MARKETS P4 ANALYSIS P18 PLUS

America is in The post- Cashing in on

deep denial liberal the craze for UFOs
over debt revolution COLLECTABLES P36

MAKE IT, KEEP IT, SPEND IT 11 AUGUST 2023 | ISSUE 1168

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the bull
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 11 August 2023 | Issue 1168 Britain’s best-selling financial magazine

From the editor...

“Denial is a river The National Institute of
in Egypt,” as a Economic and Social Research
friend pointed (NIESR) said this week that
out to me when I inflation is unlikely to return to
insisted, shortly the 2% target until after 2027.
before my birthday, that the ten Part of the problem is resilient
years between 39 and 40 are wage inflation and its impact on
the best of one’s life. Refusing overall price rises.
to face facts is a particular Productivity has been broadly
danger for countries (see page stagnant since 2019, so higher
4) and investors, because it can demand from rising pay would
prove very expensive. Plenty not be matched by greater
of analysts have been warning supply from productivity,

©Getty Images
for months that the uptick in Working from home has no impact on implying a rise in inflation. I
stockmarkets that began last productivity, say people who work from home wonder if productivity would
October would go nowhere. be improved by getting more
But it is still going strong, and “UK inflation may not fall to the 2% target staff to come back to the office –
is likely to endure, says Max in
his cover story on page 20. So
until after 2027, says the NIESR think tank” though analysts have repeatedly
assured me on Zoom calls that
it is time the naysayers threw in the towel bursting of the colossal property-led debt WFH cannot possibly be the problem.
and agreed that we are dealing with a bull bubble has helped depress prices. China’s
market. He highlights the best investment GDP deflator, a wide gauge of goods and Today’s volatile global backdrop means
trusts to sell or buy now. Discounts to net services prices, slipped by an annual 1.4% it has rarely been more difficult to
asset value across the investment-trust between April and June, the worst slide preserve and build wealth. So we have
sector are at their highest levels since the since 2009. China has also just recorded asked a wide array of experts to our
financial crisis, so it is certainly not too late its biggest slump in exports since the annual MoneyWeek Summit, which
to find bargains in this market. pandemic. This time round, tepid demand will take place on 29 September. Panel
in stagflationary developed economies will topics will include investing in an era of
China turns Japanese preclude a big boost from foreign sales. stagflation, emerging markets, energy
Meanwhile, you would expect the In this stagflationary developed and property. John and Merryn will
notion that China could follow Japan economy, the spotlight has begun to appear on the property panel, while other
into deflation and stagnation to be given shift to the prospect of monetary policy speakers will include economist Julian
short shrift in Beijing. So I was intrigued becoming too tight and causing an unduly Jessop and investment strategist James
to read in a German magazine this week harsh recession (see page 5). The Bank of Montier. Tickets are now on sale at www.
that according to Liu Yuhui, an economist England getting it wrong is usually a safe moneyweeksummit.com. MoneyWeek
at the Chinese Academy of Sciences, the bet, though a greater concern for now is subscribers receive a 25% discount off the
Middle Kingdom’s economy is at the that inflation is likely to prove sticky given standard ticket price.
same stage as Japan’s 30 years ago. His that core inflation (stripping out volatile
speech “spread like wildfire on social food and energy prices) has only slowly Andrew Van Sickle
media”. As in Japan in the late 1980s, the retreated from its peaks in the past. editor@moneyweek.com

Good week for:

Moving the goal posts Barbie, directed by Greta Gerwig (pictured), has become the highest-grossing
Wizz Air’s chief József Váradi film directed by a woman, says The Guardian. The live-action film starring
(pictured) has been handed an Australian actress Margot Robbie in the title role has topped $1bn at the
extra two years to meet the global box office after just two weeks, overtaking the $821.8m grossed by
targets that unlock a £100m Patty Jenkins’ Wonder Woman in 2017.
bonus as part of his incentive
package, says Leke Oso Alabi American football legend and seven-time Super Bowl champion
in the Financial Times. Váradi Tom Brady has become a minority owner of Birmingham City football
now has until 2028 to lift the club and chairman of the Championship side’s new advisory board.
Budapest-based airline’s Brady paid an undisclosed amount to join forces with Birmingham
London-listed share price City’s new US owner Knighthead Capital, which acquired full
above £120. He said the ownership of the St Andrew’s stadium and 45% of the club last
decision showed a month. He will advise on health programmes, fitness and nutrition.
“prevalence of capitalist
spirits”, despite the motion Bad week for:
inciting a major rebellion by British-Albanian pop star Dua Lipa is being sued for $20m in Los
Cover illustration: Adam Stower; Photos: Getty Images

shareholders. Almost 30% of Angeles over breach of copyright, says Reuters. Musician Bosko Kante
the free float rejected the claims the singer used a recording made with his “talk box” (a device
extension, which proxy advisers that makes vocal vibrations sound like musical instruments) in remixes
Institutional Shareholder of her hit single Levitating. The song was one of Dua Lipa’s most
Services had said was “not fully popular tracks from her album Future Nostalgia, released in 2020.
in line with UK good practice”.
Still, Váradi has his work cut Barcelona locals, wanting to dine alone outside at one of the city’s
out. The shares currently trade at restaurants, have taken to social media and the national press to
£23, down from £40 two years complain about being turned away in favour of larger groups of
ago, due partly to Wizz Air’s failure tourists, says The Times. The tables are often at a premium in the
©Getty Images

to hedge against the rising price busy summer months, particularly on the Carrer de Blai – a street
of oil. known for its tapas bars – and in the Eixample district.

moneyweek.com 11 August 2023

4 Markets

America is in deep denial over debt

Alex Rankine
Markets editor

A downgrade in America’s credit rating is

“absolutely merited” given Washington’s
“wildly reckless overspending”, says
Stephen Miran in the National Review. Last
week credit-rating agency Fitch cut the US
government’s credit rating one notch from
AAA to AA+, citing “a high and growing
general government debt burden, and the
erosion of governance” after June’s stand-
off in Congress over the debt ceiling, which
brought America close to default.
Fitch is the second of the big three rating
agencies to have cut the US rating from the
AAA “gold standard”, says Rafael Nam
on NPR. S&P Global took a similar step
in 2011. Just nine countries retain an AAA

rating from all three agencies. The public
debt-to-GDP ratio in these nations averages
39%, compared with 112% in America.
The market impact was limited as
the downgrade contained “no new
information”, say DWS’s analysts in a
note. The move was “oddly timed”: it
would have made sense for Fitch to act
earlier this year when the debt-ceiling fight
loomed. Yet Fitch is right to warn that the
“policies currently in place put the US on an
unsustainable path”.
Howls of protest
Fitch’s decision to move America from
“outstanding” to merely “excellent”
provoked wails of protest, says Irwin Stelzer
in The Sunday Times. Jason Furman,
formerly of the Obama administration,
complained that the downgrade was
“completely absurd”, with former Treasury
secretary Larry Summers labelling it
“bizarre and inept”. Treasury secretary
Janet Yellen argued that “the American
The national debt-to-GDP ratio in the US has reached 112%
economy is fundamentally strong”.
She’s right, which is why continuing to
run annual deficits in excess of 5% is
indefensible, says Stelzer. While an outright
default seems improbable – “Treasury
printing presses guarantee that there will
always be sufficient dollars” to pay US
debts – a “de facto default, paying debt
obligations in wildly depreciated dollars” is
no longer unthinkable.
Fitch’s move is a political judgement,
says Gillian Tett in the Financial Times.
“Even if Washington can theoretically pay
its bills and cut its debt, that does not mean
it actually will”. Politics are so “polarised
that it is hard to imagine Congress taking
the sensible steps needed to tackle America’s
fiscal problems”. The US has no plan for
getting its borrowing under control, says
Szu Ping Chan in The Telegraph. The
“world’s biggest economy is expected to
©Getty Images
borrow 5.8% of GDP this year”, according
to the independent Congressional Budget
Office (CBO). Alarmingly, “deficits are...
projected to average 7.3% of GDP every
year for the next 30 years, more than double
the average over the past half-century”.
The CBO says that in the past century
“deficits have been that large only during
World War II and the pandemic”.
Interest on the federal debt will hit
$663bn this fiscal year and is “fast
approaching the size of the military
budget”, says Michael Lewitt in The Credit
Strategist newsletter. David Rosenberg of
Rosenberg Research calculates that within
a decade annual interest payments will be
worth over 20% of federal government
revenues, compared with 9% before Covid.
Fitch’s downgrade is “a wake-up call to the
political class” that “America needs to get
its fiscal house in order”.

A big bill for the Bank of England

The bill for quantitative easing £72.3bn, or 2.7% of GDP. These
(QE) is becoming eye-watering. are “real losses, which
The Bank of England began QE taxpayers will have to bear”.
in 2009 in response to the The Bank of England currently
financial crisis. By the end of estimates that “it will require
2021 the stock of assets held in the Treasury to transfer a total
the Bank’s Asset Purchase of £150bn by 2033 to cover”
Facility (APF) peaked at QE losses, says Delphine
£895bn, of which £875bn was Strauss in the Financial Times.
UK government debt (roughly “The losses are all the more
one-third of the entire gilt embarrassing since much
market) and £20bn was pandemic-era QE turned out to
corporate debt, says Hermione be counterproductive,” says
©Getty Images

Taylor in the Investors’
Chronicle. Since last year the
Bank has been engaged in
quantitative tightening (QT),
which sees it sell off bonds (or
allow them to mature) in order
to remove previously printed
money from circulation.
“The pace of QT has been
gentle,” with the Bank set to
have reduced its gilt stock by
Central banks bought bonds with
printed money long after the Covid panic began
£80bn, equivalent to just 11.6%
of the overall APF, by the end
of September.
Between 2009 and February
2022 the gilts that the bank
had acquired “generally
appreciated”, say Jagjit
Chadha and William Allen for
NIESR. Yet last year gilt prices
plunged, inflicting £169.1bn of
losses on the APF over the
year to 28 February 2023 (the
most recent date for which
data is available). Over its
lifetime, the APF has thus
made a cumulative loss of
The Economist. While the
experience of 2008 and 2020
shows that emergency QE can
be a useful tool to head off full-
scale financial meltdown,
there is little evidence that it
helps much during calmer
markets. Once the panic of
spring 2020 was over, “central
banks kept buying bonds long
after it was necessary”.

11 August 2023 moneyweek.com


Can oil prices
keep rising?
Traders betting on a tighter oil
market this year have been
repeatedly burned, says
Grant Smith on Bloomberg.
A few months ago, Brent crude
threatened to plunge below
$70 a barrel, prompting alarmed
output cuts by Saudi Arabia
and its allies in the Opec+
producers’ alliance.
Those cuts now seem to be
having the desired effect. Brent
has rallied by 17% since mid-
June to trade at $85 a barrel
earlier this week. While it
remains to be seen whether the
Markets 5
UK’s core inflation will linger
The Bank of England raised
interest rates by a further
quarter of a percentage point at
its August meeting, taking rates
to 5.25%, the highest level since
2008. The Bank’s latest forecast
is that annual inflation, now
7.9%, will fall to 5% by the end
of this year and not return to
the 2% target until the second
quarter of 2025.
The Bank says that it will
keep the base rate “sufficiently
restrictive for sufficiently long”

price jump marks a “turning
point that heralds a major price
rally”, the bounce does at least
suggest that oil prices have
“found a floor”.
This year’s output cuts have
been mostly shouldered by
Saudi Arabia, says Will Horner
in The Wall Street Journal. It
has been keener than others to
keep prices buoyant – Riyadh
needs oil prices of at least $80
a barrel to “fund lavish
infrastructure projects”. Saudi
production thus looks set to fall
to its lowest level in 12 years,
excluding the pandemic.
Brent crude will trade at
around $85 a barrel for most of
the rest of this year, forecasts
Edward Gardner of Capital
Economics. Prices are being
supported by Opec supply
cuts and surprisingly robust
demand from the US, where oil
consumption rose 3.5% on the
year in May. Yet next year prices
could be set to fall back again as
Opec countries, led by the UAE,
bring more supply onto the
market. South American output
is also set to rise in 2024.
©Getty Images
to achieve the 2% target, says
Ben Martin in The Times.
That wording suggests that
“borrowing costs could
remain above 5% into 2025”.
Wage growth is still around
7%, which is far too high,
says Rupert Thompson of
Kingswood. That is keeping
the Bank hawkish. Investors
expect a further 0.5 percentage
points of hikes over the coming
months, which would take rates
to a peak of 5.75%.
Too hawkish, too late?
“Two zealous members” of
the bank’s Monetary Policy
Committee (MPC) actually
voted to increase rates to 5.5%,
says Laith Khalaf of AJ Bell.
They are getting carried away:
the bank’s own forecasts show
that the economy will register
“almost no growth in the
coming two years... Sometimes
doing nothing is the hardest
approach, but there is increasing
evidence that’s the path the
Bank should now be following”.
Is governor Andrew Bailey behind the curve again?
“The recession warning they fight yesterday’s battles.
lights” are “flashing so brightly Inflation is on the way down
that the most sensible course anyway – the producer input
of action would be to slam the index, which tracks “the costs of
brakes on,” agrees Ben Marlow raw materials and components
in The Telegraph. The Bank used by manufacturers”, turned
has already served up “the negative in June amid tumbling
fastest pace of rate rises in more energy prices. Has the MPC
than 30 years”. The impact is forgotten that interest-rate rises
becoming clear – UK “factory work with a significant lag?
output” is falling “at its fastest They can take well over a year
pace in seven months” and the to feed through to the economy.
housing market is in “its worst In any case, interest rates do
slump in nearly a decade and “appear close to the summit”,
a half”. The economy can’t says Paul Dales of Capital
stomach much more of the Economics. What is vital now is
bank’s medicine. that the Bank keeps monetary
The MPC is determined policy tight for long enough to
to “salvage its shattered defeat inflation. Core inflation,
credibility” after failing to act which strips out volatile food
soon enough to curb surging and energy costs, is still running
inflation, says Liam Halligan at 6.9% and the lesson of the
in the same paper. But once 1970s and 1980s is “that core
again, governor Andrew Bailey inflation falls from its peak only
and Co are “behind the curve”, slowly”. Panicking and “cutting
inflicting unnecessary pain on interest rates too soon risks
households and firms while reigniting inflation”.

Viewpoint
“There is no empirical evidence that
shows 2% as the optimal long-run
inflation target for a central bank… It…
originated in New Zealand in the 1980s…
Roger Ferguson Jr… of the [US] Federal
Reserve observed… ’it came not from
any academic study, but rather from an
offhand comment during a television
interview’. For reasons no one has
intelligently articulated, other countries
subsequently adopted it as their target…
The Fed… has justified the 2% [target]
based on [the idea that it anchors]
inflation expectations… [yet] inflation
expectations are typically at their lowest
right before a surge in inflation occurs;
they are at their highest levels just as
inflation rolls over… they mimic the
n How the global gap between rich and poor has shrunk
Worldwide income inequality Never mind all the talk about
out of control inequality, says
Gini index (0 = perfect equality; 100 = perfect inequality)
Branko Milanovic in Foreign
70 Affairs. Over the past few
decades the world has been
experiencing a “great
convergence” as emerging
65 economies catch up with the
living standards of the rich
world. Global inequality rose
during the 19th and 20th
60 centuries as industrialised
nations pulled ahead. Yet this
century has seen a “stunning
decrease” as globalisation has
55 lifted hundreds of millions out
of poverty, says Felix Salmon in
Axios. “The world is more equal
Source: Branko Milanovic / Axios

typical over-enthusiastic investor, piling

in at the top of the market and panic now than at any point since
selling near the bottom…[targeting 50 about 1875.” While inequality
inflation] expectations [is] no way to run between countries has
monetary policy.” plummeted, it “has ticked up
slightly” within them since the
45 1990s, generating much
Barry Ritholtz, The Big Picture
1820 1860 1900 1940 1980 2020 domestic political discontent.

moneyweek.com 11 August 2023

6 Shares

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

Four to buy

Central Asia Metals to streaming. Assuming an League growth. Pressure

The Sunday Times
This miner “does what it
says on the tin”, excavating
copper in Kazakhstan. It also
produces zinc and lead in North
Macedonia. The shares have
fallen by 25% in 2023 owing
to weak commodity prices,
but that shouldn’t last given
demand for copper driven by
the decarbonisation agenda.
The group has low production
costs because it extracts copper
from mining waste, while a
debt-free balance sheet gives
it the firepower to go on the
acquisition trail. On a price/
earnings (p/e) ratio of 6.2, the
shares look “oversold”. 180p
ITV
Investors’ Chronicle
ITV’s boss says the channel is
enduring the worst advertising
recession since 2009. Yet the
company has other strings
to its bow, including ITV
studios, which creates and sells
programmes internationally,
and the new streaming platform
ITVX. The latter helped drive
a 24% rise in digital revenue
across the first half of this year,
showing that it is a case of better
late than never when it comes
eventual recovery in advertising,
the shares are “worth a chance”
on a forward p/e of 8.4. 72p
Secure Trust Bank
The Mail on Sunday
Shares in this Solihull-based
lender have halved in a year, but
that is a “poor reflection” of
its prospects. The bank is well
diversified, operating across
professional property, motor
and business-invoice financing.
It also helps businesses to offer
credit to consumers, notably
supplying “all the Premier
Two to sell
Just Eat Takeaway
Investors’ Chronicle
The end of lockdowns and
the cost-of-living crisis have
“not been kind to food-
delivery companies”. Given the
backdrop, reasonable half-year
clubs with
finance so they
can offer season
ticket deals to fans”.
Loans are funded via
deposits, which grew by more
than £2.5bn in the first quarter.
The 7.5% yield is an added
attraction. 556p
Unilever
The Telegraph
This consumer-goods giant has
lagged the FTSE 100 in recent
years as its woke advertising
strategy has failed to deliver
results at Just Eat have left
investors “pleasantly surprised”.
Cost-saving measures are
helping the bottom line. Yet
the structural challenges facing
food delivery “aren’t going to
vanish”. Management is also
seeking a buyer for “struggling”
US unit Grubhub, a business
Just Eat bought just two years
ago. Sell. 1,441p
Lam Research
Shares
Sales at this US semiconductor-
equipment maker fell by 31%
from activist
investors has
prompted a
management
shake-up that is
starting to work.
The firm’s brands, which
include Magnum ice cream,
Dove beauty products and
Knorr cooking ingredients, are
still “incredibly powerful” and
nearly half of sales come from
fast-growing emerging markets.
The shares trade on a discount
to peers, so there is room for a
rally. 4,202p
year on year in the three months
to 25 June. The chip sector has
been weak lately, but investors
are already looking forward
to the next uptrend in this
highly cyclical industry, with
the prominence of artificial
intelligence (AI) fuelling
bullishness. The optimism has
seen the shares double since last
October’s low and they are now
close to all-time highs. With
possible turbulence ahead for
the chip industry from US-
China spats, it might be wise to
“book some profit”. $718

...and the rest

The Mail on Sunday
Engineering and building
contractor TClarke’s expertise
is needed to build everything
from hospitals to corporate
headquarters. “Top-notch
Shares
Global car distributor Inchcape
is more than a vehicle retailer.
It also helps car giants with
product planning, imports and
logistics, and has expertise in
the stable rather than running
through the meadow” – the
shares are still trading below
pre-pandemic levels, despite
the tailwind of higher interest
rates. The shares are unlikely to ©Alamy; Getty Images

work” ensures high levels of
customer retention. There is
growth potential in data centres,
which require cold-water pipes
and air-conditioning units to
be fitted by the firm to keep
computer equipment cool.
“Existing investors should
hold. Newcomers... could
also find the current price
attractive” (130p).
navigating rapidly expanding
but complex emerging markets.
On a prospective price/earnings
(p/e) ratio of 9.5, the shares
are cheap compared with their
history. Buy (822p).
The Telegraph
A “cynic might suggest the black
horse” of Lloyds Banking Group
has recently been “sleeping in
rally until the economic outlook
improves, but in the meantime
a 5% dividend yield offers some
compensation. Hold (45p).
The Times
Lockdowns caused surging
demand for “premium spirits”,
but volumes at drinks giant
Diageo have ticked down over
the past year as reopening has
allowed consumers to find other
uses for their money. On a p/e of
19, the shares trade on a sizeable
discount to the Covid-era peak,
and look cheap for a business
that has delivered three times
the return of the FTSE All-Share
over ten years. Buy (3,413p).

