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23 JULY 2021 | ISSUE 1061 | £4.50

Freedom Day flop

Snatching defeat from the jaws of victory Page 8

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23 July 2021 | Issue 1061

From the editor-in-chief...

©Alamy

success of the UK’s vaccination Remember how programme and speed of our Boris Johnson told recovery); and second, that us that with him thanks to rising inflation and as prime minister frozen allowances, they are going we were safe from to go up even more than you income tax and think in inflation-adjusted terms. national insurance (NI) rises?

On to inflation. The place Turns out (surprise!) that he was to start thinking about this is wrong. It seems his government on page 35 where Cris reviews has decided that NI is to rise by Russell Napier’s latest book one percentage point – from 12% (which you must read). The key to 13% (an 8.3% rise) for those takeaway is that the debt-driven earning from £9,568 to £50,270 fragility of today’s financial a year, and to 3% for incomes system is a direct result of the above that (a 50% rise). This, if Boris Johnson: putting up NI regardless bad policy made in the wake of it works as planned, should raise “Your national insurance does not pay for the the Asian Crisis of 1995-1998. around £6bn a year – £12bn if That kicked off the deflationary employers also get hit with the NHS.Your road tax does not pay for roads.” impulse in the West, that gave us extra percentage point. The the low interest rates, that gave us the Great a hypothecated tax to finance a service money is to be spent on trying to cut NHS Financial Crisis, that gave us quantitative anyone might need, then everyone must waiting lists and then on capping the cost easing (QE) – which is financing the huge pay – it would be more honest, if politically of social care (in England – Scotland will rise in the money supply that is now giving trickier (because you can’t hide half the hit just get its share of the loot for spending on in employers’ NI) to just put a penny on our us inflation. It’s worth understanding how whatever soon-to-fail project the SNP has this works – the dynamic will be with us already-high income tax levels. in mind at the moment). for a long time to come. For more on the This brings us to the very idea of a You may think this sounds OK – we have consequences of QE, see page 14 – John hypothecated tax. We don’t have those to pay for this stuff somehow, right? It isn’t. looks at how it has become a “dangerous in the UK. Your NI does not go on the For starters, exempting those over state addiction” for central banks. Then for a NHS – it’s just a misleadingly-named extra pension age and still working from the tax real-world take on the problem turn to page income tax. Your road tax does not go on is a mistake. Some will say that the 67-plus 38, where Bill laments the rise in the prices the roads. Your air passenger duty does group have already paid an awful lot of NI. of second-hand tractors. It doesn’t take long not go on emissions mitigation. So what They have. But the key point is that it turns for the price of a tractor to affect the price of makes anyone think that this mooted extra out that an awful lot has not been enough a loaf of bread. Best to be ready. penny on NI will actually go on social care (or we would be not be where we are now). rather than vanish into the black hole that You could argue that there is no such thing is the public finances? Still it doesn’t matter as “enough” when it comes to financing what we think. What does matter is first government spending. You would be right that, while the social care discussion has – but in itself that is not an argument for chucking a new element of intergenerational been delayed until after the summer, your Merryn Somerset Webb taxes are very likely to go up (despite the unfairness into the mix. If there is to be editor@moneyweek.com

Good week for:

Warner Bros has eclipsed rival studio Marvel at the US box office with Space Jam: A New Legacy.. The live-action/animated basketball film sequel, starring Bugs Bunny and LeBron James (pictured), took $31.6m during its opening weekend despite poor reviews, while Marvel’s superhero film Black Widow, starring Scarlett Johansson, made $26.3m in its second weekend, an unusually steep drop-off from its $80m opening weekend.

Listed British companies issued the fewest profit warnings on record in the second quarter, according to EY-Parthenon.

Only 32 companies warned that their earnings would be worse than originally forecast, compared with a record peak of 301 in the first three months of 2020.

©iStockphotos

The US is bracing itself for a wedding boom, say Misyrlena Egkolfopoulou and Sophie Alexander on Bloomberg. Last year the number of marriages fell by 40% to around 1.27 million, according to market researchers The Wedding Report. This year should see a rebound to 1.93 million, while in 2022, 2.5 million weddings are expected as couples who were forced to postpone their ceremony during the pandemic tie the knot. That will be the highest annual total since 1984 – and the cost will probably break records too. The average spend on a wedding in the US next year (bearing in mind that the median American income is around $31,000) is expected to hit $24,300. It’s a huge cost for guests too. A survey by online lending marketplace Lending Tree reveals that a third of bridal party members went into debt for a friend’s wedding – potential expenses include travel, lodging, presents and stag or hen weekends.

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Bad week for:

Islamabad International Airport,, which was built in 2018 at a cost of PKR105bn (£478m) by the Chinese state construction firm, China State Construction Engineering Corporation, was deluged this week after part of its false ceiling collapsed during a downpour. The water fell onto several counters, causing computers to malfunction.

©Warner Bros

Cover illustration: Howard McWilliam. Photos: Alamy; Gucci x Northface; iStockphotos

Get ready for a wedding bonanza

The Norwegian women’s beach handball team has been fined €1,500 (€150 per player) for wearing shorts rather than bikini bottoms at the European Beach Handball Championships. Shorts constituted “improper clothing”, argued the European Handball Federation. In response, Norway’s minister for culture and sports lambasted the “macho and conservative international world of sport”.

23 July 2021

MONEYWEEK

4

Markets

Global equities pause for breath Alex Rankine Markets editor

“There is now a feeling that the UK could be staring at a fresh Autumn lockdown,” says Susannah Streeter of Hargreaves Lansdown. “Far from giving investors a jolt of confidence, Freedom Day has seen it evaporate, as sharply rising infection rates disrupt businesses.”

Global markets plunged on Monday as investors feared the Delta variant could derail the recovery. The FTSE 100 fell by 2.3% to close below 7,000. The FTSE 250 dropped by 2.2%. Aviation and leisure stocks were among the worst hit.

The pan-European Stoxx 600 had its worst day of the year so far. America’s S&P 500 retreated by 1.6%. The US ten-year Treasury bond yield fell to 1.18% as prices rose, the lowest level in five months.

Japan’s Nikkei 225 index hit a six-month low on Tuesday.

The message from bond markets seems clear, says John Authers on Bloomberg.

“Forget about the inflation scare” and “abandon hopes for a strong reopening and economic recovery”. That might seem surprising given recent inflation data, but the Delta variant is driving an enormous surge of cases in the UK. Only high vaccination rates are preventing another devastating wave of hospitalisations. That bodes ill for places with low vaccination rates, not least parts of the US. The spread of the Delta variant is an especially urgent worry in emerging markets, says William Jackson of Capital Economics. Asia is currently in the eye of the storm. Low vaccination rates mean “much of Latin America” and “other parts

Aviation and leisure stocks were among the worst hit in this week’s market jitters

of Asia and Africa” look vulnerable, which will slow down their recoveries.

Markets pause for breath

The FTSE’s wobble is a reminder that “escape from an unfree, restricted economy is likely to be a messy affair”, says Nils Pratley in The Guardian. The “pingdemic” is hitting everything from pubs to factories.

We still don’t know for sure whether “the lifting of most coronavirus restrictions really will be ‘irreversible’”. As Deutsche Bank puts it, this is all something of an “experiment”. While we wait to see the results, expect “a volatile summer for stockmarkets”. Don’t panic – markets are just entering the “mid-cycle”, says Andrew Sheets of Morgan Stanley. After a very strong recovery over the last 16 months it

was inevitable that things would cool down at some point. Never mind the growth worries, “we think that the global recovery will keep pushing on”.

“The easy money has been made in this market,” says Nicholas Jasinski in Barron’s.

Wall Street’s favourite “buzzy phrase” right now is “peak growth”. The idea is that growth in “corporate earnings, US gross domestic product, stock prices… and inflation” have all peaked for the cycle.

While the first stage of the postpandemic rebound lifted all boats, investors must now be more discriminating. They will look for stocks that can “stand the negative impacts of hot inflation and shifting monetary policy”. The answer?

Big Tech, out of favour for much of this year, could soon be back in vogue.

MONEYWEEK

23 July 2021

Prices slipped below $70 a barrel early this week August. By September next year it plans to have unwound the entirety of its Covid-19induced production cuts.

The members feel confident that a recovering global economy can absorb the extra capacity. Brent crude had

been trading as high as $77 earlier this month, but the Opec+ deal combined with worries about the Delta variant to rout the oil bulls early this week, says Pippa Stevens on CNBC. Brent fell by 6.75% while US futures lost 7.5%.

©iStockphotos

Oil goes off the boil

Brent crude prices fell below $70 a barrel this week after Opec members Saudi Arabia and the United Arab Emirates patched up their differences.

The squabbling between the two countries about production quotas had prevented the oil cartel from agreeing to raise output.

Asked how the two sides had reached their compromise the Saudi energy minister replied, “Why should I divulge it? This is an art and we keep it between ourselves”, reports Natasha Turak for CNBC. Opec+ (Opec plus Russia) is still collectively pumping 5.8 million barrels per day (mbpd) less than it did before the pandemic, but it will now raise production by 400,000 bpd every month beginning in

©EasyJet

The pandemic strikes again

Despite the plunge, analysts think “a tight market will continue to support prices”.

Citi “sees Brent…climbing to $85 or higher this year” as “pent-up leisure demand” prompts a summer consumption surge.

The gradual pace of the output hikes should keep global oil markets in deficit over the next few months, according to Samuel Burman of Capital Economics. So Brent should stay around current levels of $70-$75 per barrel for the remainder of this year. By early 2022 the global market will swing into surplus as the output hikes become bigger. “We expect that the price will fall to $60 by the end of 2022 as its supply floods back onto the market.”

moneyweek.com

Markets

It has been a dispiriting year so far for gold investors, but the yellow metal could be poised to glitter again. Gold prices started the year around $1,900/oz but fell back as investors piled into “risk-on” assets in anticipation of economic reopening. This year’s cryptocurrency mania has also stolen some of gold’s thunder as a hedge against currency debasement by central banks. By early March, the price had tumbled to $1,700/ oz. June was the metal’s worst month since 2016. Yet gold has perked up to trade around $1,820/oz this week. It has risen by 2.5% since the start of July in dollar terms.

Why? Because of gold’s traditional role as an inflation hedge. Inflation surged to 5.4% last month in the US and also went over the central bank’s target in the UK. Unlike the dollar, gold is “a currency that cannot be manipulated by central banks”, Catherine Doyle of Newton Investment Management told Sam Benstead in The Daily Telegraph. Mikhail Sprogis of Goldman Sachs thinks that gold “should be worth at least $2,000 today” given the inflationary outlook.

The bank is advising clients to “snap up the precious metal”, says Benstead.

Gold hit an all-time high of $2,063/oz last year, but it has since lost 10%. Long term buyers won’t be too put out though. Investors who bought five years ago are still sitting on a 37% gain; 20 years ago, gold was trading below $300/oz.

Can Latin America recover?

Few places have suffered as much from the Covid-19 pandemic as Latin America. Of the top five countries by total reported deaths globally, three – Brazil, Mexico and Peru – are in the region. Weak healthcare forced governments to implement very strict lockdowns last year, says The Economist.

Tight budgets have constrained stimulus efforts. The result?

GDP in Latin America and the Caribbean fell by 7% in 2020, compared with a global average contraction of 3%.

Latin America came into the crisis with “pre-existing conditions”, says Eric Parrado on Project Syndicate.

Productivity has lagged more successful countries for decades.

High commodity prices after the financial crisis gave Latin American governments an opportunity to turn things around. But they put reform “on the back burner” and raised spending on subsidies rather than infrastructure.

A bet on commodities

The region’s market is exceptionally cyclical: energy and materials stocks make up 34% of the MSCI EM Latin America index; financials comprise 23%. Information technology accounts for just 1.8%. Weak commodity prices have made this a miserable decade. The MSCI index has fallen by 40% over the last ten years in dollar terms. The recent

Viewpoint “The [US second-quarter] earnings season [is upon us]... companies in aggregate are expected to reveal the largest increase in profits since the bounce-back from the Great Recession of 2008-2009... Optimism about earnings has driven share prices higher in the past year... But financial markets are relentlessly forward-looking... with bumper earnings already in the bag, they now have less to look forward to... investors are worried about a profits squeeze in 2022... growth could be slowing... Global retail sales surged in March, but have gone sideways since.

The evident slowdown in China’s economy may be a portent... costs are rising... A variety of bottlenecks have pushed up the prices of key inputs, such as semiconductors... The recovery is barely a year old, but there is already evidence of a tight labour market... margins look vulnerable.”

Buttonwood, The Economist

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©Shutterstock

Gold is poised to glitter again

5

Brazil’s divisive president Jair Bolsonaro could compete against another polarising figure, former president Lula da Silva, in elections next year

commodities rally had given shares a boost, but that too has cooled, leaving the index up by just 2% so far this year. Brazil makes up two-thirds of the index, while Mexico accounts for just over a fifth. The remainder is largely made up of Chile, Peru and Colombia.

On a price/earnings (p/e) ratio of 13.6, stocks are certainly cheap, but they don’t look so attractive given the risks, say James Norrington and Mary McDougall in the Investors’ Chronicle. The region’s politics have turned ugly; “horrifyingly, 91 politicians were killed, including 14 candidates”, in the months before Mexico’s legislative elections. Brazil’s election next year could see divisive president Jair Bolsonaro square off against former leader Lula da Silva, another polarising figure. “A Marxist-

Leninist is poised to become Peru’s next president”, adds Ruchir Sharma in The Financial Times. A communist could also come to power in Chile. Still, history shows that the region’s economic fortunes depend on one thing: commodity prices.

The economy boomed along with commodities in the 1970s and the 2000s. Bad decades for raw materials, such as the 2010s, are “often the harbinger of a better one to come”. A sustained commodity rally would negate worries about the latest crop of populists.

Not so fast, say Norrington and McDougall. Shares are cheap and could benefit from a cyclical boom, but “many of the attractive elements offered by Latin American economies… are also present in other emerging markets with less political risk.”

n It’s tin’s time to shine US dollars per tonne 35k 30k 25k 20k 15k 10k 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Move over copper, its tin’s time to shine. The price of the silvery-white metal has nearly doubled over the past 12 months to trade above $34,600 a tonne this week, surpassing its previous peak of around $33,000 in 2011. Soft and malleable, the metal is used in solder in circuit boards. It is benefiting from booming demand from the electronics industry. Other industrial metals have dipped recently, with copper still 13% off its May high, but tight supply has kept tin prices buoyant. Much of the world’s tin is mined in Asia, but flooding in China’s Yunnan province, political unrest in Myanmar and disruption from the Covid-19 Delta variant in big Southeast Asian producers is keeping a lid on supply.

23 July 2021

MoneyWeek

Shares

6

MoneyWeek’s comprehensive guide to this week’s share tips Six to buy Equals Group

Shares Equals Group, the global payment-services company (products range from international payment facilities to multi-currency cards) posted year-on-year sales growth of more than 20% for the first six months of 2021. The positive figures came “even without a meaningful recovery in travel-related foreign-exchange revenues”, which made up under 5% of group turnover compared with 30% historically.

This shows how much the firm has diversified since the start of Covid-19. Growth was mostly driven by the Equals Money division, a payments and expense-management system for corporate customers. 48p HydrogenOne Capital

This is Money Hydrogen is quickly turning

into one of the strong players in the clean-energy game. Clean hydrogen, which is produced from water, is expected to comprise 10% of global energy in the long term, and demand is predicted to grow 20-fold over the next decade alone.

HydrogenOne Capital was set up to meet the demand for cash this power source needs “and provide shareholders with juicy returns along the way”. The firm is listing on the stockmarket at the end of the month. Cofounders and “industry veterans” JJ Traynor and Richard Hulf are “starting small but hope to scale up rapidly, providing much needed capital to small... businesses”. An “attractive longterm buy”.

Restore

The Daily Telegraph The data and documentmanagement systems specialist is returning to the dividend list, which suggests that it will profit from “a further easing of lockdown and a rise in economic activity”. There are some clear risks “should the government’s plans go awry”. The firm has a solid balance sheet, which should protect it if restrictions are reintroduced. 430p

Amyris

Barron’s Synthetic biology is a very new technology, but it’s already drawing comparisons “to the internet of a generation ago”.

