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MONEYWEEK

MAKE IT, KEEP IT, SPEND IT

2 JULY 2021 | ISSUE 1058 | £4.50

Will inflation take hold?

A nightmare on Threadneedle Street

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2 July 2021 | Issue 1058

From the editor-in-chief...

©Alamy

might soon look less attractive.

Should you go Remote technology works. But back to the office, presenteeism has something or lobby to keep very big going for it too. There’s working from a reason JPMorgan, Goldman home indefinitely?

Sachs and Morgan Stanley have Part of the answer already asked all New York staff might lie in the productivity back to their desks. There is a levels of classical composers. In a reason why 65% of workers say 2011 academic paper, Karol Jan they plan to return to the office Borowiecki of Trinity College this month. And there is a reason Dublin looked at how much they why there has been a sharp rise produced when they worked in interest in London property alone compared to how much since the turn of the year. they produced when they lived in A few months ago Max a geographic cluster.

Classical composers: better off in clusters looked at commercial property The answer should, I think, “There’s a reason why US banks have already trusts (see moneyweek.com/ have you planning your return finding-value-in-commercialto your own cluster as quickly asked all New York staff back to their desks” property).

In a world where as possible. Prominent classical almost everything is risky (because almost composers born between 1750 and 1899 between 18th century composers). But were approximately 33% more productive nonetheless, the idea that sparks are created everything is expensive) they may well be worth another look, particularly if inflation when in a cluster: they created on average as a result of overheard conversations, really is returning (see my interview with one more work every three years than chance exchanges and unintended Andy Haldane on page 22). If that is not they might have otherwise, with those collaborations in modern offices is just exciting enough for you, turn to page who migrated to be in the cluster being as intuitive as the idea that competitive 24, where Jonathan looks at emerging the greatest beneficiaries of it. The more musicians make better music. It also seems markets, then to page 18 where David offers intense the cluster, the greater the impact reasonable to note that younger staff need on overall output. This makes intuitive to build networks and have mentors (as well something properly risky – an investment trust that might take you to space. Finally, sense of course. The closer composers as people to put their “stupid” questions to if you are the secretary of state for health or were geographically the more likely they without being recorded on Zoom); that not the chancellor, please turn to page 16 where would have been to be able to listen to their everyone has a suitable place to work from Matthew Lynn offers a workable plan for a competitors’ music, get ideas from it and put home; and that it’s better to work in an living-with-the-virus economy. It is time to the effort in to make “not good, but better” office than to end up sleeping in one (work/ change the Covid-19 mood music. works than the others. life boundaries matter).

There is an idea that you can – and should – mix homeworking and office Office working is underrated You can’t extrapolate this finding to today’s working. That sounds very attractive. But office without obvious caveats (information if it becomes clear that the more productive workers are the ones clustering gossiping Merryn Somerset Webb exchange between a group of, say, modern and drinking tea in the office full time, it accountants is a tad easier than it was editor@moneyweek.com

Good week for:

In a real-life story reminiscent of the animated film Up (pictured), a Florida homeowner is staging a “one-man battle” against the city of Coral Gables, which did not bargai bargain on his strong will wh when it decided “to build the biggest commercial develop development in its history”, says Charli Charlie Mitchell in The Times. Orlando Capote has refused more than 60 bids of up to $900,000 for his property from developers who want to build a $600m complex that will feature shops, houses, offices and a hotel. Capote’s father bought the home in 1989 after moving to Florida from Cuba. His mother “implored him on numerous occasions not to sell” before they both passed away. Building is under way around his house, but Capote “has no intention of disobeying his mother’s wishes”, wearing a “heavy-duty contractor’s mask” to protect his lungs from building dust.

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Young Greeks are being offered a “freedom pass” worth €150 as an incentive to get vaccinated, says Eleni Chrepa on Bloomberg. Any 18- to 25-year-olds who get their first dose will be able to use the gift card to pay for travel, accommodation, theatres and museums. The aim is to direct public funds to the sectors that have been hit hardest by Covid-19.

After a long battle with a planning committee, retired “newspaper mogul” Florence Fang has been allowed to keep her $2.8m Flintstone-themed home in Hillsborough, California, says Will Pavia in The Times. Fang, whose family owned the San Francisco Examiner, was initially denied a request to make improvements to her “Stone Age dwelling”, which features giant dinosaur statues and a sign that says “Yabba dabba doo”.

Bad week for:

Hundreds of visitors to Brighton Palace Pier were charged more than £2,100 for tickets by mistake after payment company Worldpay removed the equivalent of the transaction date, rather than the ticket price, from their accounts, says The Guardian. The company is currently processing refunds, but “compounded the anger of customers” after refusing to engage with those who contacted it “on the grounds of data protection”, according to the newspaper.

©Alamy; Brewdog

Cover illustration: Adam Stower. Photos: Alamy; Christie’s; Getty Images

Money isn’t everything

A competition winner who found one of ten “solid gold” beer cans (pictured) “was left feeling short-changed” when he learned it was only gold-plated and worth about £500 rather than the £15,000 claimed, claim says Sean Seddon on Metro. Mark Craig won the can in a case of bee beer from BrewDog. The company apologised, claiming that the “solid gold” cclaim “was a typo”, but said the £15,000 valuation was based on “more than just the th metal used”.

2 July 2021

MONEYWEEK

4

Markets

Markets eye a new phase of the recovery “Judging by the slew of half-time investment outlooks being released at the moment, many investors and strategists are asking how far equity markets can run given their impressive gains over the past 16 months,” says Michael Mackenzie in the Financial Times. That’s no surprise, since there are plenty of uncertainties to ponder.

Policymakers are likely to scale back fiscal and monetary support, which could mean a slower economic recovery and weaker earnings growth. Taxes may start to rise to begin paying for the extraordinary level of government spending during the pandemic. Investors remain fixated on inflation and whether recent trends for higher prices are transitory: if they are not, interest rates may need to rise, which could mean a bumpy ride for markets. All this complicates any forecasts for which types of stocks – such as cheap value, expensive growth, cyclical recovery plays or highquality defensives – are likely to do best in the months ahead.

However, there are clear signs that we’ve passed the part of the cycle “in which risk assets are embraced almost without discrimination”, says Buttonwood in The Economist. Key indicators such as the output and orders components of the US purchasing managers’ index (PMI) appear to have peaked in May, suggesting economic growth may have passed its high point for this cycle, at least in America.

That in turn implies that earnings growth may have peaked, which would be a headwind for a market that already trades on a relatively high valuation. “Markets are forward looking. They now have less to look forward to.”

©iStockphotos

Cris Sholto Heaton Investment columnist

Cyclical markets such as the UK may start to outperform the US

Lessons from recent history

Of course, these are exceptional times, says Andrew Sheets of Morgan Stanley. “The global economy saw the largest collapse in recorded history… what followed was the largest global fiscal easing, the largest monetary easing and the lowest real interest rates in history.” So past cycles might not be a perfect guide to what to expect.

Nonetheless, there are echoes in today’s markets of one relatively recent recovery: the sharp rally in 2003 that followed the dotcom bust. This was “classic, early-cycle stuff”, with strong returns for riskier assets.

Coming into 2004, valuations were high and pricing in plenty of optimism, just like today. Over the next year, the economy remained healthy, growth stayed strong, unemployment fell and inflation rose.

Yet US stocks went through a period of consolidation as earnings caught up with valuations. There was no clear trend in which sectors did better globally, but it was notable that non-US markets outperformed the US, despite a modestly stronger dollar.

The same pattern could well play out this time, suggests Sheets. So it may be noteworthy that European stocks have begun to outstrip the US in recent weeks, and cyclical markets such as the UK, Germany and Spain look comparatively attractive, Ray Farris of Credit Suisse tells CNBC. Europe could see earnings grow as fast as the US in 2021, yet valuations are at “multi-decade lows” relative to the S&P 500. “You are getting Europe on sale as it comes out of the pandemic, as it reopens and as growth accelerates.”

MONEYWEEK

2 July 2021

Chipmakers can’t keep up with demand global production) lower than it would otherwise have been.

The shortage should peak in the second half of this year, says Pat Gelsinger, the chief executive of chipmaker Intel, on Bloomberg. However, the chip industry is unlikely to be

“back to a healthy supplydemand situation until 2023”.

He forecasts strong growth in demand over the next decade, unlike some industry peers, who expect this crunch to be followed by a slump. But the outlook for this cycle may not

©Getty Images

The chip crunch will drive an investment boom

“Microchips, long revered as the brains of modern society, have become its biggest headache,” says Andrew Blum in Time. Pandemic-induced shocks to the semiconductor supply chain are “wreaking havoc” in surprising places.

When car sales plummeted early in the Covid-19 outbreak, carmakers cut orders for parts, including computer chips (a typical car contains more than 1,000 chips). “Manufacturers saw the slack and shifted their output to serve the surging demand for consumer electronics, such as webcams and laptops”. Now car sales are snapping back, but car firms can’t get enough chips to meet demand and so vehicle output this year is expected to be 3.9 million units (4.6% of

be solely determined by market forces. “The strategic importance of the semiconductor industry is on the rise,” says Ma Tieying of Singaporean bank DBS. Policymakers have seen that “a country’s access to cuttingedge chips could have farreaching implications for national security”. Hence America’s efforts to restrict China’s access to advanced technologies will push China to expand its domestic industry. Meanwhile, the US – which relies on imports from South Korea and Taiwan – is keen to encourage firms to build new factories on its own soil. Expect “a massive, government-led investment cycle” – and a risk of supply gluts in the mid 2020s.

moneyweek.com

Markets

The end of the Aquino legacy

The public reaction to the death last week of Benigno Aquino, the Philippines’ president from 2010 to 2016, has been one of “limited sympathy”, says Mark Thompson in the South China Morning Post. Signs of mourning and support were mostly confined to wealthier neighbourhoods, in contrast to how the deaths of his parents galvanised the whole country.

The huge anti-government protests that followed the assassination of Aquino’s father – also called Benigno – in 1983 eventually led to the overthrow of the dictator Ferdinand Marcos and to the election of Aquino’s mother, Corazon, as president from 1986 to 1992.

The “national grieving” after her death in 2009 then fuelled his own presidential campaign.

But while Aquino remained “personally popular”, his “liberal, reformist agenda” was undermined by a failure to tackle the Philippines’ structural problems. That makes it unlikely that any ally will now be able to take up his mantle and gain enough support to win next year’s presidential election.

A missed opportunity

Aquino’s legacy is clearly disappointing, says Richard Heydarian in Nikkei Asia.

His administration “oversaw an unprecedented period of economic stability” during his time in office. Yet the benefits of this rapid growth “remained

Viewpoint “I have been writing about the benefits of a regional equity overweight to the US and emerging markets (and an underweight to Europe and Japan) for a long, long time. Every year, a few intrepid souls in the industry position against this, usually to their detriment …

This could have been a year when the barbell [strategy] didn’t work, since Europe is outperforming the US by 2.2%, reversing a tiny portion of Europe’s 160% underperformance versus the US from 2012 to 2020. However, one key macroeconomic principle behind the barbell has been that during a global industrial production and trade recovery, while Europe could outperform the US, the gains in global economic activity would cause emerging markets to outperform Japan. That’s what has happened so far this year, despite the comparatively weak emerging-market manufacturing and consumer recovery.”

Michael Cembalest, JPMorgan

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Sara Duterte-Carpio and Rodrigo Duterte: a new dynasty the Philippines doesn’t need

The country deserves better

woefully concentrated, with the country’s richest 40 families gobbling up three-fourths of the newly created wealth”.

Anti-corruption initiatives were unprecedented in size, but were “deeply lopsided, primarily targeting opposition members and past administration holdovers” and skipping “loyalists and opportunists” in his ruling coalition. Aquino also failed to identify “clear industrial and trade policies to boost inclusive development”, while public infrastructure development proceeded at a “scandalously slow pace”.

All this created the conditions for a “populist revolt” in 2016, in which Rodrigo Duterte won the presidency in a landslide by presenting the election as a “protest vote against the deficiencies of Aquino’s administration”.

Duterte is constitutionally blocked from running again when his term ends next May, says Clara Ferreira Marques on Bloomberg. Yet his approval ratings remain high despite a severe recession, “a poorly handled pandemic” and “an unimpressive vaccine rollout”, so he is well-placed to orchestrate what happens next.

Most likely he will back his daughter, Sara Duterte-Carpio, as president and maybe run for vice-president himself.

Dynasties are common in the Philippines, but this would stretch the norms. And given Duterte’s poor record on issues from infrastructure and inequality, there’s little reason to think that it would help “nurse what was once one of [Southeast Asia’s] fastest-growing economies back to health”.

■ Shipping costs surge 12,000

Shanghai-Rotterdam 40-foot container rates in US dollars

10,000 8,000 6,000 4,000 2,000

Source: Bloomberg/Drewry

Fears that the US is being overrun by corporate zombies may be exaggerated, says Alexandra Scaggs in Barron’s.

Many analysts have argued that the US Federal Reserve’s decision to buy junk bonds (debt with a higher risk of default) during the crisis last year helped prop up companies that should have been allowed to fail. “Heavily indebted, cashstrapped firms” have been able to stagger on, “only surviving because of low interest rates”, say critics. Yet the data doesn’t necessarily suggest this is true.

The value of outstanding bonds from firms that don’t currently earn enough to cover their interest costs and aren’t early-stage growth businesses where profits should rise was $30bn at the end of 2020, down from $70bn in 2019, reckons Michael Puempel of Goldman Sachs. Much of the drop was due to struggling firms going bust, implying the pandemic wiped out old zombies rather than creating new ones.

Of course, today’s low rates might still be making firms that could not have covered their interest in 2019 look better, says Tracy Alloway on Bloomberg.

But again that’s not obvious: just 17 US junk-bond issuers are expected to be less profitable in 2022 than in 2019, reckons Martin Fridson of Lehmann Livian Fridson Advisors.

“It’s true that companies that look viable right now might not necessarily survive the next downturn,” concludes Alloway.

But that doesn’t mean there’s harm in them getting a chance to turn things around.

©Shutterstock

American zombies may do no harm

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Transporting goods around the world is becoming far more expensive. The price for shipping a 40-foot container from Shanghai to Rotterdam – a benchmark trade route from China to Europe – hit $11,975 last week, a 626% rise since the same time last year, according to shipping consultants Drewry.

Disruption from the pandemic – a shortage of containers in the right places, a lack of workers in key ports and cuts by shipping companies to capacity on major routes – has combined with strong demand as economies reopen and firms try to rebuild their inventories.

While transport costs for a container are normally tiny compared to the value of the goods they carry, such a large increase may now feed through into consumer-price inflation.

2 July 2021

MONEYWEEK

Shares

6

MoneyWeek’s comprehensive guide to this week’s share tips Five to buy Hipgnosis

Shares Hipgnosis’s shares have gained just 6% in the year since we first recommended them. But in that time the firm’s market capitalisation has increased from £700m to £1.33bn, thanks to a series of capitalraises to fund song-catalogue acquisitions. The idea is to profit from the income from music royalties. The latest £150m raise of new shares at 121p has been set aside for a catalogue made up of “some of the most influential and successful songs of all time”, which presents “substantial revenue growth opportunities”. Since it listed the firm has built a portfolio of songs worth $2.2bn and has delivered a total net-assetvalue return of 40.7%, despite “the most challenging social and economic backdrop of our lives”. The investment trust yields around 4% and “will appeal” to income seekers. 123p Lookers

The Daily Telegraph Car dealership Lookers is facing disruption “on a number of fronts” as carmakers change the way they interact with customers and begin to focus

on electric vehicles. “Digital disrupters” are also emerging.

But Lookers’s boardroom is stabilising and trading is recovering, with brokers forecasting “big jumps” in profits over the next couple of year years. bounced Profits bounce from £4.2m in 2019 to aroun around £10m in 2020 and are expec expected to increase to £40m in 2021 and £51.8m in 2022.

These are big numbers against a market value of £273m.

“A few years like that and you y will get your money back whatever happens in the longer term.” 70p Unilever

The Motley Fool Consumer goods giant Unilever “is a popular choice for investors wanting income and growth”. The firm’s dividend has increased every year for the last 50 years thanks to popular

brands such as Marmite, with the annual increase in the payout averaging around 7% since 2015. The stock has fallen by 5% over the last year, but has outperformed the market over the last five years, and urrent the current weakness kness presents ents an ortunity to opportunity nto a buy into dend-growth dividend-growth ck. stock.

Unilever’s current yield of 3.4% “should be a decent entry point for a longerm term olding”. holding”.

73p 4,273p RBG Holdings

The Mail on Sunday Shares in Aim-listed law firm RBG should keep rising.

CEO Nicky Foulston is “a great believer in dividends, so payouts should become increasingly generous, even as the business grows”. The firm has become more efficient in recent years and fees are “collected more promptly”, which has increased

profits “substantially”. The group took over corporatefinance boutique Convex Capital in 2019. Analysts expect RBG to deliver a 79% increase in turnover to £46m this year.

A dividend of 4.75p “has been pencilled in for 2021”. It is expected to rise to 6.6p for 2022. 135p Liontrust

Investors’ Chronicle Liontrust Asset Management saw a 69% jump in pre-tax profits to £64.3m after a 30% rise in net inflows in the 12 months to 31 March. Its assets under management nearly doubled to £30.9bn in that period too and are predicted to grow to £42bn by the end of its 2023 financial year.

This suggests “a moderation compared with the recent rate of growth”, but “still translates to strong double-digit growth”.

The firm is also launching the Liontrust ESG Trust on 5 July.

It is a riskier version of the group’s Sustainable Future Global Growth Fund, but “ethically minded investors will happily swallow” it thanks to the team’s strong record.

The stock’s valuation remains reasonable. 1,662p

...and the rest Despite spending more than its rivals on players, Manchester United “has struggled to bring home the silverware in recent years”. The “already debtladen” group has borrowed another £60m as the transfer window has opened. Investors should “not put their faith in the team”. Sell (15p).

Robotics process-automation software company Blue Prism describes itself as “still under construction”, but its historically low spending record on research and development

An American view

means it is lagging behind others in the sector. More evidence that the company is able to win and hold onto big clients is necessary. Sell (817p).

Motley Fool

The Restaurant Group was forced to close most of its restaurants last year owing to the pandemic, but sales and profits had been under pressure “for years”. It has lost money in three of the past five years and net debt has soared from £32m to £824m since 2015. A recovery could take years. Avoid (130p).

Shareholders stand to gain as Hertz emerges from bankruptcy.

The car-rental sector is booming thanks to a surge in domestic travel and a shortage of vehicles. “The way to play” the sector’s rally is through Hertz, whose stock has nearly doubled to $7.15 since mid-May, when a group led by three asset managers won the bidding contest over the company in bankruptcy court. When the company exits bankruptcy at the end of June it will emerge with “little or no net ... debt”, compared with rival Avis’s $3.5bn.