A French view IPO watch

A post-pandemic boom in pet pharmaceuticals has ebbed of late,
says Anne Barloutaud in Investir. Shares in Côte d’Azur-based
Virbac, the world’s sixth-biggest veterinary biopharmaceuticals
group, have slipped by a quarter over the past year, while a
cyberattack in June has also weighed on investors’ confidence.
Yet on a long-term view the sector is attractive owing to growing
global pet ownership. Virbac has historically outgrown the wider
animal-health market and has further room to expand in many of
its 100 global markets. On 11 times 2024 operating income, the
shares are valued at a discount to their historical average of 15
and look inexpensive.
India is enjoying a boom in initial public offerings (IPO) by small
companies, says Bloomberg. A general recovery in investors’
confidence has sent major indices to new peaks, while poor
recent performances by overhyped large flotations are also
fuelling the boom. There have been 92 listings of companies
offering shares worth a total of up to just $100m, more than on
any other market this year. But investors appear to be tuning
out the risk inherent in buying newly listed tiddlers. Smaller
companies need only report earnings twice a year and are rarely
tracked by brokerages. There have been some spectacular
share-price collapses in the sector in recent years.

11 August 2023 moneyweek.com

8 Politics & economics

The return of Tony Blair

The former prime minister is not done with Britain, and Keir Starmer is listening. Emily Hohler reports
If Keir Starmer wins the general election,
Tony Blair stands ready to be one of his
“most important sources of inspiration”,
say Mario Ledwith and Patrick Maguire in
The Times. Blair’s recent conference on the
“Future of Britain” marked his first public
embrace of the Labour leader, and Blair is
in “perfect shape” to wield his influence.
Since 2016, the three-time general-election
winner has “poured his energies into
building a political consultancy-cum-policy
factory that he believes will shape the next
generation of politicians”.
For all its growing domestic influence,
the Tony Blair Institute for Global
Change (TBI) is primarily funded by its
consultancy work for foreign governments.
This accounted for $79.5m of its $81.3m

turnover in 2021, says Fraser Nelson in The
Daily Telegraph. Blair’s first outfit, Tony
Blair Associates, was dissolved seven years
ago, having served “various emirs, oligarchs
and despots”. Today, the TBI has “750
staff meddling in 40 countries”, offering
“Blairism for the planet”. The recent
conference featured “the usual platitudes –
diversity, technology, clean energy, stability
– but what it’s really about is networks,
power and people”. Starmer “doesn’t have
very many ideas or contacts, and Blair
stands ready to oblige”. Blair is now “openly
mulling” his role in a Labour government.
He even owns a house a convenient 15 miles
from Chequers. But Blair’s game today is
very different from Blairism of old. Blair’s
interests are “cosying back up to the EU, the
regulation of AI and dreaming up new ways
to divert people’s pension funds”.
He is also something of a “utopian
futurist”, says Tom McTague in Unherd,
believing, “almost as a faith, in the power
of technology”. For instance, he supports
digital ID cards, vaccine passports and
“vast new health databases”.
The future is not progressive
How much influence would Blair really
have over an incoming Labour government?
Intellectually Starmer is “more Brownite
than Blairite” and his alliance with Blair is
more one “of necessity”, says Nelson. And
despite Starmer’s “limitations” and Blair’s
“greater political acuity”, it is Starmer who
“better understands the political moment”,
says Jonathan Rutherford in The New
Statesman. Amid Starmer’s “jumble of ideas
lies a radically different kind of politics”.
Starmer’s stated wish is to “return
Labour to the service of working people”.
This is no easy task, says Rutherford.
Starmer’s political career began in the
collective attempt to overturn Brexit,
which displayed a “reactionary contempt
for the working classes and provincial
middle classes” who voted Leave, the
very voters he is now relying on. Can he
“escape his own political past and drag his
party out of its metropolitan enclaves”?
The future of politics is “not progressive”;
©Alamy
Blair and Starmer: a public embrace
it will be “radical on the economy and
conservative on culture and society”.
Starmer is the best hope of achieving this.
Starmer and Labour currently have
an average 20-point lead in the opinion
polls over the Tories, but history tells us
that doesn’t make it a “slam dunk”,
says Patrick O’Flynn in The Spectator.
Gauging the “depth and resilience” of a
poll lead is more “an art than a science”.
Modern-day Mondeo man has “an
inkling” that the Labour party is not on
his side. If the cost-of-living crisis “fails
to abate” and mortgage repayments
“continue to cripple Labour’s new target
demographic of ‘middle-aged mortgage
man’”, then Starmer may win. But he has
“neglected” to insure his poll lead against
an improved economic outlook and “failed
to convince swing voters that he shares
their values”. As a result, his “20-point
cushion is overinflated and vulnerable
either to a slow puncture or a high-impact
blow-out during the election campaign”.

Europe seeks a banking windfall

On Monday, Italy “became the
biggest European market to
impose a windfall tax on
banks”, joining a wave of
governments seeking to “raise
cash by targeting the profits of
lenders that have been buoyed
by rising interest rates”, says
Owen Walker in the Financial
Times. As governments face
pressure to support citizens
during a cost-of living crisis,
“lenders enjoying bumper
profits on the back of central-
bank policy rate rises are seen
as easy targets”.
Italy’s 40% tax on net
interest income follows similar
moves in Spain, Hungary, the
Czech Republic and Lithuania.
©Getty Images
led Italian bank shares to drop
sharply, prompting a partial
U-turn, say Sonia Sirletti and
Chiara Remondini on
Bloomberg. On Tuesday, the
finance ministry said that the
levy wouldn’t exceed 0.1% of a
firm’s assets.
Such taxes can have
unintended consequences. Italy
hoped to raise €4.5bn – a figure
reduced to €2bn by the cap – but
the initial announcement wiped
more than €10bn off banking
shares. Similarly, shares in
Spanish lenders dropped by up
to 10% after its levy was
introduced in January; bank
bosses there are now starting to
“challenge the tax in courts”.
rises to its customers – Spain
has “one of the lowest pass-
through rates in Europe”.
Windfall taxes are a “blunt
tool”, says the Financial Times’
Lex column. They may fill state
coffers in the short term, but
they also damage investors’
confidence and business
prospects. This is “doubly true
when levies are big and
haphazard”. Italy’s
“unexpected announcement”
was made in the finance
minister’s absence and officials
revised figures in an early press
release, implying incorrect or
“non-existent” modelling.
“European bank stocks are
cheap for the reason that these

The announcement by deputy Nor has the tax encouraged institutions are the playthings
Salvini: shaking the money tree
prime minister Matteo Salvini banks to pass on interest-rate of politicians.”

11 August 2023 moneyweek.com

10
Indianapolis
Fat profits: It’s astonishing to watch
Indiana-based pharmaceutical giant
Eli Lilly growing its revenue at the rate
of a tech start-up, says Robert Cyran
on Breakingviews. The group’s top line
“bulged” by 28% in the second quarter
from a year earlier as it sold almost
$1bn-worth of Mounjaro, its diabetes and
weight-loss drug. Eli Lilly expects supplies
to remain tight for the next few quarters
despite plans to ramp up production.
News
Danish rival Novo Nordisk also has
cause to celebrate. Its weight-loss drug
Wegovy has been shown to reduce strokes
and heart attacks in 20% of overweight
patients who have a history of heart
disease but no diabetes – much higher
than expected. That’s important, because
insurers and governments typically won’t
pay for weight loss, which is seen as a
vanity treatment. So clear evidence that
these drugs also come with tangible health
benefits “will help
loosen purse strings”.
Eli Lilly isn’t cheap.
On 12.5 times estimated
revenue over the next 12
months (before the earnings release this
week), it is twice as expensive as peers
Merck and AbbVie. At nine times, Novo
Nordisk’s $424bn valuation puts it slightly
ahead of luxury goods giant LVMH as
Europe’s most valuable company.

Cupertino
A bite out of Apple: It’s been seven years since tech giant Apple last reported three straight quarters
of falling revenue, mostly due to declining iPhone sales, says Aaron Tilley in The Wall Street Journal.
Now the past is repeating itself. Apple posted sales of $81.8bn for the quarter to the end of June, down
1.4% from a year earlier, and “all-important” iPhone sales fell by 2.4% to $39.7bn. However,
net income rose by an annual 2.3% to $19.9bn and investors “remain optimistic that
the company will find a way to maintain and grow its dominant
position in consumers’ lives” to maintain its rich $3trn
valuation (the stock is up by 50% in 2023). Recently, the
company unveiled its augmented/virtual reality (AR/
VR) headset, but the $3,499 price tag has tempered
expectations as to how fast the device will start
“contributing meaningful revenue”. More promisingly, Apple’s
services unit reached an all-time revenue high of $21bn in the last
quarter, driven by around a billion paid subscriptions to digital
products, such as music-streaming, TV and software in its App
Store – no small matter, says Lex in the Financial Times, as this
division enjoys gross margins of 71%. Artificial intelligence (AI)
may offer a better way to lift revenue from hardware. Apple has
spent $23bn in the current fiscal year on research, up from $19.5bn a
year earlier. A paid-for chatbot could see services revenues soar.

El Segundo
Beyond Meat leaves a sour taste: Plant- It is fast becoming
based “meat” company Beyond Meat cut its clear that the “fake-meat fad
sales outlook and slashed spending, prompting is nothing more than another
a 22% fall in the shares on Tuesday – the biggest venture capital-fuelled waste of
intraday stock drop since November 2020, money”, says Ben Marlow in
says Deena Shanker on Bloomberg. The Telegraph. Beyond
Despite CEO Ethan Brown (pictured) Meat was supposed
insisting that modest growth would to be “the poster
return in the final two quarters of child for the vegan
2023 compared with last year, the movement, but instead,
company’s quarterly results only it risks becoming a symbol
served to “[spark] fresh doubts of the worst excesses of the
among investors”. Beyond Meat’s cheap-money era”. Like so
cash reserves “are dwindling” along much of what comes out of
with customers’ appetite for plant- California, “its prospects appear
based meat-alternatives and the company is to have been an all-too-familiar case
unlikely to meet its target of becoming cash-flow of hope triumphing over reality”. The shares
positive in the second half of this year. It now first floated on the Nasdaq stock exchange at
expects to make up to $380m in revenue in 2023, $25 a share in May 2019. They are now down
down from $415m previously forecast. to just $12, “where they may well stay”.

The way we live now... the rise of helicopter parenting

Location tracking apps, such as Find My
and Life360, are setting parents’ minds
at ease by alerting them to their teenage
children’s movements on gap years
abroad, says Sian Griffiths in The
Sunday Times. Around 93,000 students,
frustrated by lockdowns, have applied to
defer the start of their degree, a 10% rise
on last year. The figure is treble the
number two decades ago. Then, parents
would wave off their children and hope
to receive the occasional letter. Now,
tracking apps, social media and
demanding flight itineraries from travel
That comes at a cost, says Alicia
Drummond, a therapist for adolescents
and author of parenting book Teen Tips.
“The point of a gap year is to give kids the
space to grow up and learn, to weigh
risks and learn how to avoid them.“
After the constraints of the pandemic,
instances of “involved parenting” have
increased, but giving young adults the
space to explore is “more important than
ever”, she says. Last year, one mother
alerted her son on his phone that he was
heading in the wrong direction on a bus
in Colombia. It was handy, but annoying,
©Getty Images

companies mean that “helicopter he tells the paper – “I did think, ‘Mum, Don’t do anything crazy (I’m watching)
parenting” no longer ends at age 18. you are tragic’”.

11 August 2023 moneyweek.com

 News 11
Beijing
Deflation arrives: Policymakers in China are facing calls for more stimulus after
official data showed consumer confidence remains weak, say Thomas Hale and
Andy Lin in the Financial Times. Consumer prices fell for the first time since
February 2021, by 0.3% in July from a year earlier, and the prices of goods leaving
factory gates were 4.4% lower. Exports in July “slumped” 14.5% last month year-
on-year – “the steepest fall since the start of the pandemic” – while imports
recorded the biggest fall since January, with a 12.4% annual decline. “The Chinese
economy is now at serious risk of sliding into a deflationary episode that could
spark a self-reinforcing downward spiral in growth,” says Eswar Prasad, a China
expert at Cornell University. “The government needs to act quickly and decisively
to… limit deflation before it gets out of hand.” In contrast to other big economies,
China resisted deploying major stimulus during the pandemic, and since reopening
the economy at the start of the year, it has preferred to rely on interest rate cuts and
tax incentives to boost growth, while “grappling” with a slowdown in the property
sector. Even the politburo has conceded the recovery is making “tortuous

©iPictue credit
progress”. The economy expanded by just 0.8% between the first and second China’s exports slumped last month
quarters and the 5% growth target for 2023 could yet prove to be optimistic.

Taipei
Trotting the globe: Taiwan’s TSMC is well on its
way to becoming “one of the most globally
diversified chipmakers”, says Tim Culpan
on Bloomberg. “This wasn’t the plan.” Just
three years ago, the company kept almost all its
manufacturing to within a 300-mile radius in
Taiwan, enabling engineers to “shuffle between
production lines” easily. No longer. TSMC is set
to open a new factory in Dresden, Germany, by
the end of 2027 as part of its €3.5bn investment
for a 70% share of newly formed European
Semiconductor Manufacturing Co (ESMC),
alongside European tech companies Bosch,
Infineon Technologies and NXP Semiconductors,
which will own the remainder. ESMC’s total
capital expenditure is expected to be around $11bn,
with the money coming from equity, debt and
government funding. TSMC will have factories in
five countries spread over three continents, with
the latest plans following existing facilities and
developments under way in China, the US and
Japan. It’s a win-win for all involved.
TSMC’s clients are getting a stake in and
access to the factories and know-how
they need, while governments, such as
Germany’s, can tell voters they’ve lured one of
the world’s most important tech companies
to their shores. For TSMC, investment
buys cover from hostile foreign regulators.
“Half the world gets a piece of TSMC, and
in return, all the chipmaker had to do was
lean into globalisation.”

