Brief Comments on the Autumn Statement

This is kind of Chancellor’s statement that I like. No big surprises that would cause panic in financial markets. The threatened “tax cuts” are not all that evident but at least my state pension will be going up substantially next April.

ISA changes are relatively minor but this statement gives me some concern: “expanding the investment opportunities available in ISAs to include Long-Term Asset Funds and open-ended property funds with extended notice periods”. This makes no sense and is a recipe for future mis-selling claims.

But there is a commitment to legislate to extend the Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) schemes to 2035 which will remove concerns about the sunset clause in existing legislation.

The Government is still intent on throwing money at what it perceives as hot sectors with this comment: “Funding of £4.5 billion has been announced to help unlock private investment in strategic manufacturing sectors, starting in 2025-26 and lasting for five years”. What is the justification for subsidising commercial ventures?

This is an interesting statement by the Chancellor: “The UK is uniquely placed to harness the power of health data to improve patient outcomes. In England the NHS has 1.6 million patient interactions every 24 hours generating real world experience and insights at scale. The government is therefore announcing a further £51 million for the Our Future Health (OFH) programme, a world-leading resource for health research, to genotype their first 1 million participants and to recruit hundreds of thousands of new volunteers, supporting the development of better ways to prevent, detect and treat diseases”. That is a useful project.

More comments may follow on the Chancellors Statement after I have digested it more fully.

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

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Will Tax Cuts Make the Conservatives Electable?

There is a widespread expectation that tomorrow will see the Government announcing some tax cuts. One target might be Inheritance Tax (IHT) which is widely disliked by those who tend to vote Conservative even though the actual impact is often very small. Inheritance tax can be easily avoided with some planning and expert advice.

It is undoubtedly the case that overall level of personal taxes are too high and the tax system too complicated. For example we have the ludicrous situation where the Government has just paid out £500 in “Winter Fuel Payments” to me and my wife which is not taxable even though I can easily afford our fuel bills. It’s just a pointless gesture it seems.

Cutting Inheritance Tax won’t make me feel any richer as only my offspring will get the benefit and that many years in the future. The only justification for removing or reducing IHT is to simplify the tax system, particularly as it generates relatively small amounts of revenue. Electorally it won’t help as only the wealthy will benefit when the Conservatives need to appeal to the middle-class to get their vote up.

The TaxPayers Alliance have just published an updated report on how to implement a simpler tax system. The Single Income Tax was originally published in 2012 and is a proposal to fundamentally reform Britain’s tax system, replacing a complex swathe of direct taxes with a single tax on all income charged at a single rate of 30 per cent. See https://www.taxpayersalliance.com/the_single_income_tax_2023_update for more details and it’s well worth reading.

What will we get tomorrow? I predict more polishing of the existing system with a few bones thrown to the rabid socialist dogs. What we need is proper reform by gross simplification of the tax legislation.

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

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BT Problems, Hotel Chocolat and Multibaggers Report

BT has managed to disable my business “landline” number of 020-8295-0378. Major network problem apparently which won’t be fixed until at least 24/11/2023. Even though this is the line used for my broadband service that is still working so anyone wanting to contact me should use this contact form to get in touch: https://www.roliscon.com/contact-us

Will I be buying shares in BT? Absolutely not when the service is so poor.

Despite my previous recent blog post on the dangers of the attractions of luxury food products (see https://roliscon.blog/2023/10/16/hotel-chocolat-and-luxury-products/ ) it has not deterred Mars from bidding for Hotel Chocolat (HOTC). They have offered to pay 160% of the previous market price which is a prospective p/e of over 190. This seems a wildly optimistic valuation for a retailer with no consistent record of profits.  

Stockopedia ran a webinar on “multibaggers” which I missed as the timing clashed with my usual dinner time. But they have produced a report on their research of UK stocks which you can obtain from their web site.

I hold two of the top ten winners over the last ten years which have certainly contributed to my portfolio performance and it is well worth reading their report.

We seem to be back in a political mess after Suella Braverman got fired and the Supreme Court rejected the Rwanda plan for migrants. That was always going to be legally and politically difficult without a very firm hand on the tiller which Rishi Sunak seems unable to provide. Moving illegal immigrants to a foreign country was never going to be easy. But Rwanda is surely not the best choice of location. How about St. Helena or Ascension or one of the remote Scottish islands instead?

As regards the bust-up in the Conservative Party as a result, as someone who has some experience of such events in membership organisations my advice to Suella is to act quickly. Removing Sunak would not be easy so best to form a new platform for like-minded right wingers.   