The technology consists of programming the DNA of micro-organisms (such as yeast) with a view to producing things more cheaply and with a lower carbon footprint than through normal manufacturing. Amyris is one of the main plays in synthetic biology. The firm is the most advanced in its sector, projecting $400m in sales for 2021 and breaking even in earnings before interest, taxes, depreciation and amortisation (Ebitda) terms. Buy in now to cash in on the future. $13.50 Litigation Capital Management

Investors’ Chronicle Australia’s Litigation Capital

Management is a provider of litigation financing. The firm has just entered its third major deal in the last seven weeks and the outlook remains “favourable” owing to the unstable market environment brought on by the pandemic, which has led to a jump in insolvencies, bankruptcies and restructurings.

The firm’s “fast-growing” fund management business also looks set to enjoy a major boost; it aims to launch another $300m fund in the near future. Investors have “taken note”. 121p Hyve Group

The Sunday Times The easing of restrictions worldwide means big events are back on, which presages a rebound for this international conference and exhibitions organiser. The second quarter was its busiest since the start of the pandemic as restrictions begin to ease in Russia and China. Hyve has held 28 events so far in 2021, but usually it puts on around 130 a year. The firm has expanded its online presence thanks to the acquisition of a digitalnetworking platform that held over 80 online events in the first half of 2021. 121p

...and the rest has Kimberly-Clark ha dividend for boosted its dividen but it looks 49 years in a row, b “problematic” set to post “proble today. The quarterly results to firm has also fallen short of profit targets in two tw of the last three quarters, and analysts’ earnings estimates have been dropping in recent months. h The firm profited from f l people stocking up on pap l paper towels, tissue papers and d bl disposable nappies during Co d Covid-19, but that boost is ov over now.

Avoid ($139).

A German view

Shares

Online fashion n group Asos has as announced a joint venture with US retailer Nordstorm, storm, which will accelerate thee growth of both h Asos and the h (which Topshop uired Asos acquired is earlier this nds. year) b brands. rm Nordstorm ting is investing in all the

The stars are aligning for Germany’s K+S, as Wirtschaftswoche points out. Europe’s largest producer of potash, used in fertiliser, is profiting from the turn in the commodities cycle, with higher crop prices bolstering demand for fertilisers and potash. The structuralgrowth outlook is also encouraging, with the expanding global population set to bolster long-term demand for fertilisers. The group recently sold its de-icing salt division to an American company, yielding €2.5bn to pay down debt. What’s more, its rivals have struggled recently – Belaruskali has been hampered by EU sanctions against Belarus, while one of US producer Mosaic’s mines has been beset by production difficulties.

MONEYWEEK

23 July 2021

labels Asos acquired from Arcadia, which will “leverage Nordstrom’s brick-and-mortar presence in the US”, with the launch of selected Asos brands on the retailer’s website and in “high-impact” locations.

Buy (4,475p)

subsidiary so he can “scale up the fast-growing ingredients business”. Investors have complained about the business for years. Existing investors should hold; new ones should buy (729p).

The Mail on Sunday

Pub operator Fuller Smith & Turner is set to bounce back with the easing of restrictions.

Like-for-like sales reached 76% of 2019 levels in the 12 weeks to 3 July – but new Covid-19 variants are still a concern, so hold for now (860p).

Tate & Lyle’s shares have dropped by 10% in two months. “The decline seems unfair.” Chief executive Nick Hampton has announced the sale of 50% of the company’s corn-processing

Investors’ Chronicle

IPO watch Food-delivery app Zomato launched a $1.3bn initial public offering (IPO) in Mumbai last week. It achieved a valuation of almost $8bn. The firm is the latest “unicorn” (a private company worth more than $1bn) India has produced, and the country’s first major digital start-up to float on the stockmarket. But analysts are wary of Zomato’s high valuation, especially as it has yet to make a profit. It is on an enterprise value-to-sales (EV/ sales – see page 14) ratio of 25,while most of its global peers are on a ratio of ten. The Indian bourse is preparing for more highprofile listings, including mobile-payments app Paytm and online-beauty retailer Nykaa.

moneyweek.com

©Amyris; ASOS; iStockphotos

The Motley Fool

7

Shares City talk

Zoom’s pricey purchase

The videoconferencing platform became a household name during the pandemic, but it now needs new sources of growth. Alex Rankine reports

l Posh-mixers maker Fever-

Tree reported that its like-forlike sales during the six months to June “rose by a third to £137m”, says Lex in the Financial Times. But the shares slid by 6% on the news. Rocketing transport costs are weighing on margins: “Sea freight rates to the US... have almost trebled since the start of the year.”

The group’s expansion into the US won’t be derailed – it is ramping up production locally. Still, “on a price/ earnings ratio of almost 60, shares in this drinks maker look too frothy”.

l Hedge-fund billionaire Bill

Ackman has been “too clever for his own good”, says Chris Bryant on Bloomberg. Not “content” just to raise $4bn to fund the largest special purpose acquisition company (Spac) ever, he also plotted “the most complex” takeover deal ever proposed by a Spac. The unconventional bid for a 10% stake in Universal Music Group, the world’s biggest record label, has now fallen apart under the weight of regulatory scrutiny and sheer intricacy. Ackman’s desire to innovate is “admirable” but he has clearly overreached.

He now says his next deal will be a more “conventional Spac merger”.

©Alamy; Fevertree; Zoom

l Indian digital-payments

provider Paytm has filed to raise Rs166bn (£1.6bn) in an initial public offering (IPO) in Mumbai. The listing, which values Paytm at $25bn, will be one of India’s biggest on record. Paytm “shot to prominence during a 2016 banknote ban” in India, says Una Galani on Breakingviews. Today it “serves 333 million consumers”, allowing them to make purchases, open bank accounts and access financial services. The firm is tapping into powerful economies of scale and network effects, and looks “well placed” to expand.

moneyweek.com

Video platform Zoom Video Communications has become a “household name” during the pandemic, say Rob McLean and Michelle Toh on CNN. Just two years ago it was valued at $16bn, but its market capitalisation has since soared above $100bn after millions of people turned to it for remote videoconferencing during lockdown.

Now vaccines are allowing more people to get back to the office, so it needs to “find new avenues of growth”.

The solution is a push into the enterprise market. The firm has announced that it will buy cloud contactcentre specialist Five9 for “a whopping $14.7bn”. Five9 provides software to customerservice centres for over 2,000 clients worldwide.

Five9’s software helps companies to streamline their customer service operations. It can be difficult for businesses to keep track of all the interactions they have had with a customer across text, phone calls, online chat and email.

Integrating artificial intelligence

Companies need help with “a multichannel approach” and are also increasingly using artificial intelligence in customer service, says Lex in the Financial Times. The $24bn cloud-based call centre service market is growing fast. Five9 could integrate Zoom’s videocalling technology: a customer with “a broken dishwasher” could “simply show the help-desk representative the problem via video rather than attempt a voice-only explanation”. Zoom has become “a proprietary eponym for video calls” since the pandemic began. Sales quadrupled to $2.65bn last year, but management knows that the growth spurt can’t be repeated. Remember that “Kleenex and Xerox... struggled to retain early dominant positions”.

Zoom is popular with “everyday users”, but in the business market Microsoft’s Teams platform

The group’s market value soared from $16bn to $100bn in the pandemic

is breathing down its neck, says Dan Gallagher in The Wall Street Journal. This deal will give Zoom an extra selling point, allowing it to offer “a more robust portfolio of communication services”. The all-share deal is by far the firm’s biggest to date.

Before this tie-up, Zoom’s largest ever purchase was valued at a mere $43m. The deal is a big bet, agrees Alex Wilhelm for TechCrunch. “The Five9 transaction is worth nearly 15% of Zoom’s total market cap; the company is betting a little less than a sixth of its value on a single wager.”

Zoom’s shares trade on a princely 70 times forecast earnings, says Pete Sweeney for Breakingviews. They have provided a “rich currency” to fund this all-stock deal. The trouble is that Five9 “is also exuberantly valued”. The business “has reported a net loss for the last five years” but is trading at 26 times forward sales, “one of the highest in recent software transactions”. Five9 is set to make earnings before interest and tax (Ebit) of $130m in 2023, yielding a measly “0.7% after-tax return” on the $14.7bn purchase price. Returns could be even worse if “well-heeled competitors” such as Microsoft pile into the sector with their own purchases. This deal could herald the start of “an expensive new battle over cloud-based conversations”.

Philip Morris goes “beyond nicotine” US tobacco giant Philip Morris International “wants you to think it’s a healthcare company now”, says Rich Duprey on The Motley Fool.

In February, the Marlboro cigarette owner launched its “beyond nicotine” initiative, which plans to “generate over half of its total net revenue from smoke-free products by 2025”.

Now it has agreed to pay £1bn for British inhaler specialist Vectura. The group’s devices have been used to help bring “13 inhaled medicines to

market”. Philip Morris says it is evolving into “a broader healthcare and wellness company”, but critics spy “a wolf in sheep’s clothing”.

No wonder, says Helen Thomas in the Financial Times.

Transitioning into cigarette alternatives is one thing, but Vectura makes most of its money from treating smoking-related diseases. It is as if BP announced a move “into flood prevention and forest-fire management”.

What’s more, Vectura’s links to the tobacco industry could

hamper its ability “to attract talent... and develop products”.

The takeover could also limit how much the NHS is allowed to deal with Vectura, adds Alistair Osborne in The Times. Britain’s membership of the World Health Organisation’s Convention on Tobacco Control commits it to reducing the industry’s influence in public health policymaking.

The “conflicts of interest” opened up by a firm that “kills people for profit” getting into the healthcare game are “myriad”. “Calls for the government to stub out takeovers are too frequent lately. But this one really does belong in the ashtray.”

23 July 2021

MoneyWeek

8

Politics & economics

PM snatches defeat from jaws of victory “The aesthetics of a prime minister in isolation on Freedom Day are, of course, not super,” says Hugo Rifkind in The Times. “It’s like announcing the end of a war while wearing a gas mask.” As for the mysterious VIP pilot scheme, which meant that at 8.01am on Sunday Boris Johnson and Rishi Sunak didn’t have to self-isolate after contact with Sajid Javid, but by 10.38am they did, it prompts the question, “who is flying this plane”? With about half a million people currently isolating in “this United Pingdom of ours”, did Number 10 not realise how this would look?

The government is “in danger of snatching defeat from the jaws of victory”, says Jeremy Warner in The Daily Telegraph.

After a “disastrously ill-judged” initial response, followed by the huge success of the vaccine rollout, ministers are now “busy squandering their gains”. Johnson may “get lucky again”, with the Delta variants ripping through the young and allowing the disease finally to “burn itself out”, but to the extent that this is a “strategy at all”, it is characterised by the “same sense of chaos” that has come to define Johnson’s government. It’s not the decision itself to lift restrictions, which seems “entirely reasonable” now that nearly 70% of adults are fully vaccinated, but the “deeply worrying lack of joined-up thinking”: from the “broken” traffic-light system for travel to the “entirely predictable” “pingdemic” and mixed messaging over mask-wearing on public transport.

A chaotic “pingdemic”

As isolation-driven absences from work multiply, with serious and costly implications for businesses and services, there is confusion, even among government ministers, about who will be allowed to ignore self-isolation “pings” from the

Not a great look for “Freedom Day”

NHS Covid-19 app, says Jon Sharman in The Independent. On Monday, Johnson said that critical workers who have been fully vaccinated for at least a fortnight can do their jobs, says Sky News, but the government has yet to settle on who qualifies as a critical worker. For everyone else, employers will have to apply to government departments to let workers effectively “circumvent the rules”.

The situation has been made worse by ministers and officials choosing to “elide the difference” between Test and Trace, which is legally enforceable, and the NHS Covid-19 app, which is not (and which does not share data with Test and Trace in an identifiable way), says Isabel Hardman in The Spectator. The app is almost completely useless, says Warner. Those who can’t afford to quarantine or don’t want to simply disable it; those who want ten days at home will search out ways to get “pinged”.

Then there’s the controversial issue of vaccine passports, says The Economist.

Having ruled them out, Johnson announced on 19 July that proof of double vaccination will in fact be used in “closed spaces, crowded places and close-contact settings” and, in a push to encourage younger people to get vaccinated, will also be required for access to nightclubs from September (by which time the wave will have “done its worst”). The government’s communications adviser “should be fired”, commented one scientific adviser.

Meanwhile, a Tory rebellion is brewing, says The Guardian, with at least 42 Tory MPs having signed a cross-party Big Brother Watch declaration against Covid-19 status certification.

Whatever happens next, all eyes are on Britain, says The Economist. Policymakers in other countries will want to see if the combination of a high vaccination rate and acquired immunity will allow us to treat Covid-19 more like flu and the coronaviruses that cause common colds. So far (see below), the signs are encouraging.

Chief medical officer Chris Whitty has reason to be more cheerful

MoneyWeek

23 July 2021

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The vaccines are doing their job

The Delta variant of the virus is “ripping” through Britain, with more than 40,000 new cases being reported daily (roughly two-thirds of the January peak), says The Economist. But daily hospital admissions have fallen to around 750, a sixth of the peak, patients are younger (60% aren’t vaccinated), treatments are better, and hospital stays are shorter.

Scientific advisers stress that vaccines have weakened, not “severed”, the link with serious illness and death, says The Guardian, and around 40 people are still dying of Covid19 every day. But this is a fraction of the 1,800 peak in January and the majority of deaths are actually now among

the vaccinated, says The Conversation. Why? Because a vaccinated 70-year-old is still at greater risk from Covid-19 than an unvaccinated 35-year-old.

In Israel, where 56% of its nine million population are fully vaccinated, the pattern is similar, says Deidre McPhillips on CNN. Daily cases of the more vaccine-resistant Delta variant are twice that of midApril, but daily deaths, which averaged five a day then, are “consistently” below that now.

Until Saturday, cases were “galloping upwards” at such a rate that Neil Ferguson’s worstcase scenario (200,000 a day) “seemed assured”, says Ross Clark in The Spectator.

But since then, there has been a

“dramatic” daily decline, from 54,674 to 44,777 to 34,657.

This is in line with the Covid Symptom Study, which suggests that the third wave may already be “running out of steam”. Interestingly, infections are declining among unvaccinated people (down 22% in a week) and rising among vaccinated people (up 40%). This suggests that the virus is “beginning to run out of unvaccinated people to infect”.

Since vaccines have been shown to be so effective at preventing serious disease (93% for the Pfizer vaccine), this is a “promising sign”. A sharp decline in hospitalisations over the coming days could confirm the theory.

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“Freedom Day” turned out to be much the same as every other day, except worse. Emily Hohler reports

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Texas

Jeff Bezos follows Branson into space: Jeff Bezos, founder of

Washington DC

Delta variant threatens US recovery: Around 60% of US adults are

Amazon and Blue Origin, a rocket manufacturer, became the second billionaire to go into space when he blasted off in a rocket from Texas this week, reaching a height of 100km.

That’s 15km higher than the first billionaire in space, Richard Branson, who pipped Bezos to the post last week in his Virgin Galactic space plane. Along for the ride were Bezos’ brother Mark, plus the world’s youngest and oldest astronauts – 18-year old Oliver Daemen, a Dutch student whose father paid an undisclosed sum for the ticket; and 82-year-old Wally Funk who was given a free ride in the rocket.

Funk is a pilot who trained to be an astronaut on the privately funded Women in Space programme in the 1960s, but was denied a place on Nasa’s space programme because she was a woman. Blue Origin is now open for booking, says CNN. Bezos claims that ticket sales are approaching $100m.

now fully vaccinated, but the Delta variant of the Covid-19 vaccine is sweeping through the country and “posing a downside risk to the economy”, says Capital Economics. Consumption growth is “faltering”, with inflation reducing people’s purchasing power.

Growth is “slowing more sharply” than anticipated. President Biden is pinning his hopes on his “Build Back Better” plan, reports CNBC. Biden said on Monday that the plan would fund decades of economic growth and increase the workforce. But the resurgence in Covid-19 cases has led many forecasters to start “to rethink their extremely rosy projections”, says The Washington Post.

