt
default comes in recognising that the key
factor behind slowing GDP growth and
rising debt is demographics. The US is
clearly beginning to think about all this
properly. Its time we did too.

Merryn Somerset Webb

email: editor@moneyweek.com

Loser of the week

American actress
Lindsay Lohan (pictured)
is facing bankruptcy
proceedings after
lawyers representing
the landlord of
her 3.5m flat in
Knightsbridge,
London, demanded
six months unpaid
rent, totalling
77,600, the Daily
Mail reports. The Mean
Girls actress, who at
one time earned 5m
per film, is expected
to appear at court next
month. Meanwhile, her
former fianc, Russian
property tycoon Egor
Tarabasov, who formerly
lived with her in the flat,
is understood to have
accused her of theft,
claiming she took items
worth 24,000, including
a Rolex watch and a small
gold crucifix.

MoneyWeek magazine is an unregulated product. Information in the magazine is for general information only and is not intended to be relied upon by individual readers in making (or not making) specific investment
decisions. Appropriate independent advice should be obtained before making any such decision. MoneyWeek Ltd and its staff do not accept liability for any loss suffered by readers as a result of any investment decision.

moneyweek.com

28 October 2016

MONEYWEEK

news

London

A third runway at Heathrow: The British government has given

its backing to a third runway at Heathrow airport, taking
a decision that has been fudged and delayed by successive
governments for decades. The Heathrow proposal was favoured
over Gatwick because of Heathrows global status as a hub
airport the transport secretary, Chris Grayling, promised
the scheme would bring 61bn in economic benefits to the
UK economy over the next 60 years. However, the expansion

continues to face stiff opposition, with Cabinet figures

including Boris Johnson and Justine Greening, London Mayor
Sadiq Khan and Tory councils close to the airport all voicing
their opposition. With legal challenges now expected to delay
the start of construction until at least
2020, Gatwick has announced
that its proposal is still
waiting in the wings.

Omaha, Nebraska

TD Ameritrade takes over Scottrade for $4bn: Two of Americas largest

online stockbrokers are to merge, in a further sign that

the US discount brokerage market is consolidating.
The Ameritrade-Scottrade deal comes on the back of
a wave of acquisitions and consolidations by rivals in
recent months as US discount brokerages struggle to
keep up with investment trends in the worlds largest
equity market. Most investors now use online platforms
to trade securities without going through traditional
brokerages, but the industry is under pressure as evergreater numbers choose to put their money into indexfunds that passively track the market, eliminating the need
to trade individual stocks. A second trend, dubbed robo-advice, which
sees online algorithms recommend or buy investments for consumers, could
further reduce trading volumes for the online brokerages.

Calais

Most Beijingers are delighted to get

away from the citys smog, but one
enterprising British expatriate has
spotted a gap in the market, said The
Times. Dominic Johnson-Hill has been
selling ring-pull cans of Beijing air for
3 each on the shopping site Taobao.
We celebrate Beijing through tonguein-cheek humour, said the expatriate
and long-time Beijing resident, who
sells more than 100 cans of the bizarre
souvenir each day online. Though
Beijings air far exceeds World Health
Organisation safety standards, it
seems the product appeals to some
homesick Beijingers. I love this city
and the air quality is getting better,
said 26-year-old engineer Zhang
Haiming. When I really miss Beijing
I will open a can and sniff it.

MoneyWeek

28 October 2016

Press Association

Press Association

France begins to demolish the Jungle: French authorities have begun to clear
the infamous Jungle camp in Calais, which became one of the symbols of
Europes migration crisis. Prior to the operation, some 2,300 migrants were bussed
out of the camp and redistributed to refugee centres across France, with Britain taking
200 teenagers with family already in Britain and interviewing hundreds more whose
cases have yet to be concluded. The French
authorities say that those unable to prove
family links with Britain
The way we live now
must either claim asylum
in France or return to
their countries of origin.
French interior minister
Bernard Cazeneuve said
that the operation had
been generally calm and
orderly, although there
were protests and parts of
the camp were set alight.

Braslia

Corruption probe claims another

big name: Eduardo Cunha, who led the

congressional impeachment of the former

president, Dilma Rousseff, earlier this
year, has become the latest figure to be
caught up in the Lava Jato (Carwash)
investigation into corruption at state oil
firm Petrobras. Cunha and his associates
are accused of taking as much as $40m
in bribes, leading a judge to order his
arrest and imprisonment last week, as he
is deemed at risk of fleeing the country.
There is no sign of the scandal coming to
an end, with many predicting that Cunha
will cut a plea bargain with prosecutors
that will see him reveal damaging
information about other leading figures,
including the sitting president, Michel
Temer, who cut short a trip to Japan as
news of the arrest broke.

Pretoria

CEOs call for case against finance

minister to be dropped: The leaders of

more than 80 major South African firms,

including Anglo American and Barclays
Africa, have published a newspaper piece
calling for corruption charges against
South Africas finance minister to be
dropped and for the rule of law to be
upheld. Pravin Gordhan faces charges
relating to his handling of the payroll
during his time in charge of the South
moneyweek.com

news
Wallonia derails EU-Canada trade deal:

A tiny Belgian region of 3.6 million

people may well have sunk an EUCanada trade deal that took seven years
to negotiate. The regional parliament in
Wallonia the Francophone region of
Belgium voted down the Ceta trade
deal, which would have removed 98%
of tariffs on trade between Europe
and Canada. Under Belgiums federal
constitution all the devolved regions and

communities must give their consent

before the national government can sign
up to the pact, but with the opposition
socialists in power in Wallonia and two
other Belgian assemblies now backing
Wallonias stand, Belgian PM Charles
Michel is unable to sign. The move
came just days before Canadian leader
Justin Trudeau was due to fly into
Brussels for a long-planned signing
ceremony that has now been postponed.

Beijing

Top officials gather

in Beijing: 400

of Chinas most
important political
figures have
been gathering
in Beijing for the
sixth plenum of the
Communist Partys
central committee.
The meeting offers Chinese leader Xi
Jinping (pictured) the opportunity
to further stamp his authority
on the party in the
run-up to next years
party congress, which
will choose Chinas
leadership for five years
thereafter.
Press Association

Brussels

As well as discussing
economic developments and
party discipline, the meeting will
also provide early indications about the
composition of Chinas top leadership in
future years. The South China Morning
Post said to watch out for what happens
to key Xi ally Wang Qishan, who has
now reached the Communist Partys
retirement age. If he is kept on that could
be an indication that Xi intends to stay
in power beyond his own scheduled
retirement in 2022.

Manila

Duterte may end US defence pact:

President Rodrigo Duterte has continued

to hit out at the US during a visit to
Japan. Speaking in Tokyo, the Philippines
president said: I want, maybe in the
next two years, my country free of the
presence of foreign military troops.
Dutertes latest comments, which suggest
he wants to scrap the Philippines
enhanced defence cooperation agreement
with the US, come on the back of other
recent comments in which he called for
a military and economic separation
from the United States and variously
described Americans as silly, loud
and discourteous. Dutertes growing
antagonism towards the US seems to be
a response to human-rights criticisms of
his war on drugs, in which police and
vigilantes are thought to have killed more
than 3,000 people in just three months.
African tax agency, but some voices in
business and within the ruling African
National Congress (ANC) allege a
political motive behind the prosecution.
The letter comes at a difficult time for
the ANC, which did poorly in recent
municipal elections. With some ANC
figures voicing support for Gordhan
and others calling for the prosecution
to proceed, it seems that there are now
serious rifts within the party.
moneyweek.com

Mumbai

Ratan Tata returns: In

a swift and unexpected
turn of events, the board
of Tata Sons, the holding
firm for Indias largest
conglomerate, has ousted
its chairman, Cyrus
Mistry, from his post
after four years in charge,
only to replace him with

his predecessor family

patriarch Ratan Tata. The
Tata group of companies,
which collectively turn
over more than $100bn a
year, includes such diverse
businesses as Jaguar
Land Rover and interests
in aviation, finance and
steel. Sources say the

decision came after the

Tata familys growing
dissatisfaction with
Mistrys handling of the
conglomerate including
the decision to shut down
its steel operations in the
UK rather than trying
to turn the struggling
business around.
28 October 2016

MONEYWEEK

markets

Is the bond
bull market
almost over?
by Giselle Garcia

So could this finally be the end of

the bond bull market, after a 35-year
run? If it is, we would be seeing the
most important shift in the investment
environment in our working lifetime,
says Societe Generales Albert Edwards.
The implications are massive.
Hence investors are nervous that the
recent moves might not just be a cyclical
sell-off. They fear that something more
might be in the air as central banks and
governments call for a decisive shift
away from relying on monetary policy
and toward greater fiscal stimulus.
Still, bond investors have been predicting
an end to declining yields for years,
says John Authers in the FT. And its
quite possible that the bull market in
bonds could continue, pushing down

Getty Images

From Washington to Tokyo, the

message is loud and clear, says Marcus
Ashworth at Bloomberg Gadfly. Central
banks want steeper yield curves.
They want inflation, and inflation is
coming. The catalyst for change is
likely to be a Federal Reserve rate rise
in December, he says. The Street has
spotted it, and so has the relatively smart
money. Morgan Stanley and Goldman
Sachs both expect ten-year rates to rise,
says Ashworth, while big investors such
as bond-fund giant Pimco, plus M&G
and Legal & General, have been cutting
their holdings of longer-dated bonds.
Paul Volcker yields have been on a downward trend since he was at the helm
yields further. Yields have been falling
since the 1980s, when Paul Volcker,
then chair of the US Federal Reserve,
finally convinced investors the Fed was
committed to beating inflation. The
steady downward trend in US Treasury
yields is one of the most lasting and
reliable phenomena in finance.
Indeed, there remain plenty of reasons
to expect the rally in bond yields to
be yet another false dawn, says Tom
Stevenson in The Daily Telegraph.
Japans experience shows that aggressive
fiscal stimulus need not lead to rising
inflation in the short term. So we could
see both fiscal and monetary policy
stimulus at the same time. In Europe,

the ECBs broad hint that quantitative

easing (QE) will carry on suggests the
long march lower for government bond
yields may not be over just yet.
Note also that Japans central bank
has committed to buying as many
government bonds as needed to ensure
the yield on the ten-year bond remains at
0% or below, says Edwards. This was
a massive change in policy that has not
been fully understood by the markets.
Far from rising, yields are likely to fall
even lower as central banks embark on
more quantitative easing. Ultimately,
I expect US ten-year yields to converge
with Japan and European yields at
around 1% in the next recession.

The ten most-hated shares on the FTSE

This is a list of the ten most despised
shares on the London market, judged by
the percentage of stock being shorted.
Short sellers hope to profit from falling
stock prices, so it can be useful to see
what they are betting against. The
list is also a good indicator of stocks
with the potential to bounce strongly
on unexpected good news short
squeezes occur when short sellers are
forced out of their positions, which can
send share prices surging. Supermarkets
are still the most widely shorted sector,
thanks to competition from the German
discounters. Retailer Debenhams enters
the top ten this month. Investors have
become increasingly concerned about the
potential size of the deficit in its corporate
pension scheme, which Morgan Stanley
analysts estimate could be up to 250m.

MoneyWeek

28 October 2016

Firm

What it does

% of stock
being shorted

% on 30
September

Ocado Group

Online supermarkets

21.67%

21.40%

Carillion

Construction/outsourcing

20.88%

19.29%

Wm Morrison

Supermarkets

19.07%

19.57%

Tullow Oil

Oil and gas explorer

16.08%

15.35%

J Sainsbury

Supermarkets

12.12%

11.78%

Mitie Group

Facilities management

11.74%

8.94%

Ladbrokes

Gambling

11.44%

7.19%

Victrex

Plastics

8.96%

6.42%

Telit Comms

Telecoms equipment

8.43%

NEW ENTRY

Debenhams

General retailers

7.85%

NEW ENTRY

moneyweek.com

markets
Get set for the
tech IPO rush

Betting on change
in Venezuela

The unicorns the tech

sectors name for private
companies valued at over
$1bn are finally trotting
towards initial public
offerings (IPOs), says
Tom Braithwaite in the FT.
The pressure from
investors and employees
to cash in is mounting,
and the need for a higher
profile of more liquid stock
to fund acquisitions is
becoming more acute.

Press Association

Venezuela is in the midst of a severe crisis.

The IMF expects inflation to exceed 700%
this year and GDP to shrink by 10%. Years
of declining output and a crash in oil prices
have left the country short of cash. There is
mounting social and political unrest under an
increasingly oppressive government and its
most important enterprise, state-owned oil
firm PDVSA, is on the verge of default.

had repeatedly said they needed investors with

at least half the debt to participate in the swap
or they would struggle to meet obligations.
The deal is seen by some as a sign that both the
company and the country can avoid a default.
But for others, they are just buying time. Its
a play on whether the oil price recovers enough
for them to pay it, said Phillip Blackwood of
EM Quest, adviser to Denmarks Sydbank A/S
on emerging-market debt, on Bloomberg.

To most investors, Venezuela looks less like a

market than a mess, says The Economist.
Yet its sovereign bonds are the best performers
in emerging markets this year. Some strongstomached investors are doubling down on
high yielding government and PDVSA bonds.
Nicols Maduros government is keen not to
scare off foreign creditors and has prioritised
debt service over other urgent needs. Bondbuyers are betting it will continue paying to
prevent them seizing assets. The cost of them
to default on the debt is much higher than
any benefits they will receive by defaulting on
the debt, says James Craige of Stone Harbor
Investment, quoted in the Wall Street Journal.
PDVSA has proposed a plan to swap near-term
bonds for debt maturing in 2020. Holders of
39% of the $7.1bn-worth of bonds coming due
next year have so far agreed to tender their
securities for new debt. Officials at PDVSA

Until now, the flood

of money into private
firms ($261bn since
2010, according to PwC
MoneyTree) has helped
unicorns avoid public
markets. Thats one reason
why this year is set to be
historically slow for new
offers in the US, with
only 14 tech IPOs
compared with 371 in
1999 at the height of the
bubble, and an annual
average of 49 since 1980.
But now with investors
looking to cash out on their
investments, something
has to give, Scott Kupor
of US venture capital firm
Andreessen Horowitz,
tells the FT. Hence Snap
parent of messaging app
Snapchat has hired banks
to prepare a $25bn IPO that
could take place early next
year. Spotify, the Swedish
streaming music service,
is also expected to go
public next year, while
Uber, the ride-hailing app,
says an IPO will happen in
the next few years.

Many analysts remain sceptical about an

imminent rally in oil prices. Even if it happens,
Maduros regime may not last long enough
to enjoy it. But for some investors who are
sticking with the countrys debt, thats part of
the appeal. Such investors believe Venezuelan
assets will be re-evaluated once a new
government takes office and potentially opens
the door for help from the IMF, say Matt
Wirz, Carolyn Cui and Anatoly Kurmanaev
in The Wall Street Journal. With huge oil
reserves underground, the country has huge
upside potential, they argue.

Chinese supply cuts send coal soaring

The price of thermal coal, used in power stations, has more than doubled to $100 a tonne
this year after policymakers in Beijing cut the number of working days in Chinas coal mines.
The move forced Chinese power plants and traders to source more material from overseas.
Metallurgical coal, which is used to make steel, has risen from $78 a tonne to $243 a tonne,
according to the Steel index. The price surge has yet to be fully reflected in earnings forecast for
big producers, says the Financial Times, partly because analysts and investors are sceptical the
rally will be sustained or that the policy may be reversed.

Viewpoint

Chart of the week: predicting the US election

Those who thought that Leaves

victory on 23 June somehow settled
the question were deluded the
Remainers are staging a fight-back
which is beginning to inflict serious
damage on the Brexiteer cause Every
piece of bad news is blamed on Brexit;
an endless supply of reports, economic
forecasts and articles explain how
leaving the EU is self-evidently bound
to hurt us, slash our GDP, make us the
worlds laughing stock and wreck our
prosperity Some Remainians still
hope that withdrawal can be delayed
long enough for it never to happen
The Battle for Brexit must begin
again now.

A vast amount of effort is

expended in forecasting the
US presidential election yet
perhaps one simple statistic
can do a better job, says The
Economists Free Exchange
blog. The higher the growth in
disposable personal income in
the six months before polling
day, the better it is for the
incumbent partys popular
vote margin, say researchers
Christopher Achen and Larry
Bartels. Combine it with the
length of time the incumbent
party has been in office and
its a powerful predictor of the
result. Sluggish income growth
suggests a close race this time.
Clinton should not be confident.

Allister Heath, The Daily Telegraph

moneyweek.com

Incomes and outcomes

25

1972

Incumbent partys popular vote margin, %

20

1956

15
10

1992

-5

2008

-10
-15

2012

1960

1984

1996

1988

1964

2004

1968 2000

1976
1980

1952
3

Growth in real disposable income in 2nd and 3rd quarters of election year, %

28 October 2016

MoneyWeek

investment strategy
8

XX

investment strategy

Where to look for value

by Matthew Partridge
The second half of
2015 was tough
for investors, with
global markets
falling sharply,
prompted by
concerns over
Chinas yuan
devaluation. But
since February
many major indices,
including the FTSE
100, have rallied
and are at (or near)
all-time highs. So
where should value
investors look in
search of bargains?

Meanwhile, yields
are hard to compare
between countries
due to differences in
the tax treatment of
dividends.