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

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Regulating Cryptoassets

The FCA has published a consultation document on the regulation of cryptoassets – particularly stablecoins in the first instance. It should be of interest to anyone investing in cryptocurrencies or considering doing so. To quote from it:

5.9 If a cryptoasset custodian were to fail today, the lack of a clear regulatory framework could result in uncertainty that would likely cause harm to clients through delays in the return of assets, extra costs or, worst of all, loss of their assets. Without clear regulatory standards to which cryptoasset custodians are required to adhere, cryptoassets may not be safeguarded adequately, which may lead to losses should the cryptoasset custodian enter insolvency (whether due to being treated as assets of the custodian, or through operational errors). In addition to the harm to clients, an outcome that results in uncertainty in insolvency may impact confidence in the overall regulatory regime.

5.10 This was shown in the recent failures of Celsius Network LLC and the FTX group, both of which provided cryptoasset custody services. According to its recent bankruptcy filing, Celsius had misappropriated client assets and at the time of its insolvency owed $4.7bn to customers. In the case of FTX, at least $8bn of client assets were reported to be missing. According to filings in the US bankruptcy court for Delaware on FTX Trading, FTX’s practices included ‘potential commingling of digital assets…use of an unsecured group email account as the root user to access confidential private keys and critically sensitive data…’ and ‘an absence of lasting records of decision-making.’

See https://www.fca.org.uk/publications/discussion-papers/dp23-4-regulating-cryptoassets-phase-1-stablecoins for details.

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

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Patisserie Valerie and Shell Legal Cases

Shareholders in café company Patisserie Valerie were wiped out in 2018 after the accounts were shown to be fictitious and the company collapsed. It has now been announced that a trial date of four people alleged to be involved in the fraud has been set for March 2026. See https://www.lawgazette.co.uk/news/2026-trial-date-for-patisserie-valerie-criminal-case/5117808.article

Is it not astonishing that it has taken so long to bring the case to court? Compare that with the recent case of FTX/Alameda Research in the USA where Sam Bankman-Fried was prosecuted and found guilty in just a few months. This demonstrates what is wrong with the English legal system for dealing with fraud cases. Justice delayed for years is no justice and is no deterrent to criminal action.  

Another recently reported legal case is that oil company Shell is suing Greenpeace for £1.7 million after “activists” boarded an oil platform that was in transit off the Canary Islands. Shell incurred substantial costs as a result.

Comment: as a Shell shareholder I fully support the company actions. I think more such lawsuits should be pursued against organisations such as Greenpeace and Just Stop Oil who clearly have substantial resources which are financed by the ill-informed and take part in criminal activities in pursuit of their goals.

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

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CTY + JGGI AGMs and Market Trends

Yesterday saw a big improvement in my stock market portfolio valuation (up over 2% on the day). That makes a change from recent trends. Even some of the property REITs I hold picked up despite bank rate being unchanged.

In the last year I have been buying shares in BP and Shell on the basis that oil and gas will still be required for many years to come. This proved to be a big mistake on Tuesday when the share price of BP dropped by over 4% on results that were way worse than forecast. Shell did rather better later in the week but is it not very disappointing that analysts are unable to accurately forecast so much as a quarter ahead for such large and well researched companies? I am still in profit on my BP holdings but I will clearly have to review them.  

I attended the AGMs of City of London Investment Trust (CTY) and JPMorgan Global Growth and Income Trust (JGGI) this week. These were both “hybrid” meetings so I attended on-line. I’ll only cover them briefly as there were no surprises. CTY achieved a total return of 4.6% last year which slightly underperformed their benchmark. But they now have a 57 year record of dividend increases. I have held the shares since 2011 with limited trading in the meantime. Overall return has been 10.9% per annum which I consider satisfactory for a share I don’t need to constantly monitor and an on-going charge of only 0.37%. However stock selection last year had a negative impact.

They hold BP and Shell but sold BHP last year and bought Glencore instead. Long standing manager Job Curtis does not yet see a turning point in property.

The JGGI AGM was held in Edinburgh (they plan to alternate location) after the merger with Scottish Investment Trust. This was said to be “a transformational year” as the size of the trust has tripled due to the mergers and strong investment performance. They achieved a total return of 19.1% last year. Their aim is for long-term capital growth combined with a yield of 4%.

Their biggest holdings are companies like Amazon, United Health, Microsoft, CME, Coca-Cola, TSMC, Vinci, Uber and Mastercard and they have been buying Nvidia.

Questions were raised about them paying dividends out of capital, i.e. uncovered by earnings. But I see no problem with that as most of the profits arise from capital growth. But there were negative comments though from the lack of a resolution to clearly approve the dividend policy. I think they should improve that resolution next year.

Both the CTY and JGGI AGMs were useful events in terms of understanding the investment strategies and I am happy to continue holding the shares.