Munich
Tech woes rumble on: Siemens Energy is on course to rack up a
€4.5bn loss this year as the German group struggles to fix its ailing
wind turbine business, say Laura Pitel and Rachel Millard in the
Financial Times. That business, Siemens Gamesa, has been beset
by technical problems and inflationary pressures that have proved
more costly than expected. On Monday Siemens said it would
take an additional €2.2bn charge. Since June, when the technical
troubles and rising costs affecting the whole of the industry were
first disclosed, the shares have fallen by 30%, wiping €6bn from
the value of the company. Siemens Energy also announced a net loss
of €2.9bn for the third quarter. Shareholders are now demanding
more transparency as to the root causes of the technical problems,
amid surging demand for renewable energy. However, “for hard-
pressed Siemens Energy investors, the worst may not be over”, says
Yawen Chen in Breakingviews. CEO Christian Bruch says he is
now prioritising the profitability of Siemens Gamesa, “implying
a pause over plans to add more wind capacity”. More broadly, a
dramatic cut in the firm’s production may compromise renewable
goals in Germany and beyond. “Global turbine installations have
already dipped 20% last year from 2021 levels.”
moneyweek.com 11 August 2023
Bangkok
New coalition government: Thailand’s
Pheu Thai Party has joined forces with the
conservative Bhumjaithai to try to form a
new government after leaving its coalition
with Move Forward and six other parties
last week, says Francesca Regalado on
Nikkei Asia. Pheu Thai, the party of self-exiled
former prime minister Thaksin Shinawatra, came
second to Move Forward in the 14 May general election. The two
parties had formed the opposition to the former military-linked
government of Prayuth Chan-ocha (pictured). Excluding Move
Forward, which had faced relentless opposition from conservatives
alarmed by its reform agenda, was a precondition of Bhumjaithai.
In particular, Bhumjaithai opposes Move Forwards’s “signature
policy” of amending Thailand’s lèse-majesté laws. The two parties
will now seek support to elect a new prime minister, with Pheu
Thai intending to nominate property tycoon Srettha Thavisin.
A candidate needs at least 374 votes for a parliamentary majority,
so Pheu Thai’s 141 seats and Bhumjaithai’s 71 will not suffice, but
their tally could be supplemented by Senate votes.
12 Briefing

Back-pedalling on net zero

Rishi Sunak’s recent policy announcements with regard to oil and carbon capture were statements
of political intent. But are they the right ones? Simon Wilson reports
What has happened?
Last week Rishi Sunak sought to
draw a clear dividing line between the
Conservatives and Labour when it comes to
the green transition and decarbonisation.
On a visit to Scotland, the PM called for a
“proportionate and pragmatic” approach to
dealing with the effects of climate change,
and said that the current round of licensing
for North Sea oil and gas drilling would
award more than 100 licences, starting
within weeks. The PM also announced
government backing for two new carbon-
capture projects, taking the total to four.
The move was seen as a statement of
political intent. Labour wants to halt North
Sea exploration, although it has committed
to respecting existing licences. “Even when
we’ve reached net zero in 2050, a quarter
of our energy needs will come from oil and

©Getty Images
gas,” Sunak said, arguing that it was cleaner Just Stop Oil and the Tories are making the
to produce fossil fuels closer to home. same mistake when it comes to North Sea oil

Is he right? new exploration, we would probably only investment. Clean tech is on the point not
Yes. Even the most ambitious plans for add an extra two million MTOE of gas per only of revolutionising energy, but also the
cutting emissions accept that we’ll still be year. In terms of the UK’s overall energy global economy, and by failing to engage
relying on fossil fuels for about a fifth or a needs, that extra supply would be “barely fully, the West risks handing China “the
quarter of our energy needs by mid-century. more than a rounding error”. great prize of the 21st century”. Moreover,
The “net” bit of “net zero” is based on the any country that ducks the challenge and
idea that we’ll still be emitting carbon, What about fracking? “props up an uncompetitive legacy system
but will have worked out how to mop it Countries including Argentina, South will lose its economic footing and slide into
up afterwards, using carbon capture and Africa, Canada and China are all following irrelevance”. The PM has trumpeted his
storage. Sunak is also right about getting the
the US in exploiting their shale gas new positioning as a “proportionate and
most out of the North Sea, says Ambrose reserves. But there is no sign of the UK pragmatic” approach to climate change.
Evans-Pritchard in The Daily Telegraph. following them, due to environmental But a genuinely pragmatic route – and the
Much better to get gas economically concerns and public opposition (Britain one that makes the most sense economically
from close to home than to import LNG is a far more densely populated country, and fiscally – would be to just get on with it,
derived from gas fracked in West Texas, for where shale reserves often overlap with says George Hay on Breakingviews.
example, given the “horrendous methane residential areas). The moratorium on
leakage” and carbon emissions from new exploration, briefly lifted under Liz What are the figures?
liquefaction and shipping. When it comes to Truss’s doomed dash for growth, was On the government’s own figures (from the
the Tories’ overall energy policy, however, swiftly reimposed by Sunak. Nor should Office for Budget Responsibility, OBR),
the North Sea is a bit of a distraction. we expect the “Panglossian” solution of the costs associated with cutting UK net
carbon capture and storage (CCS) to save emissions to zero by 2050 are estimated
Why is this a distraction? us, says Dominic O’Connell in The Sunday at £1.4trn. But once you deduct money
Its reserves are
mostly depleted,
“Policy certainty will encourage Times. CCS covers
a range of emerging
saved by the transition to green energy,
the net costs would be more like £334bn
and the costs of foreign investors to help pay technologies that over three decades, or about 0.4% of GDP
extracting what’s left are as yet unproven a year. Factoring in lost fuel taxes and
are high. That means
for Britain’s transition” at the kind of scale other levies, the bill could add £469bn to
capital markets are unfriendly given the that would make them economically viable. the UK’s public-sector net debt in 2050,
unpromising returns. The “brutal truth” No commercial carbon-capture plant is yet or 21% of GDP. To put that in context, it’s
is that both Just Stop Oil (which wants no operational in Britain. And of the various less than the 23% of GDP the OBR thinks
new exploration) and the Conservatives schemes proposed by Shell, Scottish Power the pandemic added to the same measure
“are making a lot of noise over something and others over the past two decades, “none between 2020 and 2022. In other words, it’s
which is very marginal indeed”, says Ed made it off the drawing board”. doable – and the costs of delay could be far
Conway on his Sky News blog. North Sea higher, for example in the event of a more
resources are not going to help the UK’s So what should we do? rapid, disorderly and stringent transition.
energy security, because there is “nowhere Build on our existing success, says Evans- Much better, says Hay, for the UK to stick
near enough to satisfy our demands, let Pritchard. Clean energy technology is to flagging its credentials as a net-zero
alone to export to the rest of the world one of the big British success stories of leader. “Policy certainty will encourage
in net terms”. By 2030, our annual gas the past 15 years, but the government’s foreign investors to help pay for Britain’s
demand is still projected to be more recent policies are putting it at risk. It transition, reducing its exposure to gas price
than 50 million tonnes of oil equivalent imposed a “discriminatory and retroactive shocks.” By contrast, any new uncertainty
(MTOE), while our native gas production surtax” on renewables companies, and would be harmful. “Far from taking a
will be just under 15 million MTOE per has “surreptitiously halved the UK’s decarbonisation breather, true pragmatism
year. Even if we “went hell for leather” on effective carbon price”, discouraging green would see Sunak get Britain back on track.”
11 August 2023 moneyweek.com
14 City view

The twilight of the zombies

As interest rates rise, the long delayed cull of the undead has begun
BDO estimated that 12% of UK companies
Matthew Lynn were effectively zombies in the sense that
City columnist
they could generate enough cash to cover
their costs and their interest bills, but never
If you needed a spare light bulb, or a had anything left to invest in growing.
coffee cup or two, or any one of a hundred
different household items, Wilko was Let them go to the wall
the place to find it. Its shops were never The environment has now started to
especially inspiring, nor were there any very change, and rapidly. In response to soaring
stylish designs, but they usually had what inflation, the Bank has raised the interest
you needed, and it was always cheap. It now rate all the way to 5.25%, and it may well
looks as if its stores will disappear. increase it a couple more times before it has
Over the past week, it has been warning got inflation back under control. The cost of
it is close to going bust, with 400 shops money has risen fivefold in only a year. For
and 12,000 jobs at risk. With the company the zombies, the maths has all of a sudden
fast running out of cash, it has been become a lot worse.
casting around for a saviour. So far none We can see that playing out at Wilko.
has emerged. It remains to be seen what We won’t know the precise finances of
happens over the next few days, but it looks the chain until administrators, if they are
as if Wilko may join the long list of retailing appointed, publish their reports. But it is
casualties that includes names such as likely that it was not able to roll over its
Woolworths and Comet. debts on anything like the terms it was able
to a year ago. And it is noticeable that none
The money taps run dry of the private-equity houses or turnaround

There is a long list of reasons for this.
Business rates and rents remain punishing
for high-street retailers. Inflation has
squeezed wages and customers have cut
back. Wilko may well have opened too
many shops, and in the wrong places, and
stocked them with the wrong stuff. All this
probably played a part in driving the chain
to the point of collapse. But there is also a
far bigger underlying issue.
In the years since the financial crisis of
2008-2009, interest rates had been driven
to 300-year lows. The Bank of England cut
rates again and again, and then cut them all
over again during the pandemic, and at the
same time it printed hundreds of billions
in new money to pump into the economy.
Every other major central bank did the same
thing. It may or may not have been justified
in terms of saving the economy. But it made
©Getty Images
The uninspiring store is on its last legs
capital very cheap for companies, whether
they were borrowing directly from the
bank themselves, or issuing bonds, or else
getting a capital injection from a third party
that itself had borrowed lots of cheap cash.
There was a lot of money swilling around.
That might have kept good companies
alive that would otherwise have gone under,
and allowed them steadily to work their
way back to financial health. It also created
a huge number of what economists called
“zombie businesses”; that is, companies that
were neither alive nor dead, but staggered
on anyway. By some estimates, by the start
of this decade zombies accounted for as
much as 20% of the overall economy. In a
report published in June, the accountants
firms stepped in with an offer, the way
they might have done as recently as last
year. They, too, would have had to borrow
money, and at 6% or 7% that is no longer
an attractive proposition. The result? Wilko
may well disappear from the high street,
when a year ago it would have been saved.
This is just the start. We are going to see
a lot more collapses in the months ahead.
Debts won’t get rolled over and nobody
will come to the rescue of firms that run
into trouble. Eventually, the economy
will be stronger for that. The zombies
were not growing, they were not doing
anything very innovative, and they were
not investing in their staff, their factories,
or their shops. They were just staggering
on from one day to the next. It is better
that we let them go to the wall and free up
resources to be deployed elsewhere.

City talk
l Rolls-Royce “looks to be
firing on all cylinders
again”, says Ben
Marlow in The
Telegraph. Just
six months after
new CEO Tufan
Erginbilgic
(pictured) called
the engineering
group a “burning
platform” that had
been “grossly
mismanaged”, Rolls has
reported strong results on the
back of overseas orders. First-
half sales rose by a third to
£6.9bn, while underlying
operating profits grew fivefold
to £673m. “Let’s hope ministers
are paying attention.” Both
Rolls and Britain have a lot
riding on plans to develop small
modular nuclear l A year ago, Glencore “was off Glencore’s coal arm to leave
reactors (SMRs) lucking out on a macro gold a “greener, higher-rated
for electricity mine”, says Alistair Osborne in enterprise” focused on copper,
generation. The Times. CEO Gary Nagle nickel and cobalt. “A deal that
So why is the could thank huge volatility and reshapes Glencore is probably
government record energy prices for the his best chance of moving the
wasting time miner’s record $12.1bn first- share price.”
on a contest to half profit. Now the panic
find a provider caused by Russia’s invasion of l The initial public offering of
for the UK’s Ukraine has died down and so chip designer Arm on Nasdaq
SMRs, rather have prices. Thus profits fell is set to value it at up to $70bn,
than backing a 62% to $4.57bn. Yet the share (£55bn), with Amazon in talks
national champion? price is unchanged over the to be an anchor investor. Once
Rolls has plenty of same period, showing that again, we can see that it was a
relevant experience – it powers investors just don’t get excited “disastrous mistake” for
UK’s nuclear submarines – and about riding the commodity Theresa May’s government to
is using standard technology. cycle. “Hence, perhaps, let the firm be sold for £24bn to
It and other investors have Nagle’s enthusiasm for some SoftBank in 2016, says Alex
already committed £300m, game-changing M&A.” Over Brummer in the Daily Mail. It’s
alongside £210m of taxpayers’ the past 12 months, he’s “even more galling” that the
money. “The government proposed a $23bn merger with UK was “insufficiently robust”
needs to get smart and give Teck Resources (rejected by to bring Arm’s new listing
Rolls the green light.” Teck) and looked at spinning ”back home to the City”.

11 August 2023 moneyweek.com

 Investment strategy 15

The concentration problem Guru watch

Jeff Currie,
global head of
commodities
Indexing is rarely as simple as buying research,
the market, as Nasdaq’s recent Goldman
Sachs
“special rebalance” shows
“We have never
been this wrong for
Cris Sholto Heaton this long without seeing
Investment columnist evidence to change our
views,” said Jeff Currie, the
long-standing – and often
Two weeks ago, the Nasdaq-100 changed very bullish – face of
overnight. The strong performance of a few commodities research at
stocks meant that they had grown into a very Goldman Sachs in June,
when his forecast for
large share of the index: the top six – Alphabet,
stronger oil prices was
Amazon, Apple, Microsoft, Nvidia and Tesla – questioned. One week later,
made up more than 50% of its value. Investors that view changed anyway:
were complaining that this was overconcentrated. Currie’s team slashed its
So Nasdaq announced a “special rebalance” that year-end forecast for Brent

©Getty Images
reduced the weighting of these six companies, ASML is 40% of the Dutch market – crude from $95 a barrel to
slashing them back to around 40%. too big for most funds $86, citing rising supply from
For anybody who (reasonably enough) Russia, Iran and Venezuela.
assumed that a market cap-weighted index or It’s unlikely that you hold a Danish tracker – It was the latest example
of how predictions of a new
fund simply holds all stocks in proportion to their but there’s no need, you might as well just buy
commodities supercycle
size, this may have come as a bit of a shock. These Novo Nordisk. The buzz around its weight-loss have yet to pay off for Currie,
companies dominate the index because they drug Wegovy means that it is now almost 60% who this week announced
have been very successful and investors are very of the MSCI Denmark index. That’s an extreme that he was retiring from
keen to hold them. Why are they being punished example, but there are others: ASML is around Goldman after 27 years in
for that success? Isn’t it somewhat perverse to 40% of the MSCI Netherlands. Numbers like which he became known for
reduce the amount that an index holds in the these vastly exceed the concentration limits that his willingness to issue bold
top-performing stocks? Some investors may think most funds are allowed to have, so these typically forecasts. Back in the early
they are overvalued, but that’s a weak argument use benchmarks where weights are capped – eg, 2000s, when he made his
name, the story was very
for rebalancing an index: it takes the judgement a Netherlands tracker will typically use an index
different, says Reuters. In a
about what a stock is worth out of the hands of where ASML’s weight is brought down to 15%. 2004 report, he coined the
the market and into the hands of index compilers. Capping weights solves one problem, but phrase “Revenge of the Old
creates other dilemmas. Studies suggest that Economy” to describe how
An outsized influence a large proportion of long-term returns come decades of underinvestment
Yet in practice, most indices involve these kinds from a small number of exceptionally successful would lead to surging
of decisions. It’s pretty obvious that if you have a stocks. If index funds need to cap the size – and commodity prices. What
company where only a small amount of its stock is therefore the returns – from these stocks, will it followed was a boom across
freely traded, you have to adjust its weight. If not, mean returns are lower than they could otherwise natural resources, with oil
hitting a nominal record of
Saudi Aramco would be one of the largest stocks have been? For long-term, buy-and-hold index
$147 in 2008.
in global indices, yet its 3% free float would make investors, this could be one reason to favour very More recently, Currie has
it impossible for investors to own it in proportion broad funds (eg, an MSCI Europe or MSCI USA consistently argued that the
to its size. However, companies that are much tracker) where each stock is a smaller share of the commodity markets are
more liquid can still grow to be rather unwieldy index, over single country funds or an index such again set for a similar surge,
relative to their market. as the Nasdaq-100 that is dominated by tech. aided by pandemic stimulus
measures and a rebound in
While stocks and bonds the global economy. “We
I wish I knew what a balanced fund was, are traditionally the main expect a structural bull
but I’m too embarrassed to ask categories for asset
allocation, some balanced
market in commodities, very
similar to what we saw in the
A balanced fund is a fund that the fund gives to growth and funds hold other investments 2000s or the 1970s,” he said
tries to deliver lower-risk, how much to stability and with different characteristics. in late 2021. But while
steadier returns by investing in income. However, a split of 60% This may help to improve Russia’s invasion of Ukraine
two or more different asset stocks to 40% bonds has returns in certain conditions saw many commodities
classes. The standard example historically been the default – neither stocks nor bonds spike, those gains have not
is a fund that invests in both choice and so “60/40” is often tend to do well in high been sustained and most
stocks and bonds. Stocks are used as a synonym for a inflation. Typical additions have since fallen back.
more volatile, but should balanced portfolio. include gold, property or However, Currie remains
provide higher long-term Some balanced funds will infrastructure (usually bullish on medium-term
returns. Bonds usually provide follow a fixed asset allocation, through other funds rather prospects, arguing that the
a stable, fixed rate of return. in which the share of each asset than direct investment), and world is not investing
When the economy is doing remains constant. Others will maybe a dedicated allocation enough in new capacity to
well, stocks should outperform use dynamic asset allocation, in to companies in energy, meet global demand for
bonds. During a slowdown or which the manager of the fund metals or other commodities. fossil fuels and for raw
recession, bonds should hold adjusts the exposure to each However, funds that do materials to support the
up better, helping to offset asset depending on market this are often referred to as energy transition. “We’re
losses from the stock portion of conditions or valuations. This multi-asset funds to missing investment across
the portfolio. The exact split usually occurs within fixed distinguish them from more the entire commodity
between stocks and bonds limits (eg, the fund may be traditional balanced funds complex,” he told CNBC last
within a balanced fund will allowed to hold as little as 30% that stick strictly to a portfolio month. “That’s really core to
depend on how much priority stocks or as much as 70%). of stocks and bonds. the supercycle thesis”.

moneyweek.com 11 August 2023 MoneyWeek

16 Best of the financial columnists
Time to end If Joseph Schumpeter walked into my kitchen, I’m sure he’d be demanding
“creative destruction” to sweep away the “poor design, built-in
Money talks
the great obsolescence and sheer wastefulness of today’s appliances”, says Camilla
Cavendish. According to the UN, we throw out 50 million tonnes of
“When I was
playing cricket

gadget con
in the late
electrical waste each year. The worst gadgets are those which “sting us” 1990s and
on subsequent use, such as printers, which won’t work without expensive early 2000s
Camilla Cavendish consumables. Printer ink can be more expensive than Champagne. I’d be asked
Financial Times What can consumers do? America’s “right to repair” movement, which to make a
has gone global, has “scored some notable successes”. John Deere will personal
now allow farmers to fix their own tractors, having insisted that only it, appearance
or authorised dealers, could use the on-board diagnostic software. Apple or take part in
a photo shoot.
has finally agreed to sell its customers components for repairs. The EU
But I valued my time way
will require chargers and cables to be universal as of next year. But there is more than money, so if I
“much further to go”. Guarantees should last for ten years, we should all didn’t want to do it, I’d put
adopt France’s legislation against “planned obsolescence”, and companies a ridiculous price on it, like
should “not be able to change the nature of products” without our say-so. £20,000 for an hour. Most
If our gadgets “can’t do the basic job we bought them for, that’s just a con”. of the time the answer
was no, but a few times
they agreed.”