A popular
alternative metric
is the cyclicallyadjusted p/e (Cape).
Cape measures
prices against the
average of earnings
over the last decade.
Originally devised
by Benjamin
Graham and David
Dodd for individual
companies, the
idea is to give
investors a better
The simplest way
idea of how cheap
to check whether a
Explosive potential: Russia is going cheap
a stock currently
country is cheap or
is compared to average profits over a
not is to look at its trailing price/earnings
typical economic cycle. Research by
(p/e) ratio. Using figures from Star
Professor Robert Shiller, now at Yale,
Capital, by this metric China and Russia
found a strong negative correlation
stand out for value investors as the only
between Cape levels and future US stock
two markets on single-digit p/es. Stocks
returns (ie, a higher Cape led to lower
in emerging Europe also look cheap,
returns). Further research by Star Capital
trading on an average p/e of only 10.3.
confirmed that other major international
Brazil and Britain look expensive on
markets have a similar relationship.
this measure, trading on p/es of 40 and
50 respectively, while the US is slightly
So what does the Cape ratio suggest
above the global average on 20.1.
today? That Russia and eastern Europe
are very cheap, on Capes of 5.1 and
Dividends tell a similar story: China and
7.7 respectively. China, however, is on
Russia yield 4.1% and 4.3%, against a
a Cape of 14 still below the global
global average of 2.6%. Again, the US
average, but not quite the bargainlooks relatively expensive on 2%. But
basement level implied by the simple p/e
other markets look more attractive on
or dividend yield. Indeed, the UK also
this measure than on earnings. For
has a Cape of 14. The US trades on a
example, yields for Australia, Spain and
Cape of 25.5, expensive by historical
Taiwan are not far off Chinas levels,
levels. Some experts have argued that
while the UK also looks comparatively
this suggests the Cape is no longer valid
cheap with a solid yield of 3.6%.
for the US, but Shiller himself notes that
while Cape is a useful predictor of longOf course, p/es and dividend yields
term returns, its not a timing device.
can be flawed measures of value. P/es
And just because a market is expensive,
can be skewed in markets dominated
that doesnt mean it cant get even more
by cyclical stocks (the heavy weighting
overvalued during the tech bubble, the
towards resource stocks in the UK index
US Cape rose to more than 40.
is one reason the p/e looks so high).

Guru watch
Former US
Treasury
Secretary
Lawrence
Summers thinks
that claims
by Donald
Trump that the
Federal Reserve
is delaying
interest-rate
rises, in order to help out Hillary
Clinton, his rival for the US presidency,
are ludicrous. In Summers view, the
reality is that below-target inflation in
the US, and low inflation expectations
among consumers, mean that nows
not the time to be stepping on the
brakes. He believes that the US is in
the middle of a secular stagnation
a long-term period of very low or
non-existent growth which means
that rates can remain at or near zero
without risking a take-off in inflation.
As for decent employment data,
Summers argues that the figures
disguise the fact that a large number
of people have withdrawn from the
labour market. He also points out
that total hours worked have been
flat for the last six months. However,
while he doesnt want monetary
policy to be tightened, he accepts that
further monetary loosening may not
be possible. In the past, the Fed has
responded to recessions by slashing
rates by a full five percentage points,
which is clearly not possible from
these levels. He also doubts that future
quantitative easing would involve the
Fed buying stocks, even though Janet
Yellen has mentioned the idea.
Instead, Summers believes there is
a strong case for more use of fiscal
policy (government spending). He
is particularly keen on the idea of
boosting infrastructure spending. Not
only would this help create jobs in
the short run, but it could also boost
productive capacity and remove the
deferred maintenance liability from
the public balance sheet. Indeed, the
case for infrastructure spending is so
powerful that Summers hopes an
agreement can be reached whoever
controls the White House and
Congress after the election.

Emerging market is the phrase used to describe less

economically developed countries that are approaching fully
developed status. Originally used by official bodies such as the
International Monetary Fund, the term has been embraced by
banks and the investment industry. There is no exact definition
of what constitutes an emerging market; most companies use
a combination of objective factors, such as income and market
size, alongside subjective perceptions of risk and transparency.
At the moment, index provider MSCI covers 23 emerging
markets in its main emerging-market index. Most are middle

MoneyWeek

28 October 2016

and low-income countries, such as Brazil, China and India. The

UAE, which is actually richer than the UK in terms of real GDP
per head, is also included. MSCI reviews the list annually Israel
and Greece were both upgraded from emerging to developed
status in recent years, but Greece was downgraded again at the
end of 2013, due to the eurozone crisis.
Frontier markets are those in countries that have not yet reached
emerging status. MSCI includes 21 countries in its frontier
index. Notable constituents include Bangladesh and Nigeria, but
also oil-rich Gulf States such as Kuwait and Jordan.

moneyweek.com

Press Association; iStockphotos

I wish I knew what emerging markets were, but Im too embarrassed to ask

XX

city view
city view

Clintons tax war will hurt us all

poorest to compensate. The result?
There will be a big overall tax rise at
least $1.4trn over a decade, according to
the Tax Foundation.

Matthew Lynn

Trumps weirdness means that Clintons

plans have largely escaped scrutiny her
opponent anyway has no interest in
detail. After the dust has settled, and as
she chooses her economic team, investors
will start to focus on her policies and
wont like what they see. In fact, Hillarynomics is eerily similar to the kind of
stuff Ed Miliband was pushing at the
last British election: lots of fiddly taxes,
some increases in spending, and plenty
of measures to bash the bankers and the
rich more generally.
According to the Tax Foundation, a
US-based think tank, Clintons plans
will knock 2.6% off the US growth
rate. They will cost 700,000 jobs over a
decade and knock 7% off the investment
rate. Clinton has proposed a new surtax
on anyone with an income of more
than $5m a year. She has put forward

Rex Features

She doesnt, as far as we know, grope

women she has hardly even been
introduced to. She doesnt go around
gratuitously insulting whole countries or,
indeed, continents. She doesnt engage in
Twitter storms in the middle of the night,
or cosy up to Russian autocrats. Yet just
because Hillary Clinton is clearly a better
candidate than Donald Trump, simply by
virtue of being a relatively normal human
being, it doesnt mean that she is going to
be a great American president.
Behind the smile is a new Ed Miliband
a so-called Buffett Rule that would
ensure anyone with an income in that
bracket would pay at least 30% in tax
every year, drastically reducing the scope
for the better off to juggle around their
income to reduce bills. And she would
push through big rises in estate tax the
US version of our inheritance tax that
would push rates up as high as 65% for
the wealthiest families. That is close to
the levels of the post-war death duties
imposed in this country that led to the
breaking up of old estates and the sale
of many family businesses and would
have a huge impact on the ownership of
private industry.
Yet while Clinton is planning big tax
rises for the better off, she has promised
only a few very modest tax cuts for the

It gets worse. Clinton is big on fiddly

tax changes, of the kind pushed by
left-leaning think tanks, that would
supposedly make capitalism work better.
She wants a graduated capital-gains tax
that will vary according to how long
you have held an investment. Yet that
will sometimes result in punishing tax
rates. Clinton is pushing for business tax
reforms on capital gains and investment,
the overall impact of which is likely to
reduce the amount of money going into
new factories, warehouses and offices.
That is the last thing the economy needs.
Worse, rather than reforming Americas
wildly uncompetitive corporate tax rate,
which has already led to an exodus of
companies, she had suggested an exit
tax an idea the East German Politburo
might have come up with on a bad day.
It is largely a myth that the US is a lowtax country. That might have been true a
generation ago, but it is no longer so.
Tax levels are broadly similar to
those in the rest of the developed
world. A country once famed for its
entrepreneurial spirit has no net new
start-ups, far fewer than in this country.
Outside Silicon Valley, it is one of the
least entrepreneurial countries in the
world. In the next four years Clinton will
accelerate the transition into a high-tax,
high-spending, European-style social
democracy. Increasingly, the US may
start to look like France, but without
such good cheese. The result? A sharp
slowdown in US growth at precisely the
time when the world needs it most.

Whos getting what

Nice work if you can get it

Commons speaker John Bercow has bagged VIP freebies worth 40,000, says The

Up to 50 senior employees at
Transport for London have been paid
an average of 102,000 each to leave
their jobs, says the Evening Standard.
The golden goodbyes come as the
London mayor, Sadiq Khan, tries to
slim down the transport body. City Hall
insists the voluntary redundancies,
representing 17% of senior staff, will
save 40m over the next five years.
Top-tier salaries have also been frozen
(but not bonuses), while 1m a week is
being saved through cutting back on
agency staff. Tory MP Chris Philp was
less impressed, however, branding the
redundancies a catastrophic waste
of public money. This is profligate,
its bad management and Sadiq
Khan should not have allowed these
enormous public service pay-offs.

Sun on Sunday, including tickets to watch the tennis, valued at 29,305. In July, he
and wife Sally watched Andy Murray win Wimbledon at a cost of 7,790 for the day.
Bercow, who earns 150,000 a year, also scored tickets to the football worth 5,940.

David Cameron, who left Number 10 in July following Britains vote to leave

the European Union, has signed an 800,000 deal with William Collins, part of
HarperCollins, to write his memoirs. He has promised to give a frank account of his
time in office, which saw his government win the Scottish referendum, fail to secure
backing for airstrikes on Syria and lose the referendum on EU membership.

Ben Emmerson, the leading lawyer who quit the troubled national child abuse

inquiry last month, is still receiving 1,700 a day from the taxpayer, says The Mail on
Sunday. He is working on his handover to his successor, who has yet to be chosen.
If paid for every weekday from resigning, Emmerson would stand to receive 74,800.

Arsenal defended the 2.65m salary and 1m bonus it has paid its chief executive

Ivan Gazidis at its AGM on Monday. Supporters questioned the generous pay-out, in
light of the fact that the north London football club failed to win a trophy last season
or make any major signings.

moneyweek.com

28 October 2016

MONEYWEEK

shares
City Diary

l Troubled times at
Cobham, the defence
contractor best known for
pioneering military airto-air refuelling systems.
This week it suffered the
indignity of issuing a
second profit warning for
the year, sending shares
into a nosedive. Two senior
members of staff have been
dismissed after mistakes
that cost the company
9m. Chief executive Bob
Murphy says he is hangin
in there, reports the FTs
Lombard column, but not
for long. Both he and
Simon Nicholls, the finance
director will be replaced
by January, after being
given their marching orders
earlier in the year.
Nicholls planned move
to Wolseley was also
cancelled in May after
investors in the plumbing
supplies firm protested,
says The Daily Telegraph,
reportedly because of the
issues at Cobham. Murphy
will be replaced by David
Lockwood, now head of
electronics firm Laird, who
may kitchen sink large
parts of the business as he
tries to make a fresh start.
l Bankers at Goldman
Sachs are not known for
their nervousness. Theyre
supposed to be the alpha
males of the financial world,
swaggering about the place
flaunting their conspicuous
wealth. However, Lloyd
Blankfein, Goldmans chief
executive, has admitted in
an interview with CNN that
tighter regulation has left
him scared to death.
He lives in fear that a rogue
employee will tarnish the
name of both the bank and
himself, engulfing it in a
scandal. His fear has left
him on edge all the time.
l John Lewis has
appointed its first female
boss in its 152-year history,
as Paula Nickolds moves
from commercial director to
managing director. Nickolds
has been with the firm
for 22 years, starting as a
graduate trainee in 1994,
and joining the board as
buying and brand director
in 2013. The current MD,
Andy Street, is leaving to
pursue a political career as
a candidate for mayor of the
West Midlands.

MoneyWeek

28 October 2016

A new home for Harry

US telecoms giant AT&T wants to buy entertainment conglomerate
Time Warner. Investors and regulators may balk, says Ben Judge
For media companies, bigger is usually seen
to be better, says Amie Tsang in The New
York Times. That certainly seems to be the
thinking behind US telecoms giant AT&Ts
$85bn bid to buy media conglomerate Time
Warner a deal that could reshape the
entire media landscape in the United States.
It would give AT&T, which in 2015 acquired
satellite broadcaster DirecTV, control of HBO
and CNN, plus Warner Brothers, the home of
the Harry Potter films. Its a curious union,
coming as it does after the colossal failure
of Time Warners previous merger with AOL,
which chief executive Jeffrey Bewkes has
spent the last decade dismantling, says
The New York Timess Andrew Ross Sorkin.
But AT&T believes it can make it work.
Until now, AT&T has merely functioned
as a conduit for the type of content Time
Warner puts out, says Tara Lachapelle on
Bloomberg. If it wants to retain pricing power
and some semblance of growth, it needs skin
in the game. AT&T hopes that buying Time
Warner will help it succeed in the future
world of media consumption, says Miriam
Gottfried in The Wall Street Journal. The
deal is AT&Ts second major bet in as many
years on beefing up its exposure to the pay-TV
ecosystem. But there is no guarantee that the
future world of pay TV will be as lucrative as
it has been in the past, says Gottfried, which
could erode the value of AT&Ts purchases.
And unless the future is very different from
AT&Ts present, it will be hard for the
company to justify the price of the deal.
It would also make AT&T among the most
heavily indebted companies on earth , says
Ryan Knutson in The New York Times.

Warner Bros

10

Merger will need magic to bring to a happy ending

It already has $119bn in net debts; to finance
the deal, it plans to add another $40bn.
There are external hurdles to overcome,
too, as Matthew Garrahan notes in the
Financial Times. AT&T faces an uphill
battle to convince US regulators that the
deal will not unfairly distort the media and
communications industries. And its not just
regulators. The deal looks set to be one of the
first and biggest tests of the next presidents
antitrust policy and neither candidate looks
well disposed towards it. Donald Trump,
famously hostile towards the media, called
it an example of the power structure Im
fighting, denouncing it as a deal we would
not approve because it would mean too
much concentration of power in the hands of
too few. A spokesman for Hillary Clinton,
quoted on CBS News, said that the deal raises
a number of questions and concerns.
To justify its purchase to investors, says
Gottfried, AT&T needs a Hollywood
ending. That may be a long way off the
firms shares fell by over 6% early this week.

Deal lights up tobacco stocks

British American Tobacco
is hoping to muscle its way
further into the US market
by buying the 58% of
Reynolds American that it
doesnt already own.
BAT has offered cash and
stock valued at $56.50 a
share, a 20% premium to
Reynolds share price.
The deal, which would
create the worlds largest
publicly listed tobacco
company, is the latest
blockbuster consolidation
attempt in big tobacco, say
Arash Massoudi and James

Fontanella-Khan in the
Financial Times. Last year
Imperial Tobacco acquired
$7bn worth of US brands
from Reynolds and Lorillard.
This boosted its profits by
15%, offsetting falling sales
elsewhere.

a dominant e-cigarette
market and waning fears of
litigation costs, says the FT.
Hence shareholders seem to
approve. BATs shares rose
to an all-time high on Friday,
though they have since
slipped back.

Perhaps surprisingly,
the US is once more an
attractive market for tobacco
companies, despite fewer
people smoking profits
there rose by 10% last year.
The country is expected
to be a key driver of sales
growth, with low pack prices,

One person who almost

certainly will be happy is
Susan Cameron, Reynolds
long-serving chief executive.
According to Ben Martin in
The Daily Telegraph, she is
in line for a share windfall
of at least 12m from her
269,001 shares in the firm.

moneyweek.com

shares
MoneyWeeks comprehensive guide to this weeks share tips
Three to buy
Revolution Bars

The Mail on Sunday

The bar group, which serves exotically named cocktails and trendy
food, has been growing solidly, with profits up 11% in the year to
June. Its management is ambitious, planning to raise the number of outlets
from 63 to 140 in the next few years. The City has been taking an unduly
gloomy view of the shares since flotation. Snap up a bargain. 175.5p
ITV

The Daily Telegraph

Shares in ITV have been among the ten worst performers in the FTSE 100 this year.
The broadcaster has been hit by Brexit-related fears and it doesnt benefit from the fall
in sterling, but those risks are now priced in and the shares are cheap compared with
ITVs peers on a forward price-to-earnings ratio of ten. ITV has a strong balance sheet
and any positive news could now see the shares rise. 173p
Ted Baker

Shares
Half-year results at the fashion brand surprised the market with a 20.5% rise in
interim pre-tax profits. The brands power is illustrated by gross margins that are well
over 60% in spite of the fact that it does not advertise. It is rolling out new stores in
multiple territories and the e-commerce business is growing rapidly. At more than 20
times forecast earnings the shares are not cheap, but the high rating is merited. 2,539p

Three to sell
International Airlines Group

The Sunday Times

The holding company for
British Airways and Iberia
has been experiencing
turbulence since the Brexit
vote and a profit warning
saw the shares slip by a
third this summer. The
weak pound has made
foreign holidays more
expensive for British
tourists, while rising fuel
prices spell trouble for
everyone. Add in worries
about the scale of IAGs
pension deficit and its
time to sell. 408.75p

Travis Perkins

The Times
Britains plumbing and
heating market has been
cooling for a while,
driven by the ending of
government incentives and
pressure on social housing
budgets. The only surprise
is that Travis Perkins
share price didnt fall
sooner. The shares now
sell on 11 times earnings,
but with like-for-like sales
falling and the potential
for more bad news to
come investors should
steer clear. 1,422p

International Personal Finance

Investors Chronicle
IPF is based in Britain
but trades internationally,
serving borrowers
who cannot get credit
from banks. Its shares
picked up on news of
better performance in
its Mexican and PolishLithuanian businesses,
but it continues to face
regulatory hurdles in
eastern Europe and
competition from payday
lenders. For now, the risks
outweigh any potential
upside. 301p

And the rest

11

IPO watch
Medical-supplies company ConvaTec
has raised almost 1.5bn in its initial
public offering (IPO) this week. The
Reading-based company set a price of
225p a share, giving a value of 4.4bn.
Around a third of the companys
shares were on offer; the rest will be
retained by Nordic Capital and Avista
Capital Patners, with 45.1% and 19.5%
respectively. Conditional trading
commenced on Wednesday this week,
and the company will be admitted to
the main market of the London Stock
Exchange on Monday. The float comes
at time when new listings in London
have almost dried up: IPO activity
this year is at its lowest in four years,
according to fund manager Henderson.
The value of new listings in the third
quarter is down by 42% at 948m,
compared with the previous year.

A Brazilian view
Brazils state-controlled oil company
Petrobras has reached an agreement
with four US institutional investors to
settle compensation claims related
to its part in the countrys ongoing
corruption scandal (see page 4). The
cost of the settlement was less than
expected by markets, say analysts at
investment bank Ita BBA. There are
23 other similar claims still pending
against Petrobras in the US courts, but
these involved the larger shareholders,
so the likely consequences have
now been priced in by investors.
Meanwhile, a turnaround strategy is
under way: in September, the new
chief executive announced plans to
reduce leverage by more than half.
The shares are likely to outperform the
market, says Ita BBA, having already
returned almost 140% this year.