With supply chains disrupted, orders for many items are “delayed for months” and there is “unlikely to be any supply-chain relief until early next year at the soonest”. On the plus side, credit agencies are “upgrading hundreds of billions of dollars of US corporate debt”: they think the economic rebound has made corporate debt piles more “manageable”.

Los Gatos, California

Has Netflix peaked? Streaming giant Netflix

disappointed the markets this week. It said it had signed up 1.5 million more people worldwide to its platform in the second quarter, but lost 430,000 viewers in the US and Canada. It expects to add another 3.5 million viewers across the world between July and September, compared with the 5.9 million analysts had been anticipating. Investors are wondering if we have reached “peak Netflix”, says Mark Crouch of investment platform eToro. The group “set the bar so high early in the pandemic” that it can hardly help undershooting expectations now. In the first half of 2020 it gained 25 million new members globally, a 100% jump on the same period in 2019. Now that economies are reopening there is plenty to do besides binge-watch a show, while in the past 18 months competition has emerged, with Disney, Apple, WarnerMedia, and BritBox (a joint venture between the BBC and ITV) launching streaming platforms.

Lima

Peru elects Marxist president:

Pedro Castillo (pictured), the rural schoolteacher who “promised to restructure Peru’s economy to favour the poor”, has finally been confirmed as president, says Simeon Tegel in The Washington Post.

This follows a six-week delay caused by a series of “last-ditch legal challenges” by his right-wing opponent Keiko Fujimori, who alleged electoral fraud. The official result gave Castillo 50.13% against Fujimori’s 49.87%. Nevertheless, it is unclear whether Castillo will be able to fulfil his promises (he pledged to redraft the constitution d raise i taxes on mining i i firms), fi ) or even llast the h and

full five-year term. Although his Marxist-Leninist party is now the largest in Congress, with 37 out of 130 seats, he faces a “conservative majority led by the 24 members of Fujimori’s Popular Force”.

Various economic measures he has proposed may be deemed “confiscatory” and therefore unconstitutional by the courts. Castillo also has Covid-19 to contend with, says The Guardian. The pandemic has “crushed” the economy and plunged more than a third of the population into poverty, erasing the “gains of a decade” in the world’s secondbi oducer. biggest copper producer.

Peppa Pig has been broadcast in 180 countries

MONEYWEEK K

23 July 2021

nts with young children Most parents ely tired of Peppa Pig. are extremely rld’s second-most It is the world’s ildren’s cartoon behind popular children’s S b SquarePants, SpongeBob SquarePants according nment-consulting group to entertainment-consulting lytics. Launched in 2004, Parrot Analytics. it has been broadcast in more than ies; in 2019 the brand 180 countries; generated $1.35bn in retail sales.

Now it has also become a striking example off Britain’s “soft power”. k The talking pig is “being credited ng American children” with infusing sh accent and vocabulary, with a British says David Sanderson in The Times.

Parents in North America claim that their children are using words such as biscuits, petrol and telly, with funny accents.

Brianna Bell, a Canadian parent, said her toddler began speaking with a “slight British inflection” after watching the show for an hour each day. “She started saying ‘stabilisers’ instead of ‘training wheels’. She pronounced tomato ‘to-mah-toe’... I chatted with other parents and soon learnt that it was actually quite common and didn’t make me a terrible parent,” she told The Times.

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The wayy we live now: exporting British English

News

11

London

National debt hits 50-year high: “Freedom Day”, 19 July, failed to live up to its name as the rapidly spreading “pingdemic” forced many people to isolate (see page 8). Plenty of people who haven’t been pinged remain cautious, notes Pantheon Macroeconomics. Footfall at retail locations in the week to 10 July was 74% of the figure in the same week in 2019, down from 86% in the first week of June 2021. Similarly, data from OpenTable suggests that the number of seated diners so far this month has exceeded July 2019 levels by 19%. In June the equivalent figure was 26%. The upshot? GDP growth in the third quarter is likely to reach just 1.3%, compared with Pantheon’s previous estimate of 1.8%, but the economy should have regained its pre-pandemic size at the end of this year. The brisk rebound so far, however, meant that public borrowing in June was lower than expected at £22.8bn, although that is still the second-highest June figure on record. The overall debt pile is now worth 99.7% of GDP, the highest ratio since 1961.

Fewer people have been eating out in the past few weeks

Berlin

Row begins as floods recede: “As the

Pretoria

South Africa’s riots unnerve investors: In South Africa over the

past fortnight, at least 215 people have died, while more than 2,500 have been arrested and thousands of businesses torched in the worst unrest since the end of apartheid, says Andrew Meldrum of the Associated Press. The violence was sparked after former president Jacob Zuma began a 15-month prison sentence for contempt of court, with supporters in his home province of KwaZulu-Natal creating burning roadblocks. South Africa was already in recession and the violence has caused an estimated $680m in damage and could scare off investors, causing the economy to contract further.

The violence is a sign of how far the social contract has “eroded”, says Kenan Malik in The Observer. A combination of hunger, poverty, desperation, “gangsters seeking to profit from mayhem and political activists settling scores” allowed the protests to morph into something “more menacing”. Apartheid may have gone, but 27 years on “so little” has changed for the black population, 64% of whom live in poverty compared with just 1% of whites. Three out of four young people are unemployed. Corruption, along with policies that largely benefit the wealthy and well-connected, have contrived to create “the most unequal society in the world”.

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worst floods in Germany’s post-war history subside, the finger-pointing has started,” says The Economist.

The federal system played a part: city and county councils in the 16 states are responsible for the prevention of natural disasters, and they were “highly inconsistent” in their response to flood warnings from Germany’s national meteorological service, which came “several days before disaster struck”. The front-runner to succeed Angela Merkel as chancellor, the centre-right CDU’s Armin Laschet (pictured), was filmed “laughing and sniggering” while the president made a speech.

He has been forced to “apologise and grovel”. Almost 170 people have died since heavy rainfall in North RhineWestphalia and Rhineland-Palatinate caused rivers to overflow. The federal government has pledged €300m in short-term emergency aid, along with billions more later to repair the damaged houses, roads and bridges. In 2002, the deft handling of floods in east Germany helped chancellor Gerhard Schröder win re-election; the effect this time is uncertain, as “none of this year’s candidates have Schröder’s political nous”. So far, the CDU’s lead over the Greens has fallen by 2% to 9%.

Canberra

Australia returns to lockdown: “For the past year, Australia has

been coasting along almost blissfully detached from the global pandemic,” says Frances Mao on the BBC. Its border closures and a strict quarantine policy for the few visitors allowed in kept Covid-19 at bay; only 915 Australians have died of the disease so far. However, it seems the highly-infectious Delta variant has now managed to sneak through the border. And the country has been extremely slow to vaccinate its population over the past few months. Around 14% of Australians are vaccinated, the lowest rate in the OECD club of developed countries. As a result, strict lockdowns are being reinstated to minimise the danger. This week half the Australian population, around 13 million people in the states of South Australia, Victoria and New South Wales were locked down. It is not clear when the two biggest cities, Melbourne and Sydney, will reopen. More than 1,500 people have been infected in Sydney, the largest city, and 110 new cases emerged on Wednesday, despite a fourth week of lockdown. Australia’s GDP has already regained its pre-pandemic level, but this year’s bounce is losing momentum.

23 July 2021

MoneyWeek

12

Briefing

A new revolution in Cuba?

The biggest protests in decades have rocked the one-party communist state. But is change for the better really on the cards? Simon Wilson reports Cuba is in the grip of its worst economic crisis since the early 1990s and frustrations are starting to boil over. On 10 July, a spontaneous protest in the city of San Antonio de los Baños – triggered by the latest wave of power cuts – rapidly spread to around 50 other towns and cities, fuelled by social media. Within hours, thousands were on the streets in a massive popular show of anger at food shortages, runaway inflation and the government’s handling of the pandemic. They were the biggest protests for decades in a one-party communist state where unauthorised protest is a crime. And they had an explicitly political message: down with the communist regime. For now the protests have been contained: security forces (as well as pro-government thugs) were unleashed and hundreds arrested.

But most analysts expect further ructions.

Why has it happened now?

A perfect storm of economic factors combined with increased digital connectivity. Cuba has struggled to cope with the toughest US economic sanctions in decades, imposed by the Trump administration starting in 2017.

After the detente of the Obama years, the Trump administration strengthened the decades-old trade embargo and targeted Cuba’s sources of currency. It also imposed sanctions on tanker companies that delivered petroleum to Cuba from Venezuela and cut back on the commercial flights from the US to the island. Then, in January 2021, just before Trump left office, the US returned Cuba to its list of “state sponsors of terrorism” (for its support of Venezuela’s socialist regime).

The future for Cuba depends on Cubans

on remittance firms under Trump – began to dry up as the pandemic led to huge job losses in the US. And agriculture has been hit, too, with the shortage of foreign currency and the US embargo affecting the purchase of fuel and other agricultural inputs. In late April, Cuba’s state sugar monopoly reported a harvest this year of just 68% of the planned 1.2 million tonnes.

That makes this year’s sugar harvest the smallest since 1908, according to Reuters.

Was the economy ever a success?

No, though some periods (the mid-2000s) have been happier than others (the early 1990s). Cuba’s GDP is in the order of $93bn, or around $8,200 a year per head.

Among its neighbours, that makes it about as rich as the Dominican Republic, somewhat better off than Jamaica, and What was the effect?

It further crippled international trade – even much better off than Haiti. By the standards of the region, then, it is not a total basket in food and medicine (exempted from the case or outlier. But US embargo). That’s “Painful currency reform has ever since the 1959 been disastrous for a country that imports seen prices soar, with inflation revolution, the country has been 70% of its food, estimated at 500%” and whose strong unable to pay its public health system is a major source of way and generate appropriate, sustainable legitimacy for the state. Just as important, growth without staggering levels of aid and subsidies from foreign allies. During the Covid-19 has hit the country hard, with Cold War, Cuba’s status as a communist the collapse of tourism (accounting for at outpost 100 miles from the US coast meant least 10% of the economy and a far greater proportion of hard currency earnings). And that Moscow invested heavily in it. the government’s painful currency reform in January – sharply devaluing the peso, How heavily? and scrapping the dual currency system – Between 1960 and 1990, the Soviets gave has seen prices soar, with some economists Cuba $65bn – three times the total amount estimating annual inflation at 500%. of aid that Washington’s Alliance for Progress gave the whole of Latin America.

What sectors have been hit?

The collapse of the USSR in 1990-1991 Covid-19 didn’t just put a stop to tourism. led directly to economic collapse in Cuba It meant that remittances sent by expatriate (a time known as the “special period”).

Cubans – a mainstay of the economy which Later, Cuba’s great champion was the Chávez government in Venezuela. At its had already plunged due to US restrictions

MoneyWeek

23 July 2021

peak in 2012, Venezuelan aid, subsidies and investment amounted to $14 bn, close to 12% of GDP at that time. But that support faded as Venezuela’s economy collapsed and oil revenues dried up. This all led to today’s crisis, with widespread food and medicine shortages, and frequent power outages.

Any glimmers of hope?

First, there is the potential for tourism. The sector boomed from 2007 to 2017, with visitors to the island doubling. Second, exports of medical services, though this has been compromised, for now, by Venezuela’s collapse. And third, the tentative, modest market reforms introduced under Raúl Castro from 2011 onwards. Between 2011 and 2017, around one million people (15% of the working age population) had moved into the “non-state” sector, either as selfemployed or as informal workers (many of them in the tourism sector). That’s a positive sign. But those workers have been left especially vulnerable to the collapse of tourism and the current economic crisis.

What’s next?

That depends on Cubans – but also on the US government. President Joe Biden promised during the election campaign to reverse Trump’s Cuba policy, but hasn’t – for fear of antagonising the large CubanAmerican vote in Florida, who back a hard line. The world has long urged the US to end its trade embargo altogether, on the grounds that a more prosperous Cuba would benefit everyone and lead to gradual political change. President Miguel Díaz-Canel faces a choice, says The Economist – to “turn Cuba into Belarus with sunshine, or to assuage discontent by allowing more private enterprise and greater cultural freedom”.

Biden should “lift the embargo and deprive the regime of an excuse for its own failures”. moneyweek.com

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Investment strategy

QE: too much of a good thing

Guru watch Jeff Gundlach, founder & CEO, DoubleLine Capital

The Bank of England is addicted to QE, the House of Lords has warned.

What does that mean for investors?

When the developed world’s central banks resorted to quantitative easing (QE) after the 2008 global financial crisis, most of us were shocked. While QE was not entirely new, the idea of central banks printing money at scale to buy government bonds seemed an extraordinarily radical, not to mention risky step. Today, it’s just another part of the toolbox. QE has been used in various forms across most developed nations in the decade since the banking crisis, so when it was deployed in vast quantities during the pandemic, no one batted an eyelid. But a new report from the House of Lords’ Economic Affairs Committee suggests that this widespread complacency is a problem. In short, QE has become “a dangerous addiction”, to quote the report’s title, with a particular focus on its use during the pandemic.

Mervyn King: not a fan of QE

pressure from governments to keep funding national budget deficits. Finally, central banks have no clear strategy on how to unwind QE, or even if it can be unwound. Already the assets bought by the Bank of England under QE are worth 40% of UK GDP, so this “Central banks risk question is hardly just theoretical.

The big problems with QE So why the concern? Mervyn compromising their The report also nods to QE’s impact on wealth inequality. It King – who headed the Bank of independence” “artificially” boosts asset prices, England when QE was used in benefiting their owners “disproportionately”. It 2009 – sums up the report’s main findings for is also sceptical about the usefulness of extending Bloomberg. First, central banks risk appearing central bank mandates to include climate change. too relaxed about inflation. They say that price It’s all pretty damning, implying that central rises are “transitory”, but it’s not clear why this is banks don’t really know what they’re doing. It’s the case, or what they would do if inflation turns also clear that the committee feels that QE now out not to be transitory (eg, raise rates, or drain risks fuelling inflation. But what does it mean the QE first?). Second, QE is too readily used – it for investors? Probably nothing. None of these “has become a universal remedy for almost any points is new (we’ve been making them for years). macroeconomic setback”. The 2020 pandemic was very different in nature to the banking crisis – It might put more political pressure on the Bank of England to make a show of attending more to yet central banks reached for the same solution. inflation. But as the report itself rather proves, Third, given the scale of recent QE and central banks (and governments) have become the simultaneous increase in government spending, central banks risk compromising their dependent on QE. In the absence of a palatable independence and credibility as they come under alternative, it’s hard to see them going cold turkey.

I wish I knew what the EV/sales ratio was, but I’m too embarrassed to ask

The easiest way to measure the value of a company is to use its market capitalisation – the value of all its outstanding shares.

However, this may not reflect all the claims that different groups of investors have on a firm. For example, a company may be heavily funded with debt rather than equity. Or it may have a lot of cash on its balance sheet offsetting some of that debt. It might also have issued preferred stock (securities that rank above ordinary shares, but below debt) or some of its subsidiaries may be partowned by other investors (known as minority interests).

Unlike market cap, enterprise value (EV) combines all these

MONEYWEEK

23 July 2021

sources of funding. Take a £5bn market cap company. It also has £3bn in debt; £1bn cash; £500m in preferred stock; and 25% of a subsidiary valued at £1bn is held by other investors. Its total EV is £5bn + £3bn − £1bn + £500m + (25% × £1bn) = £7.75bn.

So how do you use EV to value a company? Since interest on debt is paid out of pre-tax earnings, EV is usually valued against a metric such as earnings before interest and tax (Ebit), instead of net income. A lower EV/Ebit ratio implies a cheaper company, just like a lower price/earnings ratio.

Another option is to compare EV to sales (revenues). So a company with an EV of £8bn

and sales of £4bn has an EV/ sales (EV/s) ratio of 2.

Why use sales rather than earnings? Different sectors have very different profit margins, so EV/s is best used to compare stocks within the same sector. It can be helpful with cyclical firms whose earnings are temporarily depressed, but which should return to a more normal level.