Hertz’s new owners plan to invest heavily in modernising the company and improving customers’ experience. The firm is valued at around nine times 2023 earnings.

MONEYWEEK

2 July 2021

The Daily Telegraph

Specialist engineer Pressure Technologiess presented “disappointing” “disappointi numbers in its interim results. But the setback “feels temporary” and the potential for turnaround turnarou is “still substantial”.

Hold (98p). ITV made its way back into the FTSE 100 this week, a move that highlights how a “cyclical upturn in advertising” could benefit it. Stay tuned aand d hold (128p).

The Times

It looks as though Associated British Foods is “being punished for being a conglomerate”. The company ompany owns Primark, which was hit heavily by the he pandemic because it acks an online presence. lacks But the group also owns household brands such as Twinings tea. Sales in its grocery department were up by 8% in the x months to April 2021. six Hold (2,241p).

IPO watch Media and news group BuzzFeed is going public after agreeing a deal with a special purpose acquisition company (Spac), says Benjamin Mullin in The Wall Street Journal. BuzzFeed will be acquiring digital publisher Complex Networks for $300m as part of the deal: it is hoping to increase its scale in order to compete more effectively with other tech giants in the internetadvertising market. The combined company would be valued at around $1.5bn. But “there is no guarantee” that BuzzFeed will manage to expand its share of the digital-advertising market, with most of the growth in the area having gone to Google, Facebook and Amazon in recent years.

moneyweek.com

©Alamy; Primark

Investors’ Chronicle

7

Shares City talk ● Facebook’s market capitalisation “temporarily breached $1trn” after the US Federal Trade Commission (FTC) lost an antitrust case this week, says Gina Chon on Breakingviews. The FTC claimed that the social-media giant has used its acquisitions of picture-sharing service Instagram and messaging unit WhatsApp “to create a social-network monopoly”.

The judgement said that the agency failed to “define the market for social networks”.

The verdict signals that judges are likely to be “sceptical” about “aggressive approaches to antitrust rules”. This is good news for Facebook and other tech giants facing calls for them to be broken up. ● Bridgepoint Group, the buyout firm spun out of Royal Bank of Scotland Group in 2000, is to go public, says Bloomberg. The listing should raise £300m, valuing the firm, which focuses on companies across Europe and owns stakes in Burger King franchises in Britain, at £2bn. The flotation allows Bridgepoint to exploit high valuations created by an “ebullient” stockmarket and diversify its offerings now that the cost of acquiring assets has begun to reduce returns. It will use the money “to expand into new areas”, such as infrastructure and real estate.

©Getty Images; GSK; WhatsApp

● Tesla is China’s top-selling

electric-car brand, with the country accounting for a third of the group’s sales.

But it is likely to find the going tougher in future, says Lex in the Financial Times. The Chinese government recently ordered it to repair “almost 300,000” vehicles to solve a “potentially dangerous problem” involving their autopilot. Beijing has also banned Tesla’s cars from entering government complexes. Then there is competition from “fastgrowing local rivals”, such as Alibaba-backed Xpeng and Nio. Consumers’ loyalty to car brands “has historically been low in China”, so Tesla may find it difficult to hold on to its “lion’s share” of the market.

moneyweek.com

A shot in the Arm for Nvidia Three top chipmakers have expressed support for a controversial $40bn US-UK deal in the sector. But it could still fail. Matthew Partridge reports

Nvidia’s proposed $40bn takeover of British semiconductor group Arm Holdings, which is being sold by Japan’s SoftBank Group, received a boost after three of the world’s largest chipmakers “expressed support” for the “controversial” deal, says Priscila Rocha on Bloomberg.

Broadcom Corp, MediaTek and Marvell Technology Group are the first customers of Arm to speak out in favour of the takeover. Their support undermines claims from rival Qualcomm and tech giants including Microsoft that Nvidia could use its control of Arm to “limit the supply of the company’s technology to its competitors or raise prices”.

The apparent endorsement from several leading chip firms comes at a “crucial time” for Nvidia’s planned takeover, says Jamie Nimmo in The Sunday Times. This is because the UK competition watchdog is now “preparing to deliver its judgement” on the deal following a review on both competition and national security grounds – a process that has “cast doubt” on the tie-up taking place. The deal is also in the process of being scrutinised by other regulators in Europe, the United States and China – opposition from any one of which could effectively veto it.

What the customers really think

Those who claim that the customers’ comments represent a full-throated endorsement of the deal are reading too much into them, says Dan Gallagher in the Wall Street Journal. If you look at what they say closely, their support “seems lukewarm at best”. While MediaTek’s chief executive Rick Tsai was quoted as saying that the chip industry “would benefit from the combination”, Broadcom’s CEO Hock Tan simply noted that “Nvidia has assured the industry” that it will grow its investment in Arm and continue licensing the technology on a “fair basis”. And while Marvell claims to be “supportive” of the deal, its CEO has also said that he “wouldn’t be sad” to see it collapse.

Nvidia’s controversial takeover could come unstuck

Furthermore, even if the deal manages to withstand scrutiny on competition grounds, there are other reasons why it could come unstuck, says Tony Owusu on TheStreet.

Analysts at Citi reckon that there is only a 30% chance of the deal going ahead. This is because, in their view, opposition from China is still likely to be a major hurdle. Chinese firms claim that Arm’s acquisition by a US firm would make it much easier for Washington to pressure the company into stopping exports to China if relations between the two countries worsen.

If Nvidia’s takeover of Arm does fall through, then Arm could return to being a listed company, which it was before it was snapped up by SoftBank in 2016, says James Titcomb in The Daily Telegraph. US technology giant Qualcomm has said it could buy a stake in Arm “alongside a consortium of industry players” if its owner, SoftBank, were to float the company.

Unsurprisingly, Nvidia argues that such a move “would hold back Arm’s development”.

Glaxo’s shake-up won’t placate investors Emma Walmsley (pictured), CEO of GlaxoSmithKline (GSK), has launched “the most radical shake-up” of the group in 20 years, says Hannah Boland in The Daily Telegraph. The plan is to spin off GSK’s consumer-healthcare arm, “which makes toothpaste and... painkillers”, and use the cash raised to boost sales at the core business, dubbed “new GSK”.

With several drugs about to lose patent protection, the dividend will be cut, with the money saved reinvested in “a hunt for new blockbuster drugs”. Walmsley is under increasing pressure, says Boland in The Sunday Times.

Since 2017 she has “slashed” poorly performing drug

programmes, revamped management and “pushed the drugmaker back into oncology”. But this has not satisfied investors irked

by GSK’s “perennial underperformance”. Some want new leadership, while the decision of activist fund Elliott Management to take a stake in GSK is another challenge to her

authority. Those calling for “radical change” at GSK are likely to be disappointed by this latest “fudge”, says Lex in the Financial Times. Walmsley’s promise that GSK will “coalesce around core pharma” is undermined by the fact that even after the hivedoff consumer unit is listed, GSK will retain up to 20% of the new company.

This in turn “reduces the kitty earmarked for dealmaking and research and development”.

While this “vacillating” is “understandable”, as blockbuster drugs “take a long time to come to market”, Walmsley’s plan won’t “quieten those calling for her resignation”.

2 July 2021

MONEYWEEK

8

Politics & economics

It’s time to scrap the school bubbles The government is under pressure to scrap the school bubbles system, with Labour using an urgent question in the House of Commons on Wednesday to demand that Gavin Williamson act immediately, says The Daily Telegraph. On Tuesday, data revealed that a record 385,000 (around one in 20) children were off school last week, just 15,000 of whom have tested positive for Covid-19. There is particular concern about the impact on the poorest children, says Camilla Turner in the same paper. The Daily Telegraph’s analysis finds that, on average, 1.5% of children in the most disadvantaged areas are self-isolating each week, compared with 0.8% in the wealthier areas. Cabinet ministers began to “break ranks” on Tuesday night, with one saying that September – the earliest bubbles will be scrapped, according to sources – is too far off, especially given that adults are largely vaccinated and children “not at risk”.

Put the children first

The latest figures show that 85% of adults have now had one jab; 62% have had two. Crucially, vaccinations have weakened, if not broken, the link between the virus, hospitalisations and death. Encouragingly, in his first address to the Commons as health secretary, Sajid Javid signalled on Monday that children were a priority and that the country had to “learn to live” with Covid-19, says Nicola Woolcock in The Times. Gavin Williamson said the government was working on a “new model” to avoid disruption to pupils and a pilot is under way at around 200 schools in which pupils test daily instead of isolating. This led head teachers to complain that this would be “akin to being asked to set up field hospitals”.

Are children really at risk?

The “obvious” answer is to vaccinate children, which school leaders and teaching unions are calling for, says The Guardian. However, the Joint Committee on Vaccination and Immunisation is expected to recommend against vaccinating 12- to 17-year-olds, says the BBC. It may have delayed making a recommendation until it receives more safety data from the US and Israel, where children are being vaccinated.

Regardless, ministers are “scrambling to address a problem that they should have seen coming”, says The Guardian. Sir Kevan Collins, the former catch-up tsar, quit his post after a funding row, saying that the government’s paltry offering of £1.4bn (it was asked for £15bn) revealed its “unwillingness” to commit to the “massive national effort” that is required to prevent “long-term harm” to children’s education.

Gavin Williamson’s talk of “mitigations and adjustments” for next year’s cohort of GCSE and A-level students doesn’t bode

well, adds Sherelle Jacobs in The Daily Telegraph. It may be a cliché, but children are the future. It’s time we put them first.

What are we still afraid of?

Meanwhile, the government continues to use “draconian powers”, despite the NHS no longer being in “operational danger”, says Fraser Nelson in the same paper. Given current levels of inoculation and immunity, how can this be justified? A system of “immuno-privilege” for the double-jabbed is equally unjustifiable. Vaccine-related privileges “exacerbate divisions that already run too deep”: a vaccine passport would discriminate against ethnic minorities (31% of black people have declined the jab versus 6% of white people) and against the under 40s, only 25% of whom are jabbed. Strict border controls would set a precedent that may “fundamentally change the nature of society”. We need to think about what we stand to lose and “what, precisely, we are still afraid of”.

Kwasi Kwarteng: every subsidy must deliver strong benefits

MoneyWeek

2 July 2021

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The new post-Brexit playing field

On Wednesday, the government set out its “agile and flexible” post-Brexit stateaid system. The Subsidy Control Bill is one of the “most important pieces of post-Brexit legislation” to date, says Richard Partington in The Guardian. State subsidies were the last major sticking point in last year’s trade-deal negotiations. The EU wanted Britain to stay aligned to its rules to ensure a “level playing field” – and will now be scrutinising the bill, notes The Independent’s Adam Forrest – but Boris Johnson refused.

Under the EU system, most subsidies had to jump through various hoops at the European Commission in a process Brexit

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One in 20 children were off school last week due to Covid-19 testing. Emily Hohler reports

supporters argued was “overly bureaucratic and delayed vital funds from reaching viable businesses in good time”. The trade deal signed with the EU requires Britain to “ban subsidies with a ‘material effect on trade or investment’ between the UK and the EU”.

Many Tories are “ideologically opposed to state intervention”, which Johnson wants to use for his “levelling up” agenda.

Kwasi Kwarteng, the business secretary, said the new system did not mark a return to the “failed 1970s approach of the government trying to run the economy, picking winners or bailing out unsustainable companies”, report Eleni Courea and Oliver

Wright in The Times. He added that “every subsidy must deliver strong benefits for local communities and ensure good value for the British taxpayer”.

The new regime will permit devolved administrations to award subsidies provided they adhere to “UK-wide principles”, while banning those that lead to jobs and businesses moving from one part of the UK to another, says Russell Lynch in The Daily Telegraph. The government has gone for a “light-touch approach on enforcement”. Subsidies will be monitored through an advisory unit within the Competition and Markets Authority and disputes settled through the courts.

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Politics & economics

Red China: the next 100 years Will the CCP’s centenary prompt any soul-searching? Matthew Partridge reports

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fair trial”. These are One hundred years ago, increasingly supported 13 young Chinese men by “sophisticated and two Comintern technological methods representatives met of control” too, such secretly in Shanghai’s as facial-recognition French Concession, says technology and the The Guardian. From “social-credit system” these “unpromising for tracking citizens’ beginnings”, the Chinese everyday behaviour.

Communist Party (CCP) These measures suggest became a 92-million that the regime knows strong “behemoth” that that even the loyalty of “controls a fifth of the the country’s dominant world’s population and its Han population – let second-largest economy”. alone that of minorities That feat looks even more – “is fragile”. “incredible” when you consider that it managed Xi: good at cracking heads, but bigger problems loom to survive even as the A $2trn burden Soviet Union, its patron and rival, collapsed. Now, Xi is right to be worried about the CCP’s long-term as it celebrates its centenary, the CCP is looking future, says Peter Sweeney on Breakingviews. ahead to how it can survive the next 100 years.

He may be an “excellent cracker of heads”, but that may not be enough to ensure the regime’s survival as The long march continues China faces a number of structural problems, many Perhaps the CCP’s greatest strength has been its of which are caused by previous policy mistakes, most notably a “demographic crisis caused by a ability to adapt and change, says Bloomberg. From shrinking workforce”. Its innovation model, still Mao Zedong’s “long march” to Deng Xiaoping’s largely based on state capitalism, and its tendency to economic reforms, leaders of the CCP “have throw money at problems are “wasteful” and things thrown ideology aside when necessary to stay in power”. Deng’s partial embrace of capitalism, after it “can ill-afford to stick with” as the national bad Maoist policies led to widespread famine, “ushered debt pile “rises toward $2trn”. in a wave of investment that helped GDP grow None of this has stopped China winning fans nearly 50 times since Mao’s death in 1976”. Political abroad, says Trevor Phillips in The Times. Just as reform, however, did not arrive – the government the success of the US and Britain ultimately helped still “stifles dissent” with “brutal crackdowns” on win the cold war, China’s claim “to have moved any opposition, whether in Xinjiang or Hong Kong. hundreds of millions out of grinding poverty over the past decade” is “convincing many developing Far from supporting political liberalisation, countries of the appeal of authoritarian regimes”. the current president, Xi Jinping, has “reinstated China is further cementing its support through the the old Maoist strategy of ideological discipline around a cult of personality”, says Andrew Belt and Road Initiative, which will commit $4trn Nathan in The Wall Street Journal. This is backed to developing nations in infrastructure investment. by “harsh and arbitrary” measures, including Unless the West mounts a better defence of its “extralegal detention, torture during investigation values, the CCP will be celebrating its 200th and in prison, and violations of the right to a birthday “with parades in cities all over the world”.

They give rise to pain too

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Record heatwave hits the US

An “extraordinary heatwave” has hit large parts of the northwest coast of America and Canada, affecting millions and smashing records with temperatures at “levels normally seen in the Middle East”, says Charlie Mitchell in The Times.

Some mountain towns in Canada have had to be evacuated due to rising rivers as

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2 July 2021

a result of melting snow. The immediate cause is a “heat dome” of hot air stacked in the atmosphere, but experts say the heatwave “bears the hallmarks of man-made climate change”, which is thought to “increase the frequency and severity of extreme weather events”.

The heatwaves will also hurt the economy, says Rachel Layne for CBS News: roads are cracking, shops and restaurants closed, and there are“rolling outages” of power in some areas due to the “surging” demand for electricity. As the number of extreme events increases in the future, the US taxpayer will be forced to pay an ever-increasing bill to “fix infrastructure that gets

degraded or destroyed”. Last year, some 22 extreme events – from cyclones and hurricanes to drought – cost the US a combined $95bn.

You might think all this would put pressure on the government to tackle climate change, but don’t hold your breath, says Giovanni Russonello in The New York Times. President Biden has acknowledged the climate crisis as an “existential threat”, yet relies on the support of a senator representing one of the states that is “most heavily reliant on the carbon energy industry”. Radical measures that could help limit further climate change “are nowhere to be found” in Biden’s $2trn infrastructure plans.

Betting on politics Brazil, like much of Latin America, has a long history of controversial leaders. Its current president, Jair Bolsonaro, is particularly contentious. Often compared to former US president Donald Trump, he was elected in late 2018, benefiting from a wave of discontent at the political establishment.

Since then his administration has been generally regarded as a failure, mired in various corruption scandals (including one over a vaccine deal), and responsible for one of the highest Covid-19 death tolls in the world, with over 500,000 dying from the disease.

Brazil is due to return to the polls again in late 2022, and already Bolsonaro (pictured) is facing a stiff challenge from a range of candidates, most notably former president Luiz Inácio Lula da Silva “Lula”), who himself

Caption here spent time in jail before his convictions were quashed. With £5,697 matched on Betfair, Lula is the favourite at 2.14 (46.7%), with Bolsonaro at 2.46 (40.6%), and former judge Flávio Dino and environmentalist Marina Silva both at 4 each (25%).

I think it’s very unlikely that Bolsonaro will be re-elected.

Like Trump he has a narrow base of very strong supporters, but an even larger number of people who loathe him. Polls suggest that he could come close in the first round, but they also have Lula crushing him in the second by a landslide.

I’d therefore lay (bet against) Bolsonaro at 2.98 (33.6%), which is equivalent to betting on him not to be re-elected at 1.5.

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News New York

a’s Uber Floats in US: Didi, the Chinese rideChina’s

ng “Goliath”, sold more stock than originally hailing planned ned when it floated on the New York Stock nge on Tuesday, raising about $4.4bn, says Exchange Corrie Driebusch in The Wall Street Journal. It achieved ved a market capitalisation of $67bn, which trails Uber’s $95bn, but beats Lyft’s $20bn. Investors trigued by the company’s scale and growth were intrigued l; it will have caught their eye that 70% of potential; China’s population will live in cities by 2030, but few ll own cars. How the stock trades will depend of them will on the firm’ss ability to continue selling itself, as well as ngness to “brush aside” the potential risks investors’ willingness ted Chinese companies as the US and China of investing in US-listed continue to clash. Didi is investing heavily in artificial intelligence and electric vehicles. It stumbled after the pandemic hit when ridership slowed owing to restrictions, with transactions dropping by a third in the first three months of last year compared with the year before. They began growing again in the second half of 2020.

