The Death of Coal Mining and the Nuclear Alternative

Boris Johnson has said that the Glasgow climate deal is a “game-changing agreement” which sounds “the death knell for coal power”. Let us hope so. My father worked down a pit in Nottinghamshire in his early life and was all for replacing coal power stations by nuclear power. Coal mining is not just a great creator of pollution but is also positively dangerous for the miners.

China is one of the largest consumers and producers of coal and in 2019 there were 316 deaths of coal miners in that country. That was an improvement on previous years but it is still a horrific number.

Nuclear power is considered to be dangerous by some people but in reality it is remarkably safe. For example the Fukushima event in Japan in 2018 only directly caused the death of one person. For a very good analysis of the safety of various energy sources go here: https://ourworldindata.org/safest-sources-of-energy

One problem with nuclear power is that it tends to be produced in plants that have very high capital costs and take many years to build. They are also vulnerable to faults when in operation. This often results in very expensive costs in comparison with coal or gas. But that might be solved by the development of small modular reactors (SMRs) where Rolls-Royce (RR.) has a potential technology lead from their experience in building nuclear reactors to power submarines.

They have recently obtained more funding from the Government and from partners to develop this business – see the Rolls-Royce press release here:  https://www.rolls-royce.com/media/press-releases/2021/08-11-2021-rr-announces-funding-secured-for-small-modular-reactors.aspx

Will that enable Rolls-Royce to recover from the dire impacts of the Covid epidemic on its aero engine business? Perhaps but not for some years in the future I would estimate. Developing new technology and new production methods is always vulnerable to hitches of various kinds which tends to mean that it takes longer than expected.

There are of course alternatives to nuclear power such as wind power, hydroelectricity and solar. But wind power is intermittent thus requiring investment in big batteries to smooth the load and in the last year there was less wind that normally expected in the UK. This has impacted the results of companies such as The Renewables Infrastructure Group (TRIG) and Greencoat UK Wind (UKW).

Which technology will be the winner in solving the clean energy problem is not at all clear but I would bet that coal is definitely on the way out for electricity production although it might survive for use in steel manufacturing. UK coal fired power stations are scheduled to be closed down by 2024 and already the UK can go for many weeks without them being in operation.

Whether you accept the Government is right to aim for net zero carbon emissions by 2050 or not, we must surely all welcome the replacement of coal power generation by other sources.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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COP26, Regulatory Arbitrage and Greenwashing

COP26 finished last week and many readers may have lost interest in the issues it discussed long before it closed. There is just so much one can take from the scaremongers of global warming when most of us have more immediate concerns about health and wealth. But there was one announcement by Chancellor Rishi Sunak that could be seriously damaging to your wealth in the next few years.

This was his announcement that the UK will be the world’s first net zero financial centre. This will not just be political gestures but he is proposing the following to quote from his Treasury statement: “Under the proposals, there will be new requirements for UK financial institutions and listed companies to publish net zero transition plans that detail how they will adapt and decarbonise as the UK moves towards to a net zero economy by 2050”.

“To guard against greenwashing, a science-based ‘gold standard’ for transition plans will be drawn up by a new Transition Plan Taskforce, composed of industry and academic leaders, regulators, and civil society groups”.

In other words, this will not be another “greenwashing” exercise but impose specific obligations on companies. The fact that meeting net zero carbon is an impossible task for many companies in any realistic timescale it seems is likely to be ignored. Even attempting to meet that target will impose enormous costs on companies even those who are not big generators of carbon emissions. If you extend it to Scope 3 emissions (those include all indirect emissions that occur in a company’s value chain) then the reach will affect all sectors of the economy.

This will certainly put the UK in the lead in the attempt to restrict global warming whether you believe it is practical or not. But if such regulations are introduced in the UK one can imagine exactly what will happen as it seems unlikely that other major economies will follow that lead. China, the USA, Russia and India are very unlikely to impose such draconian measures. As many UK listed companies have an international focus they have no great need to be listed in the UK. They could just as easily be listed in the USA or other countries with more friendly or easy-going regulatory frameworks.