It can also be used for earlystage growth stocks which do not yet make a profit. A low EV/s may imply a cheap stock as you are paying less per dollar of sales. The value of this does depend on whether your assumptions about future profitability are realistic: a business with little prospect of making a profit will be a bad investment even if the EV/s ratio is low.

©Shutterstock

John Stepek Executive editor

Federal Reserve chair Jerome Powell (pictured below) “is still wishing, hoping, praying that this goes away”, says Jeff Gundlach, founder and chief executive officer of DoubleLine Capital, noting the dilemma facing the US central bank over rising inflation. The bank’s claims that rising prices would be “transitory” already ring hollow, Gundlach tells CNBC. Initially the Fed defined this as a few months, but “now transitory is six to nine months”.

Yet despite rising concerns about inflation, bond yields on government debt remain stubbornly low, and have even slipped in recent months. The ten-year US Treasury yielded around 1.7% in May, but has seen its yield

drop back towards the 1.3% area. Typically, rising inflation is bad news for bonds as the fixed income they offer loses value as prices rise, which means investors sell bonds, driving up yields (bond prices move inversely to yields).

What’s going on? The answer is quite simple, says Gundlach. “Yields are this low because of all the liquidity in the system.”

Despite shifting inflation expectations, “banks are so flush with deposits” that demand for “safe” assets such as US Treasuries remains sky high.

But debt still matters, notes Gundlach. Indeed, while he expects the US dollar to hold up in the short term, longer term, he says, it’s “doomed”.

“Ultimately, the size of our deficits – both the trade deficit, which has exploded post-pandemic, and the budget deficit, which is... off the charts – suggest that... in the intermediate term ... the dollar is going to fall pretty substantially.”

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A brewing crisis in emerging markets

Covid-related political unrest and financial collapse in the developing world are the biggest threats right now

Over the last month, South Africa has seen some of the worst rioting and looting since the end of the apartheid era. More than 200 people were killed, many towns started to run out of food as supplies were disrupted, and troops had to be deployed on the streets across the country to restore order. Turkey is looking more unstable by the day. In Cuba, there have been widespread protests against the government as the country’s economy has been battered by one of the worst outbreaks of Covid-19 in the Americas (see page 12). Worries have been starting to stack up in other countries too. Markets are getting jittery. The South African rand slumped. Cuba’s economy is under severe pressure. The effects are rippling out across the wider emerging markets, with all the main indexes and currencies sold off.

An age of Covid revolutions

It may just be a coincidence. Perhaps the protests will blow over without any wider consequences. Yet there are also reasons to fear that this could mark the beginning of a wider period of Covid-related political turmoil in the developing world. First, slow vaccination means the pandemic is hitting far harder, and lasting far longer, than it has done in the major economies. Europe and North America have hit 60%-plus vaccination levels, enough to dramatically reduce hospitalisation and death rates even as new variants emerge. South Africa has only managed to vaccinate 5% of its people so far, and rates in the rest of Africa are even lower. The result? While much of America and Europe is opening up again, many developing countries have no choice but to impose fresh restrictions. The Covid

South Africa; a localised dispute, or the start of something big?

Reasons to be fearful

emergency is stretching to two and perhaps three years, putting pressure on society.

Next, economies can’t be bailed out.

Europe, the US and Japan all have credible central banks and secure currencies and can print money on a vast scale to get economies back on their feet. Furlough schemes protect jobs, tax breaks and soft loans keep companies afloat, and huge spending programmes keep demand buoyant. The pandemic has done remarkably little damage to developed economies. It is a different story in the emerging markets. None can print money and governments can’t step in with unlimited support. In many places, the pandemic means food and medicines are in short supply, unemployment has soared, and businesses have had to close down.

Inevitably, that puts far greater pressure on political systems than in the developed world. People are angry and widespread corruption, as in both South Africa and Cuba, hardly makes it any better. It is not surprising that protests and riots are starting to emerge – people have plenty to be angry about.

Finally, in many cases we are starting to see state failure. Dealing with a pandemic requires an effective government. Even France and Germany, with some of the most efficient state machines in the world, have struggled to come up with an effective response. In much of the developing world, the government is riddled with corruption, appointments are dished out to cronies, and there are hardly any civil servants with the expertise to respond to an emergency.

It is failing governments that are most at risk of revolutions – and a crisis such as this exposes every weakness in the system.

In the developed world, vast borrowing has allowed economies to sail through the pandemic without any real damage. But there will be a price to be paid somewhere and it looks like it may well come in the form of a series of Covid revolutions across the developing world. Markets are worrying about inflation, debt and how quickly growth will get back to normal.

But political unrest followed by financial collapses in the emerging markets are the real threat over the next six months.

Who’s getting what

MONEYWEEK

23 July 2021

● Ian McAulay, CEO of Southern Water, has been handed a bonus of £550,900, despite the company being fined a record £90m for “deliberately dumping billions of litres of sewage” into the sea between 2010 and 2015, reports BBC News. McAulay joined in 2017 and the firm says its record is improving.

But in 2020 it remained the second-worst offender with 102 incidents per 10,000km of sewers. Chief Financial Officer Sebastiaan Boelen got a bonus of £290,000.

Nice work if you can get it ● Former prime minister David Cameron was paid more than $1m by the collapsed finance company Greensill Capital – more than $40,000 (£29,000) each day for the 25 days he had to put in every year, reports the Financial Times. That put him among Greensill’s highest earners, with the head of its American division, “a career banker with 25 years of experience”, being paid just $400,000.

Other former politicians on the payroll included Australia’s former foreign minister Julie Bishop, who was paid the equivalent of more than $600,000 a year as an “adviser”.

©Getty Images

● Argentinian football star Lionel Messi has agreed a new deal that keeps him at his club, Barcelona, to 2026 – but he will only be paid half the wages he was on before his contract expired, says BBC Sport.

Messi (pictured) was being paid a reported £123m a season, and has been at Barcelona since joining its academy in 2000, says the Daily Mail. FC Barcelona must reduce the amount it pays some of its players so as not to fall foul of the footballing authorities’ “fair play” rules.

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Matthew Lynn City columnist

The three top executives at the Financial Conduct Authority, the City regulator, were paid almost £640,000 last year, says Investment Week. FCA chief executive Nikhil Rathi was paid £228,000, but only took up his post in October 2020 – he has agreed a full annual salary of £455,000.

Executive director Christopher Woolard – who acted as interim CEO – was paid £239,000 and chair Charles Randell got £170,000. Former FCA chief executive Andrew Bailey, who left in March 2020 to take up his current post as governor of the Bank of England, was due to be paid a bonus of £68,000. He received £27,000 in March 2019 with the remainder to be paid in April last year, but he declined to accept the remaining £40,800. Among the other financial regulators, Mark Neale, head of the Financial Services Compensation Scheme, was paid almost £300,000 – £260,000 in basic salary and £32,000 as a bonus.

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Scam victims need better protection James Coney The Sunday Times

How to get Haiti back on its feet Noah Smith Bloomberg

Ditch red tape to boost markets Dru Danford Financial Times

China’s Xi bans superskyscrapers William Pesek Nikkei Asian Review

MoneyWeek 23 July 2021

Best of the financial columnists Few have heard of the Lending Standards Board (LSB), but it is “actually quite important”, says James Coney. It oversees a code of conduct on how banks deal with complaints about fraud; a code which recognises that scams can be sophisticated and states that “unless a customer has done something wrong they must get a refund”. The LSB is “packed with fair-minded, qualified people”, so why is it so “utterly, tragically useless”?

Banks routinely refuse to refund innocent victims and warnings from the LSB are ignored. A 2020 report by the Payment Services Regulator found that the percentage of cases repaid by one bank was 2%. “The problem is the way the LSB was created” and funded – which was by the banks, in order to “avoid more formal regulation”. The LSB has no powers.

It cannot name rule-breakers and has “no obligation to reveal any data about complaints”. The banks treat it with such disdain that it “may as well not exist at all”. According to Which?, 413,553 scams were reported to Action Fraud in the past 12 months, representing a total loss of £2.3bn. The figure is rising. “If decent people can’t get the banks to treat their customers fairly, then only robust regulation can. And it must come quickly.”

“After the assassination of its president, Haiti is once again in danger of spiralling into political chaos,” says Noah Smith. It is the poorest country in the West and its “chronic dysfunction is both a result and a cause of its chronic poverty”. For example, political instability leads to a high murder and kidnapping rate which scares tourists away. Yet, like most Caribbean islands, it should be capitalising on its natural assets. Tourism accounts for around 31% of Jamaica’s GDP. To kickstart economic growth, Haiti should create some “small oases of security” for tourists, an approach used by countries such as Mexico. Airports and hotels cost a lot to build, and to attract foreign investors, Haiti will have to guarantee secure property rights (a good thing). Another focus should be agricultural productivity, following the example of Jamaica’s Rural Economic Development Initiative. Finally, though a “cheap trick”, it could “consider becoming a tax haven”. Though modest and with downsides (few locals will benefit at first), these initiatives are “doable”, and will generate some pockets of prosperity with wealth eventually trickling down. Since an unstable Haiti is in “no one’s interests”, the US government and international aid agencies should also do their bit.

For all the “talk of the decline of public markets”, there has been a significant increase in the amount of equity raised by UK firms in the past year, says Dru Danford. Much more could be raised, however, if certain rules – derived largely from the EU Prospectus Directive that we are no longer bound to – are changed. At present, listed companies raising more than 20% of their existing market cap or those issuing more than €8m of equity capital to the “public” have to produce a prospectus approved by the regulator. Since this is prohibitively expensive, this effectively results in an €8m cap. The rules “regularly lock out existing shareholders”.

A new Treasury paper, the Prospectus Regime Review, proposes removing the limit placed on the amount of new capital that listed firms can offer to the public along with the disincentive to offering shares to existing shareholders. The 20% rule should also be removed. Prospectuses – largely “unread doorstops” – contain little unpublished information. Other regulations exist to protect existing shareholders and retail investors. Brexit is an opportunity to shed unwanted regulation, and these changes would have an “immediate” and “positive” impact on the UK economy.

President Xi Jinping’s new ban on super-skyscrapers following moves to tame the “runaway credit that imperils China’s future” may be a sign that he “really is stabilising the country’s foundations”, says William Pesek.

Since 2000, China has become the home of super-skyscrapers, with around 50% of the world’s tallest 100 buildings. Yet there is a “bizarrely tight correlation” between tall buildings and financial crises. The construction of the Singer and Metropolitan Life Buildings in New York in 1907-8 were accompanied by a nearly 50% “plunge in stocks”. Around 1929, celebrations over 40 Wall Street and the Chrysler Building were shortlived and the arrival of the Empire State Building in 1931 added “insult to injury”. In the early 1970s, the World Trade Centre and Chicago’s Sears Tower coincided with “runaway inflation” and “fiscal crises in America’s biggest cities”. The 1997-8 Asian financial crisis hit as Malaysia’s Twin Petronas Towers were being finished and the completion of Dubai’s Burj Khalifa Tower coincided with the US 2008-9 subprime reckoning (and ensuring oil price volatility). So far, China is beating the “skyscraper curse”; Xi’s recent actions may help it to “avoid the Minsky moment”.

Money talks “To buy a house for my mum.

I promised her that and I did it when I had my first contract.”

Patrice Evra (pictured), former captain of the French national football team and Manchester United, on his childhood ambition, quoted in the Financial Times “Anyone judging this government by its policies alone would think it’s a Ukip-Corbyn coalition. Yes, we left the EU. But what then? We’re not becoming a smaller-state, lower-tax country – we’re ending up like a Corbynite theme park, with the state presenting itself as the answer to every problem.”

An anonymous Tory MP, quoted in The Spectator “In years to come, when people say, ‘What on earth did Andrew Lloyd Webber do with all his money?’

This is where it is.”

Lloyd Webber’s wife Madeleine on the £60m renovation of the Theatre Royal Drury Lane, quoted in the Financial Times “[Money] has nothing to do with happiness or personal realisation. It’s completely irrelevant after a certain point. If you make £100,000, that’s very nice compared with if you make £50,000. Then if you make £300,000 that is even nicer.

But after that it’s pretty immaterial. I was happy when I had nothing.”

Fashion retail billionaire José Neves (see also page 27), quoted in The Times “The peculiar evil is this, that the less money you have, the less inclined you feel to spend it on wholesome food. A millionaire may enjoy breakfasting off orange juice and Ryvita biscuits; an unemployed man doesn’t.”

George Orwell, quoted in The Times “When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.”

Warren Buffett, quoted in The Economist

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17

Funds

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The best fund to ride the recovery The Lowland Investment trust is perfectly poised to profit from Britain’s post-pandemic bounce

global financial crisis mark 2.”

Recovery is also represented

by GlaxoSmithKline, the second-biggest holding, while the largest, Phoenix Group (“retirement and savings”), is more of a value play. The fifth-largest holding and largest contributor to performance in the last year is Ilika, a pioneer in solid-state batteries. Another small-cap growth stock listed on Aim, K3 Capital, was the third-largest contributor, showing that riskier growth opportunities are very much on the managers’ horizon.

Max King Investment columnist

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From headwind to tailwind

“Brexit was a headwind for the UK market but is now a tailwind,” says Foll. “UK equities have underperformed [Europe] by 20% in the last five years and the world by 60%, thanks to the 108% return of the US market.

UK domestic earners have been the weakest – flat over five years while international earners have returned 40%.

Yet the high savings-ratio of the

A generous yield

There is ample scope for UK stocks to catch up with their global counterparts

pandemic will reverse, boosting domestic consumption, and this is not reflected in valuations or earnings forecasts. Domestic earners trade on 13.5 times 2021 earnings estimates but below ten on the trend of earnings going back to 2010.

In addition, domestic earnings estimates are very conservative, as we see on a daily basis from talking to companies, with revenues back to 2019 levels but earnings estimates much lower.”

About 54% of the revenue of Lowland’s portfolio companies is derived from the UK, against 27% for the All-Share index.

This and a focus on income implies a value bias, but the managers switch between growth, value and recovery

Activist watch Engine No. 1, the activist investor that won three board seats at ExxonMobil and persuaded the driller to “disclose its political and climate-lobbying activity”, bought 367,500 shares in General Motors in the first quarter of 2021, says Bloomberg. However, it has “been pretty quiet on its plans” since then.

Still, there is no doubt that GM is “the investor’s kind of target”. The car giant sided with former US president Donald Trump when it came to creating one national emissions standard for the US, a move that conflicted with California’s exemption in this field. What’s more, one third of its US sales comprise “thirsty pick up trucks”; electric vehicles make up just 1.5%.

MONEYWEEK

23 July 2021

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ames Henderson’s 31 years as manager of Lowland Investment Co. (LSE: LWI) make him the longest-serving investment-trust manager in the market. For most of that time, his record has been one of the best in the whole sector, although the UK-focused fund has struggled in the past few years. Flat returns in 2018 and 2019 were followed by a fall of 13% in 2020, even though the team was strengthened by the appointment of Laura Foll as co-manager five years ago.

In mid 2020, though, performance turned around and the recovery has continued this year. A 12-month return of 40%, nearly double that of the All-Share index, is one of the best in the UK sector.

There is every sign that this will continue, helped by the trust’s ability to move freely between growth and value, large-cap and small, net cash and gearing.

according to opportunity. What they call “compounders”, small, mid and large-cap, comprise half the portfolio. These are companies generating steady long-term growth. In a £450m portfolio, there are over 100 holdings but annual turnover is low at about 10%. The FTSE 100 accounts for 43%, mid-caps 19%, small caps 15% and Aim shares (not all small companies) 17%. The rest is in non-UK companies.

Financials and industrials together account for 60% of the portfolio, including 9% in banks. “We have been adding,” says Foll, “as they trade on 25% discounts to net tangible assets but can earn their cost of capital. This is not the

LWI’s shares yield a generous 4.5%, though that required a significant dip into reserves in 2020 owing to a 43% fall in dividends received. But growth from a lower base has resumed.

LWI’s dividends have grown at a compound rate of 7.1% since 1990 but are likely to be flat until they are again covered by income. That lack of growth and the recency of the revival in performance are reflected in the shares trading at a discount of 7% to net asset value (NAV).