Vital numbers

Buys

Price at
25 Oct

% change
since 18 Oct

FTSE 100

7,018

0.25%

Shares in the former Smiths News now yield almost 7% (Times) 140.5p

S&P 500

2,145

0.25%

The electric car market could get this automotive engineer moving (Shares) 329p

Nasdaq

5,287

0.83%

Laird

If this electronics firm can avoid a rights issue, its a buy (Times) 158.5p

Dax

10,757

1.18%

Low & Bonar

This manufacturer is doing well in the US and upping capacity in China (IC) 65.25p

Topix

1,377

1.53%

Luceco

Demand for USB-enabled electrical wall sockets will boost sales (Shares) 150p
The Israeli advertiser should reap the rewards of mobile advertisements (IC) 129p

Hang Seng

Matomy Media Group

23,565

0.73%

Quixant

The gaming platform designer is closing in on major new contracts (Shares) 285p

$ per

1.22

-0.99%

SSP

SSP sells food to captive markets at train stations (Telegraph) 340p

per

1.12

-0.18%

Telecom Plus

Rising energy prices will encourage customers to switch suppliers (Shares) 1,234p

per

126.93

-0.57%

Gold ($ per oz)

Utilitywise

There are positive boardroom changes at the energy consultancy (Shares) 130p

1,273

0.82%

WS Atkins

Atkins diverse businesses have helped it avoid post-Brexit woes (IC) 1,553p

Oil ($ per barrel)

51

-1.66%

Animalcare

Growth is strong at this animal drugs firm (Investors Chronicle) 285p

BAE

The defence giants prospects are improving and the yield is high (Shares) 540p

Connect Group
GKN

moneyweek.com

28 October 2016

MONEYWEEK


12

briefing XX
briefing

Britains pensions crisis

The headlines are full of alarming stories about deficits. Should you be worried about
your pension? Simon Wilson reports
Is the pensions crisis a myth?

of September 2016 its PPF7800 index

data show total assets of 1,449.5bn
and total liabilities of 1,869.3bn
making an overall deficit of 419.7bn
and a funding ratio (how much of
the liability is covered by the assets) of
77.5%. So on official figures, the UKs
5,945 remaining DB schemes are in
deficit by about 420bn. But a recently
launched rival index thinks thats
nonsense.

No. Lots of Britons can expect lower

pensions and a less comfortable
retirement as a result of economic and
demographic trends. The fact that the
stockmarket is still about where it was
at the turn of the century, together with
the long-term fall in bond yields that
started in the early 1980s, mean that
the assumptions behind many pension
funds strategies have been thrown into
chaos and thats before you factor in
the rise in life expectancy and falling
birth rate. If someone invested 100,000
in a balanced portfolio of stocks and
bonds, they could expect a total return
of 21,800 after costs over the next two
decades, according to Andrew Lapthorne
of Societe Generale. Ten years ago, that
same investor could have expected to
make about 60,000, and three decades
ago 150,000. Thats a gigantic shift.

On what grounds?

market conditions that could reverse.

When the consensus is so strong that
the situation cant change, he says,
thats often a sign that its about to.

On the grounds that the PPFs

calculation of liabilities is far too high,
because its assumptions about future
investment returns are far too cautiously
pessimistic. First Actuarial, a pensions
consultancy, launched its own index
this month (the First Actuarial Best
estimate index, or FAB), which it says is
intended to combat scaremongering
in the industry, and which is based
on assumptions that reflect the actual
investments within schemes, rather than
on a basis that assumes gilt investments
match liabilities. On these FAB figures,
the same 5,945 schemes liabilities are
much lower, at 1,092bn, meaning that
their assets are in surplus to the tune of
358bn and the overall funding ratio is a
healthy 133%.

How might it change?

So we can all relax?

Lower yields make it more expensive

to buy a guaranteed stream of income
from bonds. Thus companies who have
promised their employees a definedbenefit (DB) pension such as a
proportion of final salary, index-linked
to inflation for life face a shortfall that
must be filled without threatening the
ongoing business. Such schemes pay out
81bn a year to about 4.3 million people,
but another 27 million are due to receive
DB pensions in the future. Equally, savers
in modern defined-contribution (DC)
plans, where there are no guarantees
about what the pension will ultimately
pay out, are at risk of not saving enough
to avoid poverty in old age. Indeed,
they may see their own investments
grow more slowly as the direct result of
listed companies needing to meet their
increased DB obligations.

Whys that?

If interest rates and yields

remain at their historic lows,
there will be more pressure for
firms to tackle their deficits
and thus more pressure on
the cash available for either
reinvestment in the business or
for distribution to shareholders
in the form of dividends. Fund
managers including George
Luckraft of Axa Framlington
have cited pension liabilities
as factors in their reasoning
behind investment decisions.
However, as Luckraft noted,
the present situation in terms
of deficits is down to current

MoneyWeek

28 October 2016

pic credit

Whats the core issue?

We need more infrastructure in our pensions

Yields might recover to such an extent

that todays deficit forecasts will look
bizarrely pessimistic. Pensions deficits
are, after all, estimates of notional future
liabilities based on current assumptions.
They are not statements of exact, known,
sums. Moreover, some analysts think
even todays situation isnt as bad as
its painted. Since 2007, the Pension
Protection Fund has been publishing
monthly figures showing its estimates
of the total assets and liabilities of the
6,000 or so UK DB schemes. At the end

Probably not. However, several

influential voices from Old Mutuals
Richard Buxton to the pensions
regulators Andrew Warwick-Thompson
have warned that we need to be wary
of panicking too much, lest overblown
projections of doom end up having real
economy impacts that damage businesses
and limit investment opportunities. At
the same time, calls are growing for
action to head off the threat of a future
funding crisis. That may well involve
easing the requirements governing
the types of assets pension
funds are required to hold
to offset future liabilities,
encouraging a higher-growth
DC pensions are the future, and they need to be rethought
approach (albeit with the
totally, says John Authers in the FT. First, they must
higher investment risks this
become more flexible and friendly to illiquid assets. There
entails), and encouraging
is no reason why young investors long-term savings
greater consolidation bringing
should not go into funding infrastructure, or clean energy
advantages of scale. A further
and so on. Second, the whole decumulation phase
option, says Ed Monk in
must be reworked. Rather than buying low-yield bonds,
The Daily Telegraph, would
the withdrawal phase will need to be about selling assets
be to encourage pension funds
gradually, with lots of guidance based on life expectancies
and maximum annual withdrawals. As such, the UKs
to invest in infrastructure
reform allowing savers to take bigger lump sums on
projects, with the long-term
retirement introduced in April last year is a confident
returns from roads, tunnels
and irresponsible step in exactly the wrong direction.
and commercial properties
taking the place of bonds.

How to fix DC pensions

moneyweek.com

best of the financial columnists

The new Big

Bang shaking
the City
Iain Martin
The Times

Brexit could
be a win-win
for both sides
Editorial
The Wall Street Journal

The West
bends its knee
to Putin
Jens Mnchrath
Handelsblatt

China will
produce the
next Disney
Tom Nunan
Nikkei Asian Review

MoneyWeek

Given the cost of bailouts, few taxpayers lose sleep when big banks
threaten to relocate, as theyre doing in the wake of the vote for Brexit.
But the fact remains, says Iain Martin, that the City is a genuine
global success story and provides a great deal of employment and
tax. Much of that success rests on a revolution known as Big Bang
liberalising reforms brought in by the Thatcher government. The City
is now on the cusp of another huge transformation just as dramatic
as Big Bang and bigger than Brexit. A digital revolution is already
under way, involving the arrival of cheaper and more efficient ways
of moving money around based on Bitcoin digital currency and the
blockchain technology that underpins it. The City, with its advantages
of time zone, law, language, experience and a new generation of
technological innovators, is ideally positioned to profit from these
changes. Whatever deal is struck with the EU, the City must remain
open, as it always has been when it prospers.
Prime Minister Theresa May is reportedly thinking of threatening
to cut Britains corporate tax rate from 20% to 10%, but only as
a negotiating gambit to get the EU to allow British-based banks
access to the single market. She should just cut it, says The Wall Street
Journal. The EUs conceit is that it holds all the aces because the
financial industry is so vital to the British economy. This ignores
the fact that the reason London became Europes financial centre in
the first place is because French statism and Germanys bankruptcy
code arent attractive to global capital. The more Britain is seen to
be implementing policies that will help it succeed outside of the EU,
the more negotiating leverage it will have. The mistake of smallminded politicians is to see Brexit as a zero-sum game with a winner
and a loser. European leaders should give the UK the generous terms
necessary to keep Britain as a contributor to Europe; May should be
pushing policies that make Britain a growth example for the world.
At the reception for Vladimir Putin in Berlin last week, it was hard to
avoid the impression that Angela Merkel and Franois Hollande were
behaving as supplicants toward the new arbiter of war and peace in
the Middle East, says Jens Mnchrath. Putin will doubtless use the
meeting to increase his prestige, while giving little in return. He knows
perfectly well that the West wont be tightening economic sanctions
or imposing a no-fly zone anytime soon. Indeed, the West is proving
utterly helpless in the face of autocrats and populists like Putin
because it has lost confidence. In the US, there is a serious risk that
Donald Trump, an open admirer of Putin, will be elected as president.
Across Europe, from France and the Netherlands to Austria, Hungary
and Poland, authoritarian leaders with dreams of partition are on the
march. They seek neither dialogue nor compromise, but insist on the
rights of the stronger. It is only when the West has rediscovered its
self-confidence that it will be capable of imposing limits.
The red carpet was laid out for billionaire Wang Jianlin of Dalian
Wanda in Hollywood last week, says Tom Nunan. Why? He is a big
spender. He owns AMC Entertainment, Legendary Entertainment and
Dick Clark Productions, and appears to have his eye on Paramount
Pictures. He is also offering a record 40% rebate on films co-produced
with the government of Qingdao, home to his new state-of-the art
studio complex. Hollywood has a long tradition of picking the
pockets of investors and coming out on top, but maybe this time
Hollywood is in survival mode. The entertainment business is beset
by long-term fears: that the studios film business has become a zerosum game, that new technologies such as virtual reality wont boost
profits. Could American entertainment be heading the way of the car,
with names like Disney, Warner Bros and Paramount ceding ground to
the equivalents of Honda, Toyota and Hyundai?

28 October 2016

Money talk

Alamy

14

best of the financial columnists XX

I came over here in 1973

with $500 and Ive never
looked at my account
since. The first thing I did
when I formed a band was
get a manager because I
knew Id never deal with
any of that stuff.
Rock star Chrissie Hynde
(pictured), in The Times
I dont take anything
for granted any more.
We were very spoilt
then. Today we have
to work much harder,
for less money.
TV presenter Trinny
Woodall, who is attempting
a comeback, quoted in
The Times
Our fans from Latin
America who watch
novelas, they think we are
millionaires and that we
drive Ferraris and live in
Beverly Hills.
Actor Pablo Azar, who stars
in telenovelas Spanishlanguage soap operas
tells The New York Times
that he works as an Uber
driver to make ends meet
If you went to public
school, youre certainly not
working class. Whether or
not that makes you more
fortunate than somebody
who is working class is
entirely another matter.
Actor Edward Fox, quoted
in The Daily Telegraph
Oh, I thought you were
building a canal. If its
jobs you want, then you
should give these workers
spoons, not shovels.
Economist Milton Friedman
after seeing the work on
a new canal in Asia and
being told that there were
relatively few machines
involved because the
project was partly a jobcreation scheme, quoted in
The Daily Telegraph

moneyweek.com

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politics & economics

16

XX

politics & economics

Wallonia kills EU trade deal

Betting on politics
by Matthew Partridge

by Matthew Partridge

Theresa Mays decision to

give Heathrow the goahead has prompted a
lot of criticism, leading
even Cabinet ministers
Justine Greening and
Boris Johnson to complain.
It may also end up with her
slim parliamentary majority
being reduced, since Zac
Goldsmith has said that he
will carry out his threat to
resign as MP for Richmond
Park and stand as an
independent candidate in
the by-election.

The strength of the opposition to Ceta, and

related trade pacts, should come as no
surprise, says Matt Gurney in Canadas
National Post. He sees Wallonia as an
example of those who fear being left behind.
In particular, farmers are increasingly
concerned that their livelihoods could be
threatened if cheaper Canadian goods
(particularly agricultural) were to squeeze
its exports out of European markets. While
defenders of free trade have emphasised the
need to protect those who are vulnerable to
the shifts in fortune it entails, they have
failed to act on their words.
Hold on, says Wolfgang Mnchau in the
Financal Times. The real problem with Ceta
is not free trade, but that the deal establishes
a parallel legal universe for multinational
investors. Given Canadas small size, the
benefits of the trade deal are too trivial to
justify the massive risk of allowing radical
changes to Europes legal system. Ceta should
have been negotiated as a much less ambitious

Rex Features

Until last week few outside Belgium

knew of the existence of Wallonia, let
alone that [it] had the power to block
trade deals backed by the rest of the EU,
says Simon Nixon in The Wall Street
Journal. Now, its objections may have
killed the EU Comprehensive Economic
and Trade Agreement with Canada [Ceta].
Whats more, its now clear that even if
Wallonia can be persuaded to change its
mind, Cetas future isnt assured. Due
to a compromise in the summer, the deal
needs to be ratified by each of the EUs
37 national parliaments and assemblies.
Opposition is particularly strong in
several countries including Germany,
Austria and France.

The farmers who sowed dissent and reaped a victory

trade agreement that could easily have been
passed by the EUs institutions.
Cetas apparent collapse has put the EUs
trade credibility at risk, says Fredrik Erixon
in The Spectator. Still, remember that it was
German pressure that prompted Brussels to
put aside the EUs procedure for ratifying
trade deals and subject the Canada deal to
the torments of Wallonian politics. This is
not the only time Berlin has been to blame
for Europes recent missteps. The euro crisis
would have been much different if Germany
had not outsourced its own banking problems
to Ireland, Portugal and Spain. Similarly,
Germany never asked other countries their
opinion before Merkel demanded they share
Germanys refugee burden. If it continues to
behave selfishly, there will be many other
casualties than Ceta.

A decision at last on Heathrow or is it?

The decision to build a third runway at Heathrow is a display of raw power as deployed by
corporate Britain, says Simon Jenkins in the Evening Standard. The project will require an
estimated 18bn of associated infrastructure, money that will not be available for other, far
needier, parts of Londons transport network. At the same time, the decision to send vast,
noisy jets screaming over the heads of millions of people goes against the experience of other
cities that position their new airports well away from harm and hearing. By approving this
decision, Theresa May has shown herself a patsy to big-time lobbying.
Hardly, says Rafael Behr in The Guardian. Its a weak plot that takes three generations
to succeed and works its subterfuge by feeding submissions to endless rounds of
public consultation. Indeed, British politicians might be forgiven for wishing that,
where infrastructure is concerned, the dial could be turned a notch away from electoral
accountability. The PM has promised action, but the reality is more consultation, more
process. If the runway ends up being built, it will be the most democratically scrutinised strip
of tarmac in the world and a monument to the difficulty of balancing competing interests in
an open society, for which no cheers will be raised.
Perhaps a decision of sorts is better than none at all, says The Times. Yet adding one runway
at Heathrow will cost many times more than Berlins new airport, even if the budget stays under
control. This is a bad decision, for a runway to nowhere. Better to build at Gatwick and fast.

MoneyWeek

28 October 2016

On paper this should be

an easy victory. After all,
Goldsmith won this seat
in 2010 from the Lib Dems
and then increased his
majority to over 20,000
last year. However, the
Lib Dems think that they
have a good chance of
regaining the seat. In their
view, Goldsmiths lacklustre
campaign for London
mayor shows that his
popular appeal is limited.
His support for Brexit in a
heavily pro-Remain area
of London also makes
him vulnerable. With their
confidence swelled by a
strong second place in the
Witney by-election last
week, they have already
promised to mobilise
thousands of supporters to
knock on doors.
I dont live in this area of
London, but the fact that
Goldsmith got nearly
60% of the vote last time
suggests that the Lib Dems
are going to have to do a
lot of work to displace him.
Id therefore be inclined to
bet on Goldsmith winning
with Betfair at 1.91 (52%),
and put a side bet with
Ladbrokes on the Lib Dems
winning by less than 2,500
votes at 7/2 (22%). This
pair of bets works out at
a combined probability of
just under 75%.

moneyweek.com

politics & economics

XX

politics & economics

17

One hundred days of May

says Lee Rotherham, also in City
AM. Ministers and journalists are
tying themselves in knots over
single market membership, but trade
deals come in many forms. I have
counted 42 types of EU trade deals
struck with third parties over the
years. The UK version will probably
be a 43rd. Brexit is no more a
binary issue than international
trade is so talk of hard and soft
Brexit is a fallacy.

by Emily Hohler
Last week, 21 October marked
Theresa Mays first 100 days as prime
minister. Her first couple of months
have certainly been may-full, says
Sebastian Payne in the FT. We may
build a nuclear plant at Hinkley Point.
We may build a third runway at
Heathrow. We may trigger Article
50 without a parliamentary debate.
Then again, we may not. True, she
has announced the timing of Brexit
and all but confirmed that Britain is
leaving the single market, but there is
no detail of what Brexit will look like,
just hints and soothing words that
everything is under control.
Rex Features

If its any consolation, her cabinet

colleagues are as much in the dark
about her plan for Brexit as her
European counterparts, says Fraser
Nelson in The Daily Telegraph.
But we do know the outlines of her
government she has said it will be
dedicated to the just managing classes
and we know what she doesnt like.
She has happily torn up the decades-old
consensus banning grammar schools
and ended the Blair-era convention
that prime ministers do not question
Bank of England policy. She has no
qualms about picking a fight, and is
equally unafraid to stamp her personal
authority on the Cabinet. While it is
frustrating, particularly to business
people, that the government is refusing

May: upbeat; Juncker: pfff

to give a running commentary on
Brexit, its direction of travel could
not have been made clearer from the
announcement of the Great Repeal Bill
to the announcement that Article 50 will
be triggered by the end of March 2017,
says Alex Deane in City AM. Moreover,
Number 10s advisers are in full-on
charm mode towards the City and
investors. Ive never known government
to be so open to business.
We should also remember that, as May
has said, Brexit is not a binary choice,

May has a difficult job, not least

keeping both sides of the Tory
party happy, says The Sunday
Times. But the key is whether
she presents an open, generous
and economically confident face
to the world. Even traditionally
sympathetic German newspapers
now talk of Cold Britannia.
She was doing her best at the EU
summit last week, declaring that a
post-Brexit Britain would be confident,
outward-looking and enthusiastic
about cooperating with our European
allies. But her audience seemed
decidedly less upbeat, says the Daily
Express. Given just minutes to update
the summit at 1am, she told the group
that Britain expects to be involved in
EU decision-making until Brexit.
She was greeted with silence. Later,
when asked how the discussion had gone,
the president of the European
Commission, Jean-Claude Juncker,
shrugged and said, Pfff.