Heal the As the government proceeds with its “digital transformation” in at least 75
public services, there is a risk of isolating a group that “tends to live outside
International cricketer
Adam Hollioake (pictured),

digital
in The Mail on Sunday
England’s South-East and be older, poorer and more vulnerable”, says The
Guardian. The cost-of-living crisis has made things worse. A reported one “When your first novel
divide million people have disconnected their broadband in the last year – at a time
when roughly 90% of jobs are advertised only online. According to Age
comes too early, there is
the problem of the second.
Editorial UK, many London councils provide “no offline access to housing benefit, Because then you’re
The Guardian council-tax reductions, rebates or blue-badge applications”. In June, the absolutely at sea. When
House of Lords communications and digital committee discovered that you’re young, people love
the government does not “appear to have conducted a single assessment of you. They go, ‘Oh, do what
you want. We’ll give you
the economic impacts of digital exclusion”. The report should be “required
money.’ So of course you
reading for ministers”. It points to the lack of broadband coverage in some write cr*p… I wrote the
areas and argues for “better social tariffs” to make the internet accessible for cr*p book… And they
all. There also seems to be a strong case for adequate provision for those who published it anyway.”
simply don’t wish to go online (the same should apply for “key service Novelist Lawrence
providers” in the private sector). Being unable to get help due to lack of Osborne, quoted in
know-how or an internet connection is “unjust” and must end. The Sunday Times

“In much more than

Covid panic For 48 hours in March 2020, the UK authorities were planning to manage
the pandemic similarly to Sweden, says Robert Dingwall. The fact is –
nine cases out of ten the
only objectively truthful
criticism would be, ‘This
must be even as the eye-wateringly expensive Covid-19 inquiry’s legal team starts
constructing a narrative blaming the government and civil service for
book is worthless’, while
the only truthful review
scrutinised negligence – at least two decades of pandemic planning, of which I was a
part, were already in place. The membership of the Committee on Ethical
would say, ‘This book does
not interest me… and I
Robert Dingwall Aspects of Pandemic Influenza was broad, and public health balanced would not write about it
Daily Mail against wider social and economic issues. The plan was well thought- unless I were paid to’.”
through and admired across Europe. Why then was it discarded? First, we George Orwell, quoted in
The Economist
overestimated the courage of politicians to tell the country that “little could
be done to prevent significant cost of life”. Second, the pandemic released “As my mortgage
a “streak of paternalism” in biomedical science and among public-health provider doesn’t take
experts and presented an opportunity to use state power to “remodel payment ‘in the form
society”. Third, we underestimated the opportunities for private gain, both of socials’ and my staff
for companies and in terms of hugely increased funding for biomedical can’t feed their kids with
research. The least we deserve now is “rational scrutiny” from this vast exposure to Instagram,
public inquiry. “Falsifying the past is in no one’s interests in the long run.” I’ll have to decline your
generous offer.”
Baker Rebecca Severs’

Sunny days
reply to a party planner
“Rising interest rates” and falling demand for exports “ are blunting the who asked her to cater for
post-Covid economic resurgence of many Asian economies,” says Ruchir a television star’s birthday
return for Desai. But for Sri Lanka, the only country in the region to default on its
debt after a “confluence of factors” depleted its foreign reserves, “these are
with payment in social-
media exposure, quoted in
Sri Lanka sunny days”. Tourism revenue and remittances “have come roaring back”,
inflation has fallen from 70% to 6.3% since September, leading the central
The Mail on Sunday

bank to cut rates sharply, and although tourist revenues and remittances “A logo is the lowest
Ruchir Desai
have yet to reach pre-Covid amounts, the country can “easily” return to its way to sell your goods.
Nikkei Asia
It plays 100% on
previous levels. The IMF estimates that Sri Lanka’s current-account deficit
customers’ insecurity. It’s
will settle at a respectable 1.5% of GDP and, as the government continues a symbol that says, ‘I’m
to follow through on its reform programme, it is also in debt restructuring fashionable. I have money.
talks with external creditors. The rupee and the country’s stockmarket have I’ve got this. I’ve got that’.”
responded positively; “both have been among the world’s best performers” Fashion designer Paul
this year. In the longer term, Sri Lanka must “fully leverage” its location to Smith disapproves of
build up its tourism and logistics industries. With the support of the IMF, brands plastering their
neighbouring countries and investors, it “cannot ask for a better platform logos all over their goods,
©Alamy

to generate sustainable and all-around economic growth”. in The Sunday Times

11 August 2023 moneyweek.com

 Best of the blogs 17

Why I’d cheer a Russian states don’t need another tsar

Russian collapse
conservativehome.com
It’s time for the West to prepare
for the growing possibility
of Russian defeat in Ukraine,
says Daniel Hannan – and
for the violently chaotic
unravelling of the federal
Russian state that could follow.
It might not happen. Perhaps
for a time the Russian Empire
fragmented into “a series of
squabbling successor states”.
If something similar happens
today, there’s no reason to
assume that Russia’s various
military units – state, private and
territorial militias – would all
recognise the same command.

Ukraine’s counter-offensive
will fail, or the conflict will end
in stalemate. But if Ukrainian
troops can break through,
reach the Azov Sea and cut
Russia’s land corridor to
Crimea, the “large Russian
garrison there would be
kettled, and Ukraine would, to
all intents and purposes, have
won the war”. Putin and his
associates would be finished,
and the consequences could be
messy. The West must be ready
– and, crucially, it should not
attempt to stand in the way of
Russia’s disintegration.
In 1917, Russian morale at
the front collapsed suddenly, and
©Getty Images
Nor that all the republics would
recognise Vladimir Putin’s
successor as “tsar”.
In such a situation, attempts
by the West to shore up the
status quo would be folly.
Already, there are independence
movements in Buryatia,
Sakha, Dagestan, Chechnya,
Kamchatka Krai, Komi,
Novosibirsk, Archangel, and
Tatarstan. Across the Russian
Federation, local elites are
“preparing for a clean excision,
a chance to join the comity
of nations as (in many cases)
resource-rich republics”.
The West doesn’t have
the power to forestall these
secessionist movements. “All
we can do is determine whether
they start out as our friends”
– and work out what we want
as the price of recognising new
states, from democratisation
to denuclearisation.
What of the rump Russian
state? It would “need to rethink
its identity, rather as Austria
and West Germany did after
1945” – a good thing for both
Russia and the world. Russia’s
great problem is that its national
identity is so intimately bound
up with expansionism and
empire. The reality of defeat
and partition might force a
smaller Russian successor
state, “freed from its imperial
burdens”, to think differently.
It could learn to define itself
not as the successor to Ivan the
Terrible and Stalin, but as
a modern, democratising,
state – rather as Turkey did
when it shed the Ottoman
Empire. Russia’s dissolution
would be “much more of an
opportunity than a danger”
and “we should not stand in
the way” of it happening.

The end of “Germanophilia”

thecritic.co.uk
A moment of
national shame
capx.co
In recent years a certain “liberal Germanophilia” has taken hold in Britain, says Samuel Rubinstein. The UK’s Infrastructure and
The conviction that Germany is a more “serious” and “mature” nation – economically strong, Projects Authority has officially
politically stable, and with a “moral probity” that let it assume the role of “Europe’s conscience” rated HS2 as “unachievable”.
during the 2015 migrant crisis – reached its apotheosis with John Kampfner’s 2020 book Why the That doesn’t mean it will be
scrapped, or that it won’t still
Germans Do it Better: Notes from a Grown-Up Country. But the central thesis was always flawed, cost us billions, says James Ball.
and in the past three years it has suffered two major blows. First, Russia’s invasion of Ukraine “It just means that years –
discredited Germany’s energy policy and vindicated long-standing US concerns over German reliance decades probably – ahead of its
on Russian gas. Second, the growing success of the populist AfD (which recently won its first mayoral launch we know it isn’t going to
election and is riding high in national opinion polls) raises questions over Germany’s future direction. deliver what we need from it.”
In particular, it contradicts the idea that Germany is permanently inoculated against far-right politics The point of HS2 was always
by its 20th-century history. There are, of course, many reasons to love the country. But Germany is a capacity rather than speed,
country like any other, and with problems “that are in some cases sharper than our own”. A strain of freeing up the west- and east-
“Germanophilia denied this basic fact – but that strain has now had its day, and it is best left for dead”. coast mainlines for more local
and commuter services. The
least important bit was the
slightly faster journey time
Don’t be fooled
from bankruptcy”. But it’s the remainder risk falling into
completely untrue. The $400 bankruptcy. Most said they’d between London and
figure comes from an annual raise the money using a credit Birmingham – now probably the

by dodgy stats Federal Reserve survey: asked

bloomberg.com/opinion
Of all the misleading economic
statistics that get “bandied
about for political purposes”,
says Allison Schrager, my
favourite is that most Americans
couldn’t afford to cope with a
$400 emergency expense.
Last week, for example,
vice-president Kamala
Harris claimed that “the
©Getty Images
whether they could meet a $400
emergency expense from cash,
63% of households, in 2022,
said yes. But that doesn’t mean
card or other borrowing. The
actual proportion of Americans
who say they’d struggle to raise
the funds at all is just 13%.
That’s not great, but “there
was never a golden era when
all households had enough
savings”. The fact is, US
households are better off now
than they were a decade ago.
Pretending that half of them are
on the brink of disaster is wrong
and “feeds the perception that
only bit we’ll ever get.
But don’t blame HS2 Ltd;
blame politicians and Treasury
mandarins. Their obsession
with spending plans meant the
project was constantly targeted
for cuts that defeated the whole
object. Scrapping the eastern
branch was idiotic; “constant
tinkering from the Treasury to
prevent cost overruns
inevitably created those
overruns”. The “unachievable”
rating merely confirms that
Britain is now the “world’s

average American is a $400 the economy is much riskier laughing stock”. It’s a moment
Harris: peddling untruths
unexpected expense away than it really is”. of “national shame”.