The UK market is showing early signs of recovering from a long period of underperformance as the domestic economy recovers, entrepreneurialism flourishes and the disdain of global investors lessens. LWI, with its flexibility, experienced management team, high yield and attractive discount is almost the perfect trust to profit from that revival.

Short positions... Nick Train back on track ■ This year has been positive for stocks, says Laith Khalaf on AJ Bell. The standout winner so far has been the UK smaller companies market, which has hit new record highs and is now 20% above its pre-pandemic level. Its success “is partly a vote of confidence in the UK economy” because the FTSE Small Cap index offers “greater exposure to domestic revenues” than bigger indexes. So small-cap funds feature prominently in the top-ten list of British funds for the first half of 2021; at the other end of the performance table sit gold funds, as economic recovery and rising yields dent demand for the precious metal. The CCM Intelligent Wealth fund tops the charts for the first half of the year, with a return of 33.1%, followed by the Consistent Opportunities and the Guinness Global Energy funds, which gained 32.6% and 32.3% respectively. The LF Equity Income fund and HSBC’s MSCI Turkey fund are the bottom two funds, with respective losses of 33.3% and 21.3% .

■ Star stockpicker Nick Train’s Lindsell Train UK Equity’s performance picked up in the second quarter of 2020, says James Phillipps on CityWire: growth stocks bounced after the value stock rally of the first quarter dissipated.

His £6.5bn fund gained 8.3% in the three months to June, eclipsing the 5.6% increase in the FTSE All Share.

Train’s fund lost 0.5% in February and March compared with the 5.2% rise by the index. A rebound in two major portfolio themes, “digital winners and premium consumer and luxury brands”, proved key between April and June.

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Best of the blogs

How coffee fuels capitalism Today, for most of us, “to be caffeinated to one degree or another has simply become baseline human consciousness”, says Michael Pollan. Something like 90% of us drink the stuff regularly, making it “the most widely used psychoactive drug in the world”. We wean our children onto it at an early age. Few of us even think of it as an addictive drug, though anyone who tries to come off it will soon learn otherwise. It is hardly an exaggeration to say that it “remade the world”.

A short history of the cuppa

The “changes wrought by coffee and tea occurred at a fundamental level” – that of the human mind. It “ushered in a shift in our mental weather, sharpening minds, freeing people from the natural rhythms of the body and sun” – and hence making possible new

kinds of work. Indeed, it was tea from the East Indies – sweetened with sugar from the West Indies – that “fuelled the Industrial Revolution”, helping the British working class endure long shifts, hard working conditions and hunger.

But it all started in the 15th century, when coffee was first cultivated in east Africa and traded across the Arabian peninsula. The drink was at first considered an aide to concentration and used by Sufis to keep them awake during religious observances. Tea, too, started out as “a little helper for Buddhist monks striving to stay awake through long stretches of meditation”. Within a century, coffeehouses had spread across the Arab world.

In 1629 the first coffeehouses in Europe, styled on Arab and Turkish models, arrived in Venice, and the first in England opened in Oxford in 1650.

The coffeehouse remade the world

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They spread to London shortly afterwards and proliferated: “Within a few decades, there were thousands of coffeehouses in London; at their peak, one for every 200 Londoners.”

Coffeeshops were about more than just the coffee. You paid a penny for a cup, but for that you also got free access to newspapers, books, magazines and conversation. Traders could learn what ships were arriving and departing and buy insurance policies on the cargo. “Learned types” debated

The great exodus from work fee.org

The US labour market is looking “precarious”, says Hannah Cox. Pandemic policies led to the sharpest economic contraction in US history, millions have lost their jobs – and yet businesses are struggling to fill positions. The situation is set to be made worse by a social-media trend calling for people to quit their jobs – dubbed “The Great Resignation”. According to one recruiter, as many as one in four employees are planning to quit this autumn after using up their holidays on full pay in the meantime.

Why is this happening? Large numbers have come to like working from home and are refusing to head back to the office. Others have used lockdowns to develop new skills or earn money in other ways.

Some simply do not want to work as much. The large number of job openings gives workers plenty of other options. Employers will have to work hard to attract talent. Nothing wrong with any of that – “competition is good”. Unfortunately, though, these trends are not being fuelled by the market alone, but are the unintended consequence of “big, bad government policies”. It seems unlikely quite so many would be happy staying at home if the government weren’t paying them to do so, for example. This was a predictable result of pandemic central planning – expect supply shortages and price rises.

spectator.co.uk

The expansion of higher education has had some perverse consequences, says Rory Sutherland. A degree is now often a necessary prerequisite for jobs that nonacademic people would excel at. The credentials arms race has now turned into a silly game. To give one example, top management consultancies sift job applications using textmoneyweek.com

analysis algorithms. Many of the “nerdier applicants” knew this and so applied with CVs boasting of Nobel Prizes and Olympic gold medals, but in white text invisible to human eyes and legible only to the computer making the decision.

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Nobel winner seeks position

There are better ways to choose

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The consultancies were no less silly for pursuing such an approach to begin with. It rests on the assumption that “the optimal way to build an elite organisation is by assembling a homogeneous group of similarly elite, overeducated, hypercompetitive individuals”. It isn’t.

In a landmark experiment in poultry eugenics, Dr William Muir set out to create a breed of super-chickens by only breeding from the top-laying hens in any group. The result? A breed of uber-chickens that spent most of their time pecking each other to death – and very few eggs.

science and maths and politics.

Such unbridled free speech unnerved the authorities and caffeine came to be regarded as a threat to institutional power.

But by that time it was too late – “caffeine had become a fixture of English culture and daily life”. Coffee became, as French historian Jules Michelet wrote, “the sober drink, the mighty nourishment of the brain”. A cuppa became, along with the microscope, telescope and the pen, “an indispensable tool” of the new age of rationality.

What explains the gender pay gap?

marginalrevolution.com It is often assumed that the gender pay gap is best explained by discrimination. But there are instances where this simply cannot be the case, says Alex Tabarrok. A forthcoming study

by Valentin Bolotnyy and Natalia Emanuel in the Journal of Labor Economics shows that gender earnings gaps can exist even in environments where work tasks are similar, wages identical and tenure dictates promotions. In the setting examined by the researchers, an 11% earnings gap remained, explained by female workers taking on less overtime and taking more unpaid time off.

One might still blame “systemic sexism” – presumably the women took more time off to care for their families. But if so, is the sexism hurting the women, who earn less, or the men, who spend less time with their families?

Interestingly, similar results were found in a study of Uber drivers. Men made more, not because of employer discrimination, which wasn’t even possible in this context, but because on average there are small differences in how men and women drive.

23 July 2021 MoneyWeek

Personal finance

20

A lifelong burden

Treat whole-life insurance policies with extreme caution

The vast majority of life insurance sold in the UK is term-life, which runs for a fixed period. In essence, you are betting the insurer that you will die before the end of the policy term; the insurer is betting that you won’t and that it will get to keep your premiums. Morbid as all of this is, term-life cover is a must if you have dependants.

Whole-life policies, by contrast, last until you die. The bet is about when that happens. If you die younger than expected, then the insurer pays out much more than you paid in premiums (it loses the bet). If you live a long time it gets to keep collecting your premiums (it wins).

Premiums are higher as the insurer is certain to pay out at some point.

“Maximum cover” whole-life policies offer lower premiums at the outset but these can rise steeply, while “balancedcover” policies’ premiums start higher but are fixed.

Whole-life policies are often marketed to people in their 50s and over (term life cover is less relevant once offspring have flown the nest and the mortgage is paid off). A big attraction is that it is possible to write the policy in trust, which is not subject to inheritance tax (IHT). Relatives get ready access to some cash when you die, sparing

them some of the heartache of the probate process. They can then use the money to settle the IHT bill on your estate (if you are above the threshold). If you die early then one consolation is that the payout is much larger than the premiums, making for a very high return.

Locked in for life

Yet there are significant drawbacks. The key problem with whole-life policies is that you can effectively get locked in. This is an insurance product, not an investment. If you cancel or miss payments then the cover lapses – even if you have already paid tens of thousands of pounds in premiums.

An elderly person in poor health will find switching too expensive. That can leave them stuck paying burdensome premiums on a policy they took out decades before for fear of losing their cover. There is also no guarantee that the rules about trusts won’t be changed in the future.

Maximum-cover policies try to build up a pot of money through investment that can then be cashed in, but returns can be derisory after fees and premiums for the insurance element are deducted.

Some whole-life policies don’t even invest the premiums during the first three years, instead using them to pay “sales commission to the broker or financial adviser”. To see what a terrible tangle people can get into with these policies,

PAPER

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Alex Rankine Markets editor

Your returns can dwindle alarmingly with these policies

consider a case highlighted by Ali Hussain in The Sunday Times last month. In 2001 a man took out a policy costing £158 a month. It was supposed to pay £150,000 to his family when he died. But the investment returns have been so poor and the charges so high that he has now ended up paying £1,500 a month to give him a total payout of £371,000. What’s more, he has topped himself up with 29 additional policies rather than pay higher premiums, an option holders of these policies have to cover shortfalls and offset inflation. If he decided to cash in the original plan today, “he would get about £4”.

He cannot switch providers because of poor health and when he tried to “lower the costs by switching off an automatic commission paid to the financial adviser who originally sold him the product, he was told that this would end up costing him more”. It’s better to keep investments and insurance separate.

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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

23 July 2021

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Small business

21

Tap new sources of credit

How to manage the return to work

Britain’s booming alternative-finance sector is a boon for small businesses David Prosser Business columnist

ritain’s alternative-finance sector is booming, offering a much-needed fillip to small and medium-sized enterprises struggling to access finance from conventional sources.

The UK is now the secondlargest centre of alternative finance in the world, according to a report by The Cambridge Centre for Alternative Finance (CCAF) at the University of Cambridge’s Judge Business School. China tops the table.

British alternative-finance providers offered around £9.2bn of funding to businesses over the course of 2020, almost 15% more than in 2019, despite the impact of the Covid-19 pandemic. Around two-thirds of the total came from debt-based finance, through a range of different types of lending.

The data is a reminder that small companies seeking to borrow have a widening array of options. Traditional bank finance has become more difficult to secure over the past year.

Many lenders have concentrated on supporting the government’s emergency programme of Covid-19 loans and how to unwind this stock of debt. But even where a small business does have the option of obtaining a traditional bank loan or overdraft, alternativefinance products may be a better choice.

Invoice finance, in particular, continues to grow in popularity.

Through such arrangements, small businesses can effectively access the value of their invoices upfront rather than having to wait for them to be settled.

The money is advanced from the invoice-finance provider, with the loan repaid once the customer settles the bill.

This can be a flexible way to arrange finance, particularly where your business is struggling with irregular cash flow. The size of an invoicefinance facility rises as your company’s revenue grows – because there are more invoices to borrow against – rather than being fixed in size as with a bank loan. Demand moneyweek.com

It has become more difficult to secure loans from high-street banks

for asset finance is also growing, with businesses using these facilities to fund capital spending. Lenders feel comfortable extending credit because they can use the asset being financed – new machinery, say – as collateral to back the loan.

Alternatives options

Peer-to-peer finance platforms also continue to raise more money for smaller firms.

Investors in these platforms often feel able to take more risk than conventional lenders, with demand and supply on the platform setting the price of the loan secured. The CCAF report also reveals consistent growth in financing options, such as mini-bonds, lending linked to property and debt-based securities.

There is no one right answer for businesses seeking credit.

The best arrangement for you

will depend on your company’s individual circumstances, including the reason you need to secure credit. The cost of borrowing also varies significantly from one type of credit to another.

Nevertheless, the fact that alternative finance continues to grow is good news for small businesses. There is now more choice than ever of how and where to secure credit.

Remember too that if a mainstream bank decides to reject your application for funding, it is now legally bound to refer you to a platform offering advice and information on what other forms of funding might be a possibility.

These platforms – Alternative Business Funding, Funding Options and Funding Xchange – can also be a good first port of call when you’re assessing potential alternativefinance options.

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This week’s relaxation of the Covid-19 restrictions means employers must now use their judgement rather than follow clear rules. The government hopes businesses will welcome more staff back into workplaces, for example, but it’s up to employers. Masks are no longer mandatory in most settings but firms may still want to require staff to wear them. Making these decisions requires employers to make difficult judgements about risk as well as what is reasonable – and legally enforceable. And the easing of restrictions does not countermand your legal health and safety obligations. That means you will need to keep carrying out risk assessments to gauge what is needed to prevent the virus spreading in the workplace.

It may be both legal and reasonable to require staff to keep working from home or to wear a mask in certain situations. Some professions are considering requiring staff to declare their vaccination status.

Employment lawyers stress the need to work with employees – some may want protections that go further than you propose, while others may want more freedom. But employers will, in the end, have to lay down the law. Staff who refuse to comply may even face disciplinary proceedings. There have already been several disputes. Employment tribunals typically supported employers, provided they could show their rules were reasonable.

Focus on simple cybersecurity precautions first

● Small businesses worldwide are on target to raise spending on cybersecurity by 60% over the next three years, the equivalent of more than $30bn, according to research from management consultant Analysys Mason.

But experts warn that throwing money at the problem may not be very helpful. While the scale of the threat has risen over the past year, with Covid-19 increasing many companies’ vulnerability to attack, research suggests that too many small businesses are not getting the basics right. They are, for example, failing to update software and missing the opportunity to train staff on what to avoid.

Closing these gaps may be more effective than large-scale spending. ● Self-employed business owners have just over a week to settle their 2020-2021 tax bills with HM Revenue & Customs. For most such

taxpayers, their second and final payment on account of income tax for the tax year that finished in April is due on 31 July.

Different deadlines may apply if you have taken advantage of HMRC’s Covid-19 relief schemes, but make sure you understand what you owe in order to avoid interest payments and surcharges.

● One tax trap catching out increasingly large numbers of self-employed workers and sole traders is the potential need to pay business rates if you run your business from home. While this doesn’t apply if you use a small part of your home for your business – running an office from a bedroom, say – employing other people who work at your property or inviting customers to your home could mean you fall foul of the regulations.

Make sure you check the rules carefully.

23 July 2021

MONEYWEEK

22

Analysis

Indian stocks shrug off the coronavirus crisis

The pandemic has been catastrophic for India, yet the stockmarket is hitting record highs. Investors are right to remain optimistic about the long term, but they are pricing all the good news in, says Cris Sholto Heaton

Stocks shrug off the crisis

“Stocks are up 55% in 12 months, yet the economy shrank 7.3%” MoneyWeek

So it probably sounds baffling – and not a little inappropriate – that the stockmarket is at a record high.

The MSCI India index, which dropped sharply along with global markets in March 2020, barely wobbled this time. It’s up 15% so far in 2021 and 55% over the past 12 months.

This looks entirely at odds with the state of the economy, which shrank by 7.3% in the year to 31 March. That includes the impact of the first wave of coronavirus and the shutdown that brought much of the economy to a halt, but not the more deadly wave that struck this year. The immediate impact of this outbreak may not be as large, because more of the economy remained open despite soaring cases and deaths, but some analysts fear that the medium-term consequences may be huge: unemployment soared, many who still have a job have suffered pay cuts and household debt rose as people struggled to get by.

Optimists think that when the crisis is past and the immediate rebound is over, growth could settle down at 7% or more, in line with the trend of recent years. Others think that the after-effects could mean

23 July 2021

a new trend of 5% or lower. These outcomes make a big difference to whether India can catch up on the potential output it lost in the crisis, argues Sudipto Mundle of the National Council of Applied Economic Research, a think tank, in an article last week in financial newspaper Mint. The 7% scenario would see it catch up on lost growth by 2029-2030. That’s around the time when the country’s demographic dividend – meaning a high ratio of young people to older dependents, which can be a powerful force for growth in emerging economies – begins to reverse.

A slower growth rate and a failure to catch up with the pre-pandemic path will mean that some of that demographic dividend is squandered, says Mundle, and extensive reforms will be needed to avoid this happening. These include the healthcare system, whose deficiencies were badly exposed by the pandemic, but also education, the financial system – where bad debts that were a worry before the pandemic will have become worse – and critical infrastructure such as the energy sector.