Will banks flee Britain?

Britains biggest banks are preparing to relocate to mainland
Europe in early 2017 amid growing fears about the impending
Brexit negotiations, while small firms are planning to move out
before Christmas, warns Anthony Browne, chief executive of
the British Bankers Association (BBA), writing in The Observer.
The cross-Channel trade in financial services, which is worth
more than 30bn and employs more than a million people
in the UK, is underpinned by the EU passporting system,
which allows banks to operate freely across the continent.
Bellicose rhetoric from some European leaders raises doubts
as to whether Britain would be allowed to keep this system if
we reject freedom of movement of people. Although banker
colleagues in other EU countries agree that disrupting the
free trade in financial services would be self-inflicted damage,
unfortunately, politics trumps economics.
The issue of passporting is a matter of disagreement between
Cabinet members, says James Quinn in The Daily Telegraph.
Chancellor Philip Hammond is fighting for passporting to
continue, while the likes of David Davis, the secretary of state
for exiting the EU, seems less concerned. After an Oliver
Wyman study was published suggesting that up to 70,000
jobs could be lost if the UK left the EU without a new deal for
the City in place, Davis was reportedly comfortable with
the figures. However, City minster Simon Kirby told the BBAs
international banking conference last week that maintaining

moneyweek.com

the Citys pre-eminence as a financial centre was an absolute

priority. And so it should be, says Matthew Norman in The
Independent on Sunday. Given that the sector provides almost
a tenth of GDP, any shrinkage would affect spending on such
fripperies as the NHS, education and benefits. It is possible
that Brownes warning is at least in part a crude piece of
posturing designed to scare the government into softening
the scope of its Brexit ambitions, but the idea of retaining free
movement in one sector while abandoning it in all others has
no intellectual coherence. Why would France and Germany,
both envious of the Citys dominance, agree to that?
Leaving aside the fact that, as William Wilkes points out in The
Wall Street Journal, Frankfurts strict building regulations and
shortage of space may make relocation harder than imagined,
the City is not in mortal danger, says Christian May in City
AM. The exodus Browne claims to see is more a case of banks
beefing up their operations on the continent than shutting their
London HQs. As one European diplomat observed recently,
moving financial services is like moving nuclear waste:
expensive and very risky. Furthermore, as Browne points out,
a castrated City wont be much help to the EU. British-based
banks are keeping the continent afloat by lending its companies
and governments 1.1trn. The City will, as Iain Martin concludes
in his new book on the history of the City, survive, and
prosper. Why? Because it usually does.

28 October 2016

MoneyWeek

18

funds

Hunker down in this trust as inflation hits

one huge bet over the last few years
investing in inflation-linked bonds.
These are currently the crown jewels
in the Ruffer portfolio, comprising 44%
of all assets.

Until fairly recently, Id have said

there was fat chance of us seeing the
kind of 3% to 5% inflation that would
justify wanting inflation insurance.
For most of the last few years investors
and economists have been worried
about the exact opposite deflation.
Yet more recently signs have been
pointing in the opposite direction,
with forecasting group EY Item Club
warning that inflation will climb by
2.6% in 2017.
Even more than most countries, we in
Britain should worry about inflation
for an obvious reason sterlings rapid
devaluation and its impact on the price
of imports. This is why its best to
have insurance against the virulent
re-emergence of inflation. And thats
where the Ruffer Investment Company
(LSE: RICA) comes in.
This closed-end investment trust has long
viewed inflation as a long-term threat,
and believed that theres good money
to be made from banking on it. As
French bank Societe Generale says, at a
time when equities and bonds have never
been so expensive having an asset
uncorrelated from others could provide
some cushion to the performance of a
multi-asset portfolio in the event of a
market correction. So RICA has made

The funds managers, Steve Russell

and Hamish Baillie, have a capitalpreservation mind-set, which often
means going against the grain in a
contrarian fashion. For a long time the
fund bet heavily on Japanese equities at
times painfully as that market failed to
move. Now its banked profits, reducing
Japanese exposure to under 20%.
The big index-linked bet is a similar
contrarian investment the managers
evidently have concerns about excessive
debt and the likelihood of the return
of inflation. Their focus on capital
preservation is also reflected in a 7%
weighting in gold and gold-mining
equities, 6% weighting in illiquid
strategies and 3% in cash. Theyre a
cautious bunch when it comes to the
current excitability of equity markets:
only 37% of the portfolio is in equities,
down from 40% at the end of 2015.
Its strong stuff. Taking strong, almost
contrarian, views can be a disadvantage
in the wrong kind of markets ie,
very bullish equity markets. The fund
struggled in the first half of the financial
year, with its net asset value (NAV)
down 4.6%, as investments held for
protection failed to offset the declines in
equity markets. The good news is that
performance has been much stronger in
the second half of the year, with NAV
up 3.8%, helped by index-linked bonds
(+5.9%) and gold (+3.1%) offsetting
losses in equities (-4.3%). Ruffer has a

iStockphotos

David C Stevenson

Inflation nibbles away at your wealth

strong track record of insulating against
market falls, but typically lags in rising
markets, note analysts at broker Numis.
In particular it performed well during
the global financial crisis with NAV up
26% in 2008 compared with a 30% fall
in the FTSE All Share.
This isnt a fund for those looking for
unconstrained equity-market bullishness,
or for income-orientated investors.
However, if you are a cautious older
investor who is more worried about
wealth preservation, higher inflation
and market volatility, then this widely
respected fund might make sense. It is
trading at a sensible premium to NAV
of around 1%, which is very acceptable
for this fund. Its one to add to my list of
long-term favourites.

Activist watch

News round-up

Hong Kong-based activist investor

David Webb has accumulated a 10%
stake in hospitality-supplies firm
Ming Fai and is urging it to return
HK$263m in proceeds from a recent
property sale to investors as a special
dividend. In a letter to Ming Fais
directors, Webb, a former independent
non-executive director of the Hong
Kong Stock Exchange, criticises the
company for holding excess cash, and
says that if the board does not declare
a special dividend, he will nominate
new directors who will do so. Webb is
a well-known shareholder activist in
Hong Kong, where many smaller firms
hoard cash and invest in properties
that are not related to their core
business. Shares in Ming Fai rose by
10.5% after the announcement.

Daniel Godfrey, the former head of the Investment Association (IA), the fund
managers trade body, has launched a crowd-funding appeal to raise 100,000 for
set-up costs for a new investment trust, to be called The Peoples Trust. Contributors
will be given the chance to buy shares in the trust at a discounted price when it lists
on the London Stock Exchange in early 2017. The Peoples Trust will aim to achieve
7% returns each year (over a seven-year timeframe), and will allow investors to start
by putting in as little as 10 per week. Godfrey, who was ousted from the IA after
pushing for increased fee transparency in the industry, said the trusts annual costs
will be between 1% and 1.5% per year initially, it will not pay staff bonuses, and that
the investment managers salaries will be partly paid in shares in the trust, which
must be held for at least seven years.

MONEYWEEK

28 October 2016

BlackRocks Emerging Europe fund is the UKs dirtiest fund, according to a

ranking of funds by their exposure to polluting industries compiled by As You Sow, a
campaign for corporate environmental and social responsibility. The $129m fund has
a carbon footprint of more than 3,600 tonnes of carbon dioxide per $1m invested,
176 times larger than Royal Londons Sustainable World Trust, the UKs cleanest
fund. We have a fiduciary obligation to invest in the markets our clients choose
relative to its benchmark, the BlackRock Emerging Europe fund is underweight in oil,
gas, and refining, and overweight lower carbon industries, said BlackRock.

moneyweek.com

personal nance
20

XX

personal nance

Where to stash your cash

by Ruth Jackson
After banks embarked on yet another
round of interest-rate cuts in the last few
weeks, savers will be in despair.
The average savings
account is now paying
less than 1% interest,
while inflation sits at
1% so the typical
savings pot is now
shrinking in real terms.
Many people have
been using high-interest
current accounts to earn
a better return on their
savings, with rates of up
to 5% available. However,
current accounts have low
caps on how much money
they will pay interest on
(typically 2,000-5,000)
and rates on these are now
coming down as well. So
if you have a large amount
of savings, where should
you put it?

Savings Banks 95-Day Notice account.

You have to give more than three
months notice before you can make a
withdrawal, but in return you get 1.31%.
However, if you need instant access, then
Id suggest opting for Santanders 123
Current Account it pays 1.5% on
balances up to 20,000. There
is a monthly fee of 5,
but even factoring
that in, someone
depositing
20,000
would be
earning 1.2%
interest.

The
introduction
of the personal
savings
allowance
means most
people can earn
interest tax-free
(basic-rate
taxpayers can
earn 1,000
per year and
With traditional savings
higher-rate
accounts the best rates
are reserved for people
Get more for your savings: put them in the taxpayers get a
500 per year
prepared to lock their
deep freeze for a while
allowance,
money away for several
with additional-rate taxpayers getting
years. Secure Trust Bank is top of the
no allowance). This has made cash
tables with a five-year fixed-rate deal
individual savings accounts (Isas) less
paying 2.01%. For a two-year fixed rate,
attractive, but they can still play a role
you can get 1.65% from Atom Bank, but
if you expect to earn a lot of interest
you will have to manage your account
each year, or if you will be an additionalvia an app. If youd rather use a more
rate taxpayer. Metro Bank offers a fivetraditional account, OakNorth Bank
year, fixed-rate cash Isa paying 1.5%, or
pays 1.55% on a 30-month account.
for a shorter fix you can get a 1.15% one
from Aldermore and Kent Reliance over
Anyone who needs faster access to their
two years.
cash might want to look at Charter

Should you take a chance

with P2P lending?
As traditional savings rates fall, many
savers are tempted to take on a little
extra risk with peer-to-peer (P2P)
lending. With P2P, your savings are
lent out to businesses and individuals.
You then get your money repaid at the
end of the loan, plus interest. Because
you are getting the interest rate
people are prepared to pay in order
to borrow, you get a much higher rate
than is offered on savings accounts.
For example, Zopa is currently offering
annualised returns of up to 6.5%,
RateSetter offers up to 5.5% over five
years, and Funding Circle up to 7.1%.
However, you are also taking on more
risk. First, theres the risk that the
borrowers dont pay you back. You
can mitigate this by choosing a P2P
lender such as Zopa or RateSetter who
have provision funds in place to cover
bad debts (although these funds are
limited if they were exhausted by
high levels of bad debts, users could
still lose money). Second, P2P is not
covered by the Financial Services
Compensation Scheme. This means if
the platform went bust, you could lose
your savings.
The Financial Conduct Authority began
regulating P2P firms back in 2014,
but some in the industry are calling
for stricter rules. The P2P Finance
Association (P2PFA) has warned the
industry is growing at a rapid rate
and needs tougher regulation to make
sure customers understand what they
are investing in. Investors need to
be aware that peer-to-peer lending
products in no way resemble the
guarantees represented by a bank
deposit, says P2PFA, whose director
has labelled as unhelpful certain
advertisements that suggest P2P is like
a bank account with instant access.

Four steps to save hundreds on bills

When it comes to your finances, loyalty doesnt pay.
Banks, insurers, mobile providers none of them offer the
best deals to existing customers. Take action and hunt for
the top deals in every aspect of your life and you could save
yourself around 3,000 a year, according to comparison site
GoCompare.com. Here are the four switches that are likely to
make the biggest impact on your finances.
First, take a look at your energy bills a move endorsed by
Prime Minister Theresa May, who told the Conservative
Party Conference that its not right that two-thirds of energy
customers are stuck on the most expensive tariffs. Switching
energy provider is simple. Take a recent bill, visit a comparison
website such as uSwitch.com or EnergyHelpline.com and tap in
your usage data. In under five minutes youll have a list of the
cheapest deals and how much you would save it is usually at
least 100 and may well be more if you havent switched in a
long time. Then contact the provider you want to switch to and
they will do the rest. All youll have to do is provide a couple of
meter readings.

MONEYWEEK

28 October 2016

Next, check your mortgage rate. Are you on your lenders

standard variable rate (SVR)? If so, you could save thousands
by switching onto a table-topping deal. Mortgage rates are
at record lows of below 1%, but the average SVR is 4.6%,
according to MoneyFacts.co.uk. Switch and you could save tens
of thousands of pounds over the life of your mortgage.
How about your mobile phone? Around 75% of us are paying
for minutes and data we dont use each month, according to
a survey by uSwitch. So shop around to see if you could get a
cheaper deal with a different provider. Youll be able to keep
your mobile number and could save up to 186 over 12 months,
according to MoneySavingExpert.com.
Finally, check your car insurance. If you auto-renew you
are probably overpaying, as insurers tend to push up the
premiums. Consumers waste 1.3bn each year on expensive
auto-renewals, says comparison site MoneySuperMarket.com.
Check several comparison sites others include Confused.com
and CompareTheMarket.com to find a cheaper deal quickly.

moneyweek.com

The Fundsmith Emerging Equities Trust (FEET)

research team searches the world to find
companies that make their money from a
large number of everyday, repeat, predictable
transactions and will benefit from the rise of the
consumer in developing economies. You may
never have heard of them, despite their scale.
For example, Indofood sold 9 billion packets
of Indomie noodles last year, Magnit welcomed
11 million shoppers a day, Brazilians bought
78 million bottles of Ambevs beer and Daburs

Fundsmith LLP (Fundsmith) is authorised and regulated by

the Financial Conduct Authority and only acts for the funds
to whom it provides regulated investment management and
transaction arrangement services. Fundsmith does not act
for or advise potential investors in connection with acquiring
shares in Fundsmith Emerging Equities Trust plc and will not
be responsible to potential investors for providing them with
protections afforded to clients of Fundsmith.
Prospective investors are strongly advised to take their own
legal, investment and tax advice from independent and
suitably qualified advisers. The value of investments may
go up as well as down. Past performance is not a guide to
future performance.

FEET Performance, % Total Return

Hajmola tablets were taken 26 million times

Year ending 30th Sept

2016

2015

Since inception

a day in India.

FEET Share Price

+16.4

-11.8

+11.8

FEET NAV

+20.0

-7.8

+9.8

All can be found in the FEET portfolio.

Source: Financial Express Analytics. Inception: 25th June 2014

www.feetplc.co.uk

Available through your

stockbroker or platform:

C0014 Money Week Luggage Tags Ad 297x210mm.indd 1

21/10/2016 14:56

pensions
22

XX

pensions

Why even 1m might not

be enough for retirement

How to get a better deal

from your pension fund
While Royal Londons figures (see
main story) point to a dramatic decline
in the value of private-pension savings
over the past decade, it is possible to
make your money work harder.

by David Prosser

Even those savers who want to convert

all of their pension savings into
guaranteed income using an annuity
have a number of options. Above all,
buying more limited inflation-proofing
an annual pension increase in line
with the lower of inflation or 3%, say
will add value. With a 1m pension
fund offering a 50% spouses pension,
this would boost the starting income
from 20,860 to 27,100.
iStockphotos

Would you feel well-off if you had

1m in the bank? Probably but
pension savers who manage to put
away that much by the time they
retire are likely to be disappointed
when they find out what 1m is
worth when it comes to securing
an income. At current annuity
rates, a 1m pension fund would
buy a starting income of just
20,860, according to insurance
company Royal London.
This figure assumes that you
want the pension to increase in
line with inflation each year and
to pay a survivors pension of 50% of the
income to a spouse after your death.
An annual income of about 20,000
with those benefits isnt to be sniffed at,
but its certainly not going to pay for a
life of luxury during retirement.

You only have a million? Oh dear

The 1m figure is significant because this

is the maximum amount savers can now
build up in a private pension, including
investment growth, without having to
pay punitive tax charges. This lifetime
allowance was cut to 1m from 1.25m
in April this year as recently as five
years ago, this cap was 1.8m.

pension plans, even for those able to

save large sums. Even those who forgo
any inflation-proofing or spouses
pension would today be able to achieve
a maximum pension income of only
45,400 on retirement, given todays
lifetime allowance, says Royal London.
By contrast, in the 2007-2008 year, when
annuity rates were around 60% higher,
someone saving the lifetime allowance
of 1.8m could have expected an annual
pension income of 117,760. Taking
into account the effects of inflation, the
maximum pension available has thus
fallen by more than two-thirds.

The reduction in the lifetime allowance,

along with a collapse in annuity rates
during the years in which the UKs
interest rates have been maintained at
rock-bottom levels, has dramatically
reduced the retirement income it is
possible to generate using private-

Retirees who want a respectable income

while also having protection against
inflation, or who want to be able to leave
some of their pension to their dependants
on their death, may therefore need to
think more creatively. We look at some
alternatives in the column on the right.

Another option is an incomedrawdown scheme, where your

pension fund remains invested and
you draw income directly from it, to
convert some or all of your savings
into income. You could, for example,
use a proportion to buy a noninflation-linked annuity, guaranteeing
a certain amount of income each year,
leaving the rest of the savings invested
in assets with the potential to deliver
inflation-beating returns.
Income-drawdown schemes have the
added advantage of enabling people
to leave unused pension savings
to their heirs in a tax-efficient way.
Savings passed on to your heirs if you
die before the age of 75 are usually
tax-free; otherwise, your heirs will
normally only have to pay income tax
on the money at their marginal rate.
The availability of these options means
that savers with large sums in their
pension funds should consider taking
independent financial advice on their
options in the run-up to retirement,
to ensure they meet their income
objectives in a tax-efficient way.