London

Recovery hits a bump: GDP shrank by 1.6% quarter-on-quarter in the first three months of 2021. But that was only slightly worse than the consensus estimate of -1.5%, says Samuel Tombs of Pantheon Macroeconomics. And while the UK was the hardesthit major economy in the first quarter, with GDP 8.8% below its fourth quarter 2019 peak, it was probably the laggard for the last time. “The rapid rollout of vaccines has laid the foundations for a sustainable recovery.” Expect GDP to rise by a quarterly 5.3% in the three months to July, and then by a further 2% or so in the third quarter, “before then narrowly exceeding its prior peak in the first quarter of 2022”. After all, says AJ Bell’s Laith Khalaf, the “latest trends in consumer spending show that old habits die hard, unless there’s a lockdown in force”. Borrowing is rising and savings are falling “as the lifting of social restrictions has prompted consumers to reach for their wallets”. The data is from last month. Since then, hospitality has been in “fuller swing”, so “we can expect spending to have accelerated”.

Washington DC

Demand outstrips supply: “A gusher of money is spilling

out from the US economy,” say Tom Fairless and Stella Yifan Xie in The Wall Street Journal. US GDP has been “turbocharged” by almost $6trn in stimulus. This is underpinning the global recovery and encouraging businesses “to invest in meeting the huge American demand”. The strong rebound is also “ricocheting through financial markets and causing dislocations around the world”, evident in shipping bottlenecks (see page 5), currency movements and booming commodity prices. Thanks to low interest rates and lacklustre supply growth, average house prices in major US metropolitan areas rose by 14.6% in the year to May 2021, up from a 13.3% annual rate the previous month. That is the fastest rise since the S&P CoreLogic CaseShiller index’s inception in 1987, says Nicole Friedman in the same paper.

In the tight jobs market, too, “Americans are enjoying outsized pay boosts this year from desperate employers”, with wages expected to be 3.6% higher yearon-year in June, says Katia Dmitrieva on Bloomberg. Nevertheless, inflation reached a 13-year high of 3.9% in the 12 months to May, according to the US Federal Reserve’s preferred inflation gauge. So those “raises are failing to keep pace with surging prices for everyday goods”.

Johannesburg

Former president faces prison:

South Africa’s former president Jacob Zuma (pictured) has been handed a 15-month prison sentence for contempt of court after refusing to appear at an inquiry into corruption. Zuma, 79, is accused of enabling the “plunder of state coffers” during his tenure and is separately facing 16 charges of “fraud, graft and racketeering” relating to a $2.5bn arms deal in the 1990s, says The Daily Telegraph. Meanwhile, his successor, Cyril Ramaphosa, announced a 14-day “circuit-

breaker” lockdown on Sunday owing to a surge in Covid-19 infections.

Less than 2% of South Africans are fully vaccinated, so closures are inevitable. The economy has struggled to return to growth and unemployment has reached 32.6%.

Still, the central bank says the country can “weather a post-pandemic rise in global interest rates” that could lure investors away from riskier markets, says Joseph Cotterill in the Financial Times. “Buoyed by high commodity prices,” South Africa recorded its “biggest positive trade balance this century” in 2020. The 2021 budget-deficit forecast has been lowered from 15% to 11% of GDP.

Hollywood A-Listers, supermodels and roya royals who don’t want to worry about packing hospital bags or o decorating their delivery room need struggle no more.

Tiffany Norris, a “mummy concierge”, is now available for hire. She set her business up after having her first child and realising “how little help there was for new parents experiencing this huge change”, she told OK! magazine. For between £120 and £300 an ho hour, “quite wealthy people” can hire her. Her previous jobs jo have included commissioning an artist to cre create a cast of a woman’s pre-birth vagina so her hus husband “could remember what it was like before”.

She has also set up photo shoots on the step steps of

MONEYWEEK

2 July 2021

the Lindo Wing of St Mary’s ary’s Hospital in London – “so new parents can capture that iconic Kate and William royal baby shot” hot” – and arranged for a couple to fly over a field to look at “hay sticks that spelled out ‘it’s a boy’” Norris’s job also encompasses more re routine tasks, such as kitting out nurseries and coming up with names “that have never been used before”. But the job “doesn’t end when the baby aby arrives”. She has trained nannies on hand for the new arrivals.

My clients ents have “got the money and they’re hey’re busy... I become the PA to their parenthood”.

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The way we live now: a PA for parenthood pa th d

News

13

Stockholm

Ulf Kristersson, the leader of Sweden’s centre-right Moderate Party, has been trying to form a new government

Sweden looks for a new leader: On Tuesday Sweden’s parliamentary speaker, Andreas Norlén, gave Ulf Kristersson, the leader of the centre-right Moderate Party, three days to find the votes to form a new government, reports Agence France-Presse. Stefan Löfven of the centre-left Social Democrats, who this week stayed on as acting prime minister, announced his resignation on Monday rather than call a snap election. His government, which had struggled to find support for its budget plans, succumbed last week to a no-confidence vote called by a group of opposition parties led by Kristersson. A parliamentary vote on a new prime minister is expected next week, while the next scheduled general election will take place in September 2022 regardless of whether a snap election is called before then. Meanwhile in the eurozone, economic sentiment “improved sharply in June as restrictions were lifted further”, say Jessica Hinds and Andrew Kenningham of Capital Economics. And while inflation dipped below 2% to 1.9% in June year-on-year, according to the latest estimate, consumer prices are “likely to rise again in the coming months, led by higher inflation in Germany”, before dropping back early next year.

Pyongyang

Hermit kingdom grapples with Covid-19: North

Korean dictator Kim Jong-un (pictured) has berated ruling party bosses for “neglect of duty” after they failed to implement measures to get Covid-19 under control, says The Daily Telegraph. That “led to an unspecified ‘grave incident’ and put the safety of the country and people at risk”. The North Korean state news agency has still not said what happened. The country has not confirmed any cases of coronavirus, but it has imposed “strict anti-virus measures”, such as border closures and curbs on domestic travel. North Korea has treated the pandemic “as a matter of national survival”, says Reuters, with its main objective being to prevent the virus from reaching the country while also acquiring vaccines and expanding treatment capabilities. Large-scale public gatherings have continued, which suggests that a major outbreak has hitherto not occurred. But this success “comes with a steep cost” to the economy. The closure of the borders has led to a sharp drop in the trade of food, fuel and fertiliser with neighbouring China.

Bangkok

Car exports offset tourism slump: Thailand’s car sector is

helping to pick up some of the slack as the tourism industry continues to struggle with the collapse in foreign visitors, say Orathai Sriring and Satawasin Staporncharnchai on Reuters. Overall export growth for 2021 is forecast to rise to an 11-year high of 17.1%, up from the 10% forecast in March. That is largely due to the 170% surge in the year to May of exports of cars, parts and accessories. The tourismreliant country is preparing to reopen to foreign visitors with a pilot programme that will allow fully-vaccinated tourists with negative coronavirus tests to fly directly to Phuket and skip the 14-day quarantine. But local businesses believe tourists “will see a different Phuket” from the pre-pandemic one. Businesses are in urgent need of loans to rebuild.

Over two million Thai tourism workers lost their jobs in the last year, with 400,000 becoming unemployed in the first quarter of 2021 alone. Arrivals in 2020 plunged by 83% from the 40 million visitors seen in 2019, costing the country about $50bn in revenue. moneyweek.com

Sydney

Delta variant triggers lockdown: Sydney is going into lockdown as Australian officials expand restrictions in an attempt to stop the spread of the infectious Delta variant, says Stuart Condie in The Wall Street Journal. Residents of the city and its surrounding areas have to stay at home until 9 July. Australia has reported 31,000 cases since the start of the pandemic, but just under 5% of the 26 million-strong population is fully vaccinated, so the highly transmissible variant poses a threat to reopening.

Despite the latest measures the Australian economy is now larger than it was pre-pandemic, says Swati Pandey on Reuters. “Exports are booming, consumer and business confidence are high… and job vacancy rates are at a 12-and-a half-year high”. Consumer spending is “euphoric” and the unemployment rate is back at a pre-pandemic level of 5.1%. Closed international borders and restricted domestic mobility were expected to hamper demand, but they have “serendipitously channelled new sources of growth” as Australians holiday locally, move to and prop up demand in smaller towns, and shop online. Retail sales are up 25% from a year ago.

The mining and banking sectors could potentially return over A$50bn (£27bn) each to investors over the coming financial year, and economists “expect this golden run” to endure for some time.

2 July 2021

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14

Briefing

Ructions in the green room

After a period when new technology threatened to eat its lunch, the music industry has thrived. Artists are not getting their fair share, they claim; investors, though, are doing well. Simon Wilson reports Shareholders in the media conglomerate Vivendi have approved plans to spin off Universal Music Group, the world’s biggest record label, as a standalone business and list it on the Amsterdam stock exchange in September. Universal accounts for around a 30% slice of the global recorded music market, and its catalogue includes more than three million songs from many of the leading artists of every era, from The Beatles and Queen to Adele, Taylor Swift and Drake. Recently, the label has been making headlines in the financial pages as bidders jostled to build up stakes, including the Chinese giant Tencent (which owns 20%), and rival US hedge-fund billionaires Daniel Loeb and Bill Ackman. The latter’s specialpurpose acquisition company (Spac) has just bought 10% of Universal for $4.2bn. That values Vivendi at $42bn and suggests that Vivendi was wise to turn down an acquisition offer of $8.5bn from SoftBank in 2013. The scramble for a slice of Universal also reflects the music industry’s changing fortunes.

How have they changed?

Billionaires are scrambling for a slice of Taylor Swift

from albums she recorded in the 1990s had earned her £12.34. Paul Weller revealed in April that more than three million streams of his latest record, On Sunset, had made him £9,500 since its launch last July. According to Spotify’s figures, only 13,400 artists’ catalogues made more than $50,000 from the site last year (which is at least a jump from 7,300 in 2017). Only 7,800 artists worldwide made more than $100,000, and only 870 made more than $1,000,000. But these are not the sums received by artists; they are the sums paid to rightsholders who then pay on a slice to the artists depending on their contracts.

Famously, the music industry had a torrid time of it in the 2000s as consumers snaffled content for free via file-sharing sites. Sales of physical CDs collapsed, and the nascent digital-download channel failed to make up the difference. Between 1999 and 2014, global revenues shrank by 40%. But since then, it’s been a growth story, with recording industry revenues growing by 54% between 2014 and 2020, to $21.6bn. The main driver has been technology. If the growth of the internet destroyed the record companies’ old business model, the ubiquity of smartphones So what do artists want? facilitated the rise of the now-dominant The biggest gripes are (a) the opaque streaming model, whereby record labels algorithms used by the streamers, which license their content to sites such as Spotify skew earnings towards the biggest artists; and Apple Music, and consumers mostly and (b) the fact that while performers “rent” music rather than buy physical (or take home about 50% of radio revenues, even digital) copies. streaming “Recording industry revenues with In 2017, industry services that falls to revenues from grew by 54% between 2014 about 15%. These streaming surpassed complaints are and 2020, to $21.6bn” sales of physical levelled not just by formats (CDs and the like) and lower-earners, but by the very biggest downloads for the first time – and they’ve artists. This spring more than 150 of the continued growing strongly since. In 2020, top-selling names in British music signed Spotify paid out $5bn to rights holders letters urging government intervention (mostly record companies), and YouTube to level the playing field and update the (owned by Google) has paid out $4bn over law in line with technological change. the past year.

These included Paul McCartney, The Rolling Stones, Kate Bush, Tom Jones and members of Coldplay, Led Zeppelin and So all is rosy?

Revenues are up, but many recording artists One Direction. The government is currently working on a response. say they’re not seeing their fair share. For a few, it’s great. Ed Sheeran’s Shape of You, the most streamed track of the past How did streaming change the industry? decade at 2.3 billion plays, is estimated to In the age of Spotify, it’s easy to consume have made him $14.6m. But recently the songs via playlists without even knowing classical violinist Tamsin Little reported the name of the artist. That tilts power away that more than five million Spotify streams from performers and towards songwriters.

MoneyWeek

2 July 2021

It has also made it harder than ever to break new acts and for artists to build long-term fan bases – both trends that raise questions over long-term revenue streams in the industry as the streaming model matures.

At the same time, it has delivered lucrative new revenue streams for legacy acts, as new generations of listeners decide that the old songs really are the best. All these developments, together with the pandemicrelated collapse in touring revenues (nowadays the main income stream for most artists), have also encouraged another music industry revolution: the moves by a growing number of big-name acts to sell off their back catalogues to investors.

How does that work?

“The industry has changed in the last 24 months because of one company,” reckons Mathew Knowles, the music executive and father of Beyoncé. London-based Hipgnosis Songs Fund – run by Merck Mercuriadis, an ex-manager of Elton John and Beyoncé, and co-founded by Nile Rodgers – has spent $1bn (£723m) on evergreen hit songs over the past year, buying the rights to 84 song catalogues from artists ranging from Neil Young to Shakira. It takes the total spent since it listed in 2018 to $2bn on 65,000 songs. Mercuriadis says that the pandemic accelerated consumption of classic songs through streaming. Now 60% of the songs it owns are more than ten years old – a big rise from the 32.5% slice in March 2020.

Investors currently get a respectable 4.22% dividend, but should note that just 2% of its songs have provided 80% of its profits.

Hipgnosis is essentially a way of buying into the future of songs through royalty rights, but as an asset class it’s new and unproven. Similar vehicles include Round Hill Music (which has spent around $650m), Primary Wave and Concord. moneyweek.com

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What’s happened?

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16

Five ways to build the virus economy Matthew Lynn City columnist

Sajid Javid was not the obvious choice as a replacement for disgraced health secretary Matt Hancock. He has no experience in healthcare for one thing. But against that, he is both an experienced minister and, more importantly, he knows about the economy. This is now as much, if not more, of an economic crisis than a health one. In office, he needs to team up with the chancellor and figure out a workable plan for a virus economy. What would that look like? Here are five places he could start.

1. Forget about “zero Covid-19”

We won’t get rid of Covid-19 now. Even the Australians, with closed borders and quarantines, have not managed that, and it is very unlikely the UK will. The virus is likely to be circulating for many years to come and will carry on mutating. If we try to eliminate it all we will do is remain partially locked down forever. Instead, the government has to be clear that brilliantly effective vaccines are available, encourage people to get jabbed, make booster shots available if they are needed, and then allow the world to get back to normal. A few people will still get seriously ill from Covid-19, but that is true of lots of diseases.

2. Bring the NHS under control

At times during the pandemic it seemed as if we were dangerously close to protecting the health service when, of course ,it is

meant to be protecting us. After the first wave peaked, there has been very little evidence that hospitals were ever likely to be overwhelmed. The health secretary needs to make sure the service is properly funded, but also that it is working effectively and efficiently. And he needs to make sure it is reformed and improved even if that is unpopular with its staff. We can’t keep closing society down because the health service can’t cope with its workload.

Javid should ignore the forecasts of doom

where the virus may flare up again at any moment. Hybrid home and office working may be here to stay, but that will require changes to employment legislation.

Companies need to know whether they are allowed to insist on vaccination or not.

Business rates may need to be reformed for companies that are only open part of the time. Many companies may need to redesign the way they operate permanently, and the sooner that happens the better.

3. Scrutinise the modellers

The epidemiologists should be subject to the same scrutiny as the economists.

Over the last year, we have treated forecasts and models from the experts in infectious diseases with an overblown respect. In reality, forecasts from epidemiologists are not necessarily any better than those from economists. In fact, they are probably worse. It is a less well-funded science and pandemics are so rare they are hardly ever tested in the real world (we can judge the accuracy of economic models all the time, but epidemiological ones only once in a generation). If necessary, set up an equivalent of the Bank of England’s Monetary Policy Committee (a Medical Policy Committee perhaps) to come up with forecasts that can be scrutinised. The chancellor doesn’t panic at every forecast of doom; he would be very busy if he did.

Neither should the health secretary.

5. Keep investing in vaccines

The UK did well researching and licensing vaccines and getting them delivered rapidly.

We have started ramping up vaccine production, with new factories and a new Vaccine Manufacturing and Innovation Centre in Oxfordshire built. Keep going.

With challenge trials – now finally allowed in the UK, ahead of most countries – we could have had the vaccines six months earlier and with the production facilities in place we could have been inoculated by last Christmas. Next time around, we should aim to have a vaccine in 100 days and have jabs in arms in 200. Lives would be saved and far less damage done to the economy.

4. Get business to adapt

Between them, the Treasury and the Department of Health need to make sure companies can cope with an economy

Who’s getting what

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2 July 2021

to address “misleading” information over Kotick’s pay. ● Royal Mail has blocked bonuses and share awards to senior executives worth £1.4m after Christmas parcels were left undelivered, says The Mail on Sunday. Stuart Simpson, the former interim CEO, will miss out on rewards worth just over £1m. He had been in line for a bonus of up to £570,000 and he will not get shares worth £450,000. He was still paid £462,000 in his last year with the service

and will get £375,000 this calendar year as part of his termination agreement, retaining share awards originally worth £1.2m. ● Japanese financial firm Nomura Holdings paid its CEO, Kentaro Okuda, ¥320.4m (£2.1m), along with a ¥16m housing allowance, in his first year in the role, which concluded with the implosion of Archegos Capital Management, says Bloomberg. That is still less than the ¥422m his predecessor, Koji Nagai, was paid in his final year.

Nomura suffered a $2.9bn loss from the collapse of Archegos in March.

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● A little over half of shareholders in video games-maker Activision Blizzard have backed the $155m pay deal for chief executive Bobby Kotick (pictured), says the Financial Times. The vote had been delayed in an effort to avoid “an embarrassing rebuke” from investors over the size of his pay, according to the Council of Institutional Investors, which represents big pension funds.

Activision said the annual meeting on 14 June had been postponed until the following Monday in order

Nice work if you can get it

Alex Mahon, chief executive of Channel 4, has seen her salary rise by around £50,000 to almost £1m – more than double what Tim Davie, the directorgeneral of the BBC, receives, says David Sanderson in The Times. Together, the three most senior figures at the publicly owned broadcaster earned £2.1m “during a year in which advertising sales slumped across the industry”. Last year, Channel 4 predicted a 10% drop in its revenues as a result of the Covid-19 pandemic and lockdowns, which led to the furloughing of staff and the cancellation of productions. Nevertheless, all three figures were awarded their maximum bonuses in light of what Channel 4’s chairman Charles Gurassa said was their “stellar performance” in terms of larger audiences and digital growth. The government is soon to launch a public consultation on the channel’s future, including a possible privatisation.

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In Sajid Javid we have a health secretary who cares about livelihoods. This is what he should do

Investment strategy

What lies behind ESG returns?

Today’s mantra is that you don’t have to sacrifice performance if you own only ESG stocks. Yet that’s not logical

John Stepek Executive editor

Last week, Eiji Hirano, former chair of the board of governors at Japan’s Government Pension Investment Fund (GPIF) – the world’s largest such fund – told Bloomberg that he sees signs of a “bubble” in ESG investing (that is, investing with environmental, social and governance issues in mind). The GPIF was an ESG pioneer in Japan, but now “needs to go back to its roots, and think about how to analyse if ESG is really profitable”.

