Tag: Brexit

Politics and Technology Problems

It’s been a while since I wrote a blog post. Too busy sorting out some technical problems and keeping up with medical issues – I just booked my seventh Covid vaccination which does not scare me. But I would like to comment on some topical issues.

Should Dominic Raab have been fired, or encouraged to resign, which is the same thing in reality? There is one simple question to answer which is “would you like to work for him as a boss?”. My answer would be an undoubted “no”.

Leaders who wish to get things done need to be popular to some extent at least if they wish to have people work hard and follow the policies laid down. You certainly can’t get people to do what you want by bullying them.

Raab was apparently warned several times about his behaviour so the final outcome was hardly unexpected. In any organisation, and Government is no different, you have to have consensus and leadership by example. If Raab could not get Civil Service staff to do what he wanted then he needed to change his approach.

My first technical problem was that BT and Microsoft decided to stop supporting POP email clients, for alleged security reasons after 20 years. That meant potentially losing access to thousands of older emails I have received over the last 15 years. No workarounds provided unless I paid them money. I am very unhappy about being treated in this way and Outlook on the web is not nearly as good as Outlook 2016 as a local client.

My latest technical problem was configuring and learning how to use a new Samsung smartwatch (a Galaxy 4). This is replacing an older Huawei smartwatch which did basic functions very well but was not really compatible with the Apple i-Phone I currently use. I don’t like Apple watches – too expensive and I prefer a more traditional design. The Galaxy watch is also incompatible but you have to read the very small print on their web site to discover that. You even need a Samsung phone to set it up which is ridiculous. The user interface is horribly complex and it’s taken me hours to learn all the functions and configure it. Watches should be installable in a few minutes, not hours, and all common phones should be supported.

That’s the rant over for today.

I was alerted by the new emergency phone alarm just now. I presume that’s in case Russia launches World War 3, and we get 3 minutes warning of a nuclear attack. Reminds me of the 1960s but most people decided then that there was not much to do in 3 minutes except hide under a table.

Meanwhile Sadiq Khan is pushing ahead with the ULEZ expansion despite widespread public opposition. Financially it makes no sense and it will make no difference to air quality in the outer London boroughs. There will be a legal challenge in the High Court in July but I am not very hopeful of a successful outcome. But it’s worth supporting anyway.

The only way you can remove idiots like Sadiq Kahn is at the ballot box.

Roger Lawson

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Year End Review of 2021

As I have published in previous years, here is a review of my own stock market portfolio performance in the calendar year 2021. I’ll repeat what I said last year to warn readers that I write this is for the education of those new to investing because I have no doubt that some experienced investors will have done a lot better than me, while some may have done worse.

It’s worth bearing in mind that my portfolio is very diversified across FTSE-100, FTSE-250 and smaller company (e.g. AIM) shares listed in the UK. I also hold a number of UK investment trusts which gives me exposure to overseas markets, and some Venture Capital Trusts (VCTs). Although I have some emphasis on AIM shares, they are not the very speculative ones.

One feels wary of publishing such data because when you have a good year you appear to be a clever dick with an inflated ego, while in a bad year you look a fool. Consistency is not applauded on social media. But here’s a summary of my portfolio performance which turned out to be a good year despite the damage done to economies by the Covid pandemic. Total return including dividends was up 19.3% which I consider a good result bearing in mind that the FTSE All-Share was only up 14.56% which I use as my benchmark (the latter figure does not include dividends though). But the FTSE All-Share is dominated by FTSE-100 companies – the dinosaurs of the financial world in many cases – of which I hold relatively few.

During the year, and in the previous year, I had moved to a more defensive portfolio position as I thought the market was somewhat overvalued although I retained a strong emphasis in technology stocks. Cash holdings increased as I sold out from a number of companies early in the year when over-optimism for a quick recovery from the pandemic seemed common. I did purchase more holdings in property companies where REITs and property investment trusts seemed to me to be on excessively high discounts and warehousing companies such SEGRO and Urban Logistics benefited from more internet retailing. Self-storage property company Safestore also contributed. Bigger holdings in property companies also helped total dividends received to increase, with good pay-outs from VCTs also making total dividends received to be the highest level for 4 years.