moneyweek.com 11 August 2023

18
The post-liberal
revolution
Conservative reactionaries have seized the red flag of
revolt. Where will they plant it? Stuart Watkins reports
Whatever you may think of their political conclusions,
there can be little doubt that Marx and Engels saw
what was coming. They were present at the birth of
the modern world – and declared the newborn to be
a monster. Nascent “bourgeois” society, they said,
threatened to dissolve not just the old social and
economic order, with its roots in class and tradition,
but also religion, and all moral and social codes
too, “in the icy water of egotistical calculation”, as
they put it in their 1848 Communist Manifesto. The
freedoms humans had hitherto cultivated through
active engagement in the institutions of civic life would
be replaced by that “single, unconscionable freedom
– Free Trade”, stripping man of all connections bar
those forged through “callous cash payment”. Every
occupation “hitherto honoured and looked up to with
reverent awe” would be “stripped of its halo”, and “the
physician, lawyer, priest, poet and man of science” alike
converted into capitalism’s “paid wage labourers”.
The family, too, would be uprooted and pulled apart
by the growth of the world market and the individualist
ideology it would inevitably give rise to. The forces
pulling in this direction would in time overwhelm the
entire world, Marx and Engels predicted, in the process
alienating man from his own being, from his work, and
from his fellow man. “All fixed, fast-frozen relations,
with their train of ancient and venerable prejudices and
opinions, are swept away, all new-formed ones become
antiquated before they can ossify. All that is solid melts
into air, all that is holy is profaned, and man is at last
compelled to face with sober senses his real conditions
of life, and his relations with his kind.”
We are now somewhere nearer the end of that
process than the beginning. The nature and character
of the world that has resulted would not have surprised
Marx and Engels all that much, were they alive to see it.
What would surely shock them, though, is the political
constituency that has arisen not merely to interpret
this state of affairs, but to change it. Marx and Engels
thought the brave new world would spur the working
classes, led by the communist party, to seize state power
and use it to forcibly revolutionise legal, economic
and social relations. It turns out that that mantle has
instead been picked up by a small group of conservative
scholars and reactionary theologians.
Regime change
The Lenin in this vanguard of revolutionaries is Patrick
Deneen, a professor of political science at the University
of Notre Dame, and author of Why Liberalism Failed
(Yale University Press, 2018). Why did liberalism fail?
Because it succeeded, says Deneen. In other words,
liberalism succeeded in creating the world whose
portrait Marx and Engels painted in 1848, but flesh-
and-blood human beings cannot in fact live happily or
flourish in such a world of bloodless abstraction and
egotism. They need roots in family, in community, in
nation, in meaningful work, in religious narratives
that tell them where they stand in the cosmos and how
to behave, and what it is right to want and to work
towards. The title of Deneen’s new book, Regime
Change (Bantam Press, 2023), gives a hint as to his
11 August 2023 moneyweek.com
Analysis
©Getty Images
The post-liberal future is unevenly distributed
political agenda. The conservative movement, which
has traditionally sought to apply the brakes to liberal
progress, has failed, and must move now instead
into a more activist mode. To bring about the kind of
world that conservatives argue is necessary for human
flourishing now requires that right-thinking people
seize state power and use it to forcibly revolutionise
legal, economic and social relations. All that has
“melted into air” they seek to condense and make solid.
“No sensible reader of the news” could look at
Western societies and not think that change of this
kind is needed, says Deneen in his new book. “Massive
economic inequality and the breakdown of family
formation have eroded the very foundations of society.
Once-beautiful cities and towns… have succumbed
to an ugly blight. Cratering rates of childbirth, rising
numbers of ‘deaths of despair’, widespread addictions
to pharmaceuticals and electronic distractions testify to
the prevalence of a dull ennui and psychic despair.” The
population has fractured into ever more hostile political
tribes, and trust in institutions and political elites has
eroded. In response, liberals have nothing to offer but
their belief that progress will deliver us in the end.
Deneen preaches instead a turn to an older tradition,
represented by such figures as Aristotle, Polybius and
Aquinas. The need of the hour, says Deneen, is not for
ever more progress, whether measured by GDP or ESG
criteria, but for “political order”.
A “mixed regime” – one of mutual respect and
reciprocity between ruler and ruled – should not seek to
bring about endless change and growth, but to secure
“the common good”, stability and continuity. This is in
“The need fact “what most ordinary people want”, says Deneen,
of the hour even if they can’t always articulate it: “a conservatism
that conserves, a form of liberty no longer abstracted
is not for from our places and people, but embedded within duties
ever more and moral obligations”. To that end, conservatives
must organise for “regime change”: “the peaceful but
progress, vigorous overthrow of a corrupt and corrupting liberal
but for ruling class and the creation of a post-liberal order”,
which would take its cue on the economy from the older
political social-democratic tradition of the left, but equally foster
order” and support those institutions “from which deep forms
 Analysis
“This tiny
cadre of
reactionary
malcontents
couldn’t get
a post-liberal
dogcatcher
elected”
of solidarity emerge”: the family, community, church
and nation.
Out of the ivory tower
Make no mistake, this represents the “most radical
rethinking” of the US political consensus in generations,
says Charles King in Foreign Affairs. Generations of
conservative thinkers have traced their roots to 1790
and Edmund Burke’s warnings about the dangers of
revolution, and concerned themselves mostly with
individualism, freedom, the wisdom of the market,
and the conviction that solutions to social problems
will “bubble up from below if only the government
would get out of the way”. The post-liberals see the real
conservative tradition as lying rather in “integralism”
– “the weaving of religion, personal morality, national
culture and public policy into a unified order”.
The idea is that the world took a wrong turn at the
Enlightenment and departed from a better time when
“nature, community and divinity were thought to work
as one indivisible whole”. This “integralism” was born
on the Catholic right, but its reach has transcended its
origins and is now an approach to politics, law and
social policy known as “common good conservatism”,
and promoted by such thinkers as Deneen, Adrian
Vermeule and Yoram Hazony.
But its reach has already extended beyond the ivory
towers and seminaries, says King: “In states such
as Florida and Texas, its world view has informed
restrictions on voting access, curbs on public-school
curricula dealing with race and gender, and purges
of school libraries. Its legal theory has shaped recent
Supreme Court decisions that narrowed the rights of
women and weakened the separation between religion
and public institutions. Its theology has lain behind
the bans on abortion passed by nearly half of US state
legislatures. Its proponents will be present in any
future Republican presidential administration, and
in their fight against liberals and cosmopolitans, they
are more likely than earlier American conservatives to
look for allies abroad – not on the British or European
centre-right, but among newer, far-right parties and
authoritarian governments committed to unravelling
the ‘liberal order’ at home and abroad”.
moneyweek.com 11 August 2023
19
It is their desire to use what Deneen calls
“Machiavellian means to achieve Aristotlean ends” –
basically, engaging in populist politics to establish a new
aristocratic elite in power – that has even sympathetic
fellow conservatives and liberals nervous. “What
I couldn’t have imagined back in my conservative
years” as a youth, when the job of conservatives was
to oppose those “foolish and irresponsible radicals
willing to topple imperfect but decent and hard-won
institutions of liberal democracy in pursuit of an airy
and ill-considered ideal”, was that the left’s “longing
for revolutionary change would find a home a decade
or so later on the anti-liberal right”, says Damon Linker
in Quillette. Deneen’s first book when it appeared
was “the most electrifying book of cultural criticism
published in some time”, but it didn’t provide any
clear answer as to what should follow the collapse of
liberalism. His new book answers that question by
advocating a “total revolution” that will inflict “decisive
victory” over the liberal enemy. It requires that “the
conservative not conserve but destroy” – and for the
ascendant elite to establish a new regime of economic
protectionism, industrial policy, tough restrictions
on immigration and national service, and to launch a
strong defence of traditional marriage and a rejection
of identity politics and the “sexualisation of modern
culture”. At times Deneen goes further and proposes
abolishing the division of labour, ending meritocracy
and fully integrating public life with conservative forms
of Christianity. Deneen’s intent is mostly high-minded,
says Linker. But there is a danger that he is projecting
his own utopian hopes onto a “volatile and dangerous
political faction” – the pro-Trump right in America –
that has “very different and far baser motives”.
Pie in the sky
Don’t be too concerned, though: it’s not going to
happen. “I’d find this more worrying if I thought
this tiny cadre of reactionary malcontents could get
a post-liberal integralist elected dogcatcher,” says
Jonah Goldberg on Acton. The truth is that today’s
America is very narrowly if deeply divided – Joe Biden
only recently won a majority in a general election.
Deneen’s radical prescriptions are unlikely to have a
broad appeal. Besides, today’s New Right is at least the
fifth self-declared New Right since World War II, says
Goldberg, and it follows the same very old pattern: a
“cranky faction of the right decides it has that special
gnosis” that makes it the “only legitimate standard-
bearers of the right”, and denounces everyone else as
fakers, sellouts, wets and so on, then demands that
history “makes room for the new priests of the True
Faith”. The mainstream media then hypes this to use
as a weapon against the establishment right that they
already despised anyway. People are always declaring a
new “moment” for big new ideas when all that is really
happening is “one faction leaping at its opportunity to
get to the top of the greasy pole”.
What Deneen misses is the point of the liberal
values – embraced by progressives, classical liberals and
mainstream conservatives alike – that he is decrying.
It is not that such values are “timeless or guarantee
happiness”, says King. It is that they rest on the “one
thing in social life we can all be sure of: that we will
encounter other individuals, different from ourselves,
with their own preferences, ambitions and world views”.
“Put aside the complicated metaphysics and speculative
theology and what is left is human beings struggling to
patch a ship already at sea: to find ways to live together
peacefully – and even prosper – in a changing, plural
world.” As Friedrich Hayek insisted, any attempt to
define the ends of life disconnected from the will of
living beings is a form of collectivism, which in turn can
only lead to unfreedom – and, worse, inhumanity.
20 Analysis
Happy days are here
again for equity investors
Ignore the doom-mongers, says Max King. The global bull market began in October 2022, and
there is ample scope for further gains. Is your portfolio poised to profit?
“Bull markets,” said legendary investor John
Templeton, “are born on pessimism, grow on
scepticism, mature on optimism and die on euphoria.”
The equity bull market started in October 2022 and
is well under way, although it is further advanced in
the US. Market sages are in denial, having warned of
a recession that would dent stocks, but it has failed to
appear. Ed Yardeni of Yardeni Research likens them
to Vladimir and Estragon, the characters “waiting for
Godot” in Samuel Beckett’s play. Godot never turns up.
The sceptics point to the narrow base of the bull
market. The “MegaCap-8” of the US market (Apple,
Amazon, Alphabet, Microsoft, Meta, Nvidia, Netflix
and Tesla) fell by 41% in 2022, but have since rebounded
by 64%, so their share of the S&P 500 index has risen
from 19% to 27%. The S&P 500 has climbed by 17%
this year, but only by 5.5% without the MegaCap-8.
The forward earnings multiple of the MegaCap-8
has risen to 31 times, still short of the 38 reached in
2020, but up from 21 at the start of the year. This has
propelled the multiple of the whole US market from 15
at the October low to 19.6. But the multiple for the rest
of the S&P 500 has risen only moderately to 16.7. The
forward multiple of the mid-cap S&P 400 index is only
14.1. The small-cap S&P 600 is on just 13.7.
The sceptics say the MegaCap-8’s performance is
entirely driven by artificial-intelligence (AI) mania, a
bubble waiting to burst. In truth the surge is mostly due
to the actions taken in 2022 to reduce costs, streamline
their companies and focus on profits. The sceptics may
also be dismissing the impact of AI too readily.
Investment guru Ken Fisher shrugs off concerns
about poor market breadth. “This is normal as you
move to new all-time market highs. It is also normal
for the stocks that got hurt the most on the way down,
as in 2022, to bounce the most in the subsequent bull
market.” Robust earnings growth is bringing multiples
down, with both first- and second-quarter US earnings
ahead of expectations.
European growth lags behind
The European and UK markets have rallied less and
their valuations are lower – but GDP growth is lower
and likely to remain so. In addition, GDP growth feeds
into profit growth more easily in the US than in the UK
or Europe. America’s higher valuation is thus supported
by structurally faster growth in earnings.
The UK and Europe might benefit if there was
a preference for “value” investing over “growth”.
But Ron Tabbouche of RIT Capital argues that
“Just 4% of “the expansion of earnings multiples, driven by
stocks have lower interest rates, accounted for most of the 12%
annualised return of equities in the last ten years,
accounted with rising margins, helped by globalisation, also a
for all of the significant factor”. Now, growth in revenues is needed
US equity “to drive returns”.
Higher interest rates and bond yields than have been
market’s seen in the past 15 years have held markets back, but
won’t necessarily continue to do so. Equities performed
gains in the well in the 1980s and 1990s against such a background
last century” as the high cost of debt constrained productivity-
11 August 2023 moneyweek.com
sapping government spending. Still, markets don’t go
up in a straight line, and a setback is always possible.
Almost inevitable is a change of gear in which the shares
that led the market up initially take a breather and new
leaders emerge. This makes now a good time to review a
portfolio, taking some profits in the winners, selling the
lame ducks and buying into some stocks left behind.
An old adage advises investors to “run your winners
and sell your losers”. But anyone who did so two years
ago would have held on to all their growth shares and
sold their value stocks; last autumn they would have
done the opposite. Both trades would have been a
mistake. Another adage is to “buy low, sell high”, yet
buying low can be like trying to catch a falling knife
while shares that are high can climb higher still.
Only 4% of the companies listed account for all of
the US equity market’s gains since 1926. Just 90 of
24,000 have made up half. Owning any of these but
selling too early would have been a mistake. “Nobody
ever went broke taking a profit” goes the saying. The
riposte is that they went broke reinvesting in a loser.
So there are no simple rules to follow about when to
buy or sell. Purging the losers in a portfolio has merit as
investors worry more about losses than profits, but the
risk of selling a loser is that it will then bounce back. It’s
best to make an active decision: either sell or double up.
When it comes to new investments, it is tempting to
buy a share that has fallen a long way as it’s easier to
believe that a share price that has halved can double
than to believe one that has doubled can double again.
The latter is more common. As this year’s huge rebound
of the MegaCap-8 demonstrates, if you don’t buy
quality growth shares when they are temporarily out of
favour, you probably never will. Cheap shares can wait.
Cash and government bonds
Bank deposit rates and the yield on government bonds
are the highest for 15 years. But resist the temptation
– those yields do not look nearly so attractive when
inflation and taxation are taken into account. Besides,
the appetite of professional investors for bonds will have
been dulled by the savage bear market of the past 18
months, which ended a 40-year bull market.
Polar Capital Technology (LSE: PCT) and
Allianz Technology (LSE: ATT) trusts
Those who held on to these in defiance of the consensus
that the sector had further to fall have good reason
to feel smug. The shares still trade on double-digit
discounts to net asset value (NAV), the bears are still in
denial and their capitulation lies ahead. Still, it’s hard to
believe that the MegaCap-8 will continue to outperform
and there are plenty of attractive alternative investment
opportunities. This suggests some profit-taking.
Scottish Mortgage Investment Trust
(LSE: SMT)
The shares have more than halved from their early
2021 peak and a premium to NAV has turned into
a 16% discount. Yet the share price has been rising
steadily since May, the NAV is up by 8% this year and
©Getty images
The UK market looks cheap, but may remain so
good news is emerging on unlisted investments such as
SpaceX. This is a trust worth adding to, not cutting.
Ruffer (LSE: RICA), Capital Gearing (LSE: CGT),
Personal Assets (LSE: PNL)
These defensive trusts performed well in 2022, but
have disappointed this year. Managers remain bearish.
Ruffer’s allocation to equities is at a record low of 14%.
Capital Gearing has just 27% in risk assets, including
alternatives and property. The trusts are structurally
averse to equities, so they tend to be poor stockpickers.
Bonds are no longer defensive, limiting the scope for
diversifying risk. The shares trade on low discounts to
NAV, so these are prime candidates for a sale.
RIT Capital Partners (LSE: RIT)
RIT has also been a poor performer this year, yet the
shares trade on a 20% discount. Exposure to quoted
equities is only 34%, but 40% is in private equity. This
was a minor drag on returns in the first half of 2023,
but should now be positive. RIT’s managers are “keen
not to sacrifice the upside” so they are not structurally
bearish. Their stated view that “revenue growth and
margins rather than multiple expansion will drive
returns from now” implies that they are growth rather
than value-orientated. The shares seem at least worth
holding onto at the current price.
Infrastructure funds
The shares have heavily derated this year and are
now trading at discounts of between 5% (BBGI
Global Infrastructure, LSE: BBGI) and 21% (HICL
Infrastructure, LSE: HICL). 3i Group’s (LSE: III) shares
are only down 3% over one year thanks to some good
asset sales, but the others have lost roughly 20%.
Investors have taken into account the effect of higher
interest rates in pushing up the rate at which future
cash-flows are discounted to present values (thereby
moneyweek.com 11 August 2023
Analysis 21
reducing asset values), but taken no account of the
benefit of higher inflation on those cash flows and
hence dividends. This leaves the funds very attractively
priced relative to inflation-linked gilts with a yield
approximately 5% higher, making them a strong hold,
“There is
especially if held in a Sipp or an Isa. good value
Renewable energy funds in UK small-
The same applies to these, although their exposure to and mid-cap
market electricity prices has been an additional adverse
factor. Over-enthusiasm about investment, especially by
funds, and in
the government and opposition, has threatened lower those focusing
long-term prices, but the discounts of the funds to net
asset value is bringing their expansion plans to a halt.
on first-rate
Vattenfall’s decision to suspend work on its North Sea global firms”
site due to rising costs makes excess capacity look less
likely, while demand for electricity will grow steadily.
This makes the sector attractive longer term, with even
the highest quality funds yielding roughly 6%.
UK equities
It’s probably too late to bail out from a market that has
reverted to underperformance this year. The market
certainly looks cheap, but may deserve to remain so.
There is very good value in small- and mid-cap funds
and in those, such as Finsbury Growth & Income (LSE:
FGT), investing in high-quality global businesses. The
best returns are coming from the supposedly high-risk
recovery shares most funds avoid: Rolls-Royce has more
than doubled. But avoid stocks whose business models
are broken, such as banks and general insurers.
In the very long term, shares have delivered an excess
annual return over government bonds of nearly 4%,
but in the bull market for bonds, the excess return was
much lower. It could now be considerably higher for an
extensive period, especially as the earnings multiples
of most markets have fallen in response to higher bond
yields. For equity investors, happy days are here again.
22 Opinion

Trapped in a time of
zombie government
It’s not just companies that are eking out an existence,
says Max King. The state is in the twilight zone too
A year or two ago, there was much talk about
“zombie” companies, kept alive by low interest
rates, just muddling along without the cash flow to
invest or generate growth. They were holding the
economy back through low productivity so it
would be better if they closed down, releasing
staff, resources and premises for more useful
deployment elsewhere.
Since early 2021, interest rates have risen from
almost zero to 5% and are set to rise further, but
business insolvencies, though higher than a year ago,
have failed to take off. It seems there were far fewer
zombie companies than we thought.
But there is one massive enterprise the zombie

thesis fits perfectly: the British government. It used
low interest rates to finance an extravagant spending
spree both before and during Covid, ran up huge debts
and obligations, and is now desperately looking for a
way out.
The yield on government debt has risen sharply,
from almost zero for ten-year gilts in 2021 to 4.5%,
the highest for 15 years. A yield of 5.7% had to be
offered in a recent auction to attract buyers for £4bn
of two-year gilts.
When yields spiked higher last autumn, the new
chancellor, Jeremy Hunt, thought he could defuse
the threatened financial crisis by whacking up taxes.
For a couple of months, the policy appeared to be
succeeding and ten-year yields dropped back to 3%.
But they have since risen to new peaks.
This makes it ruinously expensive to borrow,
while persistent inflation is undermining the
government’s finances by pushing up the cost of
inflation-linked debt.
The problem is that gilt yields, having been too low
for years, are now set to go too high. Pension funds,
shoehorned into buying gilts by regulators, have lost
a fortune and those that compounded their exposure
through liability-driven investment strategies last year
have lost even more. They will be very wary of further
investment and will require generous yields.
Many advisers who prematurely advised investors
to buy gilts now have egg on their faces. To be fair,
most of these recommendations were for short-dated
gilts with low coupons that offer tax-free capital gains
until redemption. Investors with longer-term horizons,
especially those liable for income tax on the interest,
should wait.
On the optimistic assumption that inflation can
sustainably be brought down to 3%, a ten-year yield “Spending
above 5% would be justified, but the odds will only be
firmly on the investor’s side at a yield of 6%.
restraint will
probably
Higher taxes hamper investment fall on those
This is terrible news for the public finances, especially
as there are clear signs that Hunt’s policy of raising who can’t
taxes is failing to generate the needed revenue.
The higher taxes go, the greater the determination
strike, notably
of people and businesses to take evasive action. pensioners
Moreover, high tax rates are damaging to investment,
innovation, work incentives and economic growth.
and welfare
This leaves just one policy option: spending restraint, claimants”
11 August 2023 moneyweek.com
©Shutterstock
Chancellor Jeremy Hunt’s taxes aren’t raising enough cash
or austerity. Capital spending is always the first
to be cut by governments, which probably means
that HS2 will be axed even though tens of billions
have already been spent on it. Otherwise, the state’s
cunning plan is to get the pension funds to pay for
infrastructure investment.
The big cheeses of the financial world love being
flattered by governments – invitations to Downing
Street, sitting on top-level advisory committees,
the hustle of the media, the promise of gongs – but
hopefully they will remember their obligation to their
customers and put financial returns first.
Public sector lacks management skills
Cutting current expenditure is difficult. Serious
reform of the NHS could save a great deal of money
but is a non-starter. Restraining pay in the public
sector has appeal, but has already been tried and leads
to strikes. Raising productivity and efficiency in the
public sector is nice in theory, but the sector doesn’t
have the management skills. Those with ability will
always be poached by the private sector.
This means that spending restraint will probably
fall on those who can’t strike, notably pensioners
and those on welfare. Devaluation will be sought to
encourage growth while the consequent inflation will
help disguise spending cuts.
A change of government will bring no respite.
Labour is already rowing back on spending
commitments and kyboshing talk of nationalisation.
It still dreams of raising additional revenue through
abolishing non-domicile status and levying VAT on
private education. It has detailed plans about how to
spend the proceeds, but its numbers are laughably
overoptimistic. It would be prudent to wait for the
revenues before spending them, but these are likely to
be negligible, if not negative. The spending plans will
probably be shredded.
Begbies Traynor, the insolvency specialists, say that
the remaining zombie companies will be killed off by
the end of next year. Zombie government will last a
lot longer, whoever forms the next government. But
don’t worry, as that should be pretty good news for the
economy and markets.
24
A West African empire built on gold
Mansa Musa the Ninth loved gold – and
knew how to use it, says Dominic Frisby
I once presented a documentary for Italian television
declaring that Jakob Fugger – Fugger the Rich – was
the richest man in history. He was a German who
made his fortune in the 16th century through gold and
copper mines, lending money to kings and popes and,
above all, selling absolution.
By the time he died his net worth was equivalent
to nearly 2.5% of European GDP, or half a trillion
dollars in today’s money.
But, according to the internet (and we all know
the internet is never wrong) there was someone even
richer: a Malian gentleman, Mansa Musa the Ninth,
or King Musa IX.
The BBC deems his wealth “indescribable”,
placing him above the likes of Augustus Caesar,
Andrew Carnegie, John D. Rockefeller, William The
Conqueror and Colonel Gaddafi in its Wealth Hall of
Fame. Fugger doesn’t even get a look in.
So who was this Mansa Musa the Ninth? He was
born in 1280 in Mali. At some stage in his early 20s
he became king. The eighth Mansa, his brother
Abu Bakr, had wanted to go and explore the edge of
the Atlantic Ocean and Musa stood in for him while
he was gone. Bakr never came back and so Musa
become Mansa.
Many with a dark view of human nature argue that
Musa actually saw to it that Bakr never came back:
the notion of exploring the edge of the Atlantic Ocean
was just a ruse. Who knows? Perhaps Bakr did make
it to the edge of the Atlantic Ocean, now known as
Brazil, found it to his liking, as many visitors do, and
decided to settle there.
At the time, the Mali empire extended through
2,000 miles of West Africa, from what today is
Niger in the east, through parts of Mali, Burkina
Faso, Guinea, Senegal, Mauritania, Sierra Leone and
Gambia. With land ownership came ownership of the
natural resources that lay within a territory, and that
is how Musa came to be so rich – via salt and gold,
mainly. West Africa has always had lots of gold.
A rich region
Even today, Ghana is Africa’s second-largest gold
producer, beaten only by South Africa, whose
premium deposit, the Witwatersrand Basin, was
only discovered in 1886 by an Australian mining
prospector called George Harrison.
Harrison, in what must be considered among the
worst business deals in history, sold his stake for £10.
That deal was even worse than the record label Decca
passing on Harrison’s namesake’s band, The Beatles,
70 years later. Harrison was never heard of again, but
his discovery would provide the world with over 20%
of all the gold ever mined.
However, until the emergence of the Witwatersrand
Basin, West Africa was top dog. Indeed, according to
the British Museum, something like half of the Old
World’s gold came from the Mali empire.
Musa certainly enjoyed the trappings of wealth.
Indeed, he had tens of thousands of slaves to his name.
In 1324 he set off on a pilgrimage to Mecca with
12,000 of them – in addition to a retinue of 38,000
others, including soldiers and entertainers, all dressed
in gold, brocade and silk.
Like today’s billionaires, Musa liked attention.
He didn’t have rocket ships or Twitter to get it, so
11 August 2023 moneyweek.com
Opinion
©Getty Images
The king is thought to have been richer
than Andrew Carnegie or John D. Rockefeller
Musa’s means was this hajj, a pilgrimage to Mecca,
the spiritual home of Islam. The 2,800 mile round trip
took him two years.
Each slave carried four pounds of gold, while
camels walking behind towed as many as 300 pounds
of gold dust, so that the entire procession had around
18 tonnes of gold in tow. There were heralds who bore
gold staves and en route, every Friday, this devout
servant of Islam had a mosque built.
When he arrived in Cairo, he went shopping. He did
the same in Medina and Mecca. The sudden dramatic
rise in the supply of gold in those cities caused an
inflationary collapse that took about 12 years to
recover from.
Ever the businessman, Musa realised that the gold
price was being devalued by the new supply, so on his
way back, Musa borrowed from money-lenders all the
gold he could carry.
Cynics argue that Musa’s strategy of causing
inflation then collapse was a deliberate ploy to
undermine Cairo’s economy and relocate Africa’s
commercial centre out to Mali in the west, to Gao
or Timbuktu.
Over the course of his reign, Musa conquered some
24 cities (and their surrounding districts), among
them Timbuktu, which he took on his way back from
Mecca. Once back in Mali, Musa started throwing his
gold about there too. For 440 pounds of gold, he hired
the services of poet and architect Abu Ishaq al-Sahili
to give Timbuktu a makeover.
Universities and mosques were built and Timbuktu
became something of a cultural centre, the “Paris
of the Medieval World”, according to some. One
of Musa’s buildings, the Sankore Madrasah, where
maths, science, languages and the Koran were taught,
is still operating today in the same capacity.
Musa died in 1337, at the ripe old age of 57, and
“The sudden the Mali empire began to fall apart soon afterwards.
The inescapable laws of unsustainable spending
dramatic rise applied as much then as they do today.
in Cairo’s
Dominic’s show on gold at the Edinburgh Fringe
gold supply this August will take place at Panmure House, in the
led to an room in which Adam Smith wrote Wealth of Nations.
You can get tickets here: https://tickets.edfringe.com/
inflationary whats-on/dominic-frisby-gold. Dominic Frisby writes
collapse” the newsletter The Flying Frisby
 Funds 25