The ten busiest airports in Europe

Airport

Passenger numbers
in 2015 (thousands)

Year-on-year
increase (%)

London Heathrow

74,954

2%

Paris Charles De Gaulle

65,698

3%

Frankfurt am Main

60,889

2%

Amsterdam Schiphol

58,168

6%

Madrid Barajas

46,297

11%

Munich

40,861

3%

London Gatwick

40,257

6%

Rome Fiumicino

40,231

5%

Barcelona El Prat

39,425

5%

Paris Orly

29,663

3%

MONEYWEEK

28 October 2016

The British government gave the long-awaited green light to

the expansion of Heathrow on Tuesday (see pages 5 and 16).
Proponents of building the third runway will say its not before
time, as Eurostats data on Europes ten busiest airports shows.
Last year, 496 million passengers passed through Europes
airports, with Heathrow waving off and welcoming by far the
most at 75 million. However, passenger numbers also grew
strongly at Britains second-busiest airport, London Gatwick,
which rose by 6% year-on-year compared with Heathrows
2%. Over the last decade, passenger traffic at Heathrow has
risen by 11.3%, while Gatwicks has increased by 18.1%, notes
the FTs Datawatch. Thats why some in the aviation industry
have argued that rather than choosing between Heathrow and
Gatwick, we should build an extra runway at both airports.

moneyweek.com

Here today.
Here tomorrow.
Investment Trusts managed by Invesco Perpetual
When it comes to choosing an investment trust, a strong long-term
track record and an experienced investment team are high on many
investor wish lists.
At Invesco Perpetual, we have a patient, high conviction approach to
managing our investment trusts.
From country, regional, global and mixed-asset investment trusts to
xed interest investment companies, our philosophy is built on the
view that there are no short cuts to success. So whether you choose
one of the newer investment trusts or the oldest, with over 125 years
of history, each is managed with long-term success in mind.
In todays fast-changing world, we think thats something worth
holding on to.
The value of investments and any income will uctuate (this may
partly be the result of exchange rate uctuations) and investors may
not get back the full amount invested.
When making an investment in an investment trust you are buying
shares in a company that is listed on a stock exchange. The price
of the shares will be determined by supply and demand.
Find out more about our investment trust range at
www.invescoperpetual.co.uk/investmenttrusts

Where Invesco Perpetual has expressed views and opinions, these may change. For more information on our products, please refer to the relevant Alternative Investment Fund Managers
Directive (AIFMD) document and the latest Annual or Half-Yearly Financial Reports. This information is available using the contact details shown. Invesco Perpetual is a business name of Invesco
Fund Managers Limited. Authorised and regulated by the Financial Conduct Authority.
MWe IT1a
MoneyWeek_IT_CONSUMER_PAGE_27.10.16.indd 1

19/10/2016 16:07

24

cover story

How we saved capitalism

only to cripple it
Since 2008, central bankers have resorted to ever more extreme measures to save us from
depression. The result is a banquet of serious consequences for investors, says Satyajit Das

Rising debt has helped to generate economic growth,

by bringing forward spending that would normally
have taken place over a period of years. Today,
total borrowing by governments, households and
non-financial corporations exceeds $160trn (around
230% of global GDP), triple the level of the early
1980s. Since 2008, total public and private debt in
major economies has risen by more than $60trn,
an increase of around 20 percentage points of GDP.
Unfortunately, around 85% of the debt incurred
in recent years has funded the purchase of existing
assets or consumption, rather than being used for
creating new businesses or productive purposes that
build wealth. Consequently, total debt has grown at
rates well above the corresponding rate of economic
growth. This means that the credit intensity of the
US economy has increased. Around $4-$5 of debt is
needed today to generate each additional dollar of
GDP, up from $1-$2 30 years ago.

In the US,
around $4$5 of debt
is needed
today to
generate each
additional
dollar of GDP,
up from $1-$2
30 years ago

This problem is compounded by the overhang of

accrued entitlements for retirement income, oldage care and health care. If unfunded government
obligations to deliver what has been promised were
taken into account, US debt levels would more than
double. If we measure national net wealth as the
difference between the current value of cash inflows
(future tax revenues) and cash outflows (expected
budget deficits, debt and committed future
expenditure such as defence, justice, education,
social welfare, health and old-age care), the US
and UK have a net worth of 800% and 500% of
GDP respectively. They are not alone: many other
nations are overstretched to the point where de-facto
insolvency is plausible.

proved ineffective. They have brought artificial

stability but no sustainable recovery.
While private-sector demand remains weak,
expansionary fiscal policy appears unable fully to
offset the decline in growth. Government spending
only provides a short-term lift; unless higher levels
of spending continue, it cannot lead to increased
ongoing economic activity. Public infrastructure
investment can increase growth, but potential
returns on the infrastructure projects chosen need
to be sufficiently high to avoid capital becoming
tied up in poorly performing assets. Meanwhile,
persistent budget deficits exacerbate already high
levels of public debt.
On the monetary-policy side, central banks have
cut interest rates (more than 650 cuts globally
since 2009) and embarked on quantitative-easing
(QE) programmes that are intended to promote
debt-financed expenditure and stimulate economic
activity. But high existing debt levels and weak
banking systems have constrained new borrowing.
Meanwhile, a combination of low commodity
prices (especially in energy), overcapacity in many
industries, lack of pricing power and currency
devaluations has kept inflation low.
These policies have toxic side effects. Low interest
rates affect the viability of retirement savings
arrangements. They create economic distortions,
allowing zombie companies to survive through
lower debt-service costs. They encourage
substitution of labour with capital, reducing
employment and hence consumption. And they
lead to mispricing of risk, resulting in overvalued
asset markets. Low interest rates are also used in
policymakers attempts to devalue their currencies to
gain a competitive advantage in export markets.
But retaliation by other countries limits the
effectiveness of this approach. Instead, it results
in destabilising short-term cross-border capital
flows and a relentless spiral of lower interest rates,
monetary expansion and deflationary pressures.

This economic model is unsustainable, yet that

reality has been ignored through successive
financial crises. After the global financial crisis
in 2008, policymakers refused to acknowledge
Exiting these fiscal and monetary policies is
the fundamental problems, instead resorting to
difficult. Austerity would result in an economic
traditional instruments such as budget deficits,
slowdown. Normalisation of interest rates would
low interest rates and abundant liquidity to restore
make high levels of borrowing unmanageable.
growth and inflation, with the aim of managing
Ending QE and hence
the large debt burden. Strong
withdrawing central-bank
growth would increase the ability
liquidity would affect asset prices
to service the debt and reduce
and reduce demand for bonds
its size relative to GDP. Inflation
and many equities. A large price
would boost nominal growth
Total borrowing by
correction in asset markets would
and reduce the purchasing power
governments, households reduce the value of the collateral
of outstanding debt. But these
that supports bank lending, setting
fiscal and monetary policies have
and non-financial firms

$160trn

MoneyWeek

28 October 2016

moneyweek.com

Getty Images

Social progress has become synonymous with higher

living standards. However, since the 1980s steady
improvements in our living standards have been
brought about largely by borrowing more.

Getty Images

Weve run up the global credit card but how will the bill ever be paid?
off a fresh financial crisis. Hence the global economy
may be trapped in a QE-forever cycle, where each
bout of economic weakness forces policymakers to
implement yet more expansionary fiscal measures
and QE. Throughout this, debt levels continue
to increase, making the position more intractable.
Can we grow our way out of this mess?
The fundamental problem for the world is that
real growth is driven by population growth, the
development of new markets, increased productivity
and technological innovation, not by financial
sleight of hand. None of these factors is likely to
come to our rescue in the near future. In the 20th
century the worlds population doubled twice.
In the 21st century it will not even double once.
Worse, most population growth is in poorer
countries that do not contribute to growth.
There are few nations left to integrate into the
global trading system to add new markets, while
improvements in productivity have slowed.
Mankind continues its romance with technology,
ignoring the fact that urgent problems such as
climate change can be traced to inventions such
as internal combustion engines, electricity and
exploitation of fossil fuels. Unfortunately, current
innovation does not entail a radical reshaping
of industry, but small improvements to existing
processes to expand usage or increase efficiency.
moneyweek.com

Smart phones and connectivity feed cheap

narcissism, entertainment and shopping. Innovations
such as robotics and artificial intelligence reduce
living standards as they replace or deskill most
workers. Innovation now enriches a few people who
control or finance the technology at the expense of
the vast majority of the population. This entrenches
and increases inequality. Meanwhile, we face
increasing resource constraints, especially water,
food and energy, as well as environmental stresses.
These are compounded by worsening demographics,
inequality and exclusion.
A prolonged period of stagnation is the likely
outcome. Economic growth remains weak and
volatile. There is disinflation or deflation. Debt
levels remain high or are on the rise. Competition
for growth and markets drives beggar-thy-neighbour
policies, resulting in slowdowns in trade and
capital movements. These chronic problems require
constant intervention in the form of fiscal stimulus
and accommodative monetary policy, low rates and
periodic QE programmes to avoid deterioration.
Financial repression becomes implicit policy in
other words, official rates are held below the true
inflation rate, which wipes out savers and allows
over-indebted borrowers to deleverage. If deflation
emerges, then negative interest rates engineer

The global
economy may
be trapped in
a QE-forever
cycle, where
each bout
of economic
weakness
forces
policymakers
to implement
yet more
expansionary
measures

Continued on next page

28 October 2016

MoneyWeek

26

cover story
the high short-term costs of
a major reset of the system in
2008 has created the conditions
for a new crisis. Unwinding of
the unsustainable excesses will
be more difficult than in 2008.
Problems, such as debt levels,
are larger, while policymakers
capacity to respond is
limited. These problems will
be accentuated by political
stresses and the deteriorating
geopolitical situation.

Continued from previous page

an explicit reduction in the

nominal face value of debt.

Developed countries, in
particular, are now trapped.
They cannot accept the pain
of debt reduction. They will
not accept any reduction of
living standards. They must
rely on fanciful financial
engineering to maintain
It is not clear whether the
Electorates are becoming unpredictable
the illusion of stability. The
authorities can maintain this
world is remarkably complacent about the risks.
uneasy equilibrium for a prolonged period. Policy
errors or miscalculation may cause a complete loss of Everyone hopes that something will restore the
global economy to the exemplary growth rates of
credibility or confidence in policymakers ability to
the last 30 years and its associated rises in living
control the situation. With policies now possessing
standards, wealth and opportunity. But as Sigmund
the potency of rain dances, finance officials are
Freud observed: Illusions commend themselves to
turning to increasingly desperate measures, such as
us because they save us pain We must therefore
increased government spending directly financed by
accept it without complaint when they sometimes
central banks creating new money.
collide with a bit of reality against which they are
dashed to pieces.
The response of electorates to the reduction of living
standards and destruction of savings by stealth is
Satyajit Das is a former banker. This article is
unpredictable. It is worrying to recall that in the
based on his latest book, A Banquet of
Great Depression the destruction of the wealth of
Consequences. He is also the author of Extreme
the middle classes was an important factor in the
Money and Traders, Guns & Money.
rise of extremism. Ultimately, the refusal to accept
Rex Features

The refusal
to accept the
high shortterm costs of
a major reset
of the system
in 2008 has
created the
conditions for
a new crisis

The trajectory is evident in

proposals to eliminate physical
cash, ostensibly to prevent
tax avoidance, crime and
terrorism, as well as improve
efficiency and lower costs. The
real reason is that governments
will need to cut already-low
interest rates deep into negative
territory. Eliminating physical
money is necessary to prevent
people escaping this by shifting
their savings into banknotes
and putting them under the
bed.

What low rates and slow growth mean for your investments
Savings are invested with three
simple objectives: capital security;
income generation or cash flow; and
price appreciation. Depending on the
economic environment, the specific
order of priority changes. After 2008, the
purchase of long-duration, fixed-income
instruments bonds maturing far in
the future yielded substantial returns.
However, falling interest rates and longterm yields now mean that it is far harder
to secure reasonable income streams.
Government debt no longer offers riskfree return, but only return-free risk.
Investors have been forced to purchase
securities maturing further in the future
or take on more credit risk.
High-dividend shares and rental property
are increasingly treated as substitutes
for bonds. But equity payouts and rental
yields may not be sustainable in an
environment of low growth and deflation.
In addition, equity valuations are
stretched by mergers and acquisitions
mania and by share buybacks. And the
prices of all risk assets, including real
estate, are supported by low rates,
abundant liquidity and QE. Hence many
investments today are examples of
what economist John Kenneth Galbraith

MoneyWeek

28 October 2016

termed the bezzle: theft where there

is a lengthy gap between a crime and
its discovery. They offer the prospect
of high returns, but this may not
compensate for the real risk that only
emerges much later. Investors believe
that their investments are sound and
continue to feel wealthy, like the victim of
an undiscovered robbery who continues
to feel rich because he does yet not know
of his loss.
Capital gains on equities and property
that exist on paper must be converted
into cash to provide purchasing power.
Many investments are not capable of
being sold at their current market value.
Realising real-estate profits requires the
property to be sold (or the investor to
borrow against the value of the property).
This will depend on the availability
of future purchasers who have highenough incomes to support the everincreasing level of borrowing required
to afford inflated property prices.
Demand for property is also affected
by demographics as well as labour
market changes, including reduction in
secure long-term employment, rise in
contracting and self-employment and
stagnant incomes.

Meanwhile, equity markets will be

affected by changing investment flows.
Rising wealth created strong markets
for equities in the post-war era, in part
supported by forced or tax-incentivised
pension savings. But as ageing
populations draw down their savings,
withdrawals may be greater than new
inflows, reducing demand for equities.
Unless you are a best-of-all-time trader
who can adroitly trade the volatility of
frequent policy-driven melt-ups and
melt-downs, investors will need to adjust
downwards their expectations for returns
and to switch their focus from capital
gains and high income to security from
return on capital to return of capital. That
means focusing on hard-to-find, higherquality assets, such as cash or short-term
government bonds, rather than reaching
for higher returns in more speculative
assets. Prudent investors must be willing
to accept the low returns available
and not be seduced by riskier assets
that promise higher returns, unlikely
to be realised. They are likely to find
themselves in a minority, for, as Samuel
Lloyd, an English financier, observed:
No warning can save a people
determined to grow suddenly rich.

moneyweek.com

SCOTTISH MORTGAGE INVESTMENT TRUST

SCOTTISH MORTGAGE WAS ORIGINALLY

LAUNCHED TO PROVIDE LOANS TO
RUBBER GROWERS IN MALAYSIA IN THE
EARLY 20TH CENTURY.

TIME JUST MAKES

IT TASTIER.
Scottish Mortgage Investment Trust believes in investment not speculation. We painstakingly identify
those companies that we believe will deliver long-term growth and then we stick with them through thick
and thin, providing our investment case remains valid. In fact we like to think of ourselves as owners not
renters, which is why we dont get side-tracked by short-term share price movements.
But dont just take our word for it. Over the last five years Scottish Mortgage, managed by Baillie Gifford,
has delivered a total return of 182.7%* compared to 104.7%* for the index. And Scottish Mortgage is
low-cost with an ongoing charges figure of just 0.45%.
Standardised past performance to 30 September each year*:
2011-2012

2012-2013

2013-2014

2014-2015

2015-2016

Scottish Mortgage

14.2%

35.9%

27.6%

4.2%

37.0%

FTSE All-World Index

17.3%

18.2%

11.8%

0.6%

31.3%

Past performance is not a guide to future returns.

Please remember that changing stock market conditions and currency exchange
rates will affect the value of your investment in the fund and any income from it.
You may not get back the amount invested.
For a free-thinking investment approach call 0800 917 2112
or visit www.scottishmortgageit.com

Long-term investment partners

*Source: Morningstar, share price, total return as at 30.09.16. Ongoing charges as at 31.03.16. Your call may be recorded for training or monitoring purposes.
Scottish Mortgage Investment Trust PLC is available through the Baillie Gifford Investment Trust Share Plan and the Investment Trust ISA, which are managed by
Baillie Gifford Savings Management Limited (BGSM). BGSM is an affiliate of Baillie Gifford & Co Limited, which is the manager and secretary of Scottish Mortgage
Investment Trust PLC.

opinion
28

XX

opinion

Why its time to buy British

Charlie Morris
The late Barton Biggs was an
outstanding financial writer. He was
the chief investment officer at Morgan
Stanley for decades before retiring to
run a hedge fund. I highly recommend
his book Wealth, War and Wisdom, in
which he studied the financial side of
Japan in World War II, hyperinflation
in Germany in the 1920s, and other
Armageddon scenarios. His conclusion
was that cash is trash.
In Japan, for example, commercial
property worked well through the
war. Farmland was confiscated, but
the empty factories were left alone
as they were worthless at the time.
After the war they sprang back to
life and regained their value. Gold,
jewellery, art and so on were okay,
but were often confiscated during
these dark times. A globally diversified
share or bond portfolio was fine.
His conclusion was to diversify between
bonds, shares, real assets and property.
Assets must be at home and abroad
wherever you are. That ensured
economic survival in every scenario.
Sometimes the worst-case scenario
happens. Biggs doesnt dwell on it: he
offers a solution. Being invested is the
right thing to do the vast majority of the
time. But there is also the question of
how you are invested. I am an uber-bear
on bonds and interest-rate-sensitive assets
such as property. In the UK, house prices

would fall by approximately

27% in order to return to
their historic averages in
real terms (ie, allowing for
inflation). Between 1989 and
1995, UK house prices fell by
37% in real terms, according
to Nationwide. In nominal
terms (ignoring inflation),
they fell by 20%. As inflation
picks up, I expect this to be
repeated, probably over a
decade.

FTSE 100 (price return, logarithmic scale)

1000
900
800
700
500
400
300
200

100

But what of UK shares

90
today? Recently, global
1985
investors have been dumping
the pound. This has been a useful
reminder of the dangers of holding cash.
British savers have had a bite taken out
of their purchasing power this year. No
more holidays to America.
Those invested in assets have fared better
than those with cash in the bank. The
FTSE 100 is up 12% so far this year
2016 has been full of surprises and stocks
have beaten cash. Yet I dont see UK
equities as particularly overhyped. The
chart above shows the FTSE 100 in US
dollars since 1985 (without dividends) on
a log scale. A log scale is important as it
equalises percentage moves. That means
the large moves in the past are as visible
as recent ones. A log scale also allows
you to overlay regression lines. Ive put
the series into dollars because it shows
UK equities from an entirely different
perspective that is, their recent strength
is massaged down by measurement in a
currency that has been strong.
The surprise is that theyre not
overbought like they were in 1999 or
2008. They are actually quite oversold.
UK equities are trading close to the

1990

1995

2000

2005

2010

2015

lower green line, which indicates more

of an opportunity than a threat. I would
be more concerned if they were trading
nearer to the upper green line which
would indicate a bubble. For UK equities
in dollar terms to return to trend (red
line) they must appreciate by 52% from
here. That could come from a surge in
the FTSE 100 to more than 10,000, or a
surge in the pound to around $1.80. Both
are unlikely anytime soon, but a blend of
the two isnt. If the FTSE 100 rallied by
(say) 20% over the next few years, and
the pound returned to $1.50, UK equities
would be back on target.
In addition, theres what isnt on the
chart: dividends. They have added
approximately 4% per year on top of the
capital return. Over the long run, it pays
to be invested and now even after the
FTSEs rally isnt a bad time to start in
the great scheme of things, even if prices
could ease over the short term.
Charlie Morris is the former head
of absolute return at HSBC Asset
Management. He writes for the Fleet
Street Letter (FleetStreetLetter.co.uk).