Smaller technology stocks were a very mixed bunch – Tracsis was up substantially despite the fact that I expected train companies to cut back expenditure as their passenger revenue must have fallen. Clearly it’s a sector more reliant on government subsidies than simple economics to make money. Other smaller winners were DotDigital, SDI and Judges Scientific but GB Group fell substantially. Diploma and Reach were other winners supported by takeovers at Ultra Electronics and Wey Education. I had no substantial individual company losses during the year which always helps overall portfolio performance. Perhaps I am getting better at avoiding the duds.

My investment trust and fund holdings all did well often because they have substantial US holdings. I failed to beat Terry Smith’s performance at Fundsmith for yet another year but Scottish Mortgage and Polar Capital Technology produced only moderate performances as all but mega-cap technology stocks fell out of favour.

What does the future hold? Inflation is rising as Governments pump money into the economy in response to the epidemic while interest rates are still at record low levels. It’s certainly no time to be holding bonds or other fixed interest stocks. It’s a return to the good old days when you could buy a house that was rapidly inflating in price when the mortgage cost was much lower than the inflation gain. So I expect house builders to continue to do well as there is still a shortage of housing in some parts of the country despite a few people returning home to the EU. Brexit turned out to be a damp squib so far as most UK people are concerned and I see no great change in that regard in the coming year.

A year ago I said “some things may permanently change as we have become used to doing more on-line shopping, working from home, travelling less and getting our education on-line”. Those are the trends that will continue I suggest. The movement to improve the environment and halt global warming which is requiring substantial changes to the UK and other economies continues to be a priority for the Government and many businesses although there is too much hot air spouted on the subject. One has to be very careful about enthusiasm for “hot” market sectors – they often turn out to be flashes in the pan.

It looks like we will need to learn to live with Covid-19 as variants arise which hopefully will be less virulent. You can expect to receive repeat vaccinations against Covid variants – I already have my fourth lined up. Life may gradually return to normal – at least I hope so.

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

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The Season of Goodwill – But Not Everywhere

As this is may be my last blog post before the New Year, other than a review of the book “Boom and Bust” which I have just finished reading, I would like to wish all my readers a Happy Christmas and best wishes for the New Year. It cannot be a worse one than this year surely!

In this traditional season of goodwill, it seems rather thin on the ground of late. The French have blocked lorries from crossing the Channel ports because they apparently fear the spread of the new Covid-19 strain. The result is that at least 150 trucks are queued up on the M20 in Kent with more spread around the country. On a normal day as many as 9,000 lorries cross the Channel and there is a fear we might run out of lettuce and strawberries over the holidays.

In reality the French are mainly blocking their own countrymen and other European truck drivers from returning home for Christmas. They will be stuck on the motorway with no toilets or other services. How uncharitable is that! And it’s all pointless as the new virus strain is undoubtedly already widespread on the Continent.

Meanwhile the Brexit free trade negotiations are still stuck on arguing about fish. Let us be generous in this season of goodwill and let the French have some cod, haddock and mackerel which can swim over the border anyway. They have for hundreds of years traditionally fished in English waters so to abruptly kick them out along with the Spanish and other European fishing fleets just seems spiteful when we otherwise might get what we want from a trade agreement. It’s not being fair to put much of the French fishing industry out of work on New Year’s Day for the sake of a principle.

We need a new Entente Cordiale and to stop this petty bickering.

Have a good Xmas.