It’s not the only one. Investors once took it for Eiji Hirano, ex-chair of the GPIF board of governors granted that ethical investing (ESG’s predecessor) would deliver worse returns than the market as a whole. The mere fact that ESG investing for a company to have a lower cost of capital, an means buying from a more limited universe of investor must pay a higher share price or accept a stocks implies that in the long run, you’ll lose out, lower bond yield than they otherwise would. Yet because there will be times when the stocks you the same team found that shares with high ESG not allowed to buy outperform the ones you are. ratings beat their less ESG-friendly peers by 35% Yet these days, ESG is often in total between 2012 and 2020.

“Fears of a bubble presented as a “factor” in Why? Some argue it’s because and of itself – an investment so many ESG stocks also fit the in ESG investing strategy, similar to value or criteria for the “quality” factor look justified” momentum investing, that will (whereby profitable stocks with result in long-term outperformance due to some strong balance sheets outperform) – the ESG label fundamental attribute of the stocks concerned. has nothing to do with it. But Pastor, Stambaugh Robert Armstrong, in his Unhedged newsletter and Taylor note that ESG outperformance is in the Financial Times, looks at two research correlated with rising concerns about climate papers, both by US professors Lubos Pastor, change. They argue that as a result, demand for Robert Stambaugh and Lucian Taylor, which try ESG-badged products has surged faster than to shed light on the matter. In theory, ESG aims markets expected, driving the outperformance. to cut the “cost of capital” for “good” companies, In short, Hirano’s fears of a bubble look justified. and raise it for “bad” ones, incentivising “good” In turn, as Armstrong notes, anyone investing in behaviours and cutting off funding to “bad” ones. ESG now in the hope it will keep outperforming You can argue over how effective this is (if is betting that “the market still systematically you raise the cost of capital too much, then underestimates consumers’ and investors’ taste for “bad” companies will simply go private). But green products and assets – despite the fact that even if it works, it means the ESG investor must ESG products and funds have been very heavily underperform in the long run. Why? Because promoted”. Not a bet I’d feel confident making.

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I wish I knew what shorting was, but I’m too embarrassed to ask

When most of us put money in the stockmarket, we go “long” – we buy shares in the belief that they will go up. Short sellers do the opposite – they aim to profit from a share-price falling.

Here’s how it works. A short seller borrows the shares from someone who already owns them (usually a fund manager) and sells them in the open market. Then, if and when the price falls, the short seller buys the shares back at the lower price, returns them to the lender and pockets the profit.

So, for example, say you want to “short” shares in troubled high-street chain Beta Retail, which currently trades at £1 a share. You borrow 10,000

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shares from an index fund (which owns them because it simply tracks the underlying index) in return for a small fee.

You then sell them. So you now have £10,000 (less your borrowing costs), but you owe the index fund 10,000 Beta shares. However, Beta issues a profit warning later that month, and the share price falls to 80p as a result. You buy 10,000 shares back for £8,000. You return the shares to the index fund and pocket a £2,000 profit.

Of course, if Beta had issued a surprisingly positive set of results and the share price had shot up to £1.20, say, then you’d still have to return the shares to the index fund, but in doing so,

you’d have made a loss of £2,000. And this is one of the many reasons why shorting is extremely risky and not to be undertaken lightly.

If you are long, the worst that can happen is that the share price goes to zero and you lose 100% of your money. But with short selling your losses are technically unlimited, as there is no ceiling on how high a share price can rise. And you have to get your timing right. Long investors can buy and hold, but “shorts” can only afford to keep positions open for a limited time. Finally, if you’re a private investor rather than a hedge fund, the easiest way to short sell is via spread betting, which means taking the risk of betting with borrowed money.

17 Guru watch Jim Chanos, founder, Kynikos Associates The boom in US companies being taken public via special purpose acquisition companies (Spacs) will end in tears for many, warns short seller Jim Chanos in the Financial Times. Chanos, best known for profiting from the collapse of energy group Enron in 2001, reckons Spacs will hand investors “a pretty expensive lesson”.

Spacs are cash shells.

They list on the stockmarket, with the goal of merging with a private company (or companies) within a certain sector, to take them public.

Some have celebrity backing

– everyone from basketball star Shaquille O’Neal to supermodel Gisele Bündchen (pictured) have joined the boards of Spacs or their target companies.

Securing a stockmarket listing via a Spac is easier than using a traditional initial public offering (IPO).

However, it’s also less tightly regulated, which means managements have leeway to make more aggressive financial forecasts than they otherwise could. Chanos warns that “as the boom has gone on, we suspect that more and more companies are playing... fast and loose with their projections in order to entice investors”.

Chanos won’t name names, but tells the FT’s Harriet Agnew and Ortenca Aliaj that he is shorting several Spacs that are “very bad businesses”. Spacs aren’t the only bubbly part of the market, though. Chanos highlights Torchlight Energy, which started out as a poledancing fitness classes provider then relaunched as a shale oil producer. Its share price is up more than tenfold this year, driven by the “meme stocks” craze.

2 July 2021

MONEYWEEK

Funds

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A new entrant in the space race There is now an investment trust focusing on the sector. It looks intriguing, but highly risky David Stevenson Investment columnist

recently highlighted the launch of a new exchangetraded fund (ETF) in the space sector: the Procure Space UCITS ETF (LSE: YODA).

Now comes news of another new fund in the same area, an actively managed investment trust called the Seraphim Space Investment Trust (LSE: SSIT).

It is set for an initial public offering (IPO) worth £180m.

The closing date for applications is Friday 9 July, with dealing commencing on Wednesday 14 July. The fund is targeting a netasset-value (NAV) total return of at least 20% a year.

As I noted in the previous article (moneyweek.com/ investments/stocks-and-shares/ share-tips/603343/investingin-space-a-fund-for-the-finalfrontier), the space market is already huge and growing fast.

It is not merely a question of launching rockets – satellites for broadband, for instance, are a key subsector too.

Two key statistics stand out from the long and detailed prospectus issued by the new fund. Firstly, “the cost of building and launching a satellite has fallen by a factor of more than 100... since 2010”. Today there are approximately 3,700 satellites in orbit in the $121bn satellite communications market.

Over the next decade 100,000 satellites are planned.

The prospectus highlights opportunities in seven categories: building satellites; launching them; satellite broadband and data, services relating to downlinks (the connections between a satellite

Britain’s Altitude Angel has produced a system to manage traffic with drones

and the ground station); analysing satellite data for ground uses; satellite data products and in-orbit services.

Most of the planned portfolio of 20 to 50 (largely private) businesses in the fund are taking aim at the satellite-broadband and data market (notably two firms in the portfolio called AST Space Mobile and Spire).

Going global

Most of the companies in the portfolio will be later-stage businesses. At this stage there is already a viable product and revenues, but the challenge is to scale up the business to serve a global market.

The manager is also bringing into the portfolio 19 assets currently held in a private Seraphim Space Fund. They include LeoLabs, Altitude Angel and PlanetWatchers. There are also smaller, earlier-stage investments in outfits with wonderful names such as

Activist watch Engine No. 1, a small activist investor, recently “scored one of the biggest proxy battle wins” ever seen in the US, says Antoine Gara in Forbes, winning three seats on ExxonMobil’s board.

It is now launching an exchange traded fund (ETF) that aims to “reinvent” the index fund. For a low fee, the ETF will invest in a market cap-weighted index of the 500 largest US stocks, but unlike a passive fund it will get a team of active investors to vote on shareholder issues, “set rigorous goals for boardrooms” and spearhead campaigns for change. The firm is promising to hold companies to account for their environmental and social impact, just as it did with Exxon through active voting: it argued that the group’s financial performance was “disgraceful” and that it had failed to invest “appropriately” in renewable energy.

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2 July 2021

Nu Quantum, TransRobotics, and Satellite Vu. The company will initially acquire 15 assets valued at £26.1m, with four other businesses likely to come in shortly after launch.

Those additional businesses are already manoeuvring for some form of corporate action, usually an IPO via a special purpose acquisition vehicle (SPAC). Spire and Arqit have already announced SPACS and two other businesses (D-Orbit and Iceye) are not far off.

AST Space Mobile has already raised $460m and began trading on the Nasdaq in April 2021 at a $1.8bn market capitalisation. It is building the world’s “first and only space-based cellular broadband network that the [fund manager] believes will deliver high-speed internet connectivity direct to any smartphone anywhere on the planet”.

There are some fascinating business ideas in the portfolio.

British firm Altitude Angel, for example, has developed “a market-leading drone traffic-management platform [that] aggregates real-time information from maps, weather, regulations and flight tracks for manned aircraft and other drones to provide a fourdimensional real-time map of the world’s airspace”.

Or there’s Arqit, a player “in the nascent field of quantum cryptography... It is deploying

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a constellation of ‘quantum key distribution’ satellites that use lasers to transmit unhackable... encryption keys”. Israeli firm PlanetWatchers offers “radar imagery from satellites for crop monitoring and... insurance claims assessments”. America’s LeoLabs uses “ground-based antennas capable of detecting objects as small as two centimetres as far as 1,000 kilometres away”.

Will these businesses turn into tomorrow’s SpaceX (Elon Musk’s rocket company)?

Seraphim’s record since 2016 – when its private fund was launched – seems more than decent. Based on an initial portfolio of 16 companies, with an initial investment cost of £32.9m, the private fund has generated a gross internal rate of return (IRR, the return from a loan before fees and expenses) of 43% to date. Its portfolio of six growth businesses provided an IRR of 75%.

A highly risky venture

The risks with this form of private investing are clear. The SPAC market might suddenly fall over any day now, while you are buying minority interests in portfolio businesses where the venture-capitalist managers might not be able to control how the business develops. And of course private businesses – and small-cap listed businesses generally, for that matter – are notoriously fickle and volatile, so this trust is only for the brave. We may also be a bit late in the current tech cycle, with investors choosing to switch back into value stocks.

Still, my hunch is that because this sector is so exciting and the fund unique, demand might be quite strong. If we are to connect large parts of the world – including rural Britain – then satellite technologies are essential. It’s noticeable in that regard that BT Openreach has just done a deal with the UK government-backed OneWeb to help hook up rural areas with no, or patchy, internet and data services to broadband.

Perhaps now is the time to look to the stars for investment opportunities as a new digital infrastructure emerges? moneyweek.com

We search widely.

Murray International Trust Plotting a path between defending your capital and generating a good income needs an expert sense of direction.

At Murray International Trust, we know how to explore the world searching for those companies that may deliver the right combination of capital preservation and income generation. And because we insist on conducting our own first-hand company research, you can be confident we are guiding you to potentially the best investments we can find.

Please remember, the value of shares and the income from them can go down as well as up and you may get back less than the amount invested.

Request a brochure: 0808 500 4000 murray-intl.co.uk

Issued by Aberdeen Asset Managers Limited, registered in Scotland (SC108419) at 10 Queen’s Terrace, Aberdeen, AB10 1XL, authorised and regulated in the UK by the Financial Conduct Authority. Please quote 2620.

The squeeze in higher education Spencer Jakab The Wall Street Journal

Rein in the housing cartel Liam Halligan The Spectator

Who wants a united Ireland?

Jeremy Warner The Daily Telegraph

It’s time to end the triple lock Rachel Cunliffe New Statesman

MONEYWEEK 2 July 2021

Best of the financial columnists American colleges and universities are “facing a reckoning”, says Spencer Jakab. In the last academic year, they recorded the “largest drop in cash inflows in decades” as a result of the drop in enrolment and a fall in boarding revenue from enrolled students who moved to online learning.

College Inc, while mostly not-for-profit, is a “huge enterprise” with $670bn in collective revenue and around three million employees. The sector was struggling pre-Covid-19, in part thanks to Donald Trump’s “less-friendly visa policies” for foreign students. It is now estimated that as much as $115bn of revenue may be lost over the next five years. Institutions that specialise in online learning, or universities that have adapted, such as Purdue Global and Arizona State University, have got a “boost” and pose an increasing threat, even at the high end. Minerva Institute at KGI, which teaches remotely and has its own admissions tests, is “far more competitive” than even Ivy League schools (it admits fewer than 1% of applicants), and cheaper. More concerning perhaps, Google has launched certificate programmes that it says it will treat as equivalent to a college degree. Hundreds of smaller universities may not survive.

Boris Johnson thinks that solving the housing shortage spells electoral success, but the shock defeat in Chesham and Amersham, after a Lib Dem campaign focused on planning, suggests that there is a great deal of anger among Tory voters over this issue, says Liam Halligan. Residents worry that infrastructure won’t accompany the new builds. The wider issue is one of “fundamental market failure”, the result of a “concentration of power in a handful... of giants” such as Taylor Wimpey and Persimmon, thousands of smaller firms having been “wiped out” by the financial crisis in 2008.

The giants “hoover up” planning permissions (now freely granted) and “sit on them”, leading to a supply shortage, “pent-up demand” and ever-rising prices. Profit margins of almost 30% are now routine. The cartel also refuse to allow surveys and sell “sub-standard” homes; leaseholders often become liable for costly repairs. This must stop. Planning permissions should come with a legal obligation to build within a time-frame, “planning uplift” should be shared with local authorities (permission can boost land value from £20,000 to £3m a hectare) and buyers should have more protections.

Around 90 Tory MPs say they are determined to act. It’s time they did.

Leo Varadkar, in a “blatantly cynical piece of electioneering” ahead of a “crucial” Dublin by-election, has talked about the possibility of a united Ireland, says Jeremy Warner. Stoking “ancient” resentments in the middle of “delicate” talks on the Northern Ireland Protocol could scarcely have been more ill-timed. Although the sentimental appeal of unification to citizens of the south is obvious enough, to loyalists, “unification is annexation”. Not only that, in the short to medium term, unification would financially “ruin” the Republic. “Of all the regions in the UK, Northern Ireland’s fiscal deficit is easily the biggest” at £5,440 per head last year.

Northern Ireland spends roughly £10bn a year more than it generates in tax revenues and is the highest spender, at £15,910 per head. Even in “normal times… it runs a fiscal deficit of roughly a third of its total budget, a huge gap which no independent country could ever sustain”. The politics of Northern Ireland have long been dominated by “insecurity and paranoia” – on the loyalist side by the knowledge that London would “gladly” be rid of them; on the nationalist side by the suspicion that “Dublin doesn’t want them either”. The sad truth is, “on both counts they are absolutely right”.

Rishi Sunak’s recent suggestion of suspending the “triple lock” on the UK state pension sparked “fury” from pensioners, columnists and his own colleagues, says Rachel Cunliffe. He did so in response to data showing that average earnings rose by 5.6% in April, meaning that the triple lock – which increases in line with average wage growth, inflation or 2.5%, whichever is highest – could cost an extra £4bn more next year. Yet that 5.6% rise represents a “bounce back” from a sharp Covid-19-induced fall in wages, not genuine wage growth. And pensioners already got a 2.5% increase in 2020, as those of working age were suffering financially. Protecting the elderly from volatility is one thing; profiting from worker pay cuts another, and one which surely warrants a “modest change” in the rules. True, maintaining the triple lock was a 2019 Conservative manifesto pledge. Yet pledges relating to the foreign-aid budget and student loans are apparently deemed “disposable”.

It’s no coincidence that 64% of the over-65s voted Tory at the last election.

During the pandemic, sacrifices have been made overwhelmingly “by the young in the form of lost earnings and reduced freedoms”. There is “nothing unjust about now asking the old to return the favour”.

Money talks “I find what I like most about money is the pride of making it.

It’s not about how much, it’s about the dignity that comes from being productive in society.

That’s my high.”

Actress Salma Hayek (pictured), quoted in The Sunday Times “I hope it wasn’t expensive.

I think my friends drank it.”

Lara Jones’s reply after her father Pete, a restaurateur expat in Spain, asked whether she had seen his £2,000 bottle of Chateau Petrus, quoted in The Mail on Sunday. He had kept it for almost 20 years “I’ve done the cars, I’ve done the houses, done the boats — it’s not so exciting anymore when you’ve done all this. If my son needs something for his flat, or my daughter needs a holiday, that gives me more pleasure now.”

Former tennis star Boris Becker on what he spends his money on these days, quoted in The Times “I went to several overpriced private schools and learnt only how to duck the system.”

Former Weakest Link presenter Anne Robinson, quoted in the Financial Times “Let me get this straight.

You’d be leaving a job that is well paid, that you’re good at, that is glamorous and flexible – for something badly paid with low status that you’d probably be rubbish at?”

A colleague’s reaction in 2017 when FT columnist Lucy Kellaway quit to become a teacher, quoted in The Times “He’s sold his soul and once you’ve done that it doesn’t matter how many baubles you’ve got. In the dark recesses of the night he must think, f*ck, I’ve got all this money but how did it come to this? How did I end up being Zuckerberg’s sh*t-shoveller?”

A university friend of Nick Clegg’s on his career at Facebook, quoted in The Sunday Times

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Best of the blogs

The three faces of bitcoin Economics tells us that money has three roles, says Edward Price: medium of exchange, store of value and unit of account. What this standard story leaves out is the inherent conflict between these roles.

“Money cannot serve three masters at once.”

Money can hold value only if its quantity is constrained – the more there is of something, the less it’s worth. But at the same time, expanding economies require ever more money for exchange. The role of cash as a “rainy-day fund” is therefore “directly at odds” with its role in commerce. It’s reasonable to worry about the oversupply of money causing the demise of fiat currency. But you should also worry about its undersupply.

This tension complicates money’s third role, as unit of account. Anyone using money to keep economic records

must distinguish between the nominal and real value of assets. But what is the value of money? Nominal or real? As we’ve seen, it’s both: money is “tugged in two directions”, it is “asset, currency and record, all bundled into one”.

This is true of all money and helps explain the debate over cryptocurrencies such as bitcoin. “Self-assured speculators and early adopters” like crypto because its value can rise. Others like crypto because it may keep its value if fiat currencies explode. But which is it: an asset or a currency? As we’ve seen, the question misses the point. “Money is always used as liquidity, savings and record-keeping. Crypto is no different. It’s just particularly rubbish at the first two and obsessive on the third.”

The irony is that, if cryptos are a hedge against fiat currencies, they will be

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It’s not crazy, but the centre cannot hold

“destroyed when the thesis is proven correct”: if some future level of fiat currency proves obviously too much, there will be a hike in policy rates and that will crimp demand for cryptos.

And if governments were really threatened by the crypto alternative, all they’d have to do is “blink and crypto will be legislated to death”.