How your fridge could bring down the internet

Last Friday, some of the internets most popular websites, such
as Twitter, Airbnb and Spotify, were disrupted by a massive
hacking attack, writes Chris Carter. There was nothing new in
the hackers method, which involved creating an overwhelming
surge in traffic. This tactic is known as a distributed denial of
service (DDoS) attack and has been employed by hackers for
many years. Nor was there a huge amount of surprise that it
had happened. Cybersecurity experts had warned for years that
it was coming. What was noticeable, however, was the attacks
use of the so-called internet of things.
In recent years, the popularity of internet-enabled devices,
such as kettles, fridges, thermostats, baby monitors, light bulbs
and webcams, has exploded. Often these devices come with
a default password, which is rarely changed and can easily be
guessed. This allowed hackers to gain access to many of these
devices, where they installed a malicious software program
called Mirai that enabled at least 100,000 devices to be banded

MoneyWeek

28 October 2016

together into a sort of zombie army of devices called a botnet.

This army then overwhelmed Dyn, a domain-name services
company that translates a websites internet address into an
IP address read by computers (in other words, its one of the
internets phonebooks). When Dyn went down, so did the
websites that rely on it for its services.
The identity of the hackers remains a mystery, but the potential
dangers are clear. By 2020, there will be around 20 billion
internet-enabled devices, according to researchers Gartner.
But regulating the industry is a challenge, since the equipment,
from televisions to medical devices, falls into so many
categories. If a hacker was able to gain access to a pacemaker,
say, or a car, the result could be fatal. Yet the industry has so far
been slow to tighten security around most devices. It is going
to take a number of events before all the companies involved in
this can ignore it no longer, cybersecurity expert Matthew Cook
told MarketWatch.com.

moneyweek.com

investing in property
30

XX

investing in property

A Brexit to where?

US gets relaxed on pot can

investors join the party?

Red carpets are being rolled out all

over Europe by cities seeking to
attract large departments of blue-chip
businesses, writes Judith Evans in the
Financial Times. And already several
companies are hinting at potential moves
abroad to pre-empt the UKs exit from
the European Union, especially in the
financial sector. Indeed, several bank
heads hands are quivering over the
relocate button, says Anthony Browne,
head of the British Bankers Association
(see page 17). Yet even if the threat to
leave is real, its becoming increasingly
evident that there might not be enough
space for them.
European cities flagged as likely
relocation destinations include Dublin,
with its favourable tax regime and shared
language with the UK, and Paris, whose
financial regulator is offering fast-track
registration. However, despite a clear
willingness from other cities to court UKbased companies, office vacancy rates
across Europes major cities are currently
at their lowest rate for a decade, says
Evans, in part because developers have
been slow to embark on new office
buildings following on from the 2008
financial crisis.
One million square metres of office
space could be needed by 2020 to house
financial services jobs that end up in
mainland Europe, estimates Capital
Economics. At the moment, this is
equivalent to the entire vacant office
space in Paris, while Dublin only has
300,000 square metres available.
If you run a bank looking for office space
to house 2,000 people in the central

Getty Images

by Sarah Moore

Those fleeing might find themselves squeezed

business district of a European city,
there are currently only eight options for
companies of this size in Paris and five in
Frankfurt, says Evans. Dublin, Madrid
and Amsterdam each only offer one
option, according to research from real
estate company Savills. Options may be
more numerous if banks are looking to
house fewer people, says Evans. But even
then, theres not a great deal of choice.
That means that if any significant
number of businesses relocate jobs to
Europe, the increasing demand for office
space on the continent may be good
news for investors with exposure to
European commercial property. Some
investment firms are already positioning
themselves to take advantage of this
trend. For example, Schroders European
Real Estate Investment Trust is looking
to buy office space in Frankfurt, while
Bloomberg reports that CBRE Global
Investors and Standard Life are seeking
to acquire office buildings in cities such
as Dublin and Amsterdam.

A small San Diego-based real estate

firm that plans to invest in medicalmarijuana growth facilities has
filed to list on the New York Stock
Exchange (NYSE). Innovative Industrial
Properties (IIP) aims to raise $175m by
offering 8.8 million shares at $20 per
share. IIP says that a convergence of
changing public attitudes, the growing
likelihood of legalisation in various
US states and a more relaxed
federal enforcement posture towards
regulated medical-use cannabis
creates an attractive opportunity to
invest in this niche sector.
Despite IIPs positive outlook, it is
difficult to predict how this market
will develop over the next few years.
The potential for growth will vary
from state to state, depending on
the number of licences available to
growers and dispensaries. At the
moment, 25 states and the District of
Columbia have passed laws allowing
medical use of marijuana to some
degree. But in August this year, the
US Drug Enforcement Administration
refused once again to declassify
marijuana, claiming it is a drug with
no currently accepted medical
use, meaning federal law remains
at odds with state law. Furthermore,
the Department of Justice reserves
the right to challenge the states at
any time they feel its necessary,
according to the National Conference
of State Legislatures.
If IIP gets permission from the NYSE
to list, it would be the first publicly
traded cannabis-related Reit, as well
as the first marijuana company to be
traded on the NYSE. But given that the
exchange may deny listings if it feels a
listing is inadvisable or unwarranted,
theres no guarantee the Reit will get
the go-ahead to float.

A home with no bills

Guess the price: a converted dovecot

Residents of a tower block to be built

in Hemel Hempstead, Hertfordshire,
may be able to live free of energy
bills. Solar panels on balconies on
each floor should generate up to 800
kilowatts, while two wind turbines
in the roof will generate another
40 kilowatts. LED lighting will limit
electricity consumption, while natural
heat will be drawn from below ground.
The heat from waste water will be
recaptured, and quadruple glazing
will help to keep the heat in. Prices
range from 217,000 for a studio up to
524,000 for a three-bedroom flat, plus
a 1,580 a year service charge. Free
energy will be restricted to fair use,
so those looking to take advantage
of hot tubs in the swankier flats will
probably have to dip into their pockets.

An 18th-century, Grade
II-listed former dovecot
that has been restored
and converted into a
one-bedroom cottage
with a detached
guest annexe and a
detached studio and
garage. It is situated
near the village of
Comberton, which
has good facilities and
is around five miles
from Cambridge. The
house is surrounded
by private landscaped
gardens that look out
onto open countryside,
with terraced areas that link the house to the annexe and the garage/studio building.
But can you guess the asking price? Answer on page 41.

MoneyWeek

28 October 2016

moneyweek.com

XX

money makers
money makers

From shooting heroin to

dealing in juice

Khalil Rafati should be dead.

Instead, he is the founder of
SunLife Organics, a chain
of six high-end juice bars
dotted around the greater
Los Angeles area, where its
Solstice, Joy and Fast Eddie
smoothies have proved a hit
with A-listers. But things
havent always been so rosy.
Having escaped a life of
abuse growing up in Ohio,
Rafati almost died from an
intentional heroin overdose
in 2001. He was nearly killed
a second time a year later
when intruders fired through
the bathroom door where he
was shooting drugs. A stint of
homelessness followed, then
jail. In 2003 Rafati cleaned
himself up for good. Id
finally reached the bottom of
all bottoms, he says. There
was no more digging left to
do; all of my shovels were
broken. I was done.
Rafati opened a home for
recovering addicts in 2007,
where he concocted the
Wolverine, a date- and
banana-based drink that
also contained maca, bee
pollen and royal jelly.
It was meant to
rejuvenate and
strengthen the
patients, and
give them some
much-needed
strength, he tells
Walter Kirn in The
New York Times.
Lethargy in early

31

sobriety is pretty brutal,

especially if youre coming
off a long run with hard-core
drugs. Realising he was onto
something, Rafati invested the
savings he had somehow hung
onto in the difficult years and
found a backer to open his
first bar in 2011. I remember
it clearly, he says, since I
was one of those customers
who needed healing.

Transcending Nuts

The fall of lads mags

such as Zoo and Nuts left
a hole in titles aimed at
young men. That hole, in
digital terms at least, has
been filled with Unilad and
LadBible. But while both
have a sizable social media
presence, both have struggled
to shake off their downmarket
connotations a mistake
that Irish site JOE.co.uk is
determined not to make.
We are absolutely convinced
that the assumptions that
other titles make about
young men are a little bit
flawed, Will Hayward,
the chief executive of Joe
Media, tells The Guardians
Jaspar Jackson. Young
mens attitudes towards
homosexuality, towards
mental health,
towards women
have all shifted
very significantly
and theres an
opportunity not to be
the successor to Zoo
or Nuts, but to be
both a new product

Cassandra Stavrou had a brainwave while watching Top

Gear. There was an item on the show where they would paint
cars with a special spray kit that gives a fine mist, she tells
Matthew Caines in The Sunday Telegraph. Stavrou bought a
kit online and used it to spray her popcorn to ensure an even
coating of flavour. She came up with the idea for the product
after noticing the growing popularity of organic, healthier
snacks, but which tasted like cardboard. Popcorn was a tasty
alternative and everyone knows what it is. That was the
easy bit. Getting the firm off the ground was another matter.
I would turn up to industrial estates and the people there
would basically tell me to go home, she says. Richard Reed,
co-founder of Innocent Drinks, who she met through a friend
of a friend, advised she get a business partner. Enter property
developer Ryan Kohn (pictured, with Stavrou). Together they
launched Propercorn in 2011, using their lack of experience
to their advantage. We went to sales meetings thinking
that we had to dazzle people, says Stavrou. So we made
popcorn necklaces for them We didnt realise that was quite
refreshing for buyers at the time. It was an effective strategy,
says Caines. Propercorn now sells three million packs a
month and is on course to turn over 15m this year.

which works well on mobile

and social, but also has a new
mentality about how to do it.
Hayward, who has held
senior positions at BuzzFeed
and Dazed Media, was
handpicked by JOEs founder,
Niall McGarry, to head the

sites expansion into Britain.

He expects JOE.co.uk to turn
a profit this month, and for
staff numbers to grow from
30 to 100 in a years time.
The website already attracts
up to five million users a
month, while its Facebook
page has 3.6 million likes.

The young dynasts investing to change the world

Alamy

Theres nothing unusual about millennials

wanting to make the world a better
place. What is less usual is having the
financial muscle to actually do it. Thats
not a problem for the young scions of the
Rockefeller, Ford and Pritzker dynasties.
Last month, they and a group of other
young dynasts met at Kykuit, John D
Rockefellers country pile 34 miles outside
of New York, to talk about using their
family offices for impact investing
investing capital in ways that offer
a measurable social or environmental
return as well as a financial one, says
Stephen Foley in the Financial Times.
Together they are The ImPact with a
capital P. The older generation gripe
that no one can read balance sheets, says
Justin Rockefeller (pictured), the great-

moneyweek.com

great-grandson of the oil

tycoon and philanthropist.
Millennials complain that no
one is focusd on the bigger
picture. Impact investing
has provided a bridge for
inter-generational dialogue.

Rockefeller is ploughing
his money into Modern
Meadow, a company that
uses living cells grown in
a laboratory to make real
biological leather without
the need for animals.
Jason Ingle, the greatImPact is modelled on
great-grandson of Henry
Warren Buffett and Bill
Ford, has his own fund,
Gates Giving Pledge,
Closed Loop Capital, which
which calls on billionaires
invests in agricultural
to pledge at least half their
technology such as Beyond
wealth to charity. I want to
Giving investing a new spin Meat, a vegan venture that
build on the family legacy
produces a vegetarian
and the best way I know how to do that
burger that cooks and tastes like beef.
sits at the intersection of philanthropy and
capitalism, says the younger Rockefeller. Philanthropy alone is not going to be able
Impact investing continues both family
to address the challenges we face, Ingle
traditions, but with a new spin.
says. Investing has a part to play too.

28 October 2016

MONEYWEEK

32

personal view

32

personal view

Five top biotech innovators

A professional investor tells us where hed put his money.
This week: Dr Daniel Koller, lead manager of BB Biotech
The last decade
saw biotechnology
industry sales
rise from $6bn to
$131bn, driven
principally by a
new generation of
discoveries enabling
biotechs to bring
industry-changing products to market.
These technological advances and the
number of new drug approvals have led
to powerful growth in the number of
companies making a profit. Positive data
from recent clinical trials indicate that
theres plenty more to come.
Why then has 2016 seen biotech stocks
underperforming general equity markets
by 20%? Various factors were at play,
but politics has hit sentiment hard.
Healthcare stocks and the drug industry,
including biotech, have already endured
punishment at the hands of Democratic
nominee Hillary Clinton, with drug
prices being a pillar of her campaign.
As expectations of a Clinton victory
increased in recent weeks, biotech stocks
were hit once again. These discussions
will continue until early 2017, when the
newly elected US president announces her
or his future healthcare policy plans.
But political criticism is often aimed
at the list price and ignores that high
growth rates are generated by volume.
New drugs make it possible to treat far
more patients than before, and the final
level of sales is correspondingly high.
Thus any discussion about the price of
a drug should revolve first and foremost
around its medical value or benefit to
patients and society.

With one of the weakest years of results

now behind us, we expect a return
to growth for the sector. Product
approvals and results from key clinical
trials offer the potential for growth in
valuations for the remaining months
of 2016 and into 2017. Many large
pharmaceutical and biotechnology
companies are looking to mergers and
acquisitions and industry consolidation,
and the number of profitable biotechs is
steadily growing. We are maintaining our
current approach of building a portfolio
of a small number of core holdings, plus
mid- and small caps with the potential to
grow faster than the market. Companies
in their growth phase that are poised
to become large caps, such as Actelion
(Zurich: ATLN) or Incyte (Nasdaq:
INCY), are particularly attractive.

The stocks Koller likes

RDUS
CEMP
VRTX
ATLN
INCY

12mth high
$75.50
$34.24
$134.71
CHF179.00
$124.98

12mth low
$24.75
$14.03
$75.90
CHF120.51
$55.00

Now
$47.54
$23.97
$78.73
CHF144.70
$88.18

Gear4Music (Aim: G4M) sells musical

instruments online. It was founded
in York in 2003 and listed on Aim in
2015, and now operates across Europe.
Revenue is climbing nicely, having
risen 46% to 35.5m in the 12 months
to 29 February 2016, with a pre-tax
loss morphing into a small profit.
Its latest trading update showed a 73%
rise in total sales in the six months to
31 August. The share price has risen
sharply, climbing almost 180% in the
last 12 months.

Gear4Music (Aim: G4M )

400
350
300
250
200
150
100

Figures in pence

O N D

2015

2016

Be glad you didnt

Countrywide (LSE: CWD) runs Britains
largest chain of residential estate
agents, operating through brands such
as Bairstow Eves and Slater Hogg &
Howison. It is facing stiff competition
from the internet, and is weathering
a post-referendum slowdown in
residential transactions. In July it
warned that full-year profits would
be down on the previous year. And in
September it closed 59 branches.
The share price has been in gradual
decline since early 2014, and has shed
more than 50% in the last year.

500
450

Countrywide (LSE: CWD)

Figures in pence

400
350
300
250
200
O N

2015

2016

S O

The Telegraph 2016

BB Biotech, the fund I manage,

remains focused on biotech firms

offering innovation that promises to

improve treatment for serious diseases.
Companies of particular interest include
Radius Health (Nasdaq: RDUS),
Cempra (Nasdaq: CEMP) and Vertex
Pharmaceuticals (Nasdaq: VRTX).
They have all made progress with their
main drugs in development: Radiuss
treatment for postmenopausal women
with osteoporosis is in for New Drug
Application (NDA) approval in the US;
Cempra submitted its NDA for a drug
to treat community-acquired bacterial
pneumonia; Vertex is testing a key triple
combination to treat cystic fibrosis.

If only youd invested in

MoneyWeek

28 October 2016

moneyweek.com

the best blogs

Can capitalism
work for all?
Prime Minister Theresa May has said
she intends to put workers on company
boards. This, she thinks, will reform
capitalism so it works for everyone not
just the privileged few. Is she right?
Bennet Berger and Elena Vaccarino,
on the blog of the Bruegel think tank,
looked at the evidence from Germany,
which legally obliges firms to do just
this. In Germany, firms with more
than five employees generally elect a
works council (which has rights over
consultation on working conditions and
pay and so on) and representatives to
the supervisory board (which, together
with non-executives and shareholder
representatives, holds the executive
board, chaired by the CEO, to account).
The latter generally appoints board
members and oversees operations and pay
and approves major strategic decisions.
Ultimate corporate power thus lies with it
and hence also with the firms workers.
Does it work? The evidence is mixed.
Studies show that it can reduce
performance, perhaps as workers succeed
in changing the objective function of
a firm away from maximising profits
towards their own interests. On the
other hand, other studies show that their
influence does promote the long-term
health of firms, by preventing managers
from pursuing overly risky projects or
indulging in deals, for example. On
a larger scale, the picture is similarly
mixed. Countries with stronger worker
participation tend to lag in terms of GDP
growth, though they also have better
productivity, fewer days lost to strikes
and lower income inequality. In short, the
German experience has been a positive
if economically suboptimal one.