Modi needs to deliver

Whether the crisis will be a catalyst for these longoverdue changes remains to be seen. It would be unfair to expect the government to have all the answers at this point; policymaking is difficult for many reasons while a pandemic rages and managing the crisis is the immediate priority.

However, sceptics may take the view that while Narendra Modi, the prime minister since 2014, is often described as a pro-business reformist, his record on economic reforms is weaker than one would hope and sometimes overstated by analysts or investors who want to be able to point to progress in India.

(Conversely, his energy for pursuing Hindu nationalist policies that increase social tensions or authoritarian flexing that erodes democracy seems to be unbounded and risks taking India down a very unwelcome path.) If he has the desire for big changes, it’s time to deliver.

On the plus side, Modi this month carried out his largest cabinet reshuffle since taking power, with 12 ministers – including the minister for health – being replaced, which implies a significant effort to reinvigorate the government. There are important state elections next year and the next general election will take place in or before 2024, so the need to convince voters that the ruling Bharatiya Janata Party has a better, bigger plan than the opposition for postpandemic recovery is increasingly pressing.

As well as making reforms more urgent, it may be that the pandemic and other recent events will have accelerated some opportunities. The most obvious are in the manufacturing sector. The disruption to global supply chains, years of trade tensions between the US and China, and growing evidence that China is becoming more closed to the rest of the world, has reinforced something that multinational companies already knew: they need to diversify away from China by sourcing from a wider range of manufacturers or investing in factories in other countries. moneyweek.com

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Covid-19 has spent the last 18 months overturning expectations around the world and India has been no exception. When the pandemic first took hold, there were fears that such a populous country with limited healthcare would be very badly hit. But after an initial wave of cases and a chaotic lockdown that left millions of migrant workers stranded around the country, the worst seemed to be over.

By the end of last year, the economy had reopened, new cases remained relatively low and it looked plausible that India had somehow built up enough immunity to return to normal while keeping coronavirus at bay. Unfortunately, that turned out to be very wrong.

In April, cases soared to record highs. Exactly why remains unclear, as with much about coronavirus.

Some put the blame for spreading the virus around the country on a number of crowded events, including election rallies and religious pilgrimages. Others point to the emergence of a more transmissible variant called B.1.617.2, or Delta. (The fact that many other countries that initially coped well, such as Thailand and Vietnam, have now seen large outbreaks, while Indonesia seems to be following a similar trajectory to India, suggests that India’s mass events probably aren’t solely responsible.)

The healthcare system collapsed, even for relatively affluent patients who would normally be able to get adequate medical care. Hospitals were overwhelmed and oxygen supplies frequently ran out. The official death toll now stands at more than 400,000, but that is known to be a vast underestimate – some estimates suggest the real figure is five to ten times as high. Cases are now declining – they are down around 90% since the peak in May – and vaccines are slowly being rolled out: around 300 million people out of a population of 1.3 billion have received at least one dose. But India is still very much a country recovering from disaster.

Start-ups such as Zomato will help transform the digital economy

A number of emerging markets in Asia are likely to benefit from this – it’s an extremely positive trend for Vietnam, for example, as we’ve previously discussed in MoneyWeek. India is not well-placed to take advantage of it at the moment, but that may change.

At present, manufacturing accounts for around 17% of the economy, compared with a government target of 25% by 2025, and has not greatly increased since Modi launched a “Make In India” initiative in his first year in office. Restrictive labour laws that make it less attractive to hire large manufacturing workforces and difficulties in acquiring land for construction due to unclear or overlapping ownership are among the main issues that have prevented it from building a major export manufacturing sector.

That said, there are areas in which India is already strong (eg, pharmaceuticals, where it is the third largest in the world by volume) and others where there are recent signs of progress (eg, electronics, where major international manufacturers such as Samsung and Foxconn are expanding their factories).

The government is now expanding a subsidy scheme (known as the production-linked incentive) aimed at increasing output in some key sectors.

More importantly it has finally pushed through some labour reforms, with four new codes that simplify a tangle of existing laws. The fact that the government is willing to use its majority to push through contentious changes like these is a positive signal, says Capital Economics; it might open the way to further labour and land reforms that would substantially improve growth prospects. moneyweek.com

There are few things that would be more bullish for India than a huge expansion in manufacturing, because this would bring many of those in the rural areas (around half the workforce) into a modern industrial economy. Indeed, given that the government has also passed laws to reform the farming sector – by reducing regulations on how produce can be sold and removing guaranteed prices – it looks increasingly vital to deliver this. Over the medium term, these changes are likely to see many small farmers pushed out by larger ones and failure to provide new jobs for younger workers who would otherwise have gone into agriculture could create significant social problems.

“India’s tech sector has created 14 new unicorns so far this year”

The changing composition of the market

While manufacturing still needs reforms, new opportunities are much clearer in services, where India has – like much of the rest of the world – seen a substantial leap in how much is done remotely over the past year. Digital payments, online services, e-commerce and in the future education and healthcare will play a major role in productivity and growth. But the growth in digitalisation is likely to have greater consequences than many investors yet realise, because at present much of the activity is still happening in unlisted companies, says David Cornell of the India Capital Growth Fund (see page 24).

India is creating large numbers of new digital startups – there were 14 new unicorns (privately held tech start-ups valued at over $1bn) in the first six months Continued on page 24 23 July 2021

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Analysis

Continued from page 23

Pricing in the good news

So there are real reasons to be optimistic that India will stage a strong recovery, but this optimism is perhaps the biggest risk for investors. The MSCI India index trades on a price/earnings (p/e) ratio of around 22 times forecast earnings (current earnings are meaningless given the disruption caused by the pandemic), compared with 16 for MSCI China, 14 for MSCI Indonesia, or nine for MSCI Brazil (to pick a particularly low-priced non-Asian economy).

India is usually more expensive than many other emerging markets: the quality of many listed firms is much higher. This premium isn’t new: when we last looked at India’s prospects in-depth in MoneyWeek almost two years ago, the market was on almost exactly the same p/e ratio. However, these sorts of valuations remain at the upper end of where the market has traded over the long term. That’s not surprising: in a low-growth, low-rate environment, investors are desperate for anything that promises decent growth and are happy to pay up for it.

There is no immediate reason for this sentiment to change overnight – but if it does, India will be vulnerable.

©Getty Images

of this year – and some will go public in the months and years ahead. Food delivery app Zomato carried out an initial public offering this month, while others including payments firm Paytm and e-commerce giant Flipkart (Amazon’s rival in India) are set to list soon.

This will mean that the Indian market starts to include local equivalents to firms such as Alibaba and Tencent that now dominate China’s indices and have become hugely popular with global investors.

At the same time, some of the families that control older listed companies are selling out to private-equity buyers or other investors – in part because under Modi they no longer have the political access they once enjoyed and doing business has become harder work.

These kinds of shifts mean that the make up of the stockmarket will change, says Cornell.

Agricultural reforms are unpopular with small farmers

Potential problems could be local: the fragility of some banks (bad debts will have risen further in the crisis) could hold back lending for investment and be a headwind for growth. More likely, they will be global: a surge in inflation could be bad for India, which is a large importer of key commodities such as oil – among other problems, this would expand the trade deficit and put pressure on the rupee (so even if stocks kept pace with inflation, foreign investors could be hurt by a weaker currency). Most of us at MoneyWeek remain keen on India for the long term, given its growth potential if reforms go even moderately well. Local investors are also likely to keep a greater proportion of their wealth in stocks (instead of gold and property) over time and this should make the market less vulnerable to swings in sentiment among foreign institutional investors (a perennial problem for smaller emerging markets).

That said, the market looks more than a little frothy now and it doesn’t feel like a compelling time to make a big investment. Instead, investors should know what they want to buy (see below) and be ready to take advantage of any major corrections.

Five ways to buy into India

India is a large and diverse stockmarket – large enough that it’s possible to run a single-country fund without having to bulk the fund out with sub-standard stocks, unlike many smaller emerging markets.

In general, I favour closed-end funds (ie, investment trusts), simply because when investors sour on emerging markets, they tend to pull their money out quickly. In that scenario, managers of open-end funds (ie, unit trusts and open-end investment companies (Oeics)) may have to dump assets at unfavourable prices to raise cash for redemptions.

India has enough large liquid stocks that this risk isn’t as great as in some markets: any large-cap open-end fund should be able to cope with outflows. However, given that the investment case for India is based on its long-term prospects and managers should be taking a long-term view, I think there is still a convincing argument that investment trusts with their base of permanent capital are the most appropriate vehicle. The fact that you can still buy most of the trusts at a respectable discount to net asset value (NAV) makes them even more compelling.

The largest of these trusts is JP Morgan Indian Investment Trust (LSE: JII). I always

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23 July 2021

tended to view this as a relatively cyclical fund that does well in good times and less well in downturns – but its record over the past decade is actually the weakest of all the trusts. Conversely, Aberdeen New India Investment Trust (LSE: ANII), which always looked like the more defensive choice in stock selection, has led the field over ten years. Past performance is no guide to the future, but with both trusts on similar discounts to NAV (at 15%), the Aberdeen trust continues to look the more obvious choice. The ongoing charge last year was 1.02% for JII and 1.16% for ANII. India Capital Growth Fund (LSE: IGC) is a smaller trust, with assets under management of £145m versus £690m and £410m for JII and ANII respectively.

It focuses on mid-cap and small firms, unlike the two above, which are weighted towards large caps. The fund suffered a period of poor performance in recent years, in part due to exposure to struggling finance companies. When I met with portfolio manager David Cornell just before the pandemic began, the investment process had just been overhauled in an effort to turn around performance. So far, the changes seem to have worked, with the trust delivering

“The MSCI India index is on a p/e ratio of 22 times forecast earnings”

strong returns since then (the NAV return in the 12 months to June was 77.8%).

This improvement, combined with the bias towards smaller stocks that offers something different from the other trusts, means that it seems worth watching.

The discount to NAV is 11% and ongoing charges were 1.82% last year.

The specialist India trusts also include Ashoka India Equity Investment Trust (LSE: AIE), a more recent arrival that listed in July 2018. This has an unusual fee structure, with no annual management charge (although ongoing charges still amounted to 0.41% last year) and a performance fee of 30% of returns in excess of the MSCI India index. The short record makes it hard to form an opinion so far, but the fact that it trades at only a small discount to NAV (2.7%) when the other trusts trade more cheaply would make me inclined to wait to see more.

If you prefer to invest using a passive fund, there are a number of London-listed exchange traded funds that track the MSCI India, Sensex or Nifty indices, which have broadly similar performance (all are largecap benchmarks). One option is the iShares MSCI India (LSE: IIND), which has an ongoing charge of 0.65%.

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Personal view

26

Sustainable stocks doing well by doing good A professional investor tells us where he’d put his money. This week: Peter Michaelis, head of the Liontrust Sustainable Investment Team

If only you’d invested in…

Pensana (LSE: PRE) Share price in pence

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For the past 20 years we have been running our Sustainable Future (SF) funds. They are based on the belief that in a fast-changing world the companies likely to survive and thrive are those helping to create a cleaner, safer and healthier society.

We combine negative and positive screening with identifying key structural growth trends that will shape the sustainable global economy of the future. We view the world through three megatrends: better resource efficiency (cleaner), improved health (healthier) and greater safety and resilience (safer) – and then identify 21 themes within these.

Our strategy seeks to generate strong returns while benefiting society by identifying long-term transformative developments such as technological and medical advancements. We focus on well-run companies that capitalise on these changes.

to read and interpret a patient’s DNA is a core first step in the shift towards more personalised medicines and it continues to lower the cost of gene sequencing over time.

Their work is a highly positive development for patients.

Learning Technologies Group (Aim: LTG), which fits into our providing-education theme – part of the improved-health megatrend – boasts a collection of e-learning, compliance, training, human resources software and content brands. The company continues to consolidate the e-learning sector with acquisitions designed to cross-sell to new customers and access new technologies and geographies.

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Pensana (LSE: PRE) is a rare-earth metals miner. Growing demand for electric vehicles, combined with the US and Europe’s desire to reduce their reliance on Chinese processing plants have propelled the share price to around 100p, a fourfold gain over the last 12 months, says Stockopedia. Meanwhile, companies in the sector are under pressure to reduce their global carbon footprint; Pensana has opted to build a plant to purify the metals in Britain using the government’s Automotiva Transformation Fund, which gives grants to companies working towards a net-zero vehicle-supply chain.

Be glad you didn’t buy…

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Shares in oil and gas explorer Harbour Energy (LSE: HBR) have been hit by oilprice volatility, which flared up after the most recent round of oil cartel Opec’s supply talks collapsed, says Kelvin Ong on IG. But Harbour’s “woes” started before that. The company’s shares have fallen by 11.5% since it was admitted to the London Stock Exchange’s main market in April 2021 after a merger with Chrysaor and Premier Oil. What was meant to be “the largest UK listed independent oil and gas company” has so far “failed to live up to the hype”.

Shares have fallen by 61% over the past year.

©The Telegraph 2021

Avanza Bank Holding (Stockholm: AZA) is an investment platform based in Sweden serving around 1.4 million individuals.

By providing a low-cost way for people to Making money from good work manage their savings and investments, it is We also require excellence in exposed to our saving-for-the-future theme.

The company releases monthly data on new environmental, social and governance customer numbers, (ESG), and our “Illumina can read and net inflows and holdings will tend to have processes interpret people’s DNA, a trading volumes, and continues to surprise in place to crucial step in healthcare” us with its growth and manage customer relationships, employees and supply chains. engagement levels of the customer base.

We have long believed that outperformance Over our first 20 years of managing on social issues will deliver more resilient the SF funds, our process was successful businesses over the long term. We bring all precisely because it identified companies that have provided something society needs, this information into our forecast earnings for companies, only selecting those that can and this will hold true for the next 20 years and beyond. What 2020 revealed clearly, make money from their good work. however, is that the economy and capital markets have to be the servants of society The shift to personalised medicine Illumina (Nasdaq: ILMN) is a global leader and not the other way around. A sustainable society needs to provide opportunities for in gene sequencing and a great example of everyone and also operate within planetary a company exposed to a powerful trend. boundaries in a way that preserves and Held under our enabling-innovation-in enhances nature. healthcare theme, the company’s ability

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Profile

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The Buddhist transforming luxury fashion José Neves cornered the market in building bespoke websites and apps for boutique fashion brands and retailers. That put him in a sweet spot when the pandemic arrived. Jane Lewis reports

see fashion as a passport to the “The essence of Zen is: be wider world,” says The Robb here now,” says José Neves.

Report. He took up shoemaking “In a crisis, that’s really useful himself and, in 1996, launched because you train your mind to a trainer brand, Swear, from “a be aware that external situations shoebox of a store” in London’s around you [are] going to pass.”

Covent Garden. Building the He’s had his share of hairy website a year later, he had a moments. But for the moment light-bulb moment. “I knew “now” must be a sweet place that fashion was going to be for the Portuguese entrepreneur transformed by the internet.” who, fittingly for someone who got his start in shoes, seems to have the luxury fashion Playing the long game industry at his feet. Neves, It took Neves 11 years to 47, runs Farfetch, a digital translate that instinct into platform hosting a collection Farfetch, via a series of other of independent boutiques ventures. In 2007 he arranged a and designer labels that has showroom during Paris Fashion thrived in the pandemic. He’s Week for an assortment of small credited with keeping many British shops and labels. It was independents afloat when shops short step to offering them an “The essence of Zen is: be here now. And aonline closed. That was just the start, marketplace. “José played says Forbes. Having cornered now must be a sweet place for José Neves” a long game,” an early backer the market in building bespoke told the Financial Times. “He websites and apps in the sector, comparisons with Jeff Bezos, but Neves – a thought the big brands would the London-based, New York-listed outfit self-styled Buddhist “by philosophy, not never talk to us until the boutiques talked has placed itself “at the centre of the online by religion” – dislikes the comparison, us up to them. And he was right.” A key luxury digital revolution”. noting that Amazon set out to trash the moment came in 2017 when Kering-owned competition; Farfetch’s raison d’être is to Gucci signed up. The following year, nurture the entire eco-system. Given that Farfetch staged a flashy Wall Street initial Reimagining the shopping trip lofty goal, it’s perhaps not surprising that public offering valued at $6bn.