Lastly a postscript on the conviction of Sam Bankman-Fried (see previous blog post). Is it not astonishing that the SEC managed to prosecute and secure this conviction in just a few months when the FCA takes years to secure fraud convictions in the UK? The FTX bankruptcy filing took place in November 2022. There is clearly a much more effective legal framework in the USA to pursue, and hence deter, financial fraud.

What could have been a horribly complex legal case was dealt with quickly and efficiently in the USA.

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

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Sam Bankman-Fried Found Guilty

Yesterday Sam Bankman-Fried was found guilty of fraud in a New York Federal court over the collapse of FTX. This was the second largest crypto-currency exchange before it ceased trading with a shortfall as much as $10 billion in its accounts. Billions of client money had been lent to Alameda Research a proprietary crypto trading firm, also controlled by Bankman-Fried who could not repay it.

Bankman-Fried tried to talk his way out by giving evidence in his defence that he had consulted lawyers and they said it was OK to use client funds, allegedly.

This verdict is hardly surprising. I have been reading the book “Going Infinite”, subtitled “The rise and fall of a new tycoon”, by Michael Lewis. Clearly there were few controls in the business of FTX and people were hired with no experience – lack of financial knowledge or experience was seen as an asset!

The gullibility of the public to new get rich quick schemes is well demonstrated in the history of FTX. The UK Government has recently announced plans to regulate crypto markets which should surely be done as soon as possible.

The book mentioned is essential reading for anyone who wants to dabble in cryptocurrency and highlights some of the stupidities associated with Bankman-Fried.

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

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Bioventix Results

Full year results from Bioventix (BVXP) were issued this morning. I hold shares in them. They sell diagnostic antibodies including a troponin test which is a marker for past heart attacks.

I spent some time in my local A&E department a few weeks ago with chest pains which was confirmed as a possible heart attack via a troponin test but later turned out to be a mirage and I was quickly discharged. Don’t know whose troponin test they were using.

BVXP results were good, with EPS better than forecast and a second interim dividend being paid to make total dividends the same as last year. Revenue was up 9% and this is a “steady growth” share in essence.  I am happy to continue holding as the yield of 4% is good even if the shares are not likely to excite in the short term.

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

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Breaches of the Peace and Stockmarket Trends

The demonstrations in London and other cities against Israel are clearly “breaches of the peace” and should have been prevented. They were not simply peaceful demonstrations calling for a ceasefire in Gaza. The police are being way too feeble in enforcing the law and should call in the army if they feel that they do not have sufficient resources to enforce calm.

A ceasefire by Israel is not going to happen unless Hamas releases the hostages they hold and stop firing rockets into Israel – that also requires Iran to stop funding the attacks on Israel by Hamas and Hezbollah.

The demonstrators against Israel are being completely unrealistic in their demands. Palestinians may have some grounds for complaints about their treatment in Gaza but they are not helping to resolve their problems by the recent terrorist attacks on ordinary civilians.

Stockmarket Trends

Have we reached the late stage of bear market capitulation as Paul Scott suggested last week? I certainly get that feeling so far as small cap stocks go. Good news has little impact while bad news causes abrupt share price falls.

Last week the main good news was that I had sold shares in Fireangel (FA.) and Strix (KETL) some time ago thus avoiding big losses, For example Fireangel has received a bid at 7.4p when I sold for a small loss in 2016 (originally bought at less than 300p in 2014). Reason for sale? Total lack of confidence in the management. Strix I held onto for too long resulting in a 36% loss. The company went into “diworsification” with some unwise purchases and the CFO has quit. Moral: it’s never too late to sell.

Safestyle (SFE) has been suspended and is “game over” with a likely nil return which I held briefly in 2016. Incompetent management seemed to be the problem.

CAB Payments (CABP), a payments business that only recently listed lost three quarters of its value after a profit warning last week. Moral: don’t buy new listings – wait until the business model is proven. I did not hold it. Similar problems at Argentex (AGFX) after the CEO left abruptly.

Difficult to justify buying small cap stocks even at current prices when big oil and mining companies are paying such high dividends and interest on cash deposits can be as high as 5%.

Rishi Sunak may have stabilised the UK economy after the Truss debacle but fears of a prospective Labour Government are undermining confidence in the stock market, particularly by foreign investors. With UK taxes too high there are clearly many people sitting on their hands waiting to see which way the economy trends.   

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

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Demonstrations and Breaches of the Peace

The police have suggested that they cannot act against people who organise demonstrations against Israel or Hamas and which might include “chanting” of slogans.

This is surely nonsense because you can be arrested for “behaviour likely to cause a breach of the peace”. See https://en.wikipedia.org/wiki/Breach_of_the_peace

The police undoubtedly have powers to halt demonstrations that may turn violent or which incentivise people to disturb the peace. So why are they reluctant to use them?

This is yet another example of the police being feeble and reluctant to take action when confronted by people willing to cause disruption for the sake of publicity.

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

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