You might think this is just an attack on oil/gas and mining companies but it will have a much wider impact in reality. For example, one of the big consumers of oil are ships transporting goods around the world so anyone importing products for sale, such as retailers, would need to persuade the shipping companies to avoid using oil.

One thing is certain. Companies such as BP and Shell may simply consider that it is easier to move their listing to another jurisdiction or accept a bid from a private equity player who does not have concerns about their environmental credentials.

This is what Jeremy Warner had to say in the Daily Telegraph: “However much we might wish it otherwise, oil and gas will long remain our primary source of life enhancing energy. And yet the industry is being driven underground by politicians and regulators too cowed to stand up to the hysteria of the climate change activists. The enemy within is almost as bad as the holier than thou pressures from without; oil company boards, together with those of their bankers, are these days stacked with well meaning do-gooders more focused on bowing to the campaigners than the demands of shareholder value”. If you are a shareholder in BP or Shell (I am not) you may sympathise with such comments.

Such moves of listing may already be evident from the decision of BHP to move to a single listing in Australia rather than the dual listing at present.

Unfortunately with such companies being the bedrock of the dividend paying FTSE-100 companies there are few alternatives for some investors such as big pension funds to choose.

Personally I have been investing in alternative energy generating companies and battery companies because the latest announcements from the Government tell me that the hysteria over achieving net zero is now so widespread that it will have a big impact on the financial world. In addition the Government plans to spend many billions of pounds in financing green initiatives and not just in the UK. We have already contributed £2.5 billion as the biggest donor to Climate Investment Funds. Such funding imposes a heavy burden of taxation which will add to the above woes of companies domiciled in the UK.

The irrationality of the general public over climate change in the UK has no bounds. For the last 30 years the young have been taught in schools an extreme agenda which has also been promoted by the national media, particularly the BBC, and politicians are now pandering to the mood of the public. This scenario is going to make the UK a poor location for investment funds in comparison with other countries. Private investors should surely rebalance their portfolios to have less emphasis on the UK. At least that is the case while the mania continues.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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It’s a Champagne Budget

It’s a champagne budget – or at least one to celebrate for investors as there are no really negative changes in it that were widely rumoured. At least that is apart from the rise in dividend taxes and freezing of allowances previously announced.

Here’s a list of the key points:

  • The National Living Wage is being increased.
  • The Government is substantially increasing funding for R&D.
  • The bank corporation tax surcharge is being reduced.
  • There will be some relief for business rates.
  • R&D tax relief will be focussed on domestic expenditure.
  • There will be more investment in tech skills and in schools.
  • Alcohol duties will be reformed and simplified with lower rates on lower alcohol products – champagne and beer will be cheaper.
  • Proposed rises in fuel duty are cancelled.
  • There will be minor changes to the taxation of REITs (details not yet clear but probably positive for investors) and there will be a levy on property developers to finance a fund to remove dangerous cladding.
  • The economy is now expected to grow by 6.5% this year (up from 4%) hence the generally positive tone of Rishi Sunak’s speech and new spending commitments.
  • Borrowing as a percentage of GDP is forecast to fall from 7.9% this year to 3.3% next, then 2.4%, 1.7%, 1.7% and 1.5% in the following years.

Comments:

This is generally a sensible budget with no abrupt changes in taxation, which are always to be deplored.

The emphasis on more education spending is surely wise, and on the NHS of course although whether the extra money will be wisely used remains to be seen.

Cancelling the rise in fuel duty may please some car drivers but it does not seem consistent with the aim to reduce carbon emissions and certainly will not help reduce congestion on our roads. Is this a two fingered gesture to Insulate Britain protestors who were active again this morning? But more prisons are being build to hold them if the courts put them away for a stretch.

It does not look like there will be any big impacts on particular sectors. The share prices of REITs have risen this afternoon so the changes may be positive but the rise in the National Living Wage will hit large employers such as retail store chains. There may be some benefits to large banks in the reduction in the bank surcharge on corporation tax but that will be offset by the general rise in corporation tax previously announced.