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

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Brexit, Ocado Trading and Facebook Law Suit

As I expected Boris Johnson’s visit to Brussels did not produce a positive outcome. A firm deadline of Sunday has been set for concluding discussions. I suspect that will be another deadline passed, and it won’t be the end of talks completely. In the meantime, the EU has unveiled plans to prevent chaos in case of a no-deal Brexit. Specifically planes between the UK and Europe will continue to fly and trucks will be able to continue crossing the Channel. The EU is also proposing temporary measures on fishing rights. These temporary measures could last for many months I suspect.

Good results from Ocado (OCDO) this morning in terms of revenue, driven by the epidemic encouraging internet food shopping. With three new warehouses opening in 2021, which will ultimately give the company 40% more capacity to the business, that is a positive trend as customers have been hampered by limited delivery slots. But they are finding it difficult to sell their technology solutions it seems because of the travel restrictions on which much of the future value of the company depends. The share price has fallen by 6% at the time of writing.

The real big news on the financial scene though is the law suit launched by the US Federal Trade Commission against Facebook. They allege the company has demonstrated anti-competitive behaviour particularly by the acquisition of Instagram and WhatsApp who were potential competitors. But it cites other issues as in addition. They wish to break up the company. The legal action is supported by attorney generals in individual states.

The big problem is that Facebook is a natural monopoly as more people are attracted to the biggest network. So it’s rather like AT&T and the Bell operating companies who used to have a monopoly over US phone traffic and were broken up in the 1970s by an anti-trust law suit.

Also it’s reminiscent of the break-up of Standard Oil even earlier who developed such a dominant control of oil production, refineries and even rail transit lines that they could force competitors out of business. Google (Alphabet) is also facing a big anti-trust lawsuit because of its very dominant position in the search engine market.

Comment:  These lawsuits will probably take years to come to a conclusion but they are clearly a major threat to Facebook and Google. Regrettably it’s probably a case of power going to the heads of the chief executives of these companies where they think they can do no wrong. In the case of Standard Oil and Rockefeller he argued, unsuccessfully, that their monopolistic position was for the good of their customers because it avoided wasteful competition and enabled products to be delivered at the lowest possible prices. No doubt Zuckerberg may use similar arguments which may not get upheld by the courts, but it’s not easy to see how the core Facebook product could be broken up.

The dominant positions of Facebook and Google in internet advertising should be the bigger target though which is what is generating most of their profits. There are surely some solutions to that such as price controls or giving other companies the ability to piggy-back on the companies’ software platforms. Lawyer’s can get very creative on possible solutions.

Note: I hold a few shares in Ocado, but not many because the valuation of the company looks like it is based on future hope that it will be a world beater rather than actual short term financial data. I do not hold Facebook or Alphabet, but no doubt like many readers, do hold them indirectly because of holdings in funds. The threat to their finances may be long-term rather than short-term, particularly bearing in mind how long anti-trust law suits take to run through the courts.

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

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The Advantages of Investment Trusts

The AIC has issued a video which spells out some of the advantages of investment trusts over open-ended funds. They spell out that with most investment products you don’t have a say, but with investment trusts you do because you can vote on important decisions about how your company is run and what it invests in. You can also attend the Annual General Meeting (AGM) to meet, and question, the board directors and the investment manager. Investment companies also have independent boards of directors.

You may think that all of this is theoretical and in practice shareholders have little influence. But that is not the case. When push comes to shove, shareholders can change the fund manager and even the board of directors. I have been involved in several campaigns where this actually happened – not just in smaller companies such as in VCTs but at Alliance Trust. The outcome is usually positive even if a revolution does not actually take place.

But attending AGMs is now only available as an on-line seminar using various technologies. I have attended several in the last few weeks of that nature, and they are less than perfect in some regards. Technology is not always reliable and follow up questions often impossible. But they do save a lot of time in attending a physical meeting and they are certainly better than nothing. I look forward to when AGM events can return in a “hybrid” form where you can attend in person or via a webinar.