Three ways to play the AI boom

Artificial intelligence will play a huge role in many sectors. Look for a wider range of ways to profit
watching AI trends, such as
David C Stevenson
Investment columnist the Polar Capital Artificial
Intelligence Fund. For instance,
Citywire has a tool called Fix

S tocks related to artificial

intelligence (AI) have been
leading the market higher
the Future, which looks at the
stock picks of the top active
fund managers. You can screen
this year, with names such as managers based on sectors
Microsoft, Nvidia and Apple and themes, such as exposure
jumping between 33% and to AI and automation. This
218% year to date. These gains screen gives you a handful of
are reminiscent of the dotcom very familiar names, such as
bubble in the late 1990s. I’m Alphabet and Tesla, as well
not entirely convinced we’re in as other large caps that use
a similar position, but we are technology, such as Raytheon
certainly in a peculiar market. and Accenture. But it also
Nvidia, the big daddy of throws up a whole bunch of less
AI, is trading at 232 times familiar names, many of which
trailing earnings. That’s some are in the aerospace and defence
multiple to “grow into”. But industry, such as Aptiv, Safran,
one stock does not make a Hexcel, AAR, and VSE.

bubble. As analysts at ETF
firm WisdomTree point out,
a composite tech index that
includes stocks from different
sub-sectors is trading at below
30 times forecast earnings
today, compared with 55 times
in the 1990s. That’s not cheap,
but it is not a bubble.
Investment theory suggests
that the more diversified you
are, the better the risk levels
and the more opportunity to
capture what’s called market
breadth. However, the AI
buzz hasn’t been that broad or
diversified – it’s really just about
a handful of stocks. What’s
more, I would argue that most
investors who put money to
work in AI-related stocks are
not long-term investors. They
are chasing momentum, which
is a respectable strategy until it
falls over.
It could pay to diversify into AI exchange-traded funds
If you believe – as I do– that
AI will have a huge influence
over many sectors, then frankly
AI falls away into the corporate
noise – the businesses that use
it smartly will probably be the
very biggest tech-enabled firms
with access to deep wells of
capital. They might not be clever
AI start-ups or even the giants
such as Nvidia or Microsoft
(where you could argue that the
disruption is already priced into
the share price).
In simple terms, the
momentum trade was, and
maybe still is, just buying a
handful of stocks in the short
term. Later, one would bet on
US mega caps because of their
easy access to liquid capital
markets to fund innovation.
©Getty Images
Don’t follow the crowd
An alternative strategy is to try
to pick stocks that will play the
broadening out or diffusion
trade – ie, the next generation
behind Nvidia and Microsoft.
That’s where the AI exchange-
traded funds (ETFs) will
undoubtedly come into play,
such as the iShares Automation
and Robotics ETF (LSE:
RBOD), the Legal & General
Artificial Intelligence ETF
(LSE: AIAG), the WisdomTree
Artificial Intelligence ETF
(LSE: INTL) and the Global
X Robotics and Artificial
Intelligence ETF (LSE: BOTZ).
Another possibility is to
try to out-think these ETFs
and draw on the best ideas of
active managers who are closely
If none of this excites you, I’d
suggest one very left-field idea:
back the venture capitalists who
are investing in tomorrow’s
ChatGPT. Most of the listed
venture-capital plays in the UK,
such as Molten Ventures (LSE:
GROW), are pushing the focus
of their portfolio towards AI
and automation in some way.
A minnow fund called
Forward Partners (LSE: FWD)
is making a huge bet on AI,
with many if not most of its
portfolio companies “classified
as AI, being businesses that
are either applying AI or have
generative AI products in
market or near launch”. With
its share price down at 24p, the
market is currently applying
an 80% haircut to the value of
a portfolio. It’s risky, but that
haircut leaves a wide margin of
safety for investors.

Activist watch Short positions... Home Reit hit by tenant failures

Shares in Icahn Enterprises, the
n “Another day, another update from the n The number of active equity funds that
company controlled by billionaire
comatose Home Reit board,” says Alistair beat a comparable tracker fund rose in
activist investor Carl Icahn, fell by
Osborne in The Times. The beleaguered real the first half of 2023, says broker AJ Bell.
almost 30% last week after its
estate investment trust has announced that two Overall, 44% of active equity funds
quarterly dividend was halved, says
more of the community interest companies outperformed, up from 27% in 2022.
The New York Times. Icahn’s firm has
(CICs) that rent its properties to provide housing That still means that the average active
been under pressure since May, when
for the homeless have gone into voluntary manager did worse than a passive fund,
short-seller Hindenburg Research
liquidation. One of these CICs leased 152 but in some sectors they did unusually
suggested it could not sustain its
properties and accounted for 11% of Home Reit’s well: 77% of global emerging-markets
current payout. Hindenburg claimed
rent; it was run or controlled by the same funds beat emerging-markets trackers.
Icahn had adopted “Ponzi-like
director as another CIC that was the Reit’s At the opposite end of the spectrum, just
structures” by raising new capital
largest tenant “before it went bust in March, 33% of global equity managers out-
from retail investors and paying
taking 12.5% of the rent roll with it”. Separately, performed. Over the long term, active
dividends out of that rather than
Home Reit said it had sold 40 properties at a funds find it hard to beat passives: 49%
investment profits. Icahn called the
discount of more than 60% to what it paid for of active UK equity funds outperformed
claim “misleading and self-serving”,
them, and also reported it had collected just 7% in the first half, but just 27% did so over
but admitted that ill-timed short bets
of the £8.7m rent due in May and June. the past five years. Investors still need to
on the wider market had hurt the firm’s
“Whatever the board’s failures, it was legged be careful which passive funds they
returns. Icahn Enterprises will now
over by former investment adviser Alvarium. choose: the cheapest UK tracker
“stick to our knitting” and focus more
But you can see why law firm Harcus Parker is returned 16% more than the most
on activist campaigns, he said.
bringing a shareholder lawsuit against both.“ expensive one over the past decade.

moneyweek.com 11 August 2023

26 Companies

A recovery play with a rich yield

British American Tobacco is historically cheap and will pay investors to wait for a rise in the stock
David J Stevenson
Investment columnist
Let’s start with a health
warning about this stock. It
falls within the category of
so-called “sin” stocks. It makes
and markets products that
many people dislike intensely.
And it goes against the grain
of modern medical opinion.
We’re not here, though, to
make moral judgements about
portfolio selections. Our job
is to highlight interesting
investment opportunities,
while leaving the decision-
making up to you.
So here goes. British
American Tobacco, known
as BAT (LSE: BATS), is
a very cheap share. Yet
as its name implies, the
company’s main business
is selling “combustible” (ie,
conventional) cigarettes.
And to be clear, “there
is no safe level of tobacco
consumption”, as Australia’s
Department of Health puts it.
“All tobacco contains nicotine
and other toxic chemicals.
Even if you don’t breathe in the
smoke, you absorb harmful
chemicals through the lining of
your mouth.”
BAT agrees that combustible
cigarettes pose “serious” health
risks and that “the only way
to avoid [them] is not to start,
or to quit”. Furthermore, the
company does “encourage
those who would otherwise
continue to smoke to switch
reduced-risk alternatives” –
more on these later.
Despite all the warnings,
however, there are 1.1 billion
smokers worldwide, while
another 200 million people
use other tobacco products,
according to the Tobacco
Atlas produced
by global
public
health organisation
Vital Strategies and the
Tobacconomics team at
Chicago’s University of Illinois.
The planet’s population of
roughly eight billion people
consumes almost five trillion
cigarettes each year.
Global footprint
BAT is one of the largest
players in the sector, operating
in more than 170 markets,
with 41 cigarette-making
facilities in 39 of these.
Over the long term, it has
consistently managed to grow
Indeed, last year the group
sold 605 billion cigarette sticks
and 16 billion other tobacco
products (OTP), including
cigars and chewing tobacco.
Total revenues reached
£27.7bn, of which 45%
came from the US; 83% of
sales were from
combustibles as opposed to
smokeless products. However,
the company has stressed that
its “purpose is to reduce the
health impact of our business
by offering a greater choice
of enjoyable and less risky
products for our consumers”.
In 2013 BAT introduced the
first of its Vapour products to
the UK. These are handheld,
battery-powered devices that
heat an “e-liquid” to produce
inhalable aerosols. People vape
to help cut down on, or quit,
cigarettes. In 2016 in Japan,
the group launched its initial
(THP). These heat rather than
burn tobacco, creating an
inhalable aerosol containing
nicotine. The following year,
“modern oral products”
(smoke-free oral nicotine
pouches) appeared.
However, as the above
items contain nicotine,
which is highly addictive,
some health concerns
remain that could hit the
company’s future sales. Other
longer-term revenue risks are
increased illegal competition,
potentially higher tax on
tobacco-related products, and
the possibility of product-
liability litigation.
Meanwhile, California
has become the second
American state to ban all
flavoured tobacco product
sales, following the lead
of Massachusetts in 2019.
The US Food and Drink
Administration (FDA) is also
planning to ban menthol as a
cigarette flavour.
More recently, BAT’s
CEO has admitted that
“our performance in US
combustibles has been
disappointing”. Against this
backdrop, BAT’s stock price
has been in retreat in recent
months. It has more than
halved since its peak of just
over six years ago. Indeed,
over the past 12 months, it
has slipped by about 24%.
However, that has left shares
in this industry leader very
cheap with a juicy yield, as we ©Getty Images

to scientifically substantiated, sales, cash flow and profits. tobacco-heating product explain below.

All the risks are in the price British American Tobacco (LSE: BATS)
Share price in pence
In the six months to 6.75, according to an overall yield of 9%. 4,500
30 June 2023, BAT consensus estimates. Generally, a return this
reported revenue up For 2024 and 2025, the high indicates that a 4,000
4.4%, 16.6% of which forecast multiple drops reduction in the
came from non- to 6.4 and below six. dividend may be on the 3,500
combustibles. Adjusted In addition, the price-to- cards soon.
profit rose by 3.6%, with book value is just 0.83. That could still 3,000
the adjusted operating In other words, this happen in BAT’s case:
margin at 44.3%. stock is dirt cheap. after all, the group has 2,500
Adjusted diluted Then there’s the net debt of £38bn.
earnings per share (EPS) whopping payout to Yet with profits and 2,000
climbed by 5.3%. shareholders. In cash flow historically 2020 2021 2022 2023
The improved February 2023, the proving very resilient,
performance “in the company announced a and the current buying into BAT. While 15 and 20, so there’s
critical premium US 231p per share dividend distribution covered the shares are risky, at scope for significant
combustibles business for 2022, payable in four 1.65 times by the 2023 the extremely low upside on any recovery
since January 2023 is equal quarterly consensus forecast of current valuation the in sentiment. Even
encouraging”, says the instalments in May, EPS, the dividend looks dangers appear to be better, with that very
company. The forward August and November fairly secure. fully factored into the high yield, investors are
price/earnings (p/e) ratio 2023 and in February In short, there’s a price. BAT has often being well paid to wait
to 31 December 2023 is 2024. These comprise strong value case for traded on a p/e between until this happens.

11 August 2023 moneyweek.com

28
Find your forgotten savings
NS&I makes it easy to check for premium bonds and claim any prizes
Rupert Hargreaves
Deputy digital editor
N ational Savings and
Investments (NS&I)
Premium Bonds is one of
the country’s most popular
savings products, with millions
of people having owned or
currently holding Premium
Bonds. They’re also popular
as gifts, especially to young
children from grandparents.
If you’re like me, you might
have forgotten you were ever
given any, only to be surprised
when a cheque for £25 turns up
in the post.
Luckily, Premium Bonds
will always be valid until they
are cashed in, so even if you
think you may have some from
decades ago, it’s worth trying
to track them down. One way
is to visit nsandi.com/forms
and look for the “form to track
down lost savings”. You can
complete this form online or
download and print a copy to
complete by hand. If doing the
latter, send your completed
form to Tracing Service, NS&I,
Sunderland, SR43 2SB.
You can also use
mylostaccount.org.uk. This is
a free service from UK Finance
and the Building Societies
Association that helps you trace
lost accounts or savings. It’s not
only for NS&I products, so it
may be worth a visit if you have
other lost accounts.
If you’re trying to track
down Premium Bonds on
behalf of someone else, then
Pocket money... IHT growth boosts lifetime transfers
l The number of families using
potentially exempt transfers
(PETs) to avoid inheritance tax
has risen 48% in the past
decade, according to HM
Revenue & Customs (HMRC).
PETs are gifts of unlimited
value made during the
individual’s lifetime that will be
exempt from IHT as long as
they survive for seven years
after the transfer. Such gifts
have become increasingly
common as the number of
families drawn into the IHT net
has grown. There were 27,000
estates that paid IHT in the
2020-2021 tax year, up from
15,000 in 2009-2010, with the
average bill rising to £214,000.
11 August 2023 moneyweek.com
Personal finance
make sure you are legally
entitled to act on their
behalf – for example, under
a power of attorney or as an
executor. NS&I says to
call it for advice on how to
trace someone else’s accounts
or investments. If you need
more help or guidance, NS&I
has a helpful list of contacts
who may be able to steer you in
the right direction.
How to claim your prizes
There are a number of ways
to check for NS&I prizes.
The easiest way is through the
nsandi.com prize checker or
the official prize checker app,
available on either Android
or iOS. You will need your
Premium Bonds holder’s
number to use the website and
your NS&I number or holder’s
number to check via the prize-
checker app. This has either
nine or ten digits, or eight digits
followed by a letter.
l NS&I has increased its
interest rates again as the
battle to attract savings heats
up. The state-backed savings
provider has boosted the rate
on its Premium Bonds prize
fund to 4.65% from 4%, the
highest level since March 1999.
It has also hiked the rates
across its Income Bonds, Direct
Saver, Direct Isa, Junior Isa and
Investment Account products.
However, NS&I’s best deals
remain some way below offers
from other providers. The best
easy-access rate is Tandem
Bank’s Instant Access Saver,
which pays 5%. This is only
available through an app.
Cynergy Bank has the highest
©Alamy
However, not all NS&I
customers will be using the
internet so there are still a
few other ways of finding out
whether you have any cash
waiting to be claimed.
If you’re registered for online
or phone services you can call
NS&I free on 08085-007007.
If you aren’t registered, you can
write to NS&I and ask if you
have any unclaimed prizes. To
help them track any potential
prizes down for you, your letter
must include:
l The Premium Bonds holder’s
number
l Your current name
l Any previous names
l Your current address
l Any previous addresses
where Premium Bonds may
have been registered
l Your signature
Any prizes will then be sent
to your home address. They
cannot be sent directly to your
bank account.
easy-access individual savings
account (Isa) rate at 4.4%.
l Nectar, the loyalty-card
scheme owned by Sainsbury’s,
is closing the Nectar Connect
scheme that allowed users to
earn points on their spending
by linking a credit card or bank
account to a Nectar account.
Nectar Connect gave Nectar
access to your spending
history in exchange for bonus
Nectar points for shopping at
specific retailers. Why Nectar
is ending the scheme isn’t
clear: it may reflect an
unwillingness by users to hand
over so much financial data, or
reluctance from merchants to
Tax traps for the
self-employed
Self-employed workers risk
falling into several tax traps,
says The Times. Take the
unofficial 60% tax band. The
tax-free personal allowance of
£12,570 falls by £1 for every £2
of net income over £100,000.
This tapering effectively adds
a further 20% on top of the
40% higher-rate tax between
£100,000 and £125,140,
creating a marginal tax rate of
60% for earnings in this band.
This is frankly bizarre given
that earnings over £125,140
are taxed at the additional tax
rate of 45%, but can be tricky
to avoid for self-employed
people who have incomes
that vary from year to year.
Those with several sources
of income can also pay too
much National Insurance (NI).
There are four classes of NI
contributions and somebody
who has both employed and
self-employed income may
pay in three different classes
without realising.
Trading via a company may
get around these issues. You
pay corporation tax on profits
and dividend tax on most of
the money you withdraw,
which adds up to less than
income tax and NI. But note
the accounting costs for a
company will be higher, so
this will not always be best.
Finally, be careful with
business assets. Sole traders
(and companies) have a £1m
annual investment allowance
for equipment, which means
the full cost of purchases up to
this limit can be deducted
from profits in the year you
buy the item. But if business
assets – eg, a laptop – are also
used for personal purposes,
they will have to adjust the tax
relief they claim to reflect the
amount of private use.
continue funding points offers
that often doubled up with
cashback deals on credit cards.
No points will be earned on
spending after 27 October.
l The saver with the biggest
pension fund in Britain has
more than £11m in retirement
savings, according to data
obtained from the Office for
National Statistics by wealth
firm RBC Brewin Dolphin. The
numbers, which include both
defined contribution and
defined benefit pensions, also
show that 929,000 savers have
funds worth between £1m and
£2m, and 50,000 have more
than £3m saved.