The changes in alcohol duties are a welcome simplification and may be of some benefit to pubs while encouraging healthier drinking. But it might negatively impact wine and spirits producers.

The UK stock market has not reacted significantly to these announcements although gilt prices rose on anticipated reductions in Government borrowing.   

More details are present in this document: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1028813/Budget_AB2021_Print.pdf

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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The Importance of Back-Up Power Supplies and the Net Zero Promise

The importance of having an alternative power supply came home to us last week when contractors laying a new electricity supply down our street cut through our gas supply pipe. But we were prepared for that kind of event as gas boilers frequently go wrong so we have a couple of electric fan heaters.

If they had cut through our electric supply or our internet/telephone connection we were prepared for that also. But this does demonstrate the folly of the Government wanting us to install electric heat pumps to replace gas boilers. With no electricity there would be no light nor heating. I would advise anyone who installs an electric heat pump boiler to ensure they have a traditional fireplace on which they can throw some logs in an emergency.

One of the big problems at present is that the Government has not taken reasonable steps to ensure that the country has alternative power supply sources whether it be coal, gas, nuclear, wind power, hydroelectric or from other sources. Clearly we have become over-reliant on natural gas from sources that have recently become very expensive. The potential for producing our own natural gas from fracking has also been missed due to political unwillingness to face up to the objectors.

The Government now seems committed to pushing ahead with a big new nuclear power station at Sizewell C and possibly other smaller nuclear reactors at other sites. See the recently published Government paper on its Net Zero Strategy (see reference 1 below).

That document is full of fine words but is the objective to totally decarbonise our economy really practical? Building nuclear power stations to generate electricity might enable the replacement of natural gas for heating and for the replacement of internal combustion engines in cars and vans, but will it actually be carbon free? It occurred to me that building a nuclear power station takes enormous amounts of concrete and steel, both of which currently require carbon-based energy sources to produce them.

A quick search of the internet produced a very good paper on this subject by the Ecologist (see reference 2 below). The author’s conclusion was that nuclear power is not low carbon if you take into account the “whole of life” emissions including those in the mining of uranium fuel and end of life remediation and storage.

In fact no alternative power sources are carbon free. Hydropower is one of the best but still generates 10 gCO2/kWh while solar PV and wind power might be considerably higher. There is no major power source that is carbon free so any objective to be “net zero” by 2050 is nonsense.

The projections also assume that future technology yet to be proven or even developed can produce steel and concrete with zero emissions and planes and HGVs can be powered by alternative sources.

Carbon emissions can be reduced to some extent no doubt by the use of selected generation systems with a focus on electrification and the planting of a lot more trees but nobody should be fooled that net zero is achievable by 2050. There is little discussion of the cost of rebuilding the economy in the way suggested and a lot of it will fall on the general public.

They have only just come to realise that the Government’s plans to stop the sale of gas boilers in new homes by 2025 and altogether by 2035 will mean massive costs to install electric pump boilers.

Of course 2050, or even 2035, are long in the future so promises and commitments can be made that are truly castles in the sky. But reality will sink in sooner or later.

As I have said before, the best and only truly effective way to cut carbon emissions is to reduce the number of people on this planet. At present the growth in world population and the industrialisation of lesser developed countries easily offsets the savings that might be made in carbon emissions by the UK or other western economies.

Reference 1: Government’s Net Zero Paper: https://www.gov.uk/government/publications/net-zero-strategy

Reference 2: Ecologist paper on Nuclear Power: https://theecologist.org/2015/feb/05/false-solution-nuclear-power-not-low-carbon

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Online Abuse Back in the News

I covered the subject of online abuse at some length in 2017 – see https://roliscon.blog/2017/08/22/hate-crime-fake-news-and-market-abuse/ .

Nothing much has changed since but the subject has again come to public attention by the death of an M.P. and the comments by other M.P.s that they regularly get death threats and other forms of abuse that is making their lives intolerable.

The Home Secretary, Priti Patel, has suggested that a ban on anonymity on the internet might be considered. I would certainly be in favour of that.