Admirers credit the “visionary” Neves’s the outfit has yet to make a profit.

Investors have had quite a ride, says the unique pedigree of fashion smarts and tech Growing up in Porto in Portugal, where FT. In 2019 the “shares hit rock-bottom” expertise, and a knack for bridge-building his grandfather ran a shoe factory, he hated due to fears that Farfetch was “little more that a politician might envy. An unlikely fashion, preferring to spend his time with than an overhyped ecommerce player”. alliance, sewn together last November his ZX Spectrum computer, “coding, But the pandemic “brought a reckoning”. with the aim of cracking the Chinese coding and more coding”. Still, he could Sales have jumped (it is even whispered that market, succeeded in uniting Alibaba, profitability may be in sight), but nothing Richemont and Artemis. All are rivals in the never quite shake off his heritage. While studying economics at the University of like the share price, which surged by 475% ecommerce wars (Richemont, for instance, Porto he teamed up with Cipriano Sousa in 2020, says The Robb Report. Investors, it owns Farfetch’s biggest e-tail competitor (now Farfetch’s chief technology officer) to seems, are still sold on the notion that Neves Yoox Net-a-Porter), “yet all three are start a software house catering to the many has emerged as “luxury’s lodestar” for placing their bets on Neves’s ability to shoe factories in the region. “Neves came to navigating a “new world order”. reimagine how we shop”. Forbes makes

Great frauds in history… the UK’s most prolific female con artist

©Getty Images

Maria Michaela, now 42, came to the United Kingdom from Mauritius on a student visa in 2001 and overstayed.

While here she took to posing as a wealthy South African heiress worth £250m and used fake documents to win loans, build a portfolio of luxury London properties, and con her way to a fortune.

eight properties in London.

She repeated the con at Royal Bank of Scotland and was given a further £2.5m for five properties. The banks that lent her the money thought they were going to get it back when Michaela sold on the properties at a profit, but they were unaware that she had bribed chartered surveyor Mary-Jane Rathie, a What was the scam? policeman’s wife, to write Michaela created more than a fictitious reports in which dozen fake identities to con she doubled the real value of £13m from high-street banks. the properties. She thus Between August 2007 and received loans for far more than April 2008, Michaela persuaded the cost of the houses she Halifax Bank of Scotland to bought. She then defaulted give her four separate loans on the loans and disappeared together worth £10.5m to buy with the money. For her part in

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the deception, Rathie got £910,000 in cash, a £143,000 Bentley Continental and a £49,000 Range Rover Sport.

a hearing, and was jailed for nine years in 2012. The police called Michaela “one of if not the most prolific female fraudsters the UK has ever What happened next? seen”. Judge Graham Arran The police finally caught up condemned her as “a very with Michaela after three experienced, highly skilled and years on the run – she was exceptionally well-equipped discovered working as a fraudster”. Michaela was mortgage broker in Blackheath recently released despite under another alias. Her home paying back only £354,000 of was found to contain the £13m fraud, according to thousands of stolen identity The Sun on Sunday. She is documents that she had expected to be deported. been using to submit fake Rathie was jailed for six years mortgage applications. She at the Old Bailey in July 2011 for admitted two counts of fraud, five counts of fraud between three counts of conspiracy to May 2007 and June 2009 and a defraud and two charges of further charge of concealing conspiracy to launder money at criminal property.

23 July 2021

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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.

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Travel

29

Three great country house hotels

he opening of The Farmyard at The Newt will be “music to the ears of anyone who has tried to book a room” at this spectacular country house hotel in Somerset this summer, says Jade Conroy in The Daily Telegraph. The 17 new bedrooms, lying in a “small valley, just beyond the estate’s apple orchards… are split across a collection of original honey-hued Hadspen stone buildings”, comprising the former farmhouse, cheesepacking house and cider press. While the 17th-century Hadspen House (now the main hotel building) boasts “sharp and stylish features pasted on top of classic Palladian proportions – think colourful Patricia Urquiola chairs next to 17th-century oil portraits – the Farmyard’s neutral interiors feel more Scandinavian: clean-lined four-posters and wood-burning fireplaces under pitched ceilings”.

The old threshing barn now houses the farm-to-table restaurant, with its “towering picture windows framing endless sky and pastoral views”. Elsewhere, a cedarwood hot tub has been installed where there used to be an old turning circle for the horses. When the Glastonbury festival finally returns, The Farmyard will be the hottest place to come afterwards to unwind.

From £950 for two nights, thenewtinsomerset.com

©The Manor Exclusive Hotels /Amy Murrell

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From a new opening in Somerset to a foodie haven in the Cotswolds. Chris Carter reports

The Manor House in Castle Combe has a golf course and a Michelin-starred eatery

One for the food lovers

The Manor House, sat in “the Cotswold honeypot of Castle Combe”, Wiltshire, is “one for the food lovers”, says Marianna Hunt for Spectator Life. Not only does the 14th-century hotel have its own Michelin-starred restaurant, the Bybrook, but it is also surrounded by some of the best gastropubs in the West Country. It also boasts a championship golf course, and the village’s famous racing circuit is just a mile away. You can book a morning of racing around the track in a sports car and follow that with a relaxing afternoon spent rambling along the brook to the pretty nearby villages, such as Ford, “with its excellent waterside pub”. The rooms at The Manor House are

“When Glastonbury returns, The Farmyard will be the place to come to unwind” “characterful, with four poster beds and carved fireplaces”.

From £190 a night, exclusive. co.uk/the-manor-house

A luxurious and lordly manor

The 16th-century Double Red Duke, in the pretty village of Clanfield, south of Burford near Bampton, Oxfordshire, “looks every bit the lordly manor with its elegant gables and wisteria-clad brickwork”, says Jenny Coad in The Times. A new plantfilled garden room has been added behind the restaurant, with “statua “statuary and comfy

moss-green banquettes”, along with a new treatment room in “a sleek black shepherd’s hut outside, a greenhouse that’s lit up at night, and an outdoor bar in the courtyard with the promise of lazy summer afternoons under red-andwhite-striped umbrellas”. There are also six new rooms in timber outbuildings to complement the 13 in the main building. The whole place just feels luxurious, with fabric wallpaper by French brand Casamance, handmade sinks and baths, and toiletries by 100 Acres. From £120, rycreatures.com countrycreatures.com

Wine of the week: a delicious and affordable Châteauneuf-du-Pape Châteauneuf-du 2018 Close Encounters, Châteauneuf-du-Pape, Famille Perrin, Southern Rhône, France £20, in 400 Co-op stores nationwide

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literally “flying ccigar” in French) from lan landing in their vineyards. Back in 1984 Californian wine This wine is absolutely delicious, legend Randall G Grahm, it is only £20, it is a Châteauneufowner of Bonny Doon du-Pape made by the Perrin family Vineyard, launc launched a – owners of the most famous red wine called Le CHNF (my time-saving Cigar Volant made ma abbreviation) of all, Château de predominately Beaucastel – and it is available from syrah and nationwide. My notes could, and grenache, there thereby probably should, end here introducing the because this is surely enough to US to the joys o of get your vinous juices flowing. But Rhône varieties varieties. there is a little more to the story.

I remember This wine is an homage to an selling the very homage. The label refers to a first release of this t genuine CHNF by-law that wine at The prohibits UFOs (or cigare volant, Barnes Wine Sh Shop Matthew Jukes Wine columnist

back in 1987.

987. Three and a half decades later the Perrins have decided to thank Randall for his vision by y making Close Encounters, ers, referencing US cinema and also Randall’s own stunning artwork on the label.

The story y shows just how much respect there is flowing around the wine ne world – I can almost taste the he thought and love that has gone one into this wine.

Congratulations ratulations to Co-op for putting g it on our shelves at an affordable able price.

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

23 July uly 2021

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Property

This week: properties for around £500,000 – from a Georgian terraced house in a gated almshouse development

Rose Cottage, Clappersgate, Ambleside, Cumbria. A double-fronted, traditional slate and stone cottage in a village surrounded by unspoilt countryside. It has sash windows with shutters, flagstone floors, Victorian fireplaces and a modern fitted kitchen. 3 beds, 2 baths, 2 receps, terrace garden.£500,000+ Finest Properties 01434-622234.

The Grove Mill, Watford, Hertfordshire.

A two-bedroom apartment in a converted mill with communal gardens adjoining the Grand Union Canal. It retains its original windows and has exposed brickwork, beamed ceilings, wood floors and an oak fitted kitchen.

Bath, open-plan kitchen/living area, garage. £475,000 Savills 019223-725504.

The Little Cottage, Hinton Parva, Swindon, Wiltshire. A Grade II-listed, semi-detached stone cottage with a barn extension in a village in an Area of Outstanding Natural Beauty. It has exposed stone walls, beamed ceilings, an open fireplace with a woodburning stove and a kitchen with sliding glass doors leading onto the garden. 3 beds, 2 baths, 2 receps, office, workshop with mezzanine. £515,000+ Hamptons 01672-620175.

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23 July 2021

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Property

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in Acton, London, to a former fisherman’s cottage in Newton Ferrers, Devon Market Place, Deddington, Banbury, Oxfordshire. A threestorey, Grade II-listed village house that is now in need of some updating. The property retains its period features, including sash windows and exposed beams in the reception rooms and bedrooms, and a stone fireplace with a wood-burning stove in the sitting room.

It comes with a private, enclosed courtyard garden to the rear.

4 beds, 2 baths, 2 receps, breakfast kitchen. £495,000 Hamptons 01869-640157.

Church Lane, Hungerford, Berkshire.

This Georgian endof-terrace house was once two properties, now combined into one. It has beamed ceilings, sash windows, a wood-burning stove and a fitted kitchen with an Aga. 4 beds, 2 baths, 2 receps, garden. £485,000 Knight Frank 01488-682726.

Brewery Lane, Ampthill, Bedfordshire. A renovated, four-storey, Grade II-listed village house with a large courtyard garden with views over the Georgian market town of Ampthill. The house has beamed ceilings, exposed brickwork, a woodburning stove, an inglenook fireplace in the sitting room, bespoke bookshelves and a contemporary kitchen. 3 beds, bath, 2 receps, study, cellar. £525,000 Jackson-Stops 01525-290641.

Riverdale, Newton Ferrers, Devon.

A former fisherman’s cottage with views towards the sea, within a short walk from the beach. The cottage comes with a small private patio and it has exposed stone work, beamed ceilings, a large inglenook fireplace with a wood-burning stove and a stone recess that retains its original bread oven. 2 beds, bath, open-plan kitchen/living room. £470,000 Luscombe Maye 01752-872417. moneyweek.com

Goldsmiths Building, East Churchfield Road, London W3.

A Georgian terraced house built in 1811 in the gated Goldsmiths Buildings almshouse development in Acton, with access to extensive communal gardens to the front and rear of the property. It has sash windows, an open fireplace with a period surround and a contemporary kitchen leading onto a patio that overlooks the communal gardens. Bed, bath, recep, breakfast kitchen. £485,000 John D Wood & Co 020-3151 0667.

23 July 2021

MoneyWeek

32

Toys

Home comforts forr the cam mping tripp Remove that hair shirt from your rucksack and make your holiday adventure more easeful. Nicole Garcia Merida reportts Stay connected

e that burns The BioLite Campstove 2+ is a stove sticks, wood scraps and pellets to co ook up your kebabs with smokeless flames, and generattes electricity at the same time. It come es with a lightweight portable grill, a kettle, coffee press attachments and a USB cable so you can plug in your phone and recharge. £225, blacks.co.uk

The trendiest tent on the campsite

This s collaboration between luxury fash hion house Gucci and American outd door products company North Face will guarantee you the spot for the trendiest tent on the campsite.

For an extra £865 you can get a mattching featherdown sleeping bag, too.. £2,560, gucci.com

A portable campfire

Th he Snow Peak Takibi Fire & Grrill is a du urable, well-designed, collapsible fire pla ace that makes a camp pfire posssible an nywhere, allowing you u to warm m yourself, co ook a hot meal or just roast marshmallows. £343, snowpeak.co.uk

Ease those aching bones

You won n’t miss anything more e on a camping trip than a comfortable chair – not if you’re over a certain age anyway. The Trailhead Camp Chair by Yeti is designed for durability and comfort, and the accomp panying carry bag makes it easy to take it anywhe ere. £299.99, uk.yeti.com

MONEYWEEK

23 July 2021

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Toys

33

A roomy tent fit for an emperor

The show stopping Star Emperor Be ell Tent boasts a 6m by 4m living area and a “castle-like” amount of headroom. The integrated canopy should withstand all weather conditions and the 360˚ internal netting allows for panoramic views and maximum ventilation while keeping the bugs out. £1,079, boutiquecamping.com

Keep the Champagne on ice

The 50L Camping Fridge by Outwell features an adjustable digital display that monitors temperature, ensuring everything from your water bottle to your beers remains cool. There is a freezer compartment and the strong handles make it easy to carry, too. £438.47, gooutdoors.co.uk

Get a proper night’s sleep

Wake up refreshed and ready to take on the day aff ter a good d niigh ht’s sleep on the Trail Mat Air mattress by Jack Wolfskin. It’s inflatable and hence lightweight, and the individual chambers within it are all connected, which means it can adapt to your body freely as you move. £110, jack-wolfskin.co.uk

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23 July 2021

MONEYWEEK

How to manage your money and make more Join Merryn Somerset Webb and John Stepek as they discuss what’s going on in the markets each week, and how it affects you and your wealth.

Visit moneyweek.com/podcasts

Reviews

35

Book of the week

The miracle that became a monster A new book shows how Asia’s crisis created our dysfunctional financial system, says Cris Sholto Heaton The Asian Financial Crisis 1995-98

The legacy of a panic in Asia lives on in the West

Birth of the Age of Debt

The crisis that swept across Asia in 1997 now seems a minor chapter in financial history to most investors outside the region. At the time, there were widespread fears that evaporating stock and property bubbles, plummeting currencies, mass bankruptcies and International Monetary Fund bailouts for Thailand, Indonesia and South Korea could morph into a global depression. Yet while Russia and some of Latin America slid into crisis, Europe and North America remained unaffected.

The economic and social consequences were grave for southeast Asia, but Western memories of the crisis have receded behind the dotcom bust in 2000 – which did far less damage – and the global financial crisis of 2007-2009.

The casual reader today may well doubt whether a new account of the turmoil can offer much to anybody outside academia, especially given how much Asia has changed since.

So the most important point to make about The Asian

©Getty Images

Russell Napier Harriman House, £39

“The Asian Financial Crisis 1995-98 is much more than a chronology of what happened 25 years ago” Financial Crisis 1995-98 is that it is more than a chronology of what happened 25 years ago – even though it performs this role admirably. Russell Napier’s previous book Anatomy of the Bear – an analysis of the four great Wall Street crashes of the 20th century – drew on contemporary accounts from The Wall Street Journal to show how each crisis unfolded step-by-step and identify the mistakes made along the way. The Asian Financial Crisis 1995-98 follows a similar format, using extracts from the research

notes that the author wrote as equity strategist for the brokerage CLSA. These show investors latching on to the thrilling story of Asia’s latest economic miracle – British pension funds had more invested in Asia ex-Japan stocks than in the US – even as evidence mounted that it was a mirage. They demonstrate how crises almost always run further than anybody expects: Napier was one of the few to forecast disaster for Southeast Asia, yet he did not anticipate that the crisis would head north and engulf South Korea. And as

usual the turning point comes only when investors are repulsed – in this case, unwilling to believe that the Hong Kong dollar would keep its peg to the US dollar or that riots in Indonesia were no reason to sell other markets hundreds of miles away.

However, the broader theme is summed up in the subhead – Birth of the Age of Debt. Napier argues that our fragile, debt-burdened financial system is a direct consequence of how Western policymakers responded to the crisis. Forcing many countries to accept painful reforms while doing nothing to mitigate the damage that the crisis was inflicting on their societies encouraged the entire region to hold down their currencies, promote exports and build up foreign-exchange reserves. This recapitalised their economies, but also exported deflation, causing Western central bankers to keep interest rates low and enable a vast global credit bubble. The crisis ended more than two decades ago, but we are all still paying the price.