Should you retire abroad?
Check the regulations governing pension savings carefully before you go
David Prosser
Business columnist
Britons returning from summer
holidays abroad may be tempted
by the thought of retiring to
foreign climes. If so, you’ll need
to think about how to manage
your pension income once
you’re living overseas.
The good news is that your
private pension – income
from a personal or workplace
scheme, say – can be paid to you
wherever you choose to live.
©Getty Images
You will also be entitled to the
same annual pension increases
as you would get if you were still
living in the UK.
However, check what
arrangements your pension
provider offers for international
retirees. Some providers will
only make payments to a British
bank account. That may be
problematic if you decide to
bank locally. You may need
to maintain a bank account at
home for this purpose, or switch
to a new pension provider.
Mind the exchange rate
The other important issue
to consider is exchange-rate
volatility. Your UK pension will
be paid in sterling, which you’ll
need to convert to the local
currency wherever you retire to.
That will inevitably mean your
effective income rises and falls
in value as the exchange rate
changes; that’s a risk that you
will need to plan for, although
your bank may be able to help
you mitigate the danger.
It is also important to take
advice on your tax position.
Even if you’re no longer a
UK resident, you are usually
still liable for tax on UK
income, including income from
a UK pension, and you may
need to file a self-assessment
tax return with HM Revenue
& Customs. You may also be
liable for tax on your pension
income in your new country
of residence, although many
countries have double taxation
agreements with the UK to
ensure people aren’t taxed
twice on the same money.
One way round some of
these issues may be to transfer
your private pensions in the UK
to a pensions provider based
in the country to which you
moneyweek.com 11 August 2023
Pensions 29
Find small caps
with big profits
Chancellor Jeremy Hunt
believes reforms that would
encourage occupational
pension schemes to invest
more in early-stage
companies will benefit
savers as well as driving vital
investment in start-ups. The
returns from private-equity
and venture-capital
investment could boost
savers’ pension pots by as
much as 12% by the time
they retire, Hunt claims.
Pension experts aren’t
convinced, pointing to the
additional risk that comes
with investing in small
businesses. Some start-ups
deliver stellar returns while
others are complete flops.
In some countries your UK state pension will be frozen
Still, the long-term record of
professionally managed
move. That way, you’ll be able annual state pension increases funds offering diversified
to receive income in the right if you move to certain exposure to these
currency, with no liability to tax countries, including those in businesses is impressive.
in the UK. the European Economic Area One recent analysis of
However, HMRC only and those where the British investment trusts focused on
allows transfers to schemes government has reciprocal private equity found they
had delivered growth in net
in other countries that it has deals in place. That isn’t the
asset value of 301% over the
specifically approved. These are case in many countries popular past ten years, compared
known as qualifying recognised with UK expatriates, including with 187% and 76%
overseas pension schemes Australia, Canada and several respectively from the MSCI
(QROPS). And these transfers Caribbean nations. If you move World and FTSE All Share
are complex. You should take to one of these nations, your indices of listed firms. And
expert independent advice state pension will be frozen for many pension savers don’t
from a financial adviser who good at the level payable when have to wait for Hunt’s
specialises in expatriates’ affairs. you start claiming. reforms if they want to
invest in such funds.
There are also complexities Finally, if you choose to
These investment trusts can
to explore when it comes to move overseas before you easily be bought and sold in
your state pension entitlement. reach retirement age, you can your stakeholder or self-
You’ll be eligible to receive all continue to contribute to your invested personal pension.
the benefit that your national UK pension schemes to build up That’s not to say they are
insurance contributions qualify future benefits. But the amount suitable for everyone;
you for wherever you choose of tax relief you can claim may limiting your exposure to a
to live in retirement. And non- be limited, or even zero. Your small percentage of your
residents don’t normally have entitlement will largely depend overall pension is sensible.
But these are easily
to pay any UK tax on their on the value of your income that
accessible funds with a
state pension. Less happily, is deemed to be UK earnings for strong record.
you will only qualify for tax purposes.
News in brief... wise up to Pension Wise
l Private pension savings could lose their £100,000 pension could have bought an
exemption from inheritance tax (IHT) under annual annuity income worth £4,949; today,
new proposals from the government. Draft the equivalent figure is £7,358. The dramatic
regulation published as part of a consultation increase, which reflects the Bank of England’s
exercise on how to abolish the lifetime allowance series of interest-rate increases, has seen a
(LTA) on pension savings effectively abolishes resurgence of interest in annuities.
the exemption, pension experts warn. That
would hit thousands of families who since l Pension Wise, the state-funded service
2015 have been able to pass on unused pension that offers free consultations to savers over
savings to the next generation without the 50 who are considering their retirement
money counting towards the value of the estate options, continues to be overlooked. Fewer
for IHT planning purposes. However, ministers than one in five savers use the service when
insist the draft regulation is not finalised, with accessing their pension savings, according to
other approaches under consideration. data from the Financial Conduct Authority, the
City regulator, even though it enjoys high
l Pension annuity rates have now increased by approval ratings from those who have had a
almost 50% over the past two years, new data telephone or face-to-face Pension Wise
from Hargreaves Lansdown reveals. The adviser appointment. See moneyhelper.org.uk for
says that back in 2021, a 65-year-old with a more details.
30 Personal view

Look beyond stocks – here are the

best bets in global bond markets
A professional investor tells us where he would put his money. This week:
Chris Ainscough, director of asset management at Charles Stanley, picks top bonds
I struggle to get excited about equity investments in
the current market environment. For every “pro” I can Investors are walking a tightrope between growth
and inflation as monetary policy tightens
name a “con” as we walk the tightrope of monetary-
policy tightening alongside slowing growth and
inflation. Soft landings. No landing. Hard landings.
They all have their arguments and many of them valid.
One area where I can, however, see the risk/reward
trade-off as skewed in your favour is in fixed income.
Not often do we talk of equity-like returns within
fixed-income markets, especially over the last decade
of low yields induced by quantitative easing. But as we
survey the fixed-income landscape we see high single-
digit and low double-digit returns on offer in many
segments of the market.
Last year was a wake-up call to many multi-
asset managers that duration cannot be ignored, as
previously “safe” investments such as government
bonds sold off by 20%-30%. The duration trade was
over and those who had ignored it were licking
their wounds.
Within our portfolios we have been extending
duration again recently, having been underweight

throughout the past 12-18 months, and we are
approaching strategic asset allocation levels again.
We believe the defensive characteristics of fixed-income
are likely to have returned – with a substantial resetting
of yields over the last year.
A yield differential in our favour
Our preference had been for US Treasuries thanks to
the higher yields initially on the table and the late but
subsequently decisive rate-hiking trajectory that the
Federal Reserve took us on. More recently we have
been pairing this with UK gilts as the yield differential
flipped in their favour, and you could pick up an
“High single- incremental 40-50 basis points by moving into Britain.
Within corporate bonds, short-dated sterling
digit and corporate bonds currently offer the best yield-to-
low double- worst and spread over their government counterparts
as we look across the globe, though at the expense
digit returns of some liquidity and the idiosyncratic risks the UK
are on seems to be facing compared with its global developed
market counterparts.
offer in the Between the US and Europe the trade-off is a little
fixed-income more balanced, with higher sovereign yields and a
tighter spread in the US, or lower sovereign yields and
market” a marginally higher spread in the eurozone. We like
©Getty Images
both on an all-in-yield basis, particularly given the
current record tight equity-risk premia, but would seek
the relative safety of good-quality investment grade in
the belly of the curve (between three and five years) at
present. There are plenty of active managers out there
taking on this trade, but equally passive exchange-
traded funds (ETFs) or unit trusts can deliver you low-
cost exposure within the investment-grade allocation.
We use vehicles such as the Vanguard Global Credit
Bond Fund (actively managed), or the iShares GBP
Corporate Bond 0-5 Ucits ETF (LSE: IS15).
For those wanting to offset the risk in their equity
portfolio, we would advocate positions in actively
managed high-yield bonds. For a time last year we
would have considered passive high-yield too, but
spreads have tightened since then and we would stick
to active managers at this stage in the cycle. The Man
GLG High Yield Opportunities fund is our favourite
here for the broad toolbox they use. Going into a
potential recession these investments could be volatile,
but on a risk-adjusted basis should deliver returns in
excess of equities from current levels.
©The Telegraph 2023

11 August 2023 moneyweek.com

 Profile 31

The George Soros of the East End

Reclusive billionaire Joe Lewis made his fortune transforming the forex markets.
An insider trading suit has forced him into the spotlight. Alex Rankine reports
Billionaire Joe Lewis is media- with him puts it. Today, his
shy. “One of the rewards of your Tavistock Group owns stakes in
success is the quiet enjoyment more than 200 assets across 13
of it. Being on the front page countries, including everything
of a newspaper doesn’t allow from restaurants and energy
that,” he once told The New to life sciences and Australian
York Times. For much of his agriculture. Not all of his trades
career, the currency trader and have been lucrative. Lewis lost
business investor “has stayed up to $1bn during the financial
below the radar, seemingly crisis after wrongly betting that
content to... play golf,” says the turmoil at investment bank
Michael de la Merced in the Bear Stearns would eventually
same paper. Lewis is valued by blow over (it didn’t).
Forbes at $6.2bn (£5.33bn) and
is a noted art collector: “Among A display of chutzpah
his most prominent holdings Lewis is best known in the UK
[is] the original sculpture… of for his ownership of football

©Shutterstock
Charging Bull, the bronze ode club Tottenham Hotspur.
to capitalism near Wall Street”. However, he has remained
Yet Lewis, 86, has been in the background, rarely
forced into the media spotlight attending games and leaving
by a raft of insider trading
“One of the rewards of your success is the day-to-day management to
charges in America. Late last quiet enjoyment of it. Being on the front chairman Daniel Levy. As of
month he appeared in court in
New York to plead “not guilty” page of a newspaper doesn’t allow that” 5show October last year filings
that Lewis is no longer
to 19 counts related to claims the business in 1979 for a reported £30m a “person of significant control”
that he tipped off employees, friends (£140m in today’s money) and moved to the at the club. Instead, Lewis spends much
and romantic interests “with non-public Bahamas as a tax exile. of the year on his £195m superyacht,
information about companies in which He used his newfound millions to bet which comes equipped with a full-size
he had invested… lending some of them on currency markets. Lewis was “part of indoor tennis court and has a speedboat
hundreds of thousands of dollars to trade the generation of traders who transformed and Jet Skis on board, says Katie Davis in
on the knowledge”, say Joe Miller and foreign-exchange markets”, say Agini and The Sun.
Samuel Agini in the Financial Times. Lewis Martin in the Financial Times. Previously a The yacht has occasioned rare shows
denies the charges. “The government has “humdrum business” focused on greasing of “chutzpah” from the normally low-key
made an egregious error in judgment,” says the wheels of world trade, Lewis and other Lewis, says William Turvill in The Sunday
David Zornow, his lawyer. “Mr Lewis has players, including George Soros, turned Times. In 2011 he announced his interest
come to the US voluntarily to answer these forex into “a playground for speculators in buying pub group Mitchells & Butlers to
ill-conceived charges, and we will defend and big hitters” at the centre of world the City by sailing “his massive... yacht up
him vigorously.” events. Like Soros, Lewis made a fortune the Thames”, mooring it by Tower Bridge
betting against sterling when the UK was and inviting business associates aboard for
Transforming the forex trade forced out of the European exchange-rate meetings, says one person who was close to
Lewis was born above an East End pub in mechanism in 1992. He made another the discussions. “It was quite an entrance.”
1937. He left school at 15 to work in the killing shorting the Mexican peso in 1995. Lewis will have to wait a while until he can
family catering firm. There he discovered Yet unlike the bookish Soros, Lewis is an repeat the gesture: he is currently banned
a knack for business, building up a range “East End geezer” with “fingers in many from using the yacht under the conditions
of medieval-themed restaurants. He sold pies”, as one former trader who has dealt of his $300m (£236m) bail.

Halo slips on the Bono of the bond markets

For years, Larry Fink,
the chairman and
chief executive of
asset manager
BlackRock, has
been telling
corporate America
that it should be
taking more action on
climate change and
making progress on other
environmental, social and
governance (ESG) goals, says
Maureen Farrell in The New York
Times. So when BlackRock
announced last month that it is
company, Saudi would continue to talk to funds, giving it stakes in about
Aramco, to its board, companies BlackRock has stakes 18,000 listed companies.
Fink, 70, found in about the underlying issues. BlackRock’s success was built
himself in the midst This “tradition” of writing on a rigorous approach to risk
of a political storm. “Dear CEO” letters to the bosses management, which might
But that’s of the firms he invests in has make you wonder why he
nothing new. His long given Fink “a platform from waded into the risky territory of
championing of ESG which to pontificate”, says politics. But in business terms,
has increasingly drawn Henry Tricks in 1843 Magazine. ESG has been a success for
political fire from the “This allowed him to indulge a BlackRock. The “brouhaha”
right, who see it as an attempt to streak of sanctimony that, at against it has not stopped clients
impose liberal and “woke” times, could make him sound from pouring money into the
values outside the political like the Bono of the bond firm. In the first half of this year it
process, and from the left when markets.” But “when Fink talks, attracted $190bn of net inflows,
he doesn’t go far enough. Earlier people listen”. His firm invests an improvement on the same
this year Fink said he would stop trillions of dollars on behalf of its period in 2022. “The numbers
©Getty Images

appointing Amin Nasser, the using the term ESG as it had clients, and is a world leader in speak for themselves,” says
head of the world’s largest oil become too politicised, but low-cost exchange-traded Fink. “It is working out.”

moneyweek.com 11 August 2023

 Travel 33

Three stays for film buffs

From a Hobbit-themed rental property to an elephant lodge similar to Luke Skywalker’s home planet
Far from the Shire
“New York is far from the
verdant, rolling hills of
Hobbiton – the fictional village
author J.R.R. Tolkien created for
his fantasy novels The Hobbit
and The Lord of the Rings. But
not too far outside of New York
City, fans can get a taste of a
hillside Hobbit-style home by
staying at one particular Airbnb
[rental property],” says Shaye
Weaver in TimeOut.
The Hobbit House of Pawling
is located at the foothills of the
rolling Berkshires, reminiscent
of Middle Earth, and is an
©Hobbit House of Pawling/AirBnB

alternative to travelling to
New Zealand, where the films
were shot. Like the houses in
the films, this has been built
“under the Earth, with a domed Live like a Hobbit in Pawling, New York
ceiling” and it comes filled with
props to pose with. But it’s not been refurbished by Africa
just “aesthetically Hobbit-y. travel specialist operator “Park Hyatt Tokyo has been immortalised
It’s cosy with king-size beds, Abercrombie & Kent.
walk-in showers, three patios, Okahirongo Elephant Lodge by Sofia Coppola’s ‘Lost in Translation’”
an outdoor grill, a hot tub, is a “collection of brilliant
two hammocks, two fire pits white domes and table-top Get lost in Tokyo own right”. The 177 bedrooms
and an indoor fireplace to read structures rising from the The Park Hyatt Tokyo is a are decorated in beige and dark
(or write) your novel” beside. desert… [reminiscent] of Luke “legendary stay” in the Japanese lacquered woods. They are
The house also uses very little Skywalker’s planet Tatooine capital, say Kate Crockett “generously sized” and in the
energy. From around £1,058 for [from the film Star Wars] and Chris Schalkx for Condé marble-clad bathrooms you will
two nights, airbnb.co.uk – albeit a cleaner and more Nast Traveller. It has “aged find products by Aesop.
polished version”. A small gracefully” since it first opened The views from the “sky-
Experience another world infinity pool is the focal point in 1994. That’s partly down high” hotel are “jaw-dropping”
Okahirongo Elephant Lodge of the open-air dining area to the “timelessness” of the and, on a good day, you can
is one of only a few lodges in and lounge, filled with water interior design and the staff are spot Mount Fuji in the distance.
Namibia’s remote northwestern pumped from a borehole. The still “every bit as attentive”. The But whatever you decide to
Kunene region, says Sarah lodge’s nine stand-alone rooms hotel has been “immortalised” do in the city, do stop in at the
Marshall in The Times. It is fan out on either side of the in the annals of Hollywood hotel’s “iconic” New York Bar
also the only property in the crescent formation, “open to thanks to its part in Sofia for a Suntory whisky, as drunk
Purros Conservancy, which the valley floor and the starriest Coppola’s 2003 classic film in Lost in Translation by Bill
covers an area three times of night skies”. Five nights’ full- Lost in Translation. That said, Murray’s character, Bob Harris.
the size of London. A group board from £8,450 per person, the “spectacular” top-floor It is “a quintessential Tokyo
of Italians built the lodge including flights and transfers, swimming pool and “excellent” experience”. From around
in 2005, and it has recently abercrombiekent.co.uk spa “pack star power in their £722, Hyatt.com

Wine of the week: superb wine by the box

2022 The Society’s Grüner
Veltliner, Wine Box,
Niederösterreich, Austria
£27, 2.25 Litre Wine Box,
thewinesociety.com
Matthew Jukes all-rounder, and you should not consider any other
Wine columnist wine for a picnic, given its format, value and
flavour. Trade up a few pounds for 2022 The
Society’s White Burgundy (£35), a Mâcon-Villages
First, the technology behind modern-day wine with admirable balance and texture. Another bull’s
boxes is bang up to date, so you can expect these eye white, this could assume main course white
wines to last a couple of weeks in superb nick. Keep duties after you have drained your box of grüner.
them in the fridge, and you can extend this further. Finally, due in on the 31st of this month, 2022 The
Having said this, if you need six weeks to drink the Society’s French Pinot Noir (£23) is a gob-
equivalent of three bottles, you are probably smackingly accurate pinot from the Aude –
reading the wrong wine column. Anyway, divide specifically the hills around Limoux. As you know,
the three wine-box prices mentioned today by inexpensive pinot is a mug’s game, but this
three, and you have the bottle cost, so none of energetic red is a beauty, and whether you serve it
them could be regarded as expensive. chilled or at regular temperature, this is a cherry-
The renowned Weingut Stadt Krems makes my soaked head-turner with a seven-and-a-half-pound
featured grüner, and it weighs in at a slender line equivalent bottle price. What are you waiting for?
12.5% alcohol. It is serene, detailed, amazingly
classy and pinpoint accurate with green apple fruit, Matthew Jukes is a winner of the International
hints of peach blossom, pineapple husk and Wine & Spirit Competition’s Communicator of the
cracked white pepper. It is a consummate summer Year (MatthewJukes.com).