Anonymity makes policing of the internet impossible, and encourages people to post outrageous comments because they know that they will never be held responsible for them. It is not just abusive comments aimed at politicians, particularly female ones apparently, but at anyone the culprits do not like or do not agree with.

The standard of public debate of all kinds on Twitter, Facebook and other social media is a disgrace and removing anonymity would be a simple way to tackle most of the problems. If the perpetrators knew that they could be easily traced and hence subject to laws on harassment and libel, they would be a lot more careful about what they say. Indeed I would suggest that libel be made a criminal offence not just a civil one.

Stopping anonymity would not be that difficult in practice. The identity of most people can now be checked in a few seconds by such companies as GB Group. It would simply need to be made a legal requirement that people must use their own name when registering for on-line services.

It is surely time to consider such legislation.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Gas Prices, Price Caps, Reckless Pricing and Telecom Plus

There was a lot of coverage of the impact of rising gas prices in the media this morning, particularly on retail consumers. The wholesale price of natural gas has been shooting up for a number of reasons – up 17% alone on Monday for example.

The Government imposed “price cap” has protected consumers to some extent, but it has meant that many companies that supply consumers have been losing money. There are as many as 55 companies that supply gas to retail consumers but a number have already entered administration and the forecast is that only 10 might survive.

The price cap is only reviewed every six months and that is clearly insufficient to keep up with the rapid change to open market prices. The price cap was introduced to protect consumers from big companies who had many long-standing customers on fixed expensive tariffs. Many were reluctant to switch to other suppliers which is now very easy. Government action might have been laudable to protect the most vulnerable from exploitation but when you start interfering in markets, the outcome is usually perverse.

As a shareholder in Telecom Plus (TEP) I have some interest in this issue. They have repeatedly complained about new entrants to the market who were promoting prices so low that they were bound to lose money. But they were doing this to build a customer base.

This is what TEP said in their last Annual Report in June: “The level of the energy price cap increased by almost £100 at the start of April, a substantial rise that reflects both rising wholesale prices and higher covid-related costs. Since then, wholesale costs have remained at an elevated level, which makes the switching market particularly challenging for all market participants.

Despite this, many independent suppliers are still setting their retail prices at whatever level is required to attract new customers on price comparison sites, irrespective of the impact it will inevitably have on their profitability and cashflow; as a result, we continue to see them reporting significant and unsustainable losses in their latest published accounts. A number of further suppliers have left the market over the last 12 months, with further insolvencies likely in the event that the current Ofgem consultation (designed to prevent suppliers using customer deposits as a substitute for shareholder capital) becomes effective”.

Business Secretary Kwasi Kwarteng has said that the Government “will not be bailing out failed companies” which is good to hear because it is the companies own fault that they have got into this parlous situation. Gas prices are always volatile and companies that had not hedged the price nor had long-term supply contracts were very likely to come unstuck.

A meeting of supply company leaders with Mr Kwarteng apparently encouraged dropping of the price cap, but he was adamant in retaining it. That is a great pity because this problem would never have arisen if a free market was allowed to operate.

There are other possible ways to protect vulnerable consumers and nobody ever has their gas cut off because their supplier goes bust.  

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Raising Taxes Was Inevitable

The Prime Minister’s statement yesterday primarily provided an excuse to raise taxes to help the NHS and support social care funding. But this was surely very predictable. In March I said this after the Chancellor published his budget: “Reaction to yesterday’s budget was generally negative, but nobody likes higher taxes. The general view is that the Chancellor has just kicked the bucket down the road. More borrowing in the short term to finance the recovery and keep people in employment, but much higher taxes later. I think the budget is a reasonable attempt to keep the economy afloat and could have been a lot more damaging for business if he had taken a tougher line”.

You only have to consider the many billions of pounds being expended in the NHS to counter the Covid-19 epidemic and to support businesses which had to shut down to see that higher taxes were inevitable.