MoneyWeek readers can get a 20% discount on The Asian Financial Crisis 1995-98 from harriman-house.com/ asianfinancialcrisis with the discount code AFC30. To hear Merryn’s interview with Russell Napier, go to moneyweek.com/ russell-napier-podcast.

Book in the news… rip it up and start again Re-educated

How I Changed My Job, My Home, My Husband & My Hair Lucy Kellaway Ebury, £16.99 Six years ago, Lucy Kellaway had a comfortable existence, says Rosie Kinchen in The Sunday Times. She lived in a big house in north London with her husband and made a living as a columnist for the Financial Times. Then, at the age of 57, and over the course of two years, she “tore the whole thing up”. She left her husband, moved to a house in Hackney and retrained as a teacher, launching a charity, Now Teach, that encourages others to do the same. Her book tells the story of her

moneyweek.com

journey “from well-paid, high-status journalist to overworked, underpaid maths teacher at an inner city school”. It is a “funny and engaging account” of one woman’s battle against “ageism and cynicism”, and it might just inspire you too to “torch your retirement plans and do something rash”.

Why do that? For Kellaway, it was a feeling she was getting stale in her old job and a desire to do something useful, says Lynn Barber in The Daily Telegraph. Her biggest challenge, besides the exhaustion, was not so much learning new things, as unlearning old ones, not least the “habit of self-importance”: as a know-nothing trainee, your views don’t count. And the experience can turn old attitudes on their head. Kellaway’s first placement was at an academy school with strict rules that she thought absurd. After a placement at a more relaxed school, she

learned that “worrying about happiness and creativity is a middle-class luxury; children from disadvantaged backgrounds need to pass exams so they can go onto better things or at least find a job”. Kellaway “became a total convert to authoritarianism”.

“There are lots of reasons to read this book, which has the fineness of detail, sharpness of humour and grace of a novel

by Penelope Lively,” says Emma Brockes in The Guardian. “But it’s this business of changing one’s mind – the thing most of us least like to do – that I admired the most.”

The real surprise, though, isn’t that the book is good, “but how good… I found myself swallowing hard halfway through and remained on the brink of tears for the entire final third.” The “feelgood conclusion”: that it’s entirely possible, even relatively late in life, to “change course and be happy”.

23 July 2021

MoneyWeek

Blowing it

36

Kim Jong-un changes the tune

The North Korean dictator is following the West and imposing a ban on “non-socialist pleasures”

three years ago, North Just Korea’s “Supreme Leader”

“Kim has a legendary appetite, gorging himself on Swiss cheese and lobster, and drinking multiple bottles of wine in a night” ©Shutterstock

Kim Jong-un clapped along to songs at a concert by famous pop stars who were visiting from South Korea.

The “portly dictator” posed for pictures and chatted to the musicians about their performances, and the show was reported to have left him “deeply moved”, says Ian Birrell in The Mail on Sunday. Optimists wondered whether a “Pyongyang Spring” might be on the cards. Kim seemed to be moving towards a more open economy. He crossed the South Korean border to embrace its president, Moon Kim Jong-un: a diet has left him looking merely obese Jae-in. He flew to Singapore for negotiations with then-US Hancock or Dominic Cummings, though. president Donald Trump.

A chilling video of Kim berating his officials He has “since changed his tune”, says for their failings shows them all standing Birrell. That same pop music he seemed to so enjoy just a few years ago is now branded and enthusiastically clapping and cheering the Dear Leader. It will not be far from a “vicious cancer” that is corroding his their minds that Kim Jong-un’s own uncle country and corrupting its youth. Laws was executed in 2013 for crimes including have been passed to crack down on “nonfailing to applaud enthusiastically enough. socialist pleasures”. People bringing such tunes into the country can now expect the death penalty. You get 15 years in a slave At home with the Kims camp simply for listening to them. As if All this at a time when there are fears that that weren’t bad enough, there are fears North Korea could run out of food within that the country, despite official denials, months as Kim faces a repeat of the 1990s is in the midst of a Covid-19 outbreak. famine that killed millions. Indeed, Kim Would Kim be so ruthless as to go to the himself is looking somewhat pinched – ludicrous extremes of imposing strict house there was speculation recently that he must arrest, mandatory mask-wearing and be ill when he appeared looking merely bans on hugs with grandparents to deal obese rather than his usual gargantuan self. with it? We’d put nothing past him. If such Kim has “a legendary appetite, apparently restrictions are imposed, it would be hard gorging himself on Swiss cheese, caviar and to imagine anyone disregarding them with lobster while drinking multiple bottles of the gay abandon of a Neil Ferguson, Matt wine in a night”, says Katie Davis in The

Sun. He put on a stone a year after coming to power in 2011, hitting 22 stone in 2020.

There is speculation that his weight loss is a deliberate ploy to appear self-sacrificing as the food crisis begins.

“Appear” being the operative word.

When not terrifying his officials, Kim can be found at his mansion in Wonsan on the east coast, says Davis. Satellite images show that he has a “floating amusing park” docked on his private beach there. The resort, dotted with guest villas, is served by an exclusive train station, and the pleasure boats feature an Olympic-sized swimming pool and waterslides. Just last month, images appeared to show Kim and his pals zipping around on Jet Skis. Kim must have been speaking from experience about the corrupting influence of those pop songs.

● Richard Branson (pictured) (pictured), Jeff Bezos and Elon Musk seem to love confined spaces, says Craig B Brown in the Daily Mail. Their sports ca cars are “horribly cramped”. And why else pay a fortune to crouch in Scottis Scottish brambles on the off-chance of o shooting a deer, or dig deep u under a Kensington mansion to cre create a joyless gym? Why else own “luxury” yachts, which are really just squat maisonettes surrounded by water? And w why else build space rockets? On his return to terra firma last week, Branson vowed to dev devote the rest of his life to saving th the planet. For starters how about abou not sending “six-seater, gas-guzzl gas-guzzling rocket planes into space” so that rich people, at £180,000 a pop pop, can gaze at the view for a minute minute?

MONEYWEEK 23 July 2021

Yes, we’re a nation of fatties ● “Yes, ny of whom are waddling many ards an early grave,” says Janet towards eet-Porter for Mail Online. “But Street-Porter uld those of us who can exercise should f-control be penalised by a tax on self-control ealthy food?” Last week, the unhealthy ernment’s food tsar, Henry government’s mbleby, unveiled his National Dimbleby, ood Strategy, calling for a £3 tax Food n a kilo of sugar and £6 on salt. on uilty pleasures would soar in Guilty rice. Advocating sensible eating price. nd no treats is a hard sell at the and st of times. But when the British best blic have been cooped up at public me for months, “these proposals home e a doomed air of unreality”. have ides, the “well-upholstered” Besides, bleby “doesn’t look like a Dimbleby nger to the odd moment of selfstranger ulgence himself”. indulgence

moneyweek.com yweek.com

● Cubans have had enough and they’re showing their discontent on the streets every day, says Rod Liddle in The Sun. No wonder.

Their country is “an economic basket case”. They can’t buy food or supplies, such as medicine, and “the fury has spilled over”.

It’s not often you see protests because the government tends to arrest and beat up anyone who so much as utters a word of dissent.

“Yep – it’s a socialist paradise, of course. And just like in every other socialist paradise, the people are starving and suppressed.” In Venezuela, those who haven’t fled are left to eat cats. “Show me a socialist paradise and I’ll show you a country where sooner or later they’ll chow down on their pets.

Out of necessity.”

©Virgin Galactic

Tabloid money… how Richard Branson can save the planet

Crossword

37

Bridge by Andrew Robson

Tim Moorey’s Quick Crossword No.1061

Marginal stayman

A bottle of Taylor’s Late Bottled Vintage will be given to the sender of the first correct solution opened on 2 August 2021. Answers to MoneyWeek’s Quick Crossword No.1061, 31-32 Alfred Place, London, WC1E 7DP.

Very few declarers made Four Hearts on this week’s deal – there appear to be four inescapable losers.

Dealer South

Neither-side vulnerable A95 A765 QJ A654

1073 92 432 QJ1098

J864 KQ10 A10965 3

N W

E S KQ2 J843 K87 K72

The bidding South 1NT* 2♥ pass

West pass pass pass

North 2♣** 4♥

East pass pass

*

What a yukky-looking 12 points. If I were vulnerable, I could not bring myself to open the hand. ** Stayman – a request for four-card majors. Marginal with a flat hand and such a “notrumpy” doubleton. There is much to be said for a direct leap to Three Notrumps – which would probably succeed on West’s normal Club lead.

Across clues are mildly cryptic whereas down clues are straight

One successful declarer won West’s Queen of Clubs lead in dummy and led the Queen of Diamonds. East won and exited passively with a second Diamond. Declarer won in dummy and cashed the Ace of Hearts (perhaps an honour would fall). It did not, so she now led a second Club. It would do East no good to ruff a loser with a natural trump trick, so he discarded (a Diamond).

Declarer won the King of Clubs, cashed the King of Diamonds discarding a Club from dummy, and followed with three top Spades finishing in dummy. She then led a second Heart. East won the Queen and cashed the King, but was then forced to give a ruff-anddiscard. Declarer ruffed his choice of the thirteenth Spade in one hand and discarded the Club loser from the other. Ten tricks and game made. Very nicely played – there had been no defence.

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

ACROSS 1 Look to protect those travelling in the country (7) 5 Speaks about entry of horses and carriages (5) 8 Large snowdrop in overwhelming amounts (9) 9 Short time with a large flightless bird (3) 10 Card working for US songwriter (5) 12 Dead former love smelt reportedly (7) 13 Leader in the Met on the fiddle? (7-6) 15 Clinton’s football team? (7) 17 Small fish from foreign parts (5) 19 Nothing squared is something cubed (3) 20 Oil patch created by a banger (9) 22 Difficulties with small horses (5) 23 Those who have nothing to hide (7)

DOWN 1 Great deal of money (5) 2 Health resort (3) 3 Apprentice (7) 4 Musical arrangement (13) 5 Kind and gentle (5) 6 Type of carpet (9) 7 First course (7) 11 North Star state (9) 13 Giant with one eye (7) 14 Run away (7) 16 Punches (5) 18 Sides (5) 21 Tummy muscles (3)

Name

Sudoku 1061 2 5 8 2 3 9 4 7 8 4 5

3

Address

1

5 4 9 2 6 6 4 8 1 4 2 9

MoneyWeek is available to visually impaired readers from RNIB National Talking Newspapers and Magazines in audio or etext.

For details, call 0303-123 9999, or visit RNIB.org.uk.

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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.

9 1 2 8 6 7 5 3 4

6 3 4 1 9 5 8 7 2

7 8 5 2 4 3 9 6 1

2 6 1 9 5 8 3 4 7

5 9 3 6 7 4 2 1 8

4 7 8 3 1 2 6 9 5

1 5 9 7 2 6 4 8 3

8 2 7 4 3 9 1 5 6

✁

Solutions to 1059

Across 1 Sample s + ample 4 Podium p + odium 8 Ingress anagram 10 Eider deceptive definition 11 Team tea + M 12 Boot sale Boots ale 14 Presbyterians anagram 16 Pastoral past oral 18 That this and that 21 Lease l + ease 22 Diocese anagram less m 23 Ranger r anger 24 Regent re gent. Down1 Shift 2 Magnate 3 Leek 5 Overture 6 India 7 Martens 9 Shorthand 13 Obsolete 14 Popular 15 Athlete 17 Spain 19 Tweet 20 Zone.

3 4 6 5 8 1 7 2 9

The winner of MoneyWeek Quick Crossword No.1059 is: Gillian Roberts of Shropshire Tim Moorey is author of How To Crack Cryptic Crosswords, published 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.

23 July 2021

MONEYWEEK

Last word

38

Reading the signs of inflation

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

When modest houses and old tractors fetch a fortune, something odd is going on Bill Bonner Columnist

A

The bottom line £7,800 How much

richer middle-income families became during the Covid-19 pandemic due to rising house prices and fewer opportunities to spend, according to the Resolution Foundation think tank. The wealthiest 10% added £50,000; the poorest 30% gained just £86 per adult.

$488.5bn The value of

inflows into exchangetraded funds in the US so far this year, which is within striking distance of the record $497bn US ETFs attracted in the whole of 2020, the highest

MONEYWEEK

Art director: Kevin Cook-Fielding Picture editor: Natasha Langan Chief sub-editor: Joanna Gibbs

©Cheffins

Founder: Jolyon Connell

amount for any calendar year, says Bloomberg.

growth rate of 28.7%. The global growth rate is 8.2%.

€4.55m The sum the

$10m How much

French government paid to acquire the manuscript of the Marquis de Sade’s The 120 Days of Sodom. The aristocrat wrote the erotic tale on a 12-metre-long scroll while imprisoned in the Bastille in 1785.

¥177bn The value in

Chinese currency (£19.8bn) of the cosmetic surgery market in China in 2019, according to a report from accountancy firm Deloitte.

The figure represents an almost trebling in value in four years, and an annual

23 July 2021

British sing singer Adele has paid for a four-bed four-bedroom house – he her third home on tthe same street in Beverly Hi Hills, California.

She bought bough the house on Hidden Valley Roa Road from Nico Nicole Richie, daughter of music legend Lionel.

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Dennis Ltd and its staff do not accept liability for any loss suffered by readers as a result of any investment decision.

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

$80m How much

superhero film Black Widow, starring Scarlett Johansson d), made at the (pictured), North American box n its opening office in d this month, weekend st since the the most demic began, pandemic cording to The according ollywood Hollywood eporter.

Reporter.

It made another 60m from $60m treaming streaming ervice Disney+ service Premier Access, with households charged $30 to watch the film.

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Business says that the net percentage of small businesses that have raised prices rose seven points to 47%, the highest seasonally adjusted inflation since 1981.

This is why we are confident that our major forecast is correct: like the heat of a summer’s day, inflation readings will rise. Then, expect some severe storms. Ultimately, all costs are passed along to consumers, as they are the source of all wealth, all output and all consumption. But the path of true inflation never runs smooth. There will be ups and downs, broken records, shattered businesses, confusion, misunderstandings and cracked-up investments. When the value of your money changes, you miscalculate. You make mistakes.

You invest in the wrong things at the wrong times. You buy Tesla – when you should have bought a Massey Ferguson!

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.

©Marvel Studios/Disney

small item in an English farming magazine tells us that a used County 1474 tractor (an example is pictured) has sold for £196,000 – “a record breaker”, apparently. The “County” is a “Ford conversion” tractor sold in England. The tractor in question was built in 1983 and sold, new, for £20,597. Now, it is a “classic”.

What to make of this? Why would a used tractor be worth so much? Can you protect yourself from inflation with tractors? The Check your outbuildings for valuables news brought us hope. We have That’s the year-to-year rate. The several old tractors, still labouring actual increase from May to June in the fields after years of service. was 0.9% – the biggest one-month Maybe one of them is worth increase in 13 years. If that were to something? We don’t know, but continue, it would put the inflation prices are on the rise everywhere. rate over 10% for the year. Another In England, inflation is running sign: the Harpex index tracks the at about 2.5% annually – the cost of moving highest level in “You buy Tesla when you stuff around on three years. And should have bought a container ships. here where your The Harpex is columnist is Massey Ferguson...” normally in the currently living, 300-500 range. A year ago, it was in Ireland, a young woman we at 450. But today, it’s more than met in Dublin recently told us that 2,600, after going up 290 points in she and her husband were unable a single week. These costs need to to buy a modest house because be passed along to consumers. For “prices have just gone crazy”. In many years, Wall Street has broken America, too, inflation is working records. Now, it’s time for Main its way through the system – and Street to crack a few. unlike the Federal Reserve’s Wall Breitbart describes what Street payoffs, President Joe Biden’s happens next: a record share $3.5trn infrastructure bill will go directly into the consumer economy. of small businesses say they are raising prices, new data shows. The Last month’s US consumer-price National Federation of Independent index rose 5.4% from a year ago.

© 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, stored in a retrieval system or transmitted in any form or by any means without the written permission of the publishers. © MoneyWeek 2021 IISSN: 1472-2062

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