33

Why business is like football

Britain is once again obsessed with its
relative economic decline, says economist
Chris Dillow on his blog. But there may be
deeper reasons than impending Brexit for
the gloom: short-termism, a lack of good
vocational training and bad management
all contribute. Perhaps the real reason
lies in a line by one-time US presidential
candidate Eugene McCarthy: Being in
politics is like being a football coach. You
have to be smart enough to understand
the game, and dumb enough to think its
important.
Britain has a relative dearth of such
people. Our bosses may be smart enough
to understand business, but theyre
At least were spared the Berlusconis
also smart enough to want to get out of
it. Upwardly mobile people here aspire to be country gentlemen, not tycoons: when
theyve made their fortune, they want to quit and enjoy it as leisured aristocrats.
Alienated by corporate imbecilities, Brits downshift whenever they can to comfier
jobs, non-executive directorships or hobby businesses. Such attitudes militate against
building huge businesses. But there is an upside. For what could motivate someone to
keep working once theyve made a few million? Ego and vanity. Britain may have no
Apple. But at least we are also spared any Donald Trumps or Silvio Berlusconis.

The bad the state can do

Prime Minister Theresa May has
defended the good the state can do.
What she forgets, says Philip Booth on
the blog of the IEA think tank, is that its
not possible to get the good without the
bad. For the only power the state has that
private businesses and civil society does
not is the power to coerce. When it comes
to law and order, that is all well and
good. But what else do we as a society
want to achieve that can only be achieved
by coercion? The more answers you think
you find to that question, the more power
the state has, which creates hostile battles
to control that power. The disintegration

of the Seventies was preceded by a rise in

the power of the state, which was then
used to tame the power of many of the
institutions of civil society, such as trade
unions, independent stock exchanges that
regulated securities markets, and so on.
May thinks she can use the state to
promote the greater good. But whos
to say what that is? Shes making the
same mistake as leftists who deny the
knowledge problem and believe
economies can be centrally planned. It
would be better to settle instead for less
of the harm the state can do.

The economics of computer rage

Alamy; iStockphotos

Why is it that computer software updates

can be worse than the ones they replace?
New versions of apps that are free to
download, for example, can be slower
and clunkier as they bombard us with
ever more advertisements. In fact, there
are good economic reasons for firms
deliberately to make their products worse,
says Richard Davies on 1843 magazines
The Daily blog.

with a little more cash would then stump

up for more comfort.

This helps solve a headache all firms face:

how to set prices. If you are a railway
company, for example, you dont want
a well-heeled business traveller paying
the same price as your budget-conscious
tourist. Selling tickets that are ultracheap but that only specify the time of
travel two days before the trip performs
A good example was first spotted by Jules
the same function as that 19th-century
Dupuit, a French engineer, in 1849. French
bench. If the French state had regulated
railways then offered three classes of
trains so that all carriages had roofs,
travel: first class, second class and a third
all those in second class might have
How much will you pay to be less annoyed?
class that gave you a carriage with no roof
switched to third, potentially making
and a wooden bench with no covers for a seat. Surely, people
the whole service uneconomical to provide. So the fact that
complained, such discomfort was unnecessary? But Dupuit
your app is slow and rammed with adverts is a sign of good
pointed out the value in the inconvenience: by making third
economics. If that is little comfort, perhaps it is time for an
class really bad, only the truly threadbare would use it. Those
upgrade.

moneyweek.com

28 October 2016

MoneyWeek


34

profile XX
profile

Haim Saban

Killer dealmaker battling for Hillary

Clinton cannot win without strong

support from Hispanic voters. Sabans
Univision conveniently boasts that it
is the gateway to Hispanic America,
reaching 40 million people in the
demographic. The networks adversarial
approach to Donald Trump, and its
recent acquisition of the remnants of
Nick Dentons Gawker online media
empire, have grabbed the attention of
many English-speaking Americans.
Hipsters and Hispanics, as Denton has
observed, are two of the fastest-growing
demographics in the US. The networks
growing clout will improve his chances
of a successful IPO, a process that
might play out more favourably under
president-elect Clinton than Trump.

Saban, 72, has never been given to

modest ambitions, says The New
Yorker. In Hollywood, where he made
his name as the man who brought
Mighty Morphin Power Rangers from
Japan to America, Saban is seen as a
force of nature. A charming raconteur
and host, whose Beverly Park mansion
is filled with antiquities from Israel and
Chagall paintings, he is also a cut-throat
dealmaker. Its easy to be charmed by
Haim, says former DreamWorks boss
Jeffrey Katzenberg. But hes a laserfocused, razor-sharp, take-no-prisoners
killer. The deal that established Sabans
billionaire status and clout the 2001
sale of the Fox Family network to Disney
is still enshrined in Hollywood lore as
one of the greatest business coups in
entertainment history, notes The Wrap.
Born in Egypt in 1944, Saban and his
family fled to Israel when he was 12,
ending up in one room in Tel Aviv. He
attended an agricultural boarding school
but was expelled. Youre cut out for
making money, the principal told him.
Saban talked his way into a band he took
on tour to Europe, later settling in Paris
as a record producer. His breakthrough,
says The New Yorker, was discovering
the hidden gem of music publishing:
vast royalties reaped from music aired
on TV cartoons. That took him to
Hollywood in 1983. Within a decade he

Getty Images

The Hollywood media mogul Haim

Saban was recently described by
The Jerusalem Post as the worlds
most influential Jew. As one of the
Democrats top donors he has donated
tens of millions to the party and has a
longstanding hotline to the Clintons
his power can only grow if they
win the White House. The billionaire
chairman of Univision, Americas largest
Spanish-language media company,
has two ambitions, says Bloomberg
Businessweek. The first is to elect Hillary
Clinton president; the second, to take
Univision public. These two crusades
are now converging.

had emerged as a fully fledged mogul

after forging a partnership with Fox to
show the blockbusting Power Rangers.
Saban is most proud of his role as a
political power broker and remains
deeply connected to Israel. Some
reckon that if Clinton is elected, he is
the obvious channel between the US and
Israeli governments, says Bloomberg.
He denies any interest. I dont want to
change anything in my life I just want
to be Haim Saban. Time will tell.

The worlds greatest investors

How did he start out?

Ricardo was a political economist and,

along with the likes of Adam Smith,
one of the first major economic thinkers.
He was a staunch opponent of the Corn
Laws, which imposed restrictions and
tariffs on imported grain and hence kept
prices high. His theory of comparative
advantage is still taught to economics
students as one of the key reasons why
free trade is good for society. Ricardo was also a successful
investor. Born in London in 1772, he left school at 14 to take
a job at his fathers stockbroking firm. For the next 30 years
he traded stocks and bonds on the London Stock Exchange,
successfully retiring shortly after the Battle of Waterloo in 1815.

What was his strategy?

Ricardo seems to have been a contrarian, identifying when fear

or greed had pushed prices excessively high or low, and then
going in the opposite direction. He combined this approach
with strict risk management, and is credited with coming up
with the idea of closing losing positions quickly, but letting
winning positions run. He also made money from arranging
syndicates that underwrote government debt.

MoneyWeek

28 October 2016

Did this work?

Although by the age of 21 he had become estranged from his

wealthy family, his financial speculation gave him the income to
keep himself in luxury. By the time he retired he had bought a
seat in parliament (in the era when seats were bought and sold)
and Gatcombe Park estate. When he died in 1823 his estate was
valued at 600,000 (48.5m in todays money).

What was his best investment?

Ricardos status was made during the Battle of Waterloo.

Legend has it that he learned of the outcome before the official
reports, but publicly sold some of his holdings of government
bonds in order to push prices down, causing the gilts market
to plummet. Ricardo then swooped in, adding to his position
and ending up with estimated profits of 1m (68m). In letters
to his friends he claimed that the extent of his profits was
exaggerated, but admitted that he had still made a huge
amount of money during the fortnight.

What lessons can Ricardo teach us?

Ricardos behaviour was unethical, if not illegal back then.

However, it demonstrates the importance of ignoring rumours
and inside information, and also shows that money can be
made from keeping your nerve and going against the crowd.
Ricardos advice about closing losing positions, but keeping
those that are doing well open, is also useful.

moneyweek.com

Alamy

This week: David Ricardo

spending it

35

A five-page section covering holidays, cars and housing

Ecuador

Three jungle adventures

The rainforest in Ecuador, one of the

worlds most biodiverse areas, is being
fought over by two great economic
powers of modern life: petroleum and
tourism, says Kevin Rushby in The
Guardian. For the moment, eco-tourism
reigns in this 370 sq km stretch of jungle
that is home to the Sani community. Sani
Lodge (SaniLodge.com), a gorgeous
cluster of cabins in a clearing by a lake,
is the only thing keeping the oilmen at
bay. But pressure is growing.
We got up at dawn and paddled down
the long lake watching for anacondas
in the reed beds, says Rushby. Birds,
including the colourful many-banded
aracari, were gossiping overhead. In the
distance we could hear the caveman
moans of howler monkeys. Nothing
escaped Rushbys young guide, Victor,
from golden-mantled tamarins to the
hummingbird that hurtled past my ear.
Perched on a low branch, in one last
ray of light, was a huge bird with a red
bill. It was the elusive Salvins curassow
one bird-watcher had visited the Yasuni
national park 27 times in the hope of
seeing it. Perhaps its time we all got a
bit more obsessive about this.

Belize

Gaia Riverlodge: a stylish stay with monkeys

I am in the jungles of Belize, hiding
behind a cluster of bamboo, reports
Francesca Angelini in The Sunday
Times. From the trees with spikes to the
tarantulas with a bite worse than spikes,
theres plenty to watch out for, not
least the howler monkeys. Something
soft lands on my back, says Angelini.
Forest fruit, I presume. No such luck.
Its monkey poo.
Theres much to entice British visitors to
this part of Central America. Its Englishspeaking, for one, and with American
Airlines changing its schedule next
month, its never been easier to get there.
moneyweek.com

Sani Lodge: an oasis in Ecuadors rainforest, one of the most biodiverse areas in the world
Not that you will be in any doubt where
you are. The Queen peers out from the
colourful banknotes, but toucans at the
breakfast table remind you that youre in
the tropics.
Mountain Pine Ridge is a 100,000-acre
reserve of pine and jungle, in a county
where national parks make up 40% of
the former British colony. Camp out with
the jaguars, raccoons, coatis and ocelots
if you wish. But to stay in style, head
to Gaia Riverlodge (GaiaRiverlodge.
com). There you will find immaculate
cabanas 250 feet above a river, its own
private swimming pool. The idea is
to embrace nature. Unlike in so many
tropical countries, Belize has guides
and instructors who are as excited by
their nature-saturated, adventure-filled
country as any visitor, says Angelini.
They are also indispensable as they will
teach you how to watch out for those
honking monkeys.

Costa Rica

The Central Highlands in Costa Rica

is the ideal place to come if youre
strapped for time but want to see some
of Earths most fascinating creatures
up close from red-eyed tree frogs
to sloths, says Joe Minihane in The
Independent. British Airways now has
direct flights to the capital, San Jos, so
getting here has never been easier.
In a verdant valley beneath the Pos
volcano, youll find El Silencio Lodge
& Spa (ElSilencioLodge.com/en), which
is near well-marked trails snaking up
into the hills to a series of thundering
waterfalls. The hotel will provide you
with enthusiastic ornithologists as
guides. Sloth-spotting is as pleasingly
easy as for the birds, as is spotting the
cheeky white-faced capuchin monkeys
prowling the branches above the
national parks sandy beaches on the
hunt for a meal from sunbathers.

Find yourself among the trees

Prepare yourself for the latest fitness fad: forest bathing, says Loulla-Mae
Eleftheriou-Smith in The Independent. It is based on the Japanese pastime of
shinrin-yoku, or what you and I might call taking a walk in the woods. The idea is to
exercise the mind and reduce stress by bringing you back to nature. Perhaps eager
to jazz up the concept, the Mayflower Grace hotel (GraceHotels.com/mayflower) in
Connecticut has put together a forest bathing package that involves 90 minutes of
skin cleansing treatments and a plant hydrosol ionising mist, which supposedly
boosts your lymphatic system with a stimulating breeze. A forest-bathing session at
the hotel costs $265.

28 October 2016

MoneyWeek

36

property

This week: former vicarages from a restored 18th-century church with a rectory in five acres of grounds in
Cesena, Emilia-Romagna region, Italy. A restored, unconsecrated 18th-century
church with a rectory surrounded by landscaped grounds. The interiors include
the main church and the sacristy, which has been converted into a library. There are
also three one-bed flats, one one-bed flat and an outbuilding with two bedrooms.
4.9 acres. 2.5m Knight Frank 020-7629 8171.

Chailey Moat, Chailey Green, East Sussex. A Grade II-listed, 1540s former
rectory set on an island surrounded by a moat. It has open fireplaces and oak
panelling. 7 beds, 4 baths, 3 receps, dining hall, 4-bed converted barn, 1-bed cottage,
pool, tennis court, 44 acres. 5m Savills 01444-446000.

Flint House, Penn Street Village,

near Amersham, Buckinghamshire.
An 1840s former parsonage in a
Gothic-revival style with a gabled porch
and stone-mullioned windows. It has
open fireplaces and pine floors. 5 beds,
3 baths, 4 receps, study area, indoor
pool, coach house, tennis court, grounds,
1 acre. 3.25m Savills 01494-731950.

MoneyWeek

28 October 2016

moneyweek.com

property

37

rounds in Cesena, Italy, to an 1840s parsonage with a tennis court in Amersham, Buckinghamshire
The Old
Rectory, Saxby,
Melton Mowbray,
Leicestershire. This
Grade II-listed, Dutchgabled former rectory
was built in 1789
and has Victorian
additions. It has brick
vaulted ceilings, period
fireplaces and the
grounds include a twobed cottage let
on an assured shorthold tenancy. 4 beds,
2 baths, 2 attic beds,
3 receps, breakfast
kitchen, stables, 3.7
acres. 1.15m Savills
01780-484696.

The Old Rectory,

Whalton, Northumberland.
A Grade II-listed former
village rectory incorporating
a 15th-century peel tower.
It has open fireplaces and
an 18th-century staircase.
8 beds, 3 baths, 3 receps,
breakfast kitchen, stables,
outbuildings, greenhouse,
formal and walled gardens,
1.3 acres. 1.15m Knight
Frank 0191-686 1232.

The Old Vicarage,

Askham Richard, near
York. A Victorian vicarage
set in extensive grounds
that include a converted
stable block. It has a grand
entrance hall with a galleried
landing. 6 beds, 3 baths,
2 receps, billiard room,
outbuildings, gardens,
paddock, 2 acres. 1.525m
Humberts, 01904-611828.

The Old Vicarage, Sedgeford,

Norfolk. A renovated, Grade II-listed
Victorian vicarage built in a Gothicrevival style with later additions. It
is surrounded by formal gardens and
wooded grounds and has open fireplaces,
a grand entrance hall and a country
kitchen with an Aga. 6 beds, 5 baths,
3 receps, 1.4 acres. 1.9m Bedfords
01328-730500.

moneyweek.com

The Old Vicarage,

Newnham, Faversham,
Kent. The major part of
an 1850s former vicarage in
the conservation area
of the village. The house is
in need of some
modernisation. It has
shuttered sash windows, high
ceilings, wood floors and
retains its original fireplaces.
1.2 acres. 750,000 Finns
01227-454111.

28 October 2016

MoneyWeek

cars
38

XX

cars

BMWs cult classic

The BMW M135i has become something of a cult classic among
car lovers, says Neil Winn in Autocar. First released in 2012, its
one of those machines that doesnt look particularly exciting,
but offers a truly special driving experience. It is, without doubt,
one of our favourite hot hatches.
The new M140i is as rewarding as the car it replaces, says
Winn. The sonorous 3.0-litre engine has been replaced with
an even more powerful 335bhp motor, and that makes the car
properly quick in a straight line. But it is its flexibility thats
most impressive for real-world driving. It responds almost
instantaneously at any number of revs, which means its as
happy being a long-legged cruiser as an M car screamer.
Guiding it down your favourite B-road is a rewarding
experience and will put a smile on your face.
The car is an ideal fit for British roads, says Will Beaumont in
Evo. Its compact dimensions mean you can exploit its attributes
to the full on our narrow lanes, and the power and torque
the engine puts out means youll never feel out of
your depth on the wide open road either. Keen

drivers will love the cars focused handling, smooth six-cylinder

engine and sweet chassis, says Sam Naylor in Auto Express,
but anyone can appreciate its upmarket interior and exciting
exhaust note. Its not cheap, but for what could well be the last
rear-wheel-drive, straight-six hot hatch, many will be happy to
pay up.
If you push the car very hard youll notice a slight float and lack
of traction at the rear, says Ollie Kew in Top Gear, but for most
people most of the time youll enjoy every moment of your time
in this car. The driving position is spot on, the engine is great
and the handling rewarding. It is a very enjoyable place to
be indeed.
Price: 31,875. Engine: 2,998cc, six-cylinder, turbo, petrol.
Top speed: 155mph. 0-62mph: 4.6 seconds. Power: 335bhp.

Wine of the week: an incredible boutique Champagne

2008 Ayala, Blanc de Blancs, Champagne,
France (49.95, ChampagneDirect.co.uk;
44.48, CambridgeWine.com).
I popped over to Champagne in the
summer to attend the launch of
Bollingers Galerie 1829 and La Rserve.
A full write-up on this life-changing visit
can be found on my website, to coincide
with the publication of this piece.

by Matthew Jukes

I travelled out a day early to squeeze

in another visit Ayala, the incredible, boutique Champagne
house, owned by Bollinger, and situated in the same village,
A, as its parent company. I enjoyed a phenomenal tour and
tasting with winemaker Caroline Latrive and her tiny team.
I am of the mind that Ayala is making some of the most
individual and fascinating wines in the region and this newly

MONEYWEEK

28 October 2016

released, 100% chardonnay wine, made from Grand Cru

fruit sourced from the villages of Chouilly and Mesnilsur-Oger, is a tour de force. With a relatively low dosage
and six years spent on lees, it is an ultra-fine wine with
serious depth and richness cut by searingly refreshing
acidity.
The 2008 Ayala Blanc de Blancs will no doubt
whet your palate for the release of the 2006 Cuve
Perle dAyala (about 95) in the New Year. I venture
that this will be Ayalas most vaunted release to
date, underlining the fact that the incredible
renaissance of this historic Champagne house is
all but complete.