We are now getting the predicted higher taxes. The main points announced were:

  • National Insurance rates for both employees and employers will rise by 1.25%. Mr Johnson said he “accepts that this breaks a manifesto commitment, which is not something I do lightly. But a global pandemic was in no one’s manifesto”.
  • Those over 60 but still employed will also pay National Insurance for the first time from which they were previously exempt.
  • Taxes on dividends will also rise. Dividends are taxed based on your income tax rate. Basic-rate payers will now pay 8.75% tax on dividends, up from 7.5%, higher-rate payers will pay 33.75%, up from 32.5%, while top-rate payers will pay 39.35% up from 38.1%.
  • The “triple-lock” on state pensions will be suspended which will reduce the anticipated income rise for pensioners.
  • Pensioners will also be hit by a proposal to raise the limit for when obtain free prescriptions from age 60 to 66.
  • In total it is suggested that the total tax take will be the highest it has been since the Second World War and undermine the Conservatives claim to be a low tax party.

What do we get in return?

The extra £12 billion a year raised will mainly be spent helping the NHS recover from the Covid-19 pandemic and, eventually, on protecting people from extortionate social care costs. But there are few details on how the money will be spent. However there is a claim that the extra taxes raised will be hypothecated as a “health and social care levy”, i.e. cannot be spent on anything else, although the rules can be changed later of course.

One specific commitment is to introduce a lifetime social care cost limit of £86,000 per person from 2023. This may help people to avoid having to sell their homes if they have to go into residential care. But it only applies to basic care costs not to food and accommodation.

There will be a new means test if people live in their own homes. They will get all their social care funded by taxpayers if they have less than £20,000 in assets — excluding the value of their home. They will be partially funded if they have assets worth up to £100,000.

Comments:

  • The advantages of the self-employed paying themselves via dividends rather than in salaries will be further reduced. For those who receive dividends on investments it is important to try and reduce those by moving the investments into tax free ISAs, SIPPs or VCTs. Clearly it will also increase the relative value of companies that are growing their retained profits or doing share buy-backs rather than paying out profits in dividends.
  • Will the extra money for the NHS actually improve the services? As a big personal user of the NHS I welcome it but will more money make a difference? The service has certainly declined in the last year with waiting lists for operations growing to millions nationwide (I had to pay privately to get one done for example). There is a shortage of doctors and nurses and that is not easy to fix quickly as training takes a long time as does building new hospital facilities. The total funding for the NHS is now comparable to other European countries but the level of service provided is not as good – just compare the number of hospital beds, particularly intensive care ones, or doctors per head of population. This is where the NHS proved to be so sub-standard during the pandemic. This is a management problem which more money might not cure.
  • Social care likewise needs wider reform but will more money help? It is not clear.
  • The media comments lauded the ability of those who need to go into care homes from avoiding selling their homes. But why should they not be forced to do so? This looks like a sop to the wealthy home owners in the shires who want to pass on their homes to offspring. I do not consider it fair that young workers should be subsidising such funding by rises in taxes on them. So far as I am concerned, I am quite happy to erode my personal wealth to pay for the medical or social care costs I need. My offspring should not be relying on collecting big inheritances.
  • Is it a good idea to impose extra costs on businesses and deter them from employing more people? This is surely a damper on economic activity generally and will reduce returns to investors. But employment levels are high and increasing the cost of employing people might encourage higher productivity. At this point in time, I therefore do not oppose it, but I am not one of those in employment who will be paying the higher NI rates.

The key question is what else could the Chancellor have done to raise taxes? The alternatives are probably no better.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Why the Germans Do it Better

One of my summer reading books was “Why the Germans Do it Better” by John Kampfner. The book is somewhat mistitled because much of it is taken up with the history of political developments in Germany since the Second World War. That is interesting but it does also cover why Germany has been so successful in developing its economy since it was destroyed in the war years.

This is a short extract from the book: “On the eve of the currency reform and lifting of price controls [by Ludwig Erhard], industrial production was about half of its level in 1936. By the end of 1948 it had risen to 80 per cent. In 1958, industrial production was four times higher it had been just one decade earlier. By 1968, barely two decades after the end of the war that had left the country in ruins, West Germany’s economy was larger than that of the UK. The trend continued remorselessly. In 2003, it became the largest exporter to Eastern Europe. In 2005, it surpassed the US as the leading source of machinery imports into India. It is the largest exporter of vehicles to China. Most impressively, in 2003, Germany overtook the US to become the biggest total exporter of goods in the world”.

