Winslow
by Doug Brodie
In this blog:
/1. Get one investment decision right per year
/2. Interest rates – running away with the money
/3. Ahhh Google, what have you done?
/4. If the money feels tight, consider the pricing involved in the tech you are buying
/5. A tale of two mortgages
The Eagles were telling you to take it easy, and if you’re not 31 any more that’s probably a great message, especially if you’re planning or managing the third stage of life. This year is only six weeks old and we’ve had the deaths of six friends, clients and neighbours, from 106 to 50’s, with a very real message of carpe diem. Winslow is in the same part of Arizona as Flagstaff and Phoenix, with nearby Apache and Navajo reservations – just outside Fort Apache Reservation is a place that really is called Tonto National Forest.
Why are we talking about Eagles’ songs? Simple, it’s because your retirement should be about what creates happiness and enjoyment, not about counting pennies and wrestling with the incoming intricacies of Finance Act 2023/4, the differences between ETFs and OEICS or whether India should be better represented in your pension income. In 1974 the Eagles released a song called ‘Already Gone’ that contains the line ‘oftentimes it happens that we live our lives in chains and we never even know we have the key’. It’s our job to make sure that you unshackle yourself from managing income in retirement, however, it’s only you that has the key. Dylan wrote the line ‘Time is a jet plane, it moves too fast’ – much as you and I may feel age today, it is surely true that in ten years’ time you’d give your proverbial left arm to have the shape, fitness and time that you do today, so best not waste that time wondering about lifetime allowances and ongoing charges.
/1. Get one investment decision right per year.
It’s January 2023, electric vehicles are running away with the market, cities and states and countries are mandating their use, ships are moving to wind, solar and electric power, and everything needs batteries to work. So, buying a trade in lithium is a no-brainer, right? Out of the fifteen core commodity natural resources tracked by Bloomberg lithium came bottom, you’d have lost -81.43% last year. Logic says it should have been different, however the price of the lithium trade is a fantastic example of how market trades are far from logical, and far from rational. (In 2021 lithium rose 442.8% so it was useful to know the price history first).
/2. Interest rates – running away with the money.
This is a great piece of data compilation from Aviva Investors; it is measuring how quickly interest rates rose once governments started reversing cheap money. You can see here that across all the G7 countries rates have never increased so quickly in recent times. The bigger the rise, the bigger the shock to the system, though we think one does have to temper this data with the fact that the recent rate rises started from the lowest rate ever seen – ever.
/3. Ahhh Google, what have you done?
Famously, when Sergey Brin and Larry Page started the firm they coined the motto ‘Don’t be evil’. In 2015 they then decided that simply not being negative was understating the corporate aim, and the motto was changed to the positive affirming statement ‘Do the right thing’.
In 2022 the company laid off 6% of its workforce, roughly 12,000 people. That was only months after the firm had spent $70 billion on buying back its own shares. The FT calculated that buyback involved spending enough of Google’s own money to pay the salaries of the 12,000 employees for twenty-seven years. Then in April 2023, they did it again, spending a second round of $70 billion to buy back shares.
We think there’s more to running a company than today’s share price, and certainly, once a company attains a size such that it controls the very income of enough people to populate a large town, then companies should be beholden to follow the paths of the German Mittelstand firms.
/4. If the money feels tight, consider the pricing involved in the tech you are buying.
Google has to lay off 12,000? This is a post from a wise head on LinkedIn that is really quite astonishing – in that one has to question where the peak lies, and what the other side looks like.
Where it says Alphabet, that’s Google to you and me. In the past year, the tech giants from the US have hoovered up $477 billion in free cashflow. Putting in context of national total GDP, that is more than Austria, equivalent to Thailand and knocks Denmark into the cocked hat. If these companies are sucking, say, $1 trillion out of the global economy every two years where does that lead? What happens when no one else has any money left? Will these firms eventually follow the path of Blackberry, Myspace and Nokia, or will they simply use their billions to keep buying the new players? No idea, however, if they stumble and fall, their share prices have a very long way to fall.
/5. A tale of two mortgages.
With school fees now in the distant past my wife and I are left with two mortgages – one on or London home and a very small one on the holiday place in France. It struck me the other day that the UK mortgage is with the mutual Yorkshire Building Society whilst the French loan is with Credit Mutuel, also a customer-owned mutual. There the similarity stops. I have had a variable rate in France for the last five years, and although variable it is charged to me at 2.5% - cheap money, why pay it off?
My mortgage with YBS is also variable – I have just come off a five-year fixed rate with them and now have a variable rate – wait for it – 8.24%. ECB lending rate is 4.75%, BoE is 5.25%.
That is price gouging. I can’t help but feel when I look at the correspondence I get from YBS that it must be run by ex-Post Office employees. This is the latest BoE projections for inflation:
I can’t see where YBS’s idea of 8.24% for a variable rate fits in these current and prospective numbers, I do think it’s part of a British commercial malaise or ineptness.
This chart is from JP Morgan (who will probably tell me off for showing you), and you can see quite clearly that UK market investments are historically very cheap. That’s good for anyone buying now, it’s also good for those holding capital as that should rise. However, what unnerves us here in Chancery Lane is that we have seen identical charts to this for the last seven years. Indeed, institutional investors have been staying away from the UK markets since 2016 – you can call that the Brexit effect or not and I am not clever enough to calculate, but I do know that it’s a helluva coincidence, n’est-ce pas?
For those who think the markets are not reacting to Brexit, then one should consider the chart below: this shows that even UK pension funds are shunning UK equities – yes, that’s been happening since 2000 however 2016 has clearly not done anything to encourage that money back into supporting UK firms.
The points above are ours to resolve for our clients, that’s what we do; it’s not a once-off decision, it’s ongoing because macroeconomics and the geopolitical positions change from day to day. On the day after Trump’s ‘let the Russians have them’ comment on NATO members it’s easy to see that geopolitics can spin on just one news story, everything can change in a clin d’oeil. Our role here is to insulate your retirement income from that, that’s our number one task.