Still, those who “entirely dismiss crypto are missing a trick”. The idea of a new money per se is “not crazy” – new currencies “pop up all the time”

Will Covid boost productivity? conversableeconomist.blogspot.com

The pandemic saw the widespread adoption of digital technologies, as people worked from home and ordered shopping online, says Timothy Taylor. It seems likely that this provided incentives for investments in physical capital, intangible capital (such as software) and in complementary human skills. Indeed, a new report from the G20 and the International Monetary Fund shows that new US patent applications for remote working and ecommerce technologies is on an upward path and that businesses have raised efforts to digitise and automate their operations. Will all this lead to a growth in productivity? It seems likely. But whether such improvements will show up in the statistics is uncertain. As the G20 study says, “mismeasurement of the digital economy had been an oft-cited contributor” to the productivity slump prior to Covid-19, and it’s not obvious that hard-to-measure improvements since the pandemic will show up in the numbers either: the convenience of home working, free online products and lower quality-adjusted prices that arise from the digital economy are not well captured in price statistics. At the same time, the pandemic has had other effects on productivity, not all of them for the better. School closures, for example, are likely to have adverse implications for productivity in the long run.

econlib.org

What should someone who hates their job do? That was the question put to me and a couple of socialists on a radio panel show, says Bryan Caplan.

“Literalist that I am, I tried to offer helpful, relevant advice”: keep your current job for now, but look for a better position.

Settle for the first tolerable job offer you get, and keep looking for better opportunities. moneyweek.com

Virtually any job yields valuable experience and career connections. In time, you’ll find what you’re looking for.

The socialists were not impressed. Such efforts would prove “hopeless”, they claimed – only left-wing activism and/ It’s better to get on your bike

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Self-help beats socialism

or unionisation offered any prospect for improvement.

This despite the fact that such methods are “notoriously ineffective (when they don’t lead to total disaster)”.

The socialist attitude makes sense. If what you want is political power, you don’t want people thinking that they’re able to fix their own problems. What use would they then have for you? Do socialists consciously follow such a plan? I don’t know, but the “frequency with which bleeding-heart socialists become bloodthirsty tyrants reassures me I’m not paranoid”.

– and they have their uses. But the truth is that all money is pulled in many directions at once and “the centre cannot hold” – eventually, they all fall apart. After all, measuring the economy with money is a “very strange task indeed. Are we recording churn or wealth?

An expansion or a bubble?

How do we reconcile these contradictions? Truth be told, markets and policymakers have very little, if any, idea. And, whether you’re a ‘hodler’ or sceptic, neither do you.”

Why businesses seem more woke

conservativehome.com Why is it that businesses seem to have gone “woke”, pulling advertising from mainstream news outlets for infringements against political correctness and trashing conservative attitudes online? After all, probably most of their customers have views aligned with those being maligned, says James Frayne.

The reason is not so much cultural revolution as that it is marketing teams that control firms’ reputations, not the board. The people in those roles are generally not very political, and mistake a storm in a teacup on social media with broader public opinion. Companies generally are more concerned with staying out of trouble than with politics per se. Marketing folk tend to misjudge situations, thinking that a woke statement or action will put them on the side of the quiet consensus. But when there is pushback, then the reversal can be swift, especially if this comes from mainstream sources or figures in power. This, then is what is needed: organised opposition to corporate wokedom from Tory MPs. They are “the only ones that can really, consistently make businesses think.”

2 July 2021 MoneyWeek

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MoneyWeek interview

It’s time to worry about inflation The Bank of England’s outgoing chief economist, Andy Haldane, tells Merryn Somerset Webb why rising prices may prove more durable than everyone expects – and what he thinks of bitcoin and UK stocks Andy Haldane is something of a Bank of England lifer. He’s retiring this week from his position as chief economist, but he’s been working at the central bank for more than 30 years. Next he will take up a position as chief executive of the Royal Society for Arts, Manufactures and Commerce (RSA). Some of you will, I know, immediately think of his pension: imagine being about to receive 30 years’ built-up defined-benefit pension payouts. What joy.

But there’s a lot more to Haldane than a happy semi-retirement. He’s not just been a Bank of England lifer. He’s also been something of a Bank of England maverick. He’s been hugely critical of the financial sector, outspoken on bankers’ pay, forward thinking (not always in a way MoneyWeek readers would approve of) on the death of cash and certainly not shy when it comes to his opinions on all matters economic.

Last year, when much of the rest of his profession had gone, as he put it, “Chicken Licken” on the economy, he was telling them to stop “catastrophising” and start looking forward to a stunner of a recovery. We agreed with him on this (Haldane and I have some history of disagreeing, so this has been interesting).

Now he’s telling them the recovery has been so stunning that they might want to worry a little about inflation: last week he was the only member of the Bank’s Monetary Policy Committee (MPC) to vote to tighten policy (oddly, we were with him on this too).

So when we meet (on Zoom, sigh), this mix of optimism and mild anxiety is the first thing I ask him about.

want to react to the fracturing of international supply chains during the pandemic by working to “build greater resilience into their domestic supply chains”.

Did EU migrants depress British wages?

The economy has made up the lost ground

How is the recovery going and how much do we worry about inflation? The economy is going “great guns”, he says. No wonder. The collapse was caused by the lockdown restrictions, so their removal would naturally produce an “atypically sharp bounce-back in activity and demand. And that is exactly what is happening.

If anything, [it] is running ahead of everyone’s expectations. We see it on the high street [and] in the pubs and restaurants. We even see it in the GDP data”.

Thanks to this “really very punchy recovery” we have made up “all of the GDP ground lost from last year” – and that’s before we have even finished reopening. Will it carry on? Is he perhaps worried about the supply side of all this? The demand recovery makes sense. Most people have had their lost incomes replaced, so when they are allowed to spend they do.

But the supply side is not so intact: there appear to be bottlenecks all over the place in the global supply chain.

Ever the optimist, Haldane thinks we should see this more as a “sign of success” than anything else. Sure there are some problems with, say, chip shortages and hospitality staff, but this is all about businesses and workers finding their feet. The problem is not so much the short-term shortages, but the “potentially adverse implications for price pressures” they might cause – and the worry that these may not be short-term.

This isn’t just about Covid-19 itself. The reaction to the pandemic has exacerbated some pre-existing trends. The first is globalisation. Even pre-Covid-19 we were seeing some “fraying, or in some cases retreat” in the ability of goods, services and people to move freely across borders. Brexit added to that and Covid-19 became an “additional amplifier”. Countries may now

MoneyWeek

2 July 2021

“In 1989 the best predictor of interestrate changes wasn’t economic data, but whether Mrs Thatcher had lost a by-election”

The other trend to keep an eye on here is “changing patterns of flows of people”, in particular a slowing in the number of EU migrants coming to work in the UK. Add these up and the years of cheap labour and cheap goods may be over – as is their disinflationary effect.

Will we see this in wages first, I ask? Pre-Brexit we were told (over and over again) that the millions of migrants did not affect wages on the downside (in other words, the rising supply of labour had no impact on the price of labour). But now, as fewer people come, we are told that this trend bolsters wages (the falling supply of labour does affect the price). So which is it?

Both, says Haldane. You can argue that migrant labour did not produce a “whopper impact on aggregate pay rates across the UK” for the simple reason that “migrant labour adds to both the demand and the supply side of the economy and is therefore a bit of a wash in terms of net excess demand”. But it is the case that in “certain sectors and in certain parts of the wage distribution, particularly the lower end... there were some signs of effects of migrant labour”.

I get the idea: it was the lower-paid who suffered from rising supply of labour. Good news then, perhaps, that it is also the lower-paid who are reaping the rewards of the lower labour supply: it is in hospitality and retail where wages are now rising the fastest. This could be transitory, says Haldane – perhaps as pay picks up and furlough ends, people will re-enter the workforce and we will be back to square one. But there is also a reasonable chance that we see a “mini-game of leapfrog between rates of inflation and rates of pay”.

If so we will see, as we did in the 1970s and 1980s, “persistence in price pressures” beyond the immediate opening up of “bottleneck effects”.

Persistence to how high a level? The Consumer Price Index (CPI) numbers for May suggest that annual inflation in the UK is running at 2.1%. Haldane would not be surprised to see “a big figure three during the course of this year”. That might reflect energy prices feeding through into petrol and the like (oil prices were extremely low last year). But it might also reflect the “start of a slightly more persistent trend upwards”.

Speak to any business and you will find them saying that all inputs are rising in price. “Not just petrol and diesel and gas, but bricks and concrete and cement and plasterboard and chips. And that’s before you get... to things such as houses and equities and bonds.”

Most of these price pressures have not yet popped up in consumer prices, so the “big question” is whether and when they will. Will businesses have to take the hit, or do they have the pricing pressure to pass them on to consumers? “Others of my central banking colleagues and brethren think those effects will be fleeting; I am of the view they could stick around for a bit longer... And therefore we could be looking at a breach of our 2% inflation target for a somewhat lengthier period than we are currently factoring [in].”

On Haldane’s “balance of probability” price pressures will build rather than abate into next year.

Interesting (and scary). But if he thinks that “there’s moneyweek.com

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MoneyWeek interview

Andy Haldane has been an outspoken maverick during his tenure of more than 30 years at the Bank of England

a risk and indeed a rising risk” that 3% won’t be the peak, what makes him so sure that this won’t turn into a 1970s wage-price spiral? “The Bank of England.”

When Haldane joined the Bank in 1989 “the best single predictor of interest-rate changes... wasn’t the path of GDP or inflation. It was whether Mrs Thatcher had lost a by-election. So it was all about the politics then”. Now the Bank is independent and works towards a “clear target” for inflation (2%).

An independent central bank is crucial

So while he worries that the target might be “persistently missed” over the next year as the rest of the MPC takes the view that the uptick in prices will be transitory, he has “huge amounts of faith” that it “will do the right thing” long before we get to anywhere near scary double-digit inflation. So should we worry about rising interest rates then? Right now the market is barely pricing in rate rises at all. But if Haldane is right on both inflation and the integrity of the inflation target, they will have to rise faster than most expect.

Haldane agrees. We are “a world away” from anything that anyone who experienced the 1970s and 1980s would consider tightening. “Incredibly low” rates globally will be with us for some time.

That said, anything sharper than expected is going to come as a surprise as “the majority of people with mortgages these days haven’t really experienced a rate rise”. And that could magnify their impact. What might that do to house prices I wonder? After all, it’s a matter of scale. A rise in rates from 0.1% to 1% might sound small , but it is still a tenfold rise in interest rates.

Haldane is not worried. First, thanks to the rise in popularity of fixed-rate mortgages (you’d be mad not to have one at the moment), people are “immunised” moneyweek.com

“We could see a game of leapfrog between rates of inflation and rates of pay”

from rising rates in a way they never have been in the past. Even those now rolling off old ones onto new ones will be seeing unchanged or even lower rates than five years ago, “such has been the compression in mortgage spreads over that period”. What’s more, he reckons there are “pretty potent... forces acting on housing demand”. Pandemic savings (the “savings lake”) are translating into deposits at the same time as “attitudes towards housing are changing in the light of working from home”. That has created a supply-demand imbalance, which is why house prices are rising so fast (13.4% annualised on Nationwide numbers) – and possibly why they won’t be affected by a small rise in interest rates.

Would he buy a house now, at these prices, I ask? He dodges that one neatly: “Can’t afford to Merryn, I’m moving to the charity sector”. Instead I wonder if he’d buy bitcoin. You can listen to our discussion on this on the podcast (moneyweek.com/andy-haldane), but I can summarise it for you in two words: probably not.

What about equities? This isn’t his area, but he notes there have been three uncertainties affecting markets over the last 18 months: Covid-19, the resilience of the financial system and Brexit. The uncertainties around the latter haven’t fully disappeared but they have dissipated. Virus uncertainty is (finally) going the same way. And the resilience of the financial system is no longer really in doubt either: “through the Covid-19 crisis, our financial system has stood tall”. That all implies that risk premiums should be falling: “I think you can make a… good case on fundamental grounds for the valuations... across UK markets”. In this there is, as regular readers will know, something else MoneyWeek and Haldane can agree on.

Strange times.

2 July 2021

MoneyWeek

24

An Analysis

profitt from fro How to profi emerging marke markets

Investing in developing countries isn’t as straightfor straightforward as fund managers like to tell us, says Jonathan Compton Com There has always been something intellectually topsyturvy about investing in emerging markets. The theory is straightforward: if you invest in developing countries with young and rapidly growing populations, cheap labour, improving infrastructure and a reasonably clean government, then stockmarket returns should be greater than those from more mature, slower-growing economies. This was the yarn I both spun and believed during three decades of involvement in emerging markets in fund management, broking and corporate finance.

Quite often, however, you were not buying into the local growth story, but into companies selling to multinationals in advanced countries, taking advantage of cheap local labour, a lack of employment rules and low taxes. A good example is the iPhone. Less than 10% of the components are actually designed and made in America. Most of the manufacturing occurs offshore, mainly in Asia. The same applies to semiconductor components, vital for a broad range of appliances from cars to washing machines. The value accrues less to the emerging economy and more to the multinational. Hence Apple’s gross profit margin has been between 30% and 40% for the last 15 years, while the margins for the local suppliers of components are a fraction of Apple’s. Companies will always try to find the lowest-cost suppliers to remain competitive.

It’s been going on ever since East Anglia enjoyed an industrial revolution 3,500 years ago, exporting flints for spear and axe-manufacturing in Europe.

Another problem for developing economies was that foreign companies would often crowd out local businesses due to their ability to raise capital and swallow start-up costs. That is why Africa has only a rudimentary car-manufacturing sector producing a mere handful of designs, while key components such as the engine are imported or made under licence. Until recently Asia (ex-Japan) had failed to create significant players in services such as advertising or to develop global drinks brands. In broadcasting and publishing, too, there have been few winners.

countries. The ggross p profit margin g in the four years to 2020 was a chunky 50%. The suppliers will have been negotiated down as much as possible; moreover, with so many sources H&M can change suppliers in the blink of an eye. Given Sweden has only 11 million people, it’s a remarkable story of a company turning its comparative disadvantage into success. But its shareholders have been the winners, not emergingmarkets investors.

In natural resources too, a disproportionate number of the winners have been foreign companies rather than local ones. Indonesia groans with copper and gold, but its largest mine is owned and operated by FreeportMcMoRan, based in Arizona. The largest global copper deposits are in Chile. Anglo-Australian BHP Billiton owns Chile’s – and the world’s – biggest copper mine, the Escondida project, in a joint venture with UKbased Rio Tinto and a Japanese consortium.

The result has been that until recently, most emergingmarket indices were dominated by local banks, property companies and utilities, where government tended to impose controls against foreign competition.

Because local banking regulation and oversight were typically weak and capital flows erratic, emerging markets became as well known for their booms and busts as for their growth stories.

Even in sectors where emerging markets have the edge, such as commodities or clothing manufacture (the starting point for the success stories of Singapore and Hong Kong), often the value-added is lost to the overseas operator or buyer. Swedish-based Hennes & Mauritz, for instance – better known as H&M – is a global success in selling clothes (and if you had invested 30 years ago you would have made 200 times your original investment). It owns no factories, but designs and then sources clothes from over 800 local production sites worldwide, many in developing

MONEYWEEK

2 July 2021

“Indonesia groans with copper and gold, but its biggest mine is owned by Arizonabased FreeportMcMoRan”

An inferior index

The leading benchmark for developing economies is the MSCI Emerging Markets index, which reflects the performance of large and mid-cap companies in 27 nations. These markets are defined as “economies or countries where some sectors are rapidly expanding and engaging aggressively with global markets”.

Sounds pretty woolly? It is. The index is dominated by three countries: China (comprising almost 40%), then Taiwan and South Korea (27% combined). Some countries, such as Singapore and Hong Kong, are absent because they have achieved developed-market status, and the index does not cover “frontier markets” (the poorest economies), which have their own index.

China as an emerging market is an anomaly as it is the

©Nestlé

Where the value goes

moneyweek.com

Almost half of Nestlé’s sales stem from developing countries

world’s second-largest economy. y Its dominance of the benchmark has resulted in many funds using indices with a lower China weighting, g g but as a result Taiwan and South Korea become even larger. Either way the index still makes little sense given that Taiwan has income-per-head substantially larger than the UK and South Korea about the same as the EU average.

The definition of emerging markets, then, is now out-of-date and the term has become a pretext for marketing “exciting” products and earning high fees.

Emerging-market funds tend to charge 50% more than others. As an investment category it’s not going away anytime soon, but the examples of companies making hay in these countries points to an often more successful and cheaper way to invest.

Where investors should look

Look at where a company makes its money, not where it is listed. Many firms listed in emerging markets make their profits selling overseas, so they are tied into the slow growth in mature economies – the opposite of what investors think they are buying. For the prime reason to invest in developing countries is to capture their high domestic economic growth. Therefore it is far more rational to invest in companies (wherever they are domiciled) that derive much of their sales and profits from emerging markets.

There are many in the UK and other major markets, which have the added benefit of better corporate governance and less corruption. Moreover, returns are often better. Some of the best emergingmarket companies are actually “at home”. There are some interesting growth stories at the smaller end of the UK market. I have owned Nichols (Aim: NICL) for 20 years even though its main product, nonalcoholic Vimto, is an acquired taste. If you’re in the Middle East, it is the drink of choice. If you want to play moneyweek.com

Analysis nalysis

25

“Unilever nilever sellss more to developing countries untries than n to the US and UK combined” ombined”

Emerging Europe’s thirst for knock-out alcohol, then Stock Spirits Group (LSE: STCK) is the share for you.

In soft drinks, consider Coca-Cola Hellenic Bottling Company (LSE: CCH).

If you are taking a shower in Nigeria then you’ll probably be washing with a product from PZ Cussons (LSE: PZC), whose brands include Imperial Leather.

Until recently Nigeria accounted for over half of Cussons’ revenue and profits. Also in Africa, mobile telephony is a fast-growing business. Airtel Africa (LSE: AAF) provides mobile services in 14 countries; Helios Towers (LSE: HTWS), as the name implies, creates the infrastructure for mobile signals. There are also MP Evans (Aim: MPE), a successful palm-oil producer in Indonesia and Ocean Wilsons Holdings (LSE: OCN), a tug and maritime operator in Brazil.

In natural resources London remains a leader and the sector is on a roll. Demand for copper is increasing with the switch to electric vehicles. One of the best and purest copper miners is Antofagasta (LSE: ANTO), which runs four mines in Chile. For silver look no further than Fresnillo (LSE: FRES), which operates seven mines in Mexico, also producing gold, lead and zinc. Other large miners in developing countries include Anglo American (LSE: AAL), Rio-Tinto (LSE: RIO) and BHP Billiton (LSE: BHP).