Why do we in the UK import so many German cars and other products. Just looking around my own house we have a Siemens refrigerator, a Bosch kettle, dishwasher and washing machine, an AEG cooker and I just bought a Braun electric razor. Like many readers no doubt, all of our domestic appliances are German apart from a Japanese bread maker.

The UK used to be a leading industrial manufacturer and although our car industry is not as moribund as it used to be, it is still only below tenth in the world for vehicle production while Germany is fourth.

Why has the UK become deindustrialised and in practice become primarily a service economy? Education is part of the problem but as Mr Kampfner makes clear, it is also an issue of how we organise our companies. Comparative productivity shows we have fallen well behind with GDP per capita now only 85% of Germany’s.

In Germany there seems to be a stronger consensus between management and employees with employee representatives on the supervisory boards. The culture of companies is different in essence.

Mr Kampfner’s book highlights many of the differences and points to how the UK should rethink some of its educational and corporate structures if we are improve our productivity. It’s well worth reading for that alone.

But it is also a good primer on political developments in Germany, written by someone who knows both Germany and the UK well.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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The Population Issue and Historic Evacuations

Roman Withdrawal from Britain – From Cassell’s History of England

My previous blog post on the IPPC report on climate change generated a number of comments. Here’s a good one in the past from Sir David Attenborough that is very relevant: “All our environmental problems become easier to solve with fewer people, and harder – and ultimately impossible – to solve with ever more people”. That’s certainly an area where Governments could take a stronger lead.

While the stock market is relatively quiet, it’s a good time to ponder the subject of evacuations as is currently happening in Afghanistan. Was it necessary and what might happen in due course are the key questions?

Evacuations after military withdrawals are quite common in history. Britain suffered such an event in the years 405-410 when the Roman Empire withdrew the legions to fight off attacks on the continent. The Emperor Honorius finally told the Britons to “look to their own defences” in 410 which marked the effective end of Roman rule. After 400 years of Roman administration and cultural dominance in Britain it rapidly disappeared. All we have left now are a few straight roads.

The USA gave the same exhortation in Viet Nam after a failed attempt at establishing a western style democracy in the South to thwart Communist expansion. Militarily the war in Viet Nam was a disaster with much gold and lives lost to ultimately no purpose. The regime they established was a puppet one ridden by corruption and without widespread popular support. Despite heroic efforts by the US military, support from the US public eventually withered away. Joe Biden is old enough to remember that failure of US policy when the war was continued for far to long. It is hardly surprising that both he and Donald Trump were keen to withdraw from Afghanistan as soon as possible. Viet Nam is now a peaceful and commercially vibrant country.

Britain faced the same problems in Afghanistan in the 19th century when we invaded twice to thwart suspected Russian influence. The first Afghan war was a military disaster and after the second we rapidly withdrew having learned our lesson. In the 1980s Russia invaded the country but after 10 years withdrew after effectively suffering military defeat. The history of Afghanistan and the reasons why it is so difficult for foreign armies to gain control was well covered in a TV documentary by Rory Stewart in 2012 under the title “The Great Game” – it was rebroadcast this week and acted as a good reminder why military success in the country is always a mirage.

Ultimately the US and UK’s efforts in Afghanistan followed the same problems as in Viet Nam. The regime they established was corrupt and only kept afloat by oodles of money while the western culture they attempted to establish was not accepted by most of the population. Afghanis looked on western armies as invaders of the wrong religion. This was never going to work.

Ultimately, and when otherwise facing a military situation that could not be won, withdrawal was clearly the best solution after the original reason for the US invasion was forgotten after 20 years of war (originally intended to stop terrorism promoted by al-Qaeda).      