The AIC video is available from here: https://www.theaic.co.uk/aic/news/videos/your-investment-company-having-your-say

Brexit

I see my local M.P. Sir Bob Neill, is one of the troublemakers over the Internal Market Bill. He gave a longish speech opposing it as it stands in the Commons. But I was not convinced by his arguments. Lord Lilley gave a good exposition of why the Bill was necessary on BBC Newsnight – albeit despite constant interruptions and opposing arguments being put by the interviewer (Emily Maitlis). A typical example of BBC bias of late. Bob Neill is sound in some ways but he has consistently opposed departure from the EU and Brexit legislation. To my mind it’s not a question of “breaking international law” as the unwise Brandon Lewis said in Parliament but ensuring the principles agreed by both sides in the Withdrawal Agreement are adhered to. Of late the EU seems to be threatening not to do so simply so they can get a trade agreement and fisheries agreement that matches their objectives.

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

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EMIS Interims, AstraZeneca and Brexit

Healthcare technology company EMIS Group (EMIS) issued some interim results this morning. This is one of my longest standing holdings first purchased in 2011 although it has not been one of my greatest investments – overall total return over the years of only 9% per annum. But I did buy some more in March as I considered it would be a defensive share during the epidemic and might actually benefit from the medical crisis. That has turned out to be generally true.

Revenue was down by 2% however and adjusted profits likewise and it appears that business-to-business activity has been constrained but the share price has risen by 5% today (at the time of writing). Some effort has clearly been put into meeting new requirements from the epidemic but a new EMIS-X module was announced (EMIS-X is a new modular platform they are developing). However, it does seem that EMIS-X is slow in arriving in comparison with my expectations.

The health system is becoming more digitised so EMIS is in a good place and unlike other companies who are chopping their dividends, EMIS announced a 3% increase in the interim dividend.

For those who are not big consumers of health services like me it is truly revolutionary how the world has changed of late. Email discussions with GPs and video conversations are now enabled and the whole health system is more responsive. But it is getting more difficult to actually see a doctor in person which is sometimes still required.

Edison have published a video interview with the CEO of EMIS which you can watch here: https://www.edisongroup.com/edison-tv/emis-group-executive-interview/

As regards the epidemic AstraZeneca have indicated they have put their clinical trial of a vaccine on hold due to a possible adverse reaction in one patient. It may purely be a random effect. But with lots of competitors for a vaccine and a low probability of any one making money, this is not necessarily significant news.

Brexit

I was very amused to see Government Minister Brandon Lewis admitting in Parliament that it will break international law over the Brexit withdrawal treaty, in an attempt to “rewrite” it or “clarify” it depending on who you care to listen to. I would not rate Mr Lewis very highly in terms of his knowledge of the law having met him when he was a Government Minister in a different role. We discussed the use of police waivers of prosecutions for speeding offences which I consider an abuse and a perversion of justice. He simply suggested it was a form of “plea bargain”. Not that they are part of the UK judicial system of course so it was a very odd response.

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

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Boris Johnson Not Backing Down and the Technology Stocks Bubble

Today I received an email from the Conservative Party signed by Boris Johnson and entitled “I will not back down”. The first few sentences said:

“We are now entering the final phase of our negotiations with the EU. The EU have been very clear about the timetable. I am too. There needs to be an agreement with our European friends by the time of the European Council on 15 October. If we can’t agree by then, then I do not see that there will be a free trade agreement between us, and we should both accept that and move on. We’ll then have a trading arrangement with the EU like Australia’s. I want to be absolutely clear that, as we have said right from the start, that would be a good outcome for the UK”.

But he says the Government is still working on an agreement to conclude a trade agreement in September. However the Financial Times reported that there are problems appearing because the “UK government’s internal market bill — set to be published on Wednesday — will eliminate the legal force of parts of the politically sensitive protocol on Northern Ireland that was thrashed out by Mr Johnson and the EU in the closing stages of last year’s Brexit talks”. It is suggested that the EU is worried that the Withdrawal Agreement is being undermined. But reporting by the FT tends to be anti-Brexit so perhaps they cannot be relied upon to give a balanced commentary on the issues at present.  