Burberry (LSE: BRBY) has come to represent affordable luxury and its future depends entirely on Asia-Pacific and emerging markets, where it has three quarters of its stores and franchises. Many of the largest companies also depend on the growth of their sales in emerging markets. BAT (LSE: BAT) may make semilethal products – cigarettes – but a large percentage of its 600 billion cigarettes per year are smoked in these countries. AstraZeneca (LSE: AZN) was making 35% of its sales to developing nations even before the pandemic. Unilever (LSE: ULVR) sells more to them than to the UK and US combined.

In other advanced countries too some of the largest companies increasingly profit from the less-wealthy nations – half of all Gucci’s sales (the brand is part of Kering, Paris: KER) are made in these countries and it will shortly be the same for Nestlé (Zurich: NESN).

I have a love affair with the US-listed farm machinery maker AGCO Corporation (NYSE: AGCO). Most of its sales are made outside America, with a significant market share and production facilities in Latin America, eastern Europe and China. Eastern Europe and Asia account for more than 50% of profits at Denmark’s Carlsberg (Copenhagen: CARLB).

The funds to buy now

Much of the time the best way to play emerging markets’ undoubted growth and potential is through such large-cap and smaller companies, which have successfully navigated the barriers, corruption and local cultures, rather than through emerging-market funds.

For the last decade this has certainly been the case: the returns from emerging markets have been miserable and not commensurate with the higher risks. The MSCI Emerging Markets index ex-China has produced an annualised return of just 3.2% over the last decade; including China, 4.1%. Meanwhile, the developed world ACWI index has returned 9.6%.

I think companies in mature economies who recognise that their future relies on expanding into these countries will continue to benefit. So I will keep buying household names with such exposure as well as some of the smaller companies I have mentioned. But if you prefer funds, then two investment trusts stand out on their five and ten-year records respectively: Fundsmith Emerging Equities (LSE: FEET) and JP Morgan Emerging Markets (LSE: JMG). Both are on attractive 7.5% discounts to their net asset value.

2 July 2021

MONEYWEEK

Personal finance

26

An unwelcome return

Talk may soon not be so cheap

EE will be the first network to bring back roaming fees in Europe Europe after January 2022. The fee will be £2 per day or £10 for a 30-day pass.

The other networks have yet to make such drastic changes, but they are starting hen the Brexit transition period to put limits on heavy users. Networks have always been allowed to apply fair-use ended in January, all the UK’s major caps – eg, to stop customers who lived in mobile-phone networks – EE, O2, Three and Vodafone – promised us that they countries with more expensive networks wouldn’t be reintroducing fees for using our from signing up to the cheapest plan they could find in any EU country and using it phones in Europe. Roaming charges had been banned within the European Union at home all the time. Three currently has since 2017, but the UK’s decision to leave a 20GB monthly cap for using your data the single market meant these restrictions allowance in Europe, with a charge of £3 would no longer apply – both for UK users per gigabyte above the limit. From 1 July, roaming in the EU and vice versa. However, this will be cut to 12GB. O2 is introducing a the Brexit trade deal that the UK and EU monthly limit of 25GB from 2 August (with an excess charge of £3.50 per gigabyte), agreed in December 2020 included a clause it into line for “transparent and “Roaming fees are banned bringing reasonable rates for with Vodafone, which already had international mobile in the EU, but that no roaming services”, roaming limit of longer applies to UK users” a25GB which held out the (and an excess possibility that regulatory and competitive charge of £3.13 per gigabyte). pressures would prevent a return to the bad old days of huge phone bills for The start of a trend holidaymakers and business travellers.

Not many customers will be affected by these data caps for now – the average mobile EE breaks ranks customer used 3.6GB of data per month in Less than six months later, that looks 2019, according to regulator Ofcom – and unlikely. Last week, EE announced that EE’s fees are still low compared with what new customers – and existing customers we used to pay. The question is whether this is just the start of a trend towards switching to a new contract – who sign up higher charges or tougher limits. Using your after 7 July will have to pay a roaming fee mobile abroad costs the networks money: to use their allowances when travelling in Cris Sholto Heaton Investment columnist

PAPER

©iStockphotos

W

they need to pay the networks you use in the country you visit. Since regulations are no longer forcing them to offer roaming for free, it seems likely that costs will creep up towards whatever the market will bear.

For now, users who plan to switch to EE or change an existing contract should consider doing so before 7 July, so that they will be on a free-roaming deal for as long as it lasts. Customers of the other networks have no immediate need to act unless they are in the small group affected by the data caps – even if their provider follows EE’s lead and brings in charges, it should not affect existing deals. However, in the medium term it may once again be necessary to consider roaming charges when choosing a provider, or be ready to use a local sim card in a spare phone or a dual-sim phone when travelling in the EU.

POWER

60% of the energy used to produce paper and paper packaging in Europe comes from renewable sources.

Discover the story of paper www.lovepaper.org

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Source: Confederation of European Paper Industries (CEPI), 2018 CEPI represents 92% of European pulp and paper production Love Paper is a registered trademark for Two Sides Ltd. Registered in the UK, U.S. and other countries and used with permission.

MONEYWEEK

2 July 2021

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Pensions

27

Putting off your state pension Deferring your entitlement when you turn 66 still makes sense in some circumstances

deferring your pension is still worth considering. The case for doing so will be even stronger if you will have moved down a tax rate by the time you start claiming.

If you are still working, say, you may be paying higher-rate tax on your income at 40%, so this is what you would lose on your state pension too.

If you defer taking your pension until you have become a basic-rate taxpayer, you will halve the tax deduction on it – and thus shorten your breakeven period from deferral.

David Prosser Business columnist

N

Some expats will benefit ©iStockphotos

ot everyone turning 66 and becoming eligible to draw their state pension needs the money straightaway.

In which case, does it make sense to defer taking the cash in return for a more generous pension when you do start taking it? The answer for increasing numbers of people appears to be no: state-pension deferral rates have fallen to an all-time low.

In 2021/2022 the state pension, assuming you qualify for the full amount, is worth around £9,340 a year. However, if you are about to become eligible for this money, you are not obliged to claim it. For each year that you defer taking the money, you will receive 5.8% more income when you do start drawing it. So, for example, put off claiming this year’s £179.60 weekly state pension for 12 months and you would be entitled to claim £190.02 in 12 months’ time.

If you have other pension income to live off, that might be an attractive option. You are effectively treating your state pension as a savings account, and 5.8% a year is far more than you could earn right now by taking the money and depositing it in a bank or building-society account.

Despite this logic, data from the Department for Work and Pensions (DWP) suggests that

Should you defer – or take your state pension right away?

just 7.7% of all state pensioners are currently receiving a higher income because they deferred drawing it – down from 11% in 2004.

A less generous system

One explanation for the fall may simply be a lack of awareness. The DWP does not make much effort to publicise your right to defer.

But a big part of the story is that the system has become less generous. Anyone reaching state-pension age before April 2016 was entitled to a 10.4% uplift in their entitlement for each year of deferral.

The effect of the change has been to extend substantially the breakeven point for those who defer – the time it takes to

earn back, through your higher income, the pension you missed out on when deferring.

Under the old system, someone deferring for a year would break even approximately nine years after taking their money. Under the new system, it takes 17 years to reach the same point.

That changes the decisionmaking process considerably.

Official statistics suggest that a 66-year-old man today can expect to live, on average, until the age of 83; a 66-year-old woman can expect to reach 86.

Substantial numbers of people will therefore not be around long enough to benefit from deferring their pension.

So where does that leave you?

Well, if you are in good health,

Another group that should consider deferral is expatriate pensioners living in countries where UK state-pension benefits are not increased each year in line with what pensioners in the UK receive.

If you spend your retirement in certain countries – Australia, Canada and New Zealand, for example – your UK pension benefits will be fixed at the time you start drawing them.

So, if you can afford to do so, it may make sense to maximise this rate.

By contrast, anyone with reason to think they may not reach average life expectancy should almost certainly take their state pension as soon as they can. If you do not need the income, you can save or invest it, so that the cash is available to your heirs. State-pension benefits, on the other hand, cannot usually be passed on.

pensio Who will inherit your work pension?

©iStockphotos

● Thousands of doctors are continuing to

opt out of the NHS Pension Scheme, despite government reforms intended to ameliorate the tax problems that had previously hit high earners in the profession.

More than 50,000 doctors left the scheme in the 2019/2020 financial year, new data reveals, adding to concerns that the profession still regards pension tax as a serious problem. That may threaten the NHS’s ability to recruit and retain doctors.

The issue for many doctors is that their earnings and the generosity of the NHS scheme have seen them subjected to a reduced annual allowance for pension contributions – above this cap, large tax penalties are payable. While the government increased the “adjusted

moneyweek.com

income” and “threshol “threshold income” caps by £90,000 this ye year, many doctors are still grappli h the h grappling with impact of the original rules ru and therefore choosing to o opt out.

● Have you checked yo your

pension-scheme rules tto make sure your savings and benefits would pass to your chosen heirs in the event of your death?

There have been complaints from families affected by pension-scheme law.

Trustees of some occupational pension schemes have a legal right to determine who

efits pass to, even your benefits pressly specify that if you expressly someone else should receive them.

● The government has given

on schemes until pension 1 October 2021 to comply with its Task Force on Climate-related Financial Disclosures (TCFD) regulation. Most schemes will have to report the greenhouse-gas emissions generated by companies in their investment portfolios, s well as how their as vestments would investments rform under a range of perform mperature increases. temperature

2 July 2021

MONEYWEEK

Personal view

28

The future belongs to emerging markets A professional investor tells us where he’d put his money. This week: Carlos von Hardenberg, founding partner, Mobius Capital Partners

Argo Blockchain (LSE:ARB) Share price in pence

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Argo Blockchain’s (LSE: ARB) share price reached an all-time high of 284p in February, but by May it had dipped back to 100p, says Liam Roche on UK Investor Magazine. The UK-based bitcoin miner has had a volatile 2021 due to the “tumultuous period” bitcoin has experienced. Nevertheless, the outlook is encouraging. Many investors “see bitcoin as playing a pivotal role in the future of finance”. Argo “delivered strong revenue” of £5.5m for May and it now holds more than 1,000 bitcoins.

It has also signed the Crypto Climate Accord. The shares have soared by 2,993% in the last 12 months.

Be glad you didn’t buy…

Manolete Partners (Aim: MANO) Share price in pence

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Manolete Partners (Aim: MANO) specialises in insolvency litigation financing. Shares in the company have halved over the past year as the UK’s strong economic recovery and the government’s support for struggling businesses have reduced demand for its services, says Royston Wild on Motley Fool. Pre- tax profits slumped by 26% to £7m in the year to March 2021.

The company expects cases to rise as the government’s emergency suppression of insolvencies comes to an end in September, but the share price remains depressed. It is down by 54% in the past year.

©The Telegraph 2020

For decades Mark Mobius and I have largest mobile-payment application on the managed various emerging and frontiercontinent. It has just launched a “supermarkets funds, including Templeton app” to enhance customers’ experience.

Emerging Markets Investment Trust, the In Asia in particular we are witnessing an largest London-listed emerging-market economic “miracle” comparable to the posttrust. Just over three years ago we founded war developments in Europe: a unique and Mobius Capital Partners, aiming to offer versatile ecosystem increasingly dominating a truly different investment approach to the world in innovative technologies. In capture the most exciting opportunities in sectors such as factory automation, sensor emerging and frontier markets. technology, autonomous driving, consumer We decided on four key principles. electronics, the internet of things (IOT), We focus on one concentrated strategy only artificial intelligence and alternative energy, and limit the portfolio’s size; we invest in Asia is taking a global lead. the highest-quality emerging businesses, with deep moats (sustainable competitive A healthcare supercycle advantages that fend off rivals); we use We are convinced that spending on services, non-traditional sources to underpin our especially healthcare and education, could conviction in our choices; and we act turn into the supercycle of the next decade. as partners and real investors through Take Metropolis Healthcare (Mumbai: constructive engagement with our METROHL). It is a leading provider of portfolio companies. medical and laboratory services in India.

We believe that active investing can Metropolis offers pathology testing, deliver outsized returns, particularly in imaging and nuclear medicine, clinical the rather inefficient small- and mid-cap trials, and home-care services. It started sectors in emerging and frontier markets. as a single laboratory and today operates Our formula has already delivered strong over 124 clinical laboratories with 2,400 results, making the collection centres Mobius Investment across seven countries.

“Asia is seeing an Trust one of the bestAnother example is economic miracle comp- EC Healthcare performing strategies in its segment. arable to post-war Europe” (Hong Kong: 2138), The opportunities which operates in emerging and frontier markets are Hong Kong’s largest non-hospital medical changing rapidly. There is a new wave of network with over 60 centres in greater innovation with new business models. With China. These are examples of the type of over 80% of the world’s population living in mid-cap company our strategy focuses emerging markets and household incomes on. They are often run by the founding gradually rising, the needs of the future are entrepreneurs; they have a very dynamic very different from the needs of the past. culture and attract great talent; and they are highly innovative with sound balance sheets, excellent management teams Africa’s top payment-app and strong local brands. They are often One exciting example is Safaricom (Nairobi: SCOM) in East Africa, which has overlooked by the market, but thorough research by our experts helps us identify migrated from providing more traditional these leaders of tomorrow. communication services to offering the

If only you’d invested in…

MONEYWEEK

2 July 2021

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Profile

29

Tech maverick who lost a $100m fortune

John McAfee made his name pioneering software to protect against computer viruses. He lost nearly everything in the financial crash and lived a life on the run, killing himself to thwart the US authorities. Jane Lewis reports Salem, Virginia. McAfee Sr, an alcoholic, regularly beat up his wife and son – eventually shooting himself when McAfee was 15. “Every day I wake with him,” McAfee told Wired.

“Every relationship I have, he’s by my side…the negotiator of that mistrust.” After studying maths at Roanoke College, Salem, he took a series of jobs in the nascent tech industry.

When John McAfee attempted to run for the White House in 2016, he invoked a mantra from Apple co-founder Steve Jobs in his campaign video. “Here’s to the crazy ones, the misfits, the rebels, the troublemakers, the round pegs in the square holes.”

McAfee, who committed suicide in a Spanish prison last week aged 75, “fitted each of these descriptions – and more”, says the Financial Times. The pioneer of antivirus software “built and lost a fortune”, later recasting himself as “a libertarian politician” and “a cryptocurrency hype man”.

In 2017, he predicted that the price of bitcoin would reach $500,000 within three years.

Crystallising fear

©Robert King/Polaris/eyevine

The turning point in McAfee’s life came in 1986 when he was working as a computer programmer for Lockheed, says The Times. It took the form of the world’s first known “He once shocked a reporter by appearing PC virus, Brain. Gripped by the threat, he formed McAfee to play Russian roulette in an interview – Associates from his home, “Paranoid, even bonkers” aiming to detect and eliminate Still, it was McAfee’s repeated violence was always a lurking shadow” malicious software. The brushes with the law in exotic observed the prime minister of Belize. In resulting product was the world’s first locations that latterly came to define him, “all-in-one” virus scanner. McAfee made says The Independent. In between relatively August last year, McAfee told his socialmedia following that he had been detained a fortune “from spreading fear”, says The calm domestic periods in the US – where in Norway mid-pandemic “for refusing to he formed a yoga retreat, and indulged in Times, crystalising it when McAfee listed replace a lace thong with a more effective aerotrekking (flying unlicensed microlights on Nasdaq in 1992. Two years later, he sold mask”, says The Times. In October, he was out completely. By 2008, he was reported at low altitude) – he spent years as an arrested at Barcelona airport at the behest to be worth around $100m, but lost nearly international fugitive, embracing a life of of the US; in time-honoured tradition, they everything during the financial crisis. “drugs, guns and sex”. In 2012, McAfee got him for tax evasion. He killed himself Drawn by his deep distrust of the state was sought for questioning in connection last week just hours after Spanish courts into the world of cryptocurrencies, he with the murder of his neighbour in Belize made a second fortune touting initial coin (a crime he always denied). In 2019, officials approved his extradition.

McAfee once shocked a Wired magazine offerings – prompting a fraud investigation in the Dominican Republic linked him with reporter by appearing to play Russian this year. He spent his final months a yacht carrying “high-calibre weapons, roulette during an interview. Violence, conducting a “Free McAfee” campaign ammunition and military-style gear”. as he remarked, was always a lurking With McAfee, it was always hard to from his cell. But he was determined he shadow. Born in 1945 on a US army base wouldn’t end his days in a US jail. By taking tell fact from fantasy. “I don’t want to be at Cinderford, Gloucestershire, he was his own life McAfee, as ever, had the final rude to the gentleman, but I believe he a GI baby whose parents later moved to word. He died unconvicted of anything. is extremely paranoid, even bonkers,”

Great frauds in history... the Madoff of the Midwest

Russell Wasendorf Sr., the “Madoff of the Midwest”, was born in Iowa in 1948, and went on to study filmmaking at the University of North Iowa. After shooting a short publicity film for the American Soybean Association, he moved into commodities trading, and started a trading firm, Wasendorf & Son, from his basement. The business took off when he suggested clients sell up shortly before the October 1987 stockmarket crash. By 1990 he had moved to Chicago and renamed his brokerage Peregrine Financial Group (PFG); he turned it into a futures commodity merchant two years later.

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What was the scam?

A falling out with a major investor led to a struggle to meet capital requirements, which attracted attention from regulators. Wasendorf decided to temporarily divert $200,000 worth of segregated customer funds to get the regulators off his back, using counterfeit bank documents to hide the evidence. Initially, this ensured the firm’s survival. But having broken the law once, Wasendorf began regularly stealing from clients in order to invest it in various personal ventures, including commercial real estate in Romania, and spending it on publicity and celebrity events.

What happened next?

Wasendorf’s wild spending, the failure of his ventures and a downturn in business led to a widening of the gap between reported and actual client funds, especially following the collapse of Lehman Brothers in 2008. Despite these problems, Wasendorf spent $24m on a new headquarters for his firm, which he opened in September 2009, and bought a private jet and Italian restaurant. His involvement in an unrelated scandal in 2012 caused regulators to demand direct access to PFG’s accounts.

Realising his game was up, Wasendorf tried to commit suicide, confessing his crimes in

a note. After being saved by an employee, Wasendorf was tried and convicted of fraud.

Lessons for investors Regulators estimate that there was a $200m discrepancy between reported client funds and the actual amounts. Despite the seizure and sale of Wasendorf’s assets, PFG’s 12,000 clients only ended up getting around 30% of their money back. Regulators ignored several tip-offs that PFG was using dubious accounting methods, some of which came as early as 2004, though the fact that a company its size was using a one-person audit firm should have raised suspicions.