Could the withdrawal have been better handled? That is debateable. It is clear that all the “hangers-on” to the US, UK and other foreign forces might want to depart but with tens if not hundreds of thousands of such people this was hardly very practical. A date was set of the end of this month and Joe Biden does not wish to stretch it out. They claim to have already evacuated 70,000 refugees. There was sufficient time given to remove military forces and the Taliban have promised an amnesty for others. It is clear that Afghanistan faces a very difficult time in the next few years both socially and economically as Viet Nam did. But extending the withdrawal by a few weeks or months will surely not help much while militarily it makes no sense. Kabul airport cannot be defended easily if the Taliban choose to block a time extension. The West should concentrate on coming to an accommodation with the new rulers and helping them to develop the country, not attacking them for perceived undemocratic failings.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Mining Companies, Takeovers and a Journal of the Coronavirus Year

The usual stock market gyrations are taking place in August and this year it seems to be the turn of big mining stocks. Rio Tinto (RIO) is down 20% since its recent peak in May and Anglo American (AAL) fell sharply after it recently went ex-dividend. BHP Group (BHP) is also down but not by as much as might be expected after it announced that it was intending to unify its corporate structure and this will mean it will no longer be a FTSE-100 stock so some tracker funds will have to sell it. The downward move was probably limited because this company is dual listed in the UK and Australia and there was a discount in the UK versus the A$ price which will be eliminated.  

The reasons given in the media for declines in mining stocks are numerous – some profit taking after a long rise, worries about Covid infections rising, US stimulus measures being cut back, a slow-down in economic growth in China and several other reasons. All of this is probably just “noise” that can be discarded as financial news tends to be thin during the summer so media tend to invent stories.

As regards the BHP move, where I hold the stock, I do not oppose the simplification. It will still be listed in the UK but as a FTSE-250 stock. However the one-off costs of US$500 million to do the unification seems to be unreasonably high. I hope we see a good justification for the move when it comes to a vote. But it has been suggested that one motivation is a more relaxed corporate governance environment in Australia. As I have pointed out in previous blog posts, excessive regulation in the UK is providing an incentive to list elsewhere or not list at all.

Other market news is a recent spate of takeovers in my portfolio such as at Avast (AVST) and Ultra Electronics (ULE). The Avast proposal is not at a great premium but I have only held it for a short while so I will not oppose. It’s a good opportunity to simplify my portfolio which still has too many holdings in it.

As regards Ultra this is another short-term holding and the agreed offer price is at a very good premium so I will support. The Government has required the competition watchdog to assess ‘national security issues’ over the sale but the share price barely moved after that announcement so it seems the market expects this will not thwart the deal. With UK and US defence companies now so intertwined it would seem pointless to object.

On a more personal note, in March 2020 I started a diary because the coming year seemed likely to be a momentous one. With the Covid epidemic spiralling out of control and our departure from the EU (Brexit) having happened but no free trade agreement yet in place which was forecast to be a disaster by some people, it looked likely to be an interesting year economically and politically. And so it turned out to be.

My life in the period has been somewhat mundane as meetings have been cancelled and travel much restricted. But I thought it might of some interest to my offspring in due course. My father wrote a diary covering the years before, during and after the Second World War which proved to be fascinating reading when it came to light over 50 years later even though he was in a “reserved” occupation and the nearest he ever got to fighting was in the Home Guard.

I have now finished my diary as I consider the epidemic to be substantially over and Brexit has turned out to have minimal consequences on our daily lives. But some aspects of our lives have changed. My diary has been printed under the title “A Journal of the Coronavirus Year” and is comparable to “A Journal of the Plague Year” by Daniel Defoe published in 1722.

I have published other books in the past – the most recent one via Amazon which is relatively simple to do. But I only wanted a few hard copies for my family so I used a company called BookPrintingUK (https://www.bookprintinguk.com/ ). This I found to be a very good low-cost service which I can recommend it you have a similar need. It is easy to use and they can include colour photographs.  Photograph of completed volume of 400 pages is above.

The current book contains both personal information and commentary on the financial world – the latter often taken from my blog. Is it worth turning it into a publication that the general public, or at least the investment community, might find of interest? Let me know if you think that would attract any demand. As a history of the epidemic and other events from March 2020 to June 2021 and how life has changed in that period it may be of some interest to historians.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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