Of course this could all just be grandstanding and posturing by both the UK Government and the EU to try and conclude a deal in their favour at the last minute. But we will have to wait and see what transpires.

Well at least it looks like Brexit news will dominate the media soon rather than the depressing epidemic stories.

Technology Stocks Bubble

Investors seem to have been spooked last week by the falls in the share prices of large technology stocks such as Apple and Tesla (the FAANGs as the group are called). This resulted in overall market falls as the contagion spread to many parts of the market, particularly as such stocks now represent a major part of the overall indices. I am glad to see my portfolio perked up this morning after substantial falls in my holdings of Polar Capital Technology Trust (PCT) and Scottish Mortgage Investment Trust (SMT) both of whom have big holdings in technology growth stocks although they are not index trackers.

I’ll give you my view on the outlook for the sector. Technology focused companies should be better bets in the long-term than traditional businesses such as oil companies, miners and manufacturing ones. There are strong market trends that support that as Ben Rogoff well explained in his AGM presentation for PCT which I mentioned in a previous blog post.

But in the short term, some of the valuations seem somewhat irrational. For example I consider Tesla to be overvalued because although it has some great technology it is still in essence a car manufacturer and others are catching up fast. Buying Tesla shares is basically a bet on whether it can conquer the world and I don’t like to take those kinds of bets because the answer is unpredictable with any certainty. I would neither buy the shares nor short them for that reason at this time. But Tesla is not the whole technology sector.

Some technology share valuations may be irrational at present, but shares and markets can stay irrational for a very long time as different investors take different views and have different risk acceptance. In summary I would simply wait to see if there is any certain trend before deciding to buy or sell such shares or the shares of investment trusts or funds focused on the sector.

Investment trusts are particularly tricky when markets are volatile as they often have relatively low liquidity and if stocks go out of favour, discounts can abruptly widen. Trading in and out of those kinds of shares can be very expensive and should be avoided in my view.

I don’t think we are in a technology stocks bubble like in the dot.com era and which I survived when anyone could sell any half-baked technology business for oodles of money to unsophisticated investors. But it is worth keeping an eye on the trends and the valuations of such businesses. Very high prospective/adjusted p/e ratios or very high price/sales ratios are still to be avoided. And companies that are not making any profits or not generating any free cash flow are ones of which to be particularly wary (Ocado is an example – a food delivery company aiming to revolutionize the market using technology). Even if the valuations are high, if a company is achieving high revenue growth, as Ocado is, then it might be able to grow into the valuation in due course but sometimes it just takes too long for them to do so. They risk being overtaken by even newer technologies or financially stronger competitors with better marketing.

Investors, particularly institutional ones, often feel they have to invest in the big growth companies because they cannot risk standing back from the action and need to hold those firms in the sector that are the big players. Index hugging also contributes to this dynamic as “herding” psychology prevails. But private investors can of course be more choosy.

This is where backing investment trust or fund managers who have demonstrable long-term record of backing the winners rather than you buying individual stocks can be wise. Keeping track of the factors that might affect the profits of Apple or Tesla for an individual investor can be very difficult. Industry insiders will know a lot more and professional analysts can spend a lot more time on researching them than can private investors. It is probably better for private investors to look at smaller companies if they want to buy individual stocks, i.e. ones that are less researched and are somewhat simpler businesses.

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

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Venture Capital Trusts, the Baronsmead VCT AGM and Political Turmoil

Yesterday (26/2/2020) I attended the Annual General Meeting of the Baronsmead Venture Trust (BVT) held at Saddlers Hall in the City of London. It was reasonably well attended. I will just report on the major issues:

The Net Asset Value Total Return for last year I calculate to be -2.7% which is certainly disappointing. Note that it is annoying that they do not provide this figure in the Annual Report which is a key measure of the performance of any VCT and which I track for all my VCT holdings. I tried to get in a question on this issue but the Chairman (Peter Lawrence) only allowed 15 minutes for questions which is totally inadequate so I will be writing to him on that subject.