Matthew Jukes is a winner of the International

Wine & Spirit Competitions Communicator of the

Year (MatthewJukes.com).

moneyweek.com

blowing it

39

blowing it

39

Why waste money on sparkly baubles?

produced by murderous
exploiters in some
lawless republic. The
whole jewellery fetish,
says Coren, fills him with
sympathy for the robbers
who take it from the likes
of Cowell and Kardashian.

In the Daily Mail, Tom

Utley recounts how, against
his better judgement, he
wound up paying 265 for
a pair of shoes. Having left
home in search of a new
pair of black Oxfords for
work, he found himself in a
smart shop where prices for
black Oxfords start at 195
for a pair, rising to 265 in
the middle of the range and
well over 300 at the top,
according to the quality of
the leather.

I see his point and also

how his argument can
be extended, as he does
indeed extend it, to the
whole business of pointless
ownership, be it of
jewellery, expensive cars
art. (Why not just go to
Utley says hes never spent
a gallery?) Coren says he
more than 75 on a pair of
himself owns nothing and,
shoes for himself. (I believe
while hes exaggerating,
him: neither have I.) But
the sentiment is right:
finding himself standing
we put too much stock
in this snooty shop, and
on ownership and not
remembering the advice
enough on experiences.
he was once given by the
Jewellery, cars, art the obsession with ownership
The question, as a letter
legendary editor, Sir John
to The Daily Telegraph put it this week,
deserved a long item. Probably just a
Junor One piece of advice, Tom.
is whether we own our things, or they
couple of bits Simon had lying about I
Frugality is generally commendable, but
own us. Not owning things is more
mean, compared with the 8m of ice they
it is the most foolish of false economies
relaxing.
took off that sex-tape bird with the big
to buy cheap shoes he found himself
bum in Paris its practically laughable.
presenting his credit card with an
On a different, perhaps contradictory,
What, wonders Coren, is wrong with
attempt at a nonchalant smile. Id
note, Im with Celia Walden in The
these people? Nothing wrong with being
probably have done the same. Ive been
Daily Telegraph magazine who puts in a
rich and spending money on beautiful,
given similar, Junor-style advice, couched
sensible, much-needed defence of those of
massive great houses all over the world
in terms of an old adage: never stint on
us who like clutter. Whats wrong with
and planes and food and servants to do
your shoes or your bed; you spend your
keeping old things and toppling towers
all the tedious things you had to do for
whole life in one or the other.
of memories? All the bossy anti-clutter
yourself when you were poor.
brigade have done, says Walden, is find
But if expensive shoes are daft, at least
yet another way for the guilt-ridden
But spending money on jewels to the
shoes have a point. The same, as Giles
middle classes to purge themselves by
value of many hundreds of peoples
Coren noted in The Times, cannot be
applying a diet and deprivation mentality
salary combined? That is surely madness,
said of jewellery. He had been reading
to personal space. Hear, hear.
especially as the kind of sparkly
a small item in the paper about Simon
baubles were talking about have no
Cowell losing jewellery worth about
intrinsic worth and often seem to be
1m in a burglary. Well, it hardly

Tabloid money dimbo British luvvies weigh in to the presidential campaign

A bunch of dimbo British luvvies have been

over in the US, campaigning for Hillary Clinton
to become the next president, says Rod Liddle in
The Sun. Dame Helen Mirren, Sienna Miller and
Emily Blunt [pictured] were at a fund-raising bash
for the stone-faced harridan. Ill bet the American
people are really impressed at being told what to
vote by air-headed Brits, with whom they have
nothing whatsoever in common. Especially by
Ms Blunt, who took out US citizenship then
said she regretted it because of how horrid the

moneyweek.com

Republicans are. Silly cow. Imagine if Tom Cruise came over

here and told us what way to vote. My guess is that every
time Sienna and the rest open their mouths, the Trump vote
rises a little.

Embattled Sir Philip Green, the former BHS boss at the

centre of a scandal over the collapsed firms pension

fund, must long for the gentler days of Tony Blairs
government, says the Daily Mail. In 2003, he forked
out 18,000 for a game of tennis with Blair at an auction
organised by Labour fundraiser Lord Cashpoint Levy.
Blair then gave the green light for Greens knighthood.

The time has come for Prime Minister Theresa May to

call a general election and bury all the whining, cheating,
anti-democratic Brexit-denying pussies that would love to
thwart the will of 17.4 million British people and keep us in
the European Union, says Tony Parsons in The Sun. Call a
general election now, prime minister, and bury for all time the
referendum deniers in your own party.

28 October 2016

MONEYWEEK

Rex Features; iStockphotos

Vanity Fair editor Graydon Carter says Donald Trump,

posing in a luxurious, 1,000-plus Loro Piana cashmere
sweater for one of the magazines photoshoots, was
asked to take it off but refused, thinking it might disturb
his extraordinary, comb-over hairstyle, according to
Ephraim Hardcastle in the Daily Mail. So they had
to cut the sweater off his back. Does The Donald
wear a hairnet at night?

reviews
40

XX

books

Alan Greenspan: hero or villain?

The Man Who
Knew: The Life
and Times of Alan
Greenspan

by Sebastian Mallaby
Bloomsbury (25)

The former
chairman of the
Federal Reserve was
once a heronow he is being called a
villain, says Martin Wolf, the Financial
Times chief economics commentator,
in The Economist. However, Mallabys
new book will help history make
up its mind about Alan Greenspan.
This superb biography takes readers
on a long journey from Greenspans
childhood through his spell as an acolyte
of Ayn Rand to his leadership of the
Federal Reserve and on to the postcrisis collapse of his reputation. It also
throws a sharp light on American
policy and policymaking over four
decades. Ultimately the big lesson of
the book is that the forces generating
monetary and financial instability are
immensely powerful.
For all its length and detail, its also a
hard book to put down, says Randall
S Kroszner in The Wall Street Journal.
Mallaby has a knack for finding the
right example or sparkling quotation to
illustrate his points. And it is not just
the story of one central bankers career,
but equally of Americas economic

triumphs and failures over five decades.

It is a carefully researched and elegantly
written book that will be essential
reading for anyone who aspires to make
policy or who wants to know what drives
the choices leaders make.
Mallaby should though have put a
little more emphasis on Greenspans
adherence to asymmetric monetary
policy, whereby he put safety nets under
collapsing markets but chose not to
curb bubbles, says John Plender in the
Financial Times. However, this criticism
is only a quibble that does nothing
to undermine the achievement that this
deeply researched and elegantly written
biography represents. Indeed, as a
description of the politics and pressures
under which modern independent central
banking has to operate, the book is
incomparable.
The narrative is also a perfectly timed
morality play about putting too much
faith in oracles, reckons Rana Foroohar
of Time magazine. However, she finds it
odd that the author thinks Greenspan
was wrong to apologise for his role in the
financial crisis. In her view the apology
is one of the turns in his story that
redeem him. After all, many others
who played a part in the events leading
up to the Great Recession failed to do
so. Far from being unnecessary, or
disingenuous, Greenspans mea culpa
was an important counterexample in
the ongoing fiction of the omniscient
central banker.

Alamy

by Matthew Partridge

Greenspan: an oracle humbled by a crisis

At more than 700 pages, this biography
is a substantial read. Indeed, if youre
not already familiar with American
politics it will be easy to get overwhelmed by the huge amount of detail
provided about Greenspans personal
and professional life. Mallaby also tries
hard to be even-handed, so those looking
for an anti-Greenspan, or anti-Fed,
polemic are likely to be disappointed.
However, if you enjoy reading about
politics and want to understand how
central bankers can be swayed by outside
pressure and ambition, this is the book
for you. Even if you dont want to read
the entire work, we felt that the early
section on how Greenspan came up
with the economic beliefs that shaped
his response to the various crises on his
watch is itself worth the cover price.

How the 1% escape the taxman

Capital Without Borders:
Wealth Managers and the
One Percent
by Brooke Harrington
Harvard University Press
(22.95)

Borders: Wealth Managers

and the One Percent, by
Brooke Harrington, looks
at the wealth-management
industry through the eyes of
the managers themselves.

Earlier this year, a massive

document leak from law firm
Mossack Fonseca, dubbed
the Panama Papers,
revealed the extent to which
celebrities, businessmen and
some world leaders will go
to avoid paying taxes. While
their behaviour is clearly
immoral, they wouldnt be
able to do this without an
army of legal and financial
professionals. Capital Without

This is one of those rare

books where you just have to
stand back in awe and wonder
at the authors achievement,
says Richard Murphy in
Times Higher Education. The
most impressive
thing is how the
author secured
access to those she
wished to interview
by choosing to
become a member

MoneyWeek

28 October 2016

of the wealth-management
profession herself, resulting
in a profound insight into
the world of the professional
people who dedicate their
lives to meeting the perceived
needs of the worlds ultrawealthy.
While Harrington found that
most wealth-management
practitioners avoid criminal
acts at all cost, says the
IMFs Finance
& Development
Journal, they do
adopt strategies
that, albeit legal,
are socially
destructive. Capital

Without Borders makes

a strong case for shifting
attention from the wealthy
who want to hide their assets
to the professionals who
make it happen.
Still, its worth remembering
that the vast majority of
those who use the services
of wealth managers are not
crooks, nor even by the
standards of the global elite,
at least especially rich,
says Felix Martin in The New
Statesman. With many parts
of the world unstable, corrupt,
or both, who can blame the
rich for steering clear of their
local banking systems?

moneyweek.com

XX

crossword
crossword

Tim Mooreys Quick Crossword No. 817

Bridge by Andrew Robson

A bottle of Taylors Late Bottled Vintage will be given

to the sender of the first correct solution opened on
9 November 2016. Answers to MoneyWeeks Quick
Crossword No. 817, 8th Floor, Friars Bridge Court,
41-45 Blackfriars Road, London SE1 8NZ.

Bocchis subterfuge

41

How does an expert tackle a Three No Trumps, where there is an

unstopped suit which the opponents have not led?

Dealer South

Both vulnerable
1086
1086
Q642
A62

QJ73
KJ94
K85
104

92
A532
J10
J9853

E
S
AK54
Q7
A973
KQ7

The bidding
South
1 *
2NT
pass

West
pass
pass
pass

North
2
3NT

East
pass
pass

* Playing Five-card Majors.

Six answers are either literally (four answers, unclued) or homophonically (two
answers, clued in italics) associated with their positions. One answer of a similar kind is
at the wrong place and is to be shaded .
ACROSS
7
Large island, part of
Indonesia (4)
8
Brandy (3, 2, 3)
9
Fords car range? (6)
10
Main language spoken
in Tashkent (5)
11
Sum of money placed
with bank (7)
13/16 Popular Bizet opera (6)
17
Cream-coloured root
vegetable (7)
20
(5)
21
XX in Rome (6)
23
You may get stuck on this! (8)
24
Sounding impolite,
expressed regret (4)

DOWN
1 A sailor (7)
2 (4)
3 Largest financial centre in Israel (3, 4)
4 Skirts (5)
5 Belgrade natives (8)
6 Brings up (5)
12 (3, 5)
14 Strauss wrote many of them (7)
15 (7)
18 Stage whisper (5)
19 One side of the account (5)
22 Marks replacement (4)

moneyweek.com

Bocchis solution, far from original and yet nearly always surprisingly
hard to unearth as a defender, was to lead a heart himself at trick two.
A heart to his queen lost to Wests king and West persisted with the
queen of spades to declarers king. Having laid the camouflage, it was
now time to play the suit in which he was genuinely interested.
He led a low diamond to dummys queen, returned one to his ace,
then gave West the third round. West continued blithely with the
knave of spades and declarer showed his hand. Winning the ace, he
had three spade tricks, three diamonds and three clubs. Game made
daylight robbery.
For all Andrews books and flippers including his new booklet
Counting and Card Placement see AndrewRobson.co.uk

Tim Moorey is author of How To Crack Cryptic Crosswords, published by

HarperCollins, and runs crossword workshops (TimMoorey.info).

Taylors, a family firm for over

300 years, is dedicated to the
production of the highest
quality ports. Late Bottled
Vintage is matured in
wood for four to six years.
The ageing process
produces a high-quality,
immediately drinkable
wine with a long,
elegant finish; ruby red
in colour, with a hint of
morello cherries on the
nose, and cassis, plums
and blackberry to taste.
Try it with goats cheese
or a chocolate fondant.

West led the three of spades and declarer, Italian Norberto Bocchi,
rose with dummys ten, needing a third quick trick in the suit. Success
his ten scored the first trick. He needed three diamond tricks for his
contract but if he lost a diamond (as he would have to) straight away,
might not the defence switch to hearts?

Solutions to 815
Across 6 Expansionist 8 Joke
9 Two-timer 10 Aristo 13 Tomato
15 Foe 16 Spliff 17 Sprint 18 Olympics
21 Stet 23 Nevertheless.
Down 1 Lego 2 Aprs-ski 3 Unit
4 Ripostes 5 Anti 7 Slept in
11 Repulse 12 Off-piste 14 Marksmen
19 Meek 20 Seen 22 Easy.
Olympic gold medallists and
partners LAURA TROTT and
JASON KENNY were hidden in
the perimeters.
The winner of MoneyWeek
Quick Crossword No. 815 is:
Brian Arbuckle of Chelmsford.
Answer to Guess the price column
575,000 Fine & Country
01223-363700.

Sudoku 817
2
1 8
6
5 3
3
2

6 8
8

9
5 3

5
4

7
2
4 9
2
6 1
6

MoneyWeek is available to visually

impaired readers from RNIB National
Talking Newspapers and Magazines
in audio or etext. For details, call
0303-123 9999, or visit RNIB.org.uk.

To complete MoneyWeeks
Sudoku, fill in the squares
in the grid so that every row
and column and each of the
nine 3x3 squares contain all
the digits from one to nine.
The answer to last weeks
puzzle is below.

1
4
9
6
8
3
7
5
2

2
7
3
4
1
5
6
9
8

6
5
8
2
9
7
4
3
1

4
6
7
5
3
1
8
2
9

8
2
5
7
6
9
1
4
3

28 October 2016

9
3
1
8
2
4
5
6
7

7
8
4
3
5
2
9
1
6

3
1
6
9
4
8
2
7
5

5
9
2
1
7
6
3
8
4

MONEYWEEK

last word
42

XX

last word

How we sabotaged the economy

Doing good work for the love of it is a sin at least thats what economics would teach
veterans home. We decided to put them
to use, bring them in out of the cold,
rehabilitate them and make them part of
family life again.
To an economist, this is an act of
sabotage. Economists only have numbers,
and numbers measure quantity, not
quality. So when they advise a president
or direct a central bank they are not
looking at quality but at numbers. And
they always want bigger numbers more
people working, higher GDP growth,
greater productivity. More more
more. They even want more consumer
price inflation because it gives the
impression of more of everything else.
Prices go up, sales go up, GDP goes up.
Glory, hallelujah.

Bill Bonner

Were renovating a funky house and,

rather than buy new furniture, I brought
in some old tobacco sticks, cleaned
them up, and fashioned them into a new
headboard for a bed. Tobacco sticks,
hand-split from oak and hickory, were
once a useful part of life around here
they felt the rugged embrace of a farmers

Another saboteur at work

hand, who would use them to impale five
or six tobacco stalks before throwing
them on the wagon. After drying, they
would be tied into hands, packed into
burthens and then taken to market.
The sticks were an important part of the
process. They were needed. They were
respected and valued. They were loved.
But the tobacco economy fell to pieces in
the 1970s. Now the tobacco sticks just
rot. Years go by when no human hands
touch them. They just sit in piles, wasting
away like crippled old soldiers in a

The bottom line

34,518 The estimated annual cost of supporting someone

who has become homeless, according to research for the
charity Crisis. Measures to prevent homelessness in the first
place would cost the nation 370m, or about 9,000 a year for
every person helped.

36,000 The bill for killing one wolf in Switzerland

A man who recycles tobacco sticks

and spends no money in the process is
a sinner. There were no sales taxes paid
on the bed we didnt buy. No orders
were sent replacing the inventory.
No profits were registered. And no
wages were paid not to the person who
didnt sell them, nor to the person who
didnt ship them, nor to the person who
didnt make them. Economists can only
measure things in terms of money.
But if a woman stays home to take
care of her children, no money changes
hands. The economists will say that is
bad for the economy. But what would
the children say? They may beg to differ.
Robert Frost had it more right than the
economists. Only where love and need
are one/And the work is play for mortal
stakes/Is the deed ever really done/
For Heaven and the futures sakes.

22,000

The number of people who applied to ScotRail for

100 jobs to drive trains, which pay 44,215 a year. Virgin Trains
received 15,000 applications for 78 train-driving jobs. Eurostar
train drivers earn 63,569 annually.

50m The amount in Premium Bond prizes that has gone

that had preyed on 70 sheep. That includes the costs

of 1,066 man-hours, helicopters and overtime.

unclaimed. Four holders have won 100,000, but so far have

not come forward. Overall, more than a million people have
failed to claim prizes for which there is no time limit.

5 The value of two empty Cuban cigar tubes

20,000 The cost of a giant 13-foot by ten-foot model of

that were banned from sale on eBay as the

auction website does not allow the sale
of goods from countries embargoed by
America.

7.4bn How much foreign tourists

spent at museums, theatres and

parks last year more than twice as
much as domestic tourists, according
to the Heritage Lottery Fund.

MONEYWEEK

28 October 2016

Castle Howard, the setting for the 1981 television series,

Brideshead Revisited
Revisited, that will be made out of ginger bread
as the centrepiece for the estates Christmas festivities.

8m The price per year at which bidding will start

for the right to sponsor The Great British Bake Off,

the cookery television programme presented by Paul
Hollywood (pictured) and bought by Channel 4 for
75m. It will broadcast the show from 2018.

moneyweek.com

BBC Pictures

Economists say that the average

Americans income may not have gone
up over the last 30 years or so, but his
quality of life has improved. He has
more gadgets. His truck has airbags.
He may get more benefits from the
government. He can sit in a carpeted,
heated, air-conditioned office during the
week and power wash his driveway on
weekends after watching a football game
on a big screen. He doesnt have to build
his own bed or recycle tobacco sticks as
I have been doing recently.

iStockphotos

Ive been developing a theory that

economists have ruined the world.
Ive written regularly in this column
about how theyve corrupted the
economy with the fake dollar, how
theyve corrupted the American political
system too. Now Im beginning to realise
that theyve corrupted our whole society.