11 August 2023
34 Property
This week: waterside properties – from an Arts & Crafts-style house on a private peninsula on the Salc

Tuesley Manor, Godalming, Surrey.
A Grade II-listed 15th-century manor with
later additions and a brook running through
the garden. It has exposed wall and ceiling
timbers, inglenook fireplaces and an indoor
swimming pool. 6 beds, 5 baths, 3 receps,
breakfast kitchen, 2-bed cottage, 1-bed studio,
12 acres. £4.7m Savills 020-7016 3780.
The Gullett Estate, South Pool, Salcombe,
Devon. A country estate with an Arts &
Crafts-style house and a range of cottages on
a private peninsula on the Salcombe Estuary.
The house retains its oak panelling and open
fireplaces. 10 beds, 8 baths, 2 receps, outdoor
swimming pool, jetty, moorings, 202 acres.
£8m Knight Frank 01392-848856.

Garreg, Glandyfi,
Machynlleth, Ceredigion,
Wales. A period property with
views towards Snowdonia
National Park and 800 yards of
fishing rights on the River Dyfi.
The house has beamed ceilings,
open fireplaces and a range
of outbuildings, including a
barn with a bunk house above.
3 beds, bath, 2 receps, kitchen,
workshop, garage, stores with
2-bed flat above, Dutch barns,
gardens, 17.31 acres. £900,000
Fisher German 01244-409660.
11 August 2023 moneyweek.com

come Estuary, Devon, to a 1750s cottage on the River Thames at Chiswick
Tunnel Cottage, Strand on
the Green, Chiswick, London W4.
A Grade II-listed cottage dating from
1752 on the River Thames adjacent to
the tunnel from Thames Road to the
tow path that featured in the Beatles’
film Help!. It has wooden floors, open
fireplaces, balconies overlooking
the river and a modern breakfast
kitchen with stairs leading down to the
garden. 2 beds, bath, open-plan recep.
£1.4m RiverHomes 020-7407 6000.
moneyweek.com 11 August 2023
Property 35
Horning Hall,
Horning, Norfolk.
An 1860s house in a
secluded location in
the Norfolk Broads
National Park, bordered
by the River Ant and
the River Bure. The
grounds include a
thatched boathouse
with a gym above and
a restored 18th-century
former chapel. The
house retains its original
fireplaces and has a
breakfast kitchen with a
vaulted beamed ceiling.
6 beds, 3 baths, 3 receps,
study, conservatory,
cottage, stable block,
70 acres. £4m Fine &
Country 01603-221888.
Bransbury Mill
House, Bransbury,
Hampshire. A Grade
II-listed former mill
house with 1.25 miles
of fishing on the River
Dever. It has beamed
ceilings and panelled
rooms. 5 beds, 3 baths,
3 receps, kitchen, wheel
house, 4-bed cottage,
workshop, 22.21 acres.
£5.95m Knight Frank
01962-677234.
Marsh Cottage, Weston,
Newbury, Berkshire. A
detached period cottage that
has no direct access for vehicles.
It can only be approached via
a footbridge over the River
Lambourn, which flows along
the edge of the garden. It has
beamed ceilings, a living room
with an inglenook fireplace
with a wood-burning stove,
and a large breakfast kitchen
with an Aga. 3 beds, 3
baths, 2 receps, snug, utility,
outbuilding. £935,000 Strutt
& Parker 01635-897843.
Crocknagodna House,
Restronguet Weir, Mylor,
Falmouth, Cornwall. A
19th-century house that has
been extended to include an
additional room in an elevated
position near the Pandora
Inn, overlooking Restronguet
Creek. The house has French
doors opening onto a terrace
that overlooks the creek and
gardens leading down to deep-
water moorings. 4 beds, 2 baths,
3 receps, breakfast kitchen,
attic/bed 5, parking, workshop,
0.53 acres. £1.65m Jonathan
Cunliffe 01326-617447.
36
The craze for UFOs
Photos of visitors from space are now collectors’ items. Chris Carter reports
L ast month, David Grusch,
a former US intelligence
official, testified before the
House Oversight Subcommittee
on National Security, in
Washington, DC, that, yes, he
is “absolutely” certain the US
government is in possession of
unidentified aerial phenomena
(UAPs – or UFOs as most
people know them). The G-men
have been reverse
engineering them
for decades. In
2019, he led a
government
task force
into the
sightings,
which was
“[no] frivolous
assignment”,
says Jeffrey Kluger in
Time. Military pilots
have reported around
650 instances of UAPs defying
“conventional aeronautical
physics”. Of course, the US
Department of Defence denied
all of it.
The evidence
Grusch must either be mistaken
(even he admits his evidence is
based on hearsay), or he is lying,
says David Kyle Johnson on
the LSE blog. If it is the latter,
then he has perjured himself.
But given that punishments
for contempt of Congress
tend to be fairly light, “the
subsequent notoriety and book
deals could... be worth the
risk of a contempt charge”,
he says. Former White House
chief strategist Steve Bannon
received only a $6,500 fine
Auctions
Going… Director Martin
Scorcese used two white
Lamborghini Countachs in
filming The Wolf of Wall
Street (2013). One is driven
home safely by stockbroker
Jordan Belfort, played by
Leonardo DiCaprio – at
least in his imagination,
following a drugs and
alcohol binge. The other
crashes. Scorcese refused
©Alamy
to use a replica, so a real
Countach, worth $700,000,
was wrecked in the filming, says Rob Hull on This
Is Money. The car that was spared (pictured) is
heading for auction with RM Sotheby’s in New
York on 8 December. It is a 1989 25th Anniversary
model – one of 12 – with a V12 engine and a top
speed of 183mph. It should fetch $1.5m-$2m.
11 August 2023 moneyweek.com
Collectables
and four months in jail for
defying a subpoena during the
investigation into the 2021
Capitol riot. “In any case,
laughing off UFOs with cracks
about tinfoil hats or ‘little green
men’ is not as easy as it used
to be,” says Chris Wiley in
The New Yorker – even if the
evidence is still lacking. “I was
assured [by conspiracy theorists]
that… photos exist… but they
remain hidden behind a scrim of
secrecy,” he says.
Since the 1950s, photographs
have formed the bedrock of the
“proof” that extraterrestrials
have been visiting Earth. Several
snaps have become legendary
among believers, such as the
“Trent photograph” of a flying
saucer over a farm in Oregon in
O’Donoghue in The Sunday Times. However, a
change to the competition’s regulations
stipulated manufacturers had to build at least
350 cars per year – well above Koenigsegg’s
annual production output – and the project was
cancelled. The car sold for £3.3m, with fees.
1950 that was investigated by
the US Air Force. There’s also
the image of a saucer hovering
over Lake Cote in Costa
Rica, taken during an aerial
survey in 1971. And the
“Calvine photo”, named
after the hamlet in Scotland
where it was taken in 1990,
shows a diamond-shaped
object in the sky being buzzed
by an RAF plane. It was “the
stuff of mere legend”, says Wiley
– until last year, when David
Clarke, a researcher, discovered
a print and it was published in
the Daily Mail.
The popular
imagination
Whether hoaxes,
government
subterfuge or the
real thing, photos
such as these
have come to define UFOs in
popular culture, making them
collectors’ items. Space-related
photos appear at auction fairly
regularly – Sotheby’s has just
sold several, including a signed
print of astronaut Buzz Aldrin’s
“selfie” from 1966. It fetched
$7,620. But there’s something
about UFO photos that taps into
the popular imagination. One
of the most famous of all
depicts a saucer photographed
by Eduard “Billy” Meier in
Switzerland in 1975. Two
decades later, the image was
hanging in the office of FBI
special agent Fox Mulder in the
TV series The X-Files . In late
2019, it fetched $16,250 with
Sotheby’s in a lot with five other
similar photos.
Gone… A white 2007
Koenigsegg CCGT GT1
Competition Coupé was
sold by Bonhams at the
Goodwood Festival of
Speed last month. It was
built as an after-hours
project from 2003,
designed to meet the GT1
endurance racing
regulations of the time,
with an eye to entering the
Le Mans 24 Hours
competition, says Shane
The financialisation
of fossils
Dragons and sea monsters
have long fascinated
humanity, appearing in
various guises across
cultures. “In China, the
dragon served as the emblem
of emperors and remains a
symbol of Chinese identity,”
says Brian Boucher in an
article for Sothebys. And it is
possible, like the UFO
hunters clutching photos
(see left), that ancient
civilisations thought they
had the evidence to prove the
monsters’ existence.
The fossilised skeleton of a
Pteranodon, which died in
the Late Cretaceous, about
85 million years ago, is
distinctly dragon-like.
Named Horus after the
Egyptian god of the sky, it
recently appeared at
Sotheby’s in New York, with
a wingspan of 20 feet and
sold for $3.9m (pictured
above). Another specimen,
this time a 190-million-year-
old Plesiosaur named Nessie
resembles the famous
monster of Loch Ness in the
grainy photograph from
1934. Unlike Horus, Nessie
didn’t find a buyer. That will,
no doubt, come as a relief to
the scientific community,
who insist private ownership
deprives them of access to
the best specimens.
In 2020, a Tyrannosaurus
rex named Stan fetched
nearly $32m at a Christie’s
auction. Adjusted for
inflation, the price of T. rexes
sold at auction increased by
around 135% between 1997
and 2020, says Chris Bryant
on Bloomberg. “The
financialisation of fossils is
following a familiar script.”
They are pitched as the
perfect living-room
accessory (some refer to
them as natural sculptures),
while ranches in the US are
sold with the suggestion that
more may lurk below the
ground. Both sides should be
more flexible – “academics
rejecting fossils just because
they are privately owned
©Getty Images; Sotheby’s
seems bizarre”, says Bryant.
“Buy a dinosaur, but for
goodness’ sake, don’t keep it
locked away in your home.”
 Crossword 37
Bridge by Andrew Robson Tim Moorey’s Quick Crossword No. 1168
A bottle of Taylor’s Late Bottled Vintage will be given to
Disguising the discards the sender of the first correct solution opened on 21 Aug
We continue our series on bluff and deception by making an 2023. By post: send to MoneyWeek’s Quick Crossword
No.1168, 121-141 Westbourne Terrace, Paddington, London W2 6JR. By email:
important observation with respect to defensive strategy. If there is
scan or photograph completed solution and coupon and email to: crossword@
no source of discards (a suit that will enable declarer to throw losers
moneyweek.com with MoneyWeek Crossword No.1168 in the subject field.
from the other hand), the defence will (should) defend passively.
The corollary to this is that if declarer wants the defence to be
passive, he must pretend that there is no source of discards. Take
this week’s deal, with the late and great Edgar Kaplan from New York
at the helm.
Dealer South Neither side vulnerable

♠ KJ762 ?????

♥ 1043 ????

♦5 ????


????
?? ♣ A973 ????
94

♠ ??? N ???? ♠3

AJ2
♥ ???? ???? ♥ K9865
???? ????
A1096 W E
♦
???? ♦ 8432
KJ105
????
♣ ♣ Q82
S ????

♠ AQ1085 ????
♥ Q7
♦ KQJ7
♣ 64
The bidding
South West North East
1♠ Double 4♠ pass
pass pass
Unwilling to lead away from his broken honours, West led a passive
Trump. Declarer won in dummy and faced four obvious losers, two
Hearts, a Diamond, and a Club. At trick two, he led a Diamond but Across clues are mildly cryptic whereas down clues are straight
instead of playing a kneejerk picture, he played the seven (key play).
Lead to a picture and West may realise there are discards – so switch ACROSS DOWN
to a Heart; lead to the seven and the danger is far from obvious. 1 Given up working in blacksmith’s (7) 1 Unprecedented (5)
5 Animal a Cockney may use for cooking! (5) 2 Part of British armed
West won the nine and led his remaining Trump. And that was
8 Legal fee concerning new student (9) forces (3)
exactly what declarer hoped West would do.
9 Target a London stockmarket (3) 3 Went on for too long (7)
Winning the Trump in hand, declarer led the King of Diamonds for 10 Stunner posed again going west (5) 4 Show-off (13)
a ruffing finesse, ruffing out West’s Ace. He led to a third Trump in 12 Real changes in public transport for 5 Transparent precious
hand, cashed the promoted Queen-Knave of Diamonds discarding the country (7) stone (5)
Hearts from dummy, and merely conceded one Heart (ruffing his 13 Furniture manufacturers from Salisbury 6 Vertical space in
second with dummy’s final Trump), and one Club. Ten tricks and and Liverpool? (13) a building (9)
game made. 15 Cleaner for a shock? (7) 7 Rival who cannot be
17 Antique recording about ‘51 (5) beaten (7)
For Andrew’s four daily BridgeCasts, go to andrewrobsonbridgecast.com 19 Boxer almost laid out (3) 11 Long and thin
20 Not very good trader hit badly (5-4) sandwich (9)
22 Up before court briefly (5) 13 Waterfall (7)
23 Bums are seen from behind in 14 Shorten (7)
tattered clothing (7) 16 Mini in Paris (5)
18 Bites (5)
21 Large stove (3)

Name

Sudoku 1168 Address

To complete MoneyWeek’s
3 6 8 5 Sudoku, fill in the squares
1 7 4 in the grid so that every row
email !
and column and each of the Solutions to 1166
4 7 6 nine 3x3 squares contain all Across 7 Sedate SE date 8 Agreed re inside aged 9 Cane hidden in
the digits from one to nine. reverse 10 Eventual anag 11 Measles deceptive definition 13 Baker ba(n)
6 9 The answer to last week’s ker 15 Easel ease + L 17 Factual (f)actual 20 Capitals deceptive definition
8 1 puzzle is below. 21 Seed double definition 22 Deface deceptive definition 23 Eraser reds
are anagram less d. Down 1 Sewage 2 Bare 3 Referee 4 Babel 5 Protract
8 7 6 Ménage 12 Sheridan 14 Paisley 16 Amazed 18 A level 19 Basel 21 Snag.
2 5 4 3 9 1 7 5 8 6 2
1 2 6 8 9 3 5 4 7
4 6 1 7 8 5 4 6 2 1 3 9
The winner of MoneyWeek Quick Crossword No.1166 is:
Martin George of Kent
8 1 3 9 4 1 6 2 7 3 5 8 Tim Moorey is author of How To Crack Cryptic Crosswords, published
by HarperCollins, and runs crossword workshops (timmoorey.com)
2 5 3 9 8 1 6 7 4
MoneyWeek is available to visually Taylor’s is one of the oldest of the founding port houses, family run and entirely
8 6 7 5 3 4 9 2 1
impaired readers from RNIB National dedicated to the production of the highest quality ports. Late Bottled Vintage
Talking Newspapers and Magazines 6 7 2 3 1 9 4 8 5 is matured in wood for four to six years. The ageing process produces a
in audio or etext. 5 9 8 7 4 6 2 1 3 high-quality, immediately drinkable wine with a long, elegant finish; ruby red
For details, call 0303-123 9999, in colour, with a hint of morello cherries on the nose, and cassis, plums and
or visit RNIB.org.uk.
3 1 4 2 5 8 7 9 6 blackberry to taste. Try it with goat’s cheese or a chocolate fondant.

moneyweek.com 11 August 2023

38
Brace for the fireworks
The downgrading of America’s debt will have big consequences
Fossil fuels were the power behind the throne
Bill Bonner
Columnist
W
e’re currently in Bregenz,
Austria, just across the
river from Switzerland, and
we arrived just in time for
the fireworks. We crossed
the river to visit friends for
the Swiss national holiday,
commemorating the formation
in 1291 of the nucleus of
what grew into the Swiss
Confederacy. Remarkably,
the cantons have been able
to hold on to their rights and
power. Even today, few
people know or care who the
president of Switzerland is.
It doesn’t matter, because
the real power is at the local,
cantonal level.
As soon as it began to get
dark, the fireworks began.
Clusters of white sparkles;
great, booming bombs;
dazzling displays of shooting
red stars and bursting
incendiaries – everyone
seemed eager to blow
something up. “I’m
disappointed,” said our host.
“It’s usually more dramatic.
People compete with their
neighbours to put on the
biggest show. I guess the Swiss
are just feeling more subdued.”
The Federal power grab
The US also began as a
confederacy of independent
states, much like the Swiss
11 August 2023 moneyweek.com
Last word
cantons. But American states
lost their independence to their
central government in a series
of power grabs by Washington.
Today, Americans can scarcely
recall or imagine that it could
be any different. In the recent
Supreme Court decision on
abortion, for example, most
people were surprised when the
court decided that reproductive
rights were up to the states, not
the federal government.
The biggest power grab by
the feds came in the mid-19th
century. Lincoln sent the US
army to bring the states of
the southern confederacy
into line. Since then, no state
“It became cheaper
to drive people with
wages than whips”
has seriously challenged
Washington’s power.
There was more to that story,
of course. Back then, slavery
was being made obsolete by the
industrial revolution; it was just
cheaper to drive people with
slave wages than to drive them
with whips. The whole world
was turning against slavery.
But not at the same rate. In
the Deep South of the USA,
on the big plantations, slavery
(apparently) still paid. In the
North, it did not. Was it so
surprising that northerners led
the opposition to it? They could
enjoy the piety of opposing
©Getty Images
slavery, without the cost of
giving something up.
Ultimately, though, it was
fossil fuels that put slavery
out of business in the 1800s,
not the high-minded intentions
of yankee abolitionists.
The industrial revolution
made it possible for machines
to do far more work than a
human slave. After thousands
of years, keeping people in
bondage became bad business –
and then, just bad.
n We’d been expecting
fireworks on Wall Street
too. The rating agency Fitch
downgraded US debt last
week. The Nasdaq dropped
more than 2% in its worst day
since February as the news
broke that Fitch had “cut the
long-term foreign currency
issuer default rating for the US
to AA+ from AAA”, reports
CNBC, citing “expected fiscal
deterioration over the next
three years”. As expected, US
bonds also went down (yields
went up). The yield on ten-year
US Treasuries climbed by as
much as ten basis points to
4.12%, reports Bloomberg.
Increasing the cost of loans
– in a country with $32.6trn
in debt already and that needs
to borrow $1trn per month
(in this quarter) – is bound
to have consequences. Those
fireworks will, we suspect, put
the disappointing Swiss display
to shame.
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