The company does give a chart on page 3 of the Annual Report showing the NAV Total Return for the last ten years. There was also a fall in 2018 according to that chart although I am not sure it is correct as my records show a 6.9% Total Return. I will query that as well.

The main reason for the decline in the return was a disappointing result from the listed company holdings – mainly AIM shares. However it was noted that there was an upturn after the year end and it is now up 17.2%. Major AIM company losses last year were in Crawshaw and Paragon Entertainment – both written off completely now – and a bigger loss in Staffline which was one of their major holdings. However they did realise some profits on Ideagen and Bioventix which were still their largest AIM holdings even so at the year end.

There was criticism from two shareholders about the collapse in Staffline with one asking why they did not exit from Staffline and Netcall (another loser) instead of following them down, i.e. they should have invoked a “stop-loss”. The answer from Ken Wotton who manages the listed portfolio was that there were prospects of recovery and they had sold some Staffline in the past so were still making 4 times the original cost. Comment: Losing money on an AIM portfolio in 2019 is not a great result – certainly my similar portfolio was considerably up last year. They seem to be selling the winners while holding onto the losers – not a sound approach. However it would certainly have been difficult to sell their large holding in Staffline after the company reported accounting/legal problems. Selling such a stake in an AIM company when there are no buyers due to uncertainty about the financial impact is simply impossible at any reasonable price.

One shareholder did question the poor returns from AIM companies when they might have made more from private equity deals. The certainly seem to have ended up with a rag-bag of AIM holdings which could do with rationalising in my opinion. The fact that the new VCT rules will impose more investment in early stage companies may affect the portfolio balance over time anyway.

Robin Goodfellow, who is a director of another VCT, asked why they are holding 20% in cash, and paying a management fee on it. Effectively asking why shareholders should be paying a fee on cash when the manager is paid to invest the cash in businesses. The Chairman’s response was basically to say that this is the deal and he did not provide a reasoned response. This is a typical approach of the Chairman to awkward questions at this company and I voted against his reappointment for that and other reasons. The Chairman is adept at providing casual put-downs to serious questions from shareholders as I have seen often in the past.

Another reason to vote against him was the fact that he has been a director of this company and its predecessor before the merger since 1999 (i.e. twenty-one years). Other directors are also very long serving with no obvious move to replace them. This is contrary to the UK Corporate Governance Code unless explained and likewise for the AIC Corporate Governance Code which says “Where a director has served for more than nine years, the board should state its reasons for believing that the individual remains independent in the annual report”. There is no proper justification given in the Baronsmead Annual Report for this arrangement.

I have complained to the Chairman in the past about them ignoring the UK Corporate Governance Code in this regard so that’s another item to put in a letter to him.

All resolutions were passed on a show of hands.

ShareSoc VCT Meeting

In the afternoon I attended a meeting organised by ShareSoc for VCT investors – they have a special interest group on the subject. VCTs have generally provided attractive and reasonably stable returns (after tax) since they were introduced over twenty years ago and I hold a number of them. In the early days there were a number of very poorly performing and mismanaged funds and I was involved in several shareholder actions to reform them by changes of directors and/or changes of fund managers. Since them the situation has generally improved as the management companies became more experienced but there are still a few “dogs” that need action.

Current campaigns promoted by ShareSoc on the Ventus and Edge VCTs were covered with some success, although they are still “works in progress” to some extent. But they did obtain a change to a proposed performance fee at the Albion VCT.

However there are still too many VCTs where the directors are long serving and seem to have a close relationship with the manager. Baronsmead is one example. It is often questionable whether the directors are acting