2 July 2021

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wines each month forr our club. Every wine is a summer classic and every wine is epic value and with two white Germa ans, and no Rieslings, and four French wines, and no clarets, these wines have an air of unpredictability, have unp predictability, too!

Matthew Jukes

Exclusive discounts and FREE UK mainland delivery

All wines come personally recommended

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Prices shown below are per case of 12 bottles. Wines are also available in a 12 bottle mixed case (2 of each of the wines) excellently-priced at £184.00 (saving £12.30 per case). It’s a chance for you to try them all, and it is the most popular choice with readers of MoneyWeek.

£18.50

2019 Klumpp, Auxerrois, Baden, Germany

The Auxerrois grape, a rare variety in Germany with only 180 hectares planted, sits midway between Pinot Blanc and Chardonnay in pretty much all departments and this means that it can be a very attractive proposition in the right hands.

The Klumpp family makes topflight wines and this energetic white is no exception. Polished and smooth on the palate and crisp and spritzy on the finish this is an elite aperitif style for those of you who want to broaden your vinous horizons.

CASE PRICE: £210

£17.50

£12.25

2020 Garriguette Rosé, Domaine Girard, Pays d’Oc, France

You could not come up with a more different style of rosé wine than the Argiles if you tried.

While they both hail from the South of France, Garriguette is made from Cabernet Franc and it is delicate, highly perfumed and scintillatingly sexy. This is a more delicate, enchanting style of wine, that leans towards seafood, crustacea and summery tarts, by comparison to the barbecue fiend Argiles. Don’t pick one over the other, grab both – you will find that they fulfil their distinctly differing vinous roles perfectly.

CASE PRICE: £135

£11.25

£19.75

2018 Aus Rhodt, Chardonnay, Stefan Meyer, Pfalz, Germany

£18.75 This wine is a huge discovery

£9.95

£8.95

2020 Argiles Rosé, Domaine Saint Gayan, IGP Méditeranée, France

for me, as I have not tasted Meyer’s wines before and German Chardonnay is hardly commonplace. I have to admit to being completely gobsmacked by the swagger and class in this glass. I would not hesitate to guess that this was a lusty, well-established white Burgundy if I were poured this wine blind but, no, it is a thrilling, keenly priced, pioneering German Chardy! Wow – this is a massive treat and a wine you will not forget in a hurry.

CASE PRICE: £225

Saint Gayan is a legendary Gigondas producer. Who’d have dreamt that this pagan wine hero would turn its hand to a cheeky, bright as a button, summery rosé? There are no prizes for finding out that this is a beautiful wine and it is also a screaming bargain! It just goes to show that if you are an expert at handling Grenache, Mourvèdre and Cinsault, it doesn’t matter what colour the resulting wine is! This is one of the finest budget rosés of the year.

CASE PRICE: £107.40

2018 Beaujolais-Villages, £12.75 Vieilles Vignes, Arnaud Aucoeur, £11.75 France

2017 Côtes de Nuits-Villages, Croix-Violette, Frédéric £24.95 £23.95 Magnien, Burgundy, France

Aucoeur’s old vine Beaujolais is drop-dead delicious and you can drink it lightly chilled or indeed room temperature and you will find it has two completely different personalities. Epic with spicy dishes and rich marinades when cool, and able to step up to a roast chicken when decanted, this is a ridiculously easy wine to drink, so do make sure you have enough stock because it will disappear fast when your friends come calling!

CASE PRICE: £141

This is an astounding wine, made by one of the great Burgundy personalities and crafted from fruit grown just north of the village of GevreyChambertin, on limestone-clay soil. Finding great value Pinot Noir from the most famous wine region on earth is fast becoming a fruitless task, but Yapp has done it with Croix-Violette. With a heavenly perfume, a silky-smooth palate and a wild cherry-soaked finish, this is a tremendous find.

CASE PRICE: £287.40

PLACE YOUR ORDER NOW

www.moneyweekwineclub.com/july Or call Yapp on 01747 860 423 and quote “MoneyWeek”

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Terms & Conditions: Offer ends 5 August 2021. Free delivery is to UK mainland addresses only. Payment can be made by credit or debit card over the phone or online.

Prices quoted are all inclusive of duty and VAT. Subject to availability.

Travel

31

Go on a surfing safari in Britain

©The Headland; Adventure Parc Snowdonia

These isles are home to some of the world’s great spots for catching a wave. Chris Carter reports

The Headland: a luxury Victorian clifftop hotel near Newquay

T

surigasaki Beach in Japan will host the inaugural surfing event at the Olympics next month, more than a century after legendary surfer Duke Kahanamoku first asked the Olympic Committee to include the sport, says The Daily Telegraph. Located around 40 miles east of Tokyo, in the town of Ichinomiya, Chiba Prefecture, the scenic beach is a training ground for Japan’s professional surfers, known for its consistency in surf conditions. But surfing fans don’t have to head to Asia to hit the waves. Britain, too, is home to some great surf spots.

on some reefs and then sort of mutate and gurgle into these evil beasts.”

The Headland, a luxury Victorian clifftop hotel, costs from around £325 a night in September, see headlandhotel.co.uk.

The surf capital of Wales

Surf Snowdonia is a lake nestled in the Welsh hills where man-

Sleep in a wave

Cliff Bay and Mangersta Bay, on the Isle of Lewis in the

“After surfing, enjoy on-site glamping and a bar overlooking the lagoon”

Strictly for professionals

One of the most famous is at The Cribbar, says Jonathan Morris for BBC News. Top surfers come from miles around to ride the 40ft waves near Fistral Beach in Newquay, Cornwall, which are created by the water moving over a scattering of reefs off Towan Head. Only the right combination of wind and swell brings them to life a few times a year. So strong are the currents that surfers have to paddle constantly lest they find themselves in a dangerous zone where waves are breaking off the rocks. “The Cribbar is definitely not for the inexperienced,” bodyboarder Rob Barber tells Morris. “There are a few different reefs there, so the waves can sort of stand up moneyweek.com

with its low-key atmosphere on the Gower Peninsula, is the “surf capital of Wales”.

The waves here are “eminently rideable”, peaking all along the three-mile beach.

“Be sure to stick around to watch the sunset blazing across the iconic Worm’s Head.”

For lodges at Hillend campsite, see hillendcamping. com; for lessons, see surfschool. wsf.wales.

made 3ft-high waves roll in every 90 seconds, says Rachel Mills in The Daily Telegraph.

Learners can choose a zone according to ability, with the biggest waves closest to the central pier, or simply book a lesson to hone their skills. The fun continues on land with on-site glamping and a cosy bar overlooking the lagoon (adventureparcsnowdonia. com). Alternatively, on the south coast, Rhossili Bay,

Outer Hebrides, offer excellent breaks for experienced surfers, says Jade Bremner in The Independent. Just watch out for rip currents. Nearby, at “the wild and pristine Uig Bay”, the “white sand is offset by deep green hills and piercing blue water”. “Fall asleep to the sound of the surf inside a cosy Carnish Cabin, designed in the shape of a wave.” Keep an eye out for sea otters, dolphins and harmless basking sharks in the waters, and for wild deer roaming the coastline. Cabins for two cost from £595 for seven nights, carnishcabins.co.uk.

Glamping in Bristol

“While I don’t recall the Beach Boys ever singing about the north-west suburbs of Bristol… here we are… watching swarms of wetsuit-clad men and women carve their way along a seemingly endless succession of perfect turquoise waves,” says Guy Adams in the Daily Mail. “The Wave is a giant pool shaped like a pizza slice, where a reverberating machine can churn out a thousand... rideable waves every single hour.”

There’s now even a “posh” glamping facility, called The Camp, which is close enough to the lake “to hear the neverending whoops and hollers”.

Tents for up to eight from £105 a night, thewave.com.

Surfing for warriors

Storms cartwheeling across Scotland in the autumn and winter months send swells southwards to Cayton Bay in Yorkshire, creating waves as good as any of the “celebrated waves of Cornwall”, says James Stewart in The Sunday Times. “It’s as sketchy as it sounds [and] best left to a band of jovial local warriors who laugh in the face of freezing seas and limb-threatening shallows.” However, the horseshoe bay is beautiful, boasting a “soul-uplifting beach”. There are also a couple of safer places to surf and the “nice folk” at Scarborough Surf School provide lessons. See scarboroughsurfschool.co.uk.

2 July 2021

MoneyWeek

32

Property

This week: properties for around £400,000 – from a cottage in a gated mews on the banks of the River Avon in Sa

St-Fraigne, Charente, France. A former watermill at the end of a quiet lane close to the River Osme. It has beamed ceilings, an open fireplace, a country kitchen with an Aga, and comes with a private guest house in the grounds. 5 beds, 7 baths, receps, garage, outbuildings, swimming pool. £358,000 Hamptons International 020-7265 6571.

Green Lane, Hinton Charterhouse, Bath, Somerset. A Grade II-listed cottage dating from 1700 in a quiet area of a popular village. It has beamed ceilings, an inglenook fireplace with a wood-burning stove and a newly fitted kitchen and conservatory.

2 beds, 2 baths, recep, cottage garden. £425,000 Fine & Country 01225-320032.

Niel Gow Cottage, Dunkeld, Perthshire, Scotland.

This B-listed traditional stone and slate cottage was originally two cottages and dates from the 1700s. It has a blue plaque on the exterior commemorating the fiddler Niel Gow, who lived here from 1727 to 1807. It has a large living room with an open fireplace and a country kitchen with an Aga. 3 beds, 2 baths, 2 receps, office/bed 4, parking, garden, 0.47 acres. £385,000+ Savills 01738-477525.

MoneyWeek

2 July 2021

moneyweek.com

Property

33

alisbury, Wiltshire, to a cottage in Dunkeld, Scotland, with a blue plaque commemorating the fiddler Niel Gow Iris Cottage, Singleton, Chichester, West Sussex. This Grade II-listed cottage dates back to around 1550. The cottage retains many of its original period features, including exposed beams, brick floors, and in the open-plan living/dining room there is an inglenook fireplace that still has its original bread oven. The enclosed front garden looks out towards the village church.

3 beds, bath, study area, breakfast kitchen. £425,000 Jackson-Stops 01243-786316.

Shippen, Hope Cove, Devon. A two-bedroom apartment in a period property set just 70 yards from the beach, with views out towards Bigbury Bay. The flat has access to a communal sun terrace, which is perfect for outdoor dining, and to communal gardens. 2 beds, kitchen, bath, recep. £425,000 Marchand Petit 01548-844473.

St. Ann Street, Salisbury.

A Grade II-listed end-ofterrace house dating from 1680 in the centre of the city.

It has exposed ceiling beams, leaded-light windows, a brick inglenook fireplace with a wood-burning stove, a recently fitted kitchen and a dining room with skylights, which has been extended and opens onto the enclosed garden.

3 beds, 2 baths, 2 receps, kitchen, walled garden with rear access. £400,000 Myddelton & Major 01722-337575.

High Street, Bulford, Salisbury, Wiltshire. A renovated, semidetached, three-storey cottage in a gated mews that includes three houses on the banks of the River Avon.

The ground floor living area has bi-fold doors leading onto the riverside gardens and the master bedroom has a Juliet balcony. 2 beds, 2 baths, recep, kitchen, utility, cloakroom, garage, parking, river frontage. £400,000+ Hamptons 01722-480142. moneyweek.com

Rook House, Cuddy Lonning, Wigton, Cumbria.

A Grade II-listed Georgian house 15 minutes’ walk from the town centre. The house was built in 1826 as a Quaker school and has a one-bedroom annex that shares a roof with an adjacent house that was once also part of the school.

It has sash windows with shutters and period fireplaces.

4 beds, bath, 3 receps, study, breakfast kitchen, mezzanine, gardens, summerhouse, parking. £425,000+ Fine & Country 01768-869007.

2 July 2021

MoneyWeek

34

Cars

An upstart takes on the Germans

The Genesis G80 is taking aim at the luxury saloon sector dominated by BMW. Nicole Garcia Merida reportss

G

enesis, the luxury division of South Korean carmaker Hyundai, is a relatively new premium car brand, says Richard Aucock on City AM. It successfully launched in the US and South Korea and has now expanded to the UK. There was a “sort-of” launch back in 2015, but “this time around, [it] is much more serious”. The G80 is the brand’s first executive saloon and comes with either a 2.2-litre diesel or 2.5-litre turbo petrol engine, and in a choice of trims: Premium Line, from £37,460 as a diesel, or the Luxury Line from £47,950. What stands out is “the finesse of the drive” – “quiet, easy, precise and stress-free”.

The G80 is snapping at the heels of the class-leading BMW 5 Series, says Steve Fowler on AutoExpress, seeking to rival the German brand “on quality and class” and offering some new technology that has yet to make it into any BMW. The 5 Series remains the best car of its type, but Genesis has managed to create

“the best non-German model in the executive-saloon sector”. The G80 looks the part more than any other recent arrival in its class, with “just the right amount of chrome and high-quality paint finish that make it look as posh as any rival… The best compliment we can pay the car is that it feels very Germanic”.

It’s a car “you can really drive on the nose” too, says Phil McNamara in Car magazine, “surging into corners and relying on the plentiful front-end grip to haul you through”.

The eight-speed automatic transmission “whips through the gears smoothly”, the steering is responsive, “jinking the saloon leftright to swerve round cyclists” with aplomb, and the braking is “alert”, delivering “meaty stopping power”.

Ex-Bentley and Lamborghini design chief Luc Donckerwolke “pulled out all the stops when designing the G80”, says Kristen Lee on The Drive. The previous model “erred on the polite side of

bland”, but the new and improved version is “a lot more memorable and striking” as well as “absolutely a joy to live with”. Some cars are built “expressly for sportiness”, but the new G80 is a “rolling testament to luxury”. Whether on the highway or in town, the ride is “incredibly smooth”: “you can barely feel the transmission shifting and the brakes grab progressively and predictably”.

The car would “certainly be fine” on back roads too, but overall the G80 is a “highly capable cruiser” that prioritises comfort. And despite the “punchy” performance – the 2.5-litre turbo delivers 304bhp and whisks the car from rest to 62mph in just six seconds – “behind the wheel of the Genesis, there’s little urge to rush anywhere in particular because it’s just such a nice spot to sit”.

“The best compliment we can pay the car is that it feels very Germanic”

Wine of the week: four epic new wines from Italy 2019 Donna Elvira, Fink Fiano di Avellino, Campania, Italy £18, campaniawines.co.uk

MONEYWEEK

2 July 2021

Matthew Jukes Wine columnist Wine samples arrive thick and fast every day and they usually come from importers, distributors, wineries and merchants I already know. Occasionally, bottles appear from new discoveries and, because of the short lead times at MoneyWeek, I can get them on the page in a trice. From Sarah Fink’s first email introduction, via samples, tasting, research, checking and filing copy to these wines appearing here today has taken less than a month. This means you are hot on my heels in making these epic discoveries.

My lead wine, a fiano, is terrific, accurate, exotic, bitingly fresh and genuinely rewarding.

I adore this stone-fruitkissed variety and it sums up an Italian summer perfectly.

There are three more beauties to recommend: the 2019 Donna Elvira, Fringilla Falanghina (£15) shows accurate fruit and herb notes and bracing freshness, underpinned by a volcanic tang and steely acidity; the 2019 Donna Elvira,

Aegidius Greco di Tufo (£18) is calmer than the other two whites and more lemony in its theme; and a true rarity, the 2018 Donna Elvira, Settemazze Aglianico (£18), a delicious red made from a particularly obtuse, indigenous grape variety that, in the wrong hands, makes some of the driest and most tannic wines around.

At Donna Elvira, it is juicy, smooth, intriguing, cherry-and liquoricesoaked and the polite astringency only arrives at the very end of the finish. What a line-up!

Matthew Jukes is a winner of the International Wine & Spirit Competition’s Communicator of the Year (matthewjukes.com).

moneyweek.com

Collectables

Tennis fans open their wallets W

Roger Federer’s old clobber could be yours. Chris Carter reports

imbledon got under way on Monday. But this year, more money looks set to be made in the auction room with tennis-related sales than on the court. Last week, an auction of 20 items of tennis memorabilia from the recordbreaking career of Swiss great Roger Federer raised £1.3m for Federer’s charitable foundation with Christie’s in London. The signed outfit and racket Federer used during his triumph over Spain’s Rafael Nadal in the 2007 Wimbledon final smashed its £50,000 estimate to sell for £187,500, as did the outfit Federer wore for his French Open victory in 2009. “Every item [reminds] me of great moments of my career so far,” Federer said ahead of the sale.

It turned out he wasn’t the only one, with buyers handing over four times the combined presale low estimates.

The sale now moves online until 14 July with a further 300 items, including the 2014 Air Jordan Nike trainers that Federer designed with basketball legend Michael Jordan (see right). Federer wore the trainers, branded with Federer’s “RF” logo, at the US Open that year. “You really don’t want to lose when Michael’s sitting in the stands,” he joked afterwards, according to Christie’s magazine. “The pressure was on.” The shoes are expected to sell for upwards of £40,000. Not all of the lots have such high estimates, however. A signed “RF” tournament cap from Brisbane,

©Christie’s; Sotheby’s

Going…

Australia, in 2016 had a starting bid of just £100.

An auction of moments

Another tennis-related charity auction will be taking place in November in aid of the foundation set up in 2014 in memory of Elena Baltacha, l h British number one, the late Brit who died fr from cancer, aged 30, says BBC News. Proceeds Love All auction will from the Lo go towards cancer research and screening as well as helping to bring disadv h ld d children disadvantaged sport. The into the spo h Murray Play l Foundation, set up b Foundation l h

by Baltacha’s tennis coach coach, Judy Murray, will be one of the beneficiarie beneficiaries, setting up tennis progr programmes for disadvantag d communities disadvantaged from aroun around Dunblane, in Scotland.

Murray’s son, two-time Wimbledon champion Andy, is behind the th sale of what is perhaps the oddest piece of tennis mem b l this h week k memorabilia – “the mom h moment” h he won the tennis cham h for f the h first f championship time, in 2013, 201 as a non-fungible token (NFT (NFT). The buyer won’t own the cop copyright of the video footage, “bu “but a crypto asset that refers to a vi video of the moment”, says Elizabe Elizabeth Howcroft for Reuters. Th The auction is being hosted toda today on Wenew, the online NFT marketplace k l set up by Mike Winkelmann, AKA Beeple Beeple, the artist, who

lifted his trophy p at $4,999 each, h 50 off his post-win interview ffor $499 each, 100 of his interview after his 2012 Wimbledon loss for $99 each, and 500 of a video of 2013 Murray highlights at $49 each. Buyers can even pay in cryptocurrency ether.

Auctions

In a further sign of cryptocurrencies’ entry into the mainstream, Sotheby’s has said it will accept bitcoin or ether, not for some abstract piece of digital art, but “for one of the earth’s rarest and greatest treasures”. The 101.38-carat pear-shaped D Flawless diamond (pictured) for sale is the second-largest pear-shaped diamond to appear on the public market. It is exp expected to fetch over HK$78m (£7.2m) at auctio auction on 9 July in Hong Kong, as part of Sotheb Sotheby’s inaugural “Luxury Edit” sale series in Asia. Sotheby’s, working with cryptocurrency exchange Coinbase Commerce, notes that it is the first physical object with a valuation of at least $10m to be offered at auction in exchange for cryptocurrency.

Although, not surprisingly, Sotheby’s will also happily take boring, old cash cash.

moneyweek.com

in March sold his digital artwork, Everydays: The First 5000 Days, for $69.3m with Christie’s. But that’s not all the buyer is getting. Also included with the lot are a pair of VIP Centre Court tickets to next year’s Wimbledon l a men’s ffinal, chance to play tennis with Andy Murray and signed souvenirs.

If that sounds like too much of a stretch, the auction also l d 20 includes NFTs of the moment Murray

Gone…

A 54.03-carat brilliant-cut pear diamond, dubbed the Chrysler Diamond, fetched just over $5m at the Christie’s Magnificent Jewels sale in New York last month. The diamond had belonged to socialite Thelma Chrysler, the daughter of the railroad and car magnate ysler. A year after her early death in Walter Chrysler. weller Harry Winston purchased 1957, jeweller what was then known as The Louis XIV mond, and cut the diamond down Diamond, m 62 carats. Although its exact from rovenance is unknown, it was provenance hought to have been mined in thought India and may have been brought to France by famed gem merchant Jean-Baptiste Tavernier.

Today, the gem sits as the centrepiece of a pendant of 43 brilliant-cut diamonds.

35 Sniffing out the best trainers In April, a pair of rapper Kanye West’s “Grammy Worn” Nike Air Yeezy 1 Prototypes sold for $1.8m sale in a private sa with Sotheby Sotheby’s.

That wass alm almost three h times mes th the previous s reco record for the most expensive pensive pair of trainers,, set last year when a pair of Michael Jordan’s firstever Air Jordan 1s, from 1985, sold for $560,000 with h Christie’s. Sherlina Nyame, ame, the biggest “influencer nfluencer for sneakers” neakers” on the internet, nternet, is paid up to £10,000 a post on social media by brands Nike, Puma and nd Adidas, according cording to The Times.

She e has already made £100,000 00,000 so far this year, ar, and if she were to selll her collection of 500 0 pairs of trainers, the 31-year-old says she could ld raise the deposit on a four-bedroom house in London. ndon.

The Air Jordan 1 High “Black/Red” Red” trainers from 1984 were re a Nike salesman’s sample used to sell the design, worn by Michael Jordan the he following year, and were e up for auction this week. Given iven how much those later ter pairs sell for, “it’s hard to imagine magine there was ever a time me when a retailer would have ave had to be convinced ed to carry Nike’s Air Jordans”, ”, says Christie’s.

The trainers ners are in a “lightly worn condition”, ndition”, suggesting they were re tried on by employees ees and customers in the mid-1980s. Any who did slip them on but didn’t buy will be wishing they had. The pair were expected to sell for at least $22,000. Another early development sample pair in the sale was valued at up to $160,000. Meanwhile, eBay has hired a team of trainer-sniffers in London for shoes sold for over £150.

They can establish whether a cheap glue has been used, a sure sign of a fake pair.

As Grace Gausden notes on This Is Money, with the market in trainers worth $6bn globally forgeries “can be problematic for collectors who treat sneakers as an investment piece”.

2 July 2021

MONEYWEEK

Blowing it

36

The with-yachts take to the seas

The have-nots have hunkered down in lockdown for 15 months. The with-yachts have other options

T

©Shutterstock

he last 15 months of lockdowns and social distancing may have been damaging for pubs, theatres and restaurants, but they’ve been good for the yachting industry, say Devon Pendleton and Brad “A 150-foot Stone on Bloomberg. For the superyacht will ultra-wealthy, yachting has suddenly “seemed the best cost around option for private, socially $2m a year or distanced leisure” and a good way to escape from the roughly $200,000 “prying eyes” of the public a week to run” that “might look askance at wealthy overindulgence during difficult times”.

Indeed, the Covid-19induced yachting boom has been so strong that it Roman Abramovich’s Eclipse: a nice spot for a socially distanced holiday has “upended” industry conventions. Rich clients would once “typically start by chartering” go on crew – the going rate for a captain is raw-material costs “soaring”. The industry and then graduate to buying “something about $192,000 a year, a deckhand about isn’t particularly high margin – the wealthy $34,500. Add it all up and a 150-foot comparatively modest – say, a 100-footer”; make for “fierce negotiators” – so budget now they are “going right for the big stuff”, superyacht “will cost around $2m a year”. miscalculations “can hit profits hard”. in some cases “buying yachts before ever Russian oligarch Roman Abramovich is There are also concerns that the rich “may stepping foot onboard, something unheard decide to spend their money on other things unlikely to care about either the stigma or of just a year ago”. The surge in demand the cost and his new £430m yacht, named once the crisis is over”, especially given Solaris, is nearly ready, says Charlotte Wace is so great that it’s now “impossible to get what industry executives consider to be a slot in a new-build yard”; the waterways in The Times. It is 460ft in length and has the “unfair stigma” that superyachts are of northern Germany, where many of “playthings of the rich, widening inequality eight decks, a helipad, swimming pool, gym the boats are made, are “crammed with and sauna. This is in addition to the 500ft and disproportionately contributing to Eclipse that Abramovich already owns, the city-block-size steel hulls of future climate change”. superyachts”. and was reportedly the world’s longest Owners might also end up selling up private yacht when it was delivered in 2010. after they realise that the costs of running It is also said to have a missile detection a superyacht can be “nothing short of eyeStorm clouds gather system and an estimated value of £1bn after watering”, says Tamara Hardingham-Gill The uptick in orders this year has resulted on CNN. These include the “obvious costs” refurbishments in 2015. Beats joining the in a record 208 superyachts being bought queue on the motorway for Cornwall. such as “fuel, dockage, boat insurance and on the brokerage market for £1bn, says maintenance”. On board supplies, “such as Harry Dempsey in the Financial Times. water toys, furniture, art, medical supplies But it has “not all been plain sailing” for boat companies, with lockdowns and social and gym equipment”, can also “rack up to a large amount”. Nearly half the costs will distancing hitting production and sending

Tabloid money… woke warriors take aim at Andrew Neil

MONEYWEEK 2 July 2021

● “Another year, another inflationbusting increase in public money given to the royal family,” says Norman Baker in The Sun. And “the meat and drink of this gilded annual eturn is more scandalous” than return ever. The taxpayer-funded Civil List, now called the Sovereign Grant, was £7.9m a decade ago. Now the net igure is £85.9m, and that doesn’t figure nclude the £200m spent on security. include “No cap on Income Support for the oyals.” The figure, which can only royals.” stay the same or rise, rose by £3.5m ast year. “Nice work if you can get it. last A Royal Mint for some, a National Debt for others.” In a year when hard-working people have been urloughed, faced an uncertain furloughed, uture or been plain sacked, they future would be right to feel “somewhat nsulted” by this royal excess. insulted”

● Lloyds Bank last week sharpened the axe for the latest round of branch cutting, says Jeff Prestridge in The Mail on Sunday. The bank blamed falling customer usage for the closure of 44 branches across the Lloyds and Halifax brands. If anything, it’s surprising the cull was not more severe. But in a bid to keep customers sweet, Lloyds has voiced its support for trialling “community bank” branches – one in Essex and the other near Glasgow. Customers of all the big banks can use them to deposit and withdraw cash from the branches overseen by the Post Office. “If the likes of Lloyds, Barclays, NatWest, Santander and HSBC were to financially back a nationwide roll-out of such banks, it would revitalise communities up and down the country.”

©Shutterstock

● Former BBC presenter Andrew Neil (pictured) has rightly slammed big businesses who pulled adverts fro from his new TV channel, GB News, says K Karren Brady in The Sun on Sunday. So fa far around 14 companies have pulled out from funding the fledgling station after being put under pressure from “Stop Funding Hate” activists. “Woke nonsense has reached the boardroom,” the GB News chairman said. Neil added that it was “remarkable that serious executives and wellestablished companies” were going woke. “I agree. This has nothing to do with GB News and everything to do with businesses becoming weak and woke.” There once was a time when businesses held their nerve. It’s “really important” busi business leaders hang on to those strength strengths.

moneyweek.com

Crossword

37

Tim Moorey’s Quick Crossword No.1058

Bridge by Andrew Robson

Bid boldly, play safe The late English World Champion Rixi Markus, who had the chutzpah to escape from Austria in the 1930s by travelling directly through Germany, once wrote a book entitled “Bid Boldly, Play Safe”. It was said (with tongue-in-cheek) of the redoubtable Mrs Markus, “Rixi bid boldly to (say) Four Spades and played safely for three down.”

Mrs Markus’ sage words would have helped North-South on this week’s deal.

Dealer South

A bottle of Taylor’s Late Bottled Vintage will be given to the sender of the first correct solution opened on 12July 2021. Answers to MoneyWeek’s Quick Crossword No. 1058, 31-32 Alfred Place, London, WC1E 7DP.

East-West vulnerable Q10853 A9 42 J853

A42 2 QJ1098 KQ102

KJ96 J543 75 976

N W

E S 7 KQ10876 AK63 A4

The bidding South 1♥ 3♥ pass *

West Dbl pass pass

North 1♠ 4♥*

East pass pass

Just worth it – the Ace-nine doubleton Heart and potential ruffing value in Diamonds are big features

West begun with the Queen of Diamonds, and declarer could count nine tricks if the trumps split; otherwise eight. However, if he could ruff both his Diamonds in dummy, he could afford to lose a trick to the Knave of Hearts. And therein lay the key.

At the table, declarer won the Ace-King of Diamonds and – fatally – ruffed a third Diamond with the nine of Hearts. East overruffed with the Knave, promptly returned a Heart and, with dummy’s Hearts removed, declarer could muster only nine tricks.

Let us replay. After the Ace-King and a third Diamond, declarer ruffs with the Ace (key play). He crosses to his Ace of Clubs and does not mind East overruffing the second Diamond (dummy’s nine with his Knave). For he has garnered ten tricks via six Hearts in hand, a Heart ruff in dummy, and three minor-suit tops. Ten tricks and game made.

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

Sudoku 1058 8

7

ACROSS 1 Is it a rum mixture for dessert (8) 5 Partner for Bush? Nonsense! (4) 9 Cheers someone doomed (5) 10 Sensation close to suffragette movement (7) 11 Fresh and fast run is what MoneyWeek’s set on (9) 13 Signal from gardens heard (3) 14 Russian money and power in sum leads to Syria perhaps (7, 4) 16 American’s behind Jenny (3) 17 Rod with a lady in Water Music? (9) 19 Mostly hoping for pain relief (7) 21 Musical compositions sounding sugary (5) 22 CID omitted from settled formal document (4) 23 Publisher making pots? (8)

DOWN 1 Saturn satellite (5) 2 Highway repairs (9) 3 Floor covering (3) 4 Police department (7, 6) 6 Sub-machine gun (3) 7 Mortgage company is one such (6) 8 Source of much oil (5, 3) 12 Pipe fitters, say (8) 13 Large tropical reptile (9) 15 False report (6) 18 Makes level (5) 20 Kind of chart (3) 21 Total (3)

Name Address

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Solutions to 1056

2

3 6

6 7 4 1 5 2 3 1 9 7 5 6 7 3 2 9 9 4 5 7 1 MoneyWeek is available to visually impaired readers from RNIB National Talking Newspapers and Magazines in audio or etext.

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Across clues are mildly cryptic whereas down clues are straight

Across 1 Pallet pal + let 4 Poorer sounds like pourer 8 Proverb Rover inside Pb = lead 10 Elbow anagram 11 Roads sounds like Rhodes 13 Chemise I(T) inside anagram scheme 14 Daddy long-legs Daddy + long legs 16 Offload off + loads 18 Recap reverse of pacer 20 Shack S + hack 21 Remorse re + Morse 23 Dilate anagram 24 Status U inside stats Down 1 Piper 2 Leotard 3 Ere 5 Overeager 6 Rabbi 7 Rawness 9 Back order 12 Skyrocket 14 Drowsed 15 Excerpt 17 Frail 19 Press 22 Mat.

To complete MoneyWeek’s Sudoku, fill in the squares in the grid so that every row and column and each of the nine 3x3 squares contain all the digits from one to nine.

The answer to last week’s puzzle is below.

2 4 8 9 6 1 5 7 3

5 1 9 7 2 3 8 6 4

7 6 3 4 5 8 9 2 1

4 8 5 1 7 2 3 9 6

6 3 7 5 4 9 1 8 2

9 2 1 3 8 6 4 5 7

8 5 4 6 1 7 2 3 9

1 9 6 2 3 5 7 4 8

3 7 2 8 9 4 6 1 5

The winner of MoneyWeek Quick Crossword No 1056 is: George Elliott of West Sussex.

Tim Moorey is author of How To Crack Cryptic Crosswords, published b by HarperCollins, and runs crossword workshops (timmoorey.com)

Taylor’s is one of the oldest of the founding Port houses, family run and entirely dedicated to the production of the highest quality ports. Late Bottled Vintage is matured in wood for four to six years. The ageing process produces a high-quality, immediately drinkable wine with a long, elegant finish; ruby red in colour, with a hint of morello cherries on the nose, and cassis, plums and blackberry to taste. Try it with goat’s cheese or a chocolate fondant.

2 July 2021

MONEYWEEK

Last word

38

Our simple five-year forecast

Editor-in-chief: Merryn Somerset Webb Executive editor: John Stepek Editor: Andrew Van Sickle Markets editor: Alexander Rankine Comment editor: Stuart Watkins Politics editor: Emily Hohler Digital editor: Ben Judge Web writer: Saloni Sardana Wealth editor: Chris Carter Senior writer: Matthew Partridge Editorial assistant & writer: Nicole Garcia Merida Contributors: Bill Bonner, Ruth Jackson-Kirby, Max King, Jane Lewis, Matthew Lynn, David Prosser, David Stevenson, Simon Wilson

The feds will inflate, stocks will deflate. Investors should hunker down Bill Bonner Columnist

T

major bear market (with a drop of 50% or more) has come during a time when consumer price increases are speeding up.

So which should investors fear – a crash or inflation? The answer is… both. That is our simple fiveyear forecast: the feds will inflate.

The stockmarket will deflate.

And then, the feds will inflate even more, until the inflation tornado has made a wreck out of everything.

In the meantime, investors snap up cryptocurrencies, nonfungible tokens and other fads as if to prove the Queen in Alice’s Adventures in Wonderland right, that it is possible to believe many impossible things before breakfast.

But isn’t that the charm of the human race – to be able to believe silly or impossible things and then, by believing, make them real? l cheques, h $ d f Stimulus $3trn deficits, h b companies whose main business strategy is to buy bitcoins…

Nothing is too absurd.

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wo dark clouds hang over the summer. The first one is that, with US stocks at or near all-time highs, there is the threat of a major sell-off in the markets.

Some are predicting the “mother of all crashes”. Yet the other cloud is inflation. Won’t that keep stocks aloft? Won’t the Federal Reserve’s money-printing guarantee higher stock prices? And shouldn’t a prudent investor stick with stocks, at least until the inflationary threat is over?

Earlier this month we found out that inflation in the US is, officially, running at more than 5% – for only the second time in 30 years. If they calculated it the way they did in the 1980s, it would be more than 10%. d expects Economist Tim Congdon h annuall rate off US consumer the inflation between now and end-2022 to typically run in the 5%-10% band.

Meanwhile, the Fed continues its $120bn per month moneyprinting programme, interest rates are going nowhere and Senate Democrats are pushing ahead with plans for a $6trn spending extravaganza. The EZ money will keep coming, in other words. And all of this money will eventually show up in prices. Where else could it go?

In the meantime, investors will become unsettled. A study by economists at investment research firm Gavekal shows that rising inflation levels mean falling stockmarket gains: “For the last 130 years (the period for which we have data both for US prices and for the US stockmarket), all the excess returns on US equities relative to cash have been realised during periods of decelerating inflation.

The excess returns during periods l fl h off accelerating inflation have b been b zero.” They h a robust go on to say that, since World War II, every

of the European Union’s new space budget, covering the period up to 2027. The 27-member bloc also created a new body last week, called the EU Agency for the Space Programme. It will oversee the EU’s activities and investments in space.

£200m

The estimated cost of building a “new national flagship” to boost trade, a successor to the Royal Yacht Britannia, which was decommissioned in 1997.

Last week, the Ministry of Defence, with its £17bn funding black hole,

MONEYWEEK

2 July 2021

resisted calls for it to foot the whole bill.

€46m The cost of

renovating the seafront at Calais, with a wooden boardwalk, skate park, a “solarium” equipped with deck chairs and view points from which to admire the White Cliffs of Dover. The French town is now touting itself as a “seaside resort with a Californian flavour”.

A marketing drive to lure visitors will begin once travel restrictions are lifted.

$418trn The combined

value of global household wealth in 2020, a 7.4% annual increase thanks to

surging asset prices, according to Credit Suisse.

North America and Europe saw gains of $12.4trn and $9.2trn respectively, while Latin America and India became poorer.

£709m How much

British companies have paid back to HM Revenue & Customs in furlough payments that turned out not to be needed, along with £319m from firms overclaiming, l i i says the th Financial Times. The scheme has up to 14 May cost the Treasury £64bn.

£17.85bn The value

of the 357 million £50 bank notes in circulation. The Bank of England completed its transition from paper to polymer notes with the release last week of the new £50 note featuring Alan Turing on what would have been the computer pioneer and wartime codebreaker’s bi birthday. thd

MoneyWeek, 31-32Alfred Place, LondonWC1E 7DP Tel: 020-3890 4060. Email: editor@moneyweek.com.

MoneyWeek is published by Dennis Publishing Ltd. 31-32 Alfred Place, London,WC1E 7DP. Phone: 020-3890 3890. © Dennis Publishing Limited 2021. All rights reserved.

MoneyWeek and Money Morning are registered trade marks. Neither the whole of this publication nor any part of it may be reproduced, eproduced, stored in a retrieval etrieval system or transmitted ransmitted in any form or by y any means without the written permission of the publishers. ublishers. © MoneyWeek 2021 IISSN: 1472-2062 472-2062

©Bank of England

The bottom line €14.9bn The total value

Editorial queries: Our staff are unable to respond to personal investment queries as MoneyWeek is not authorised to provide individual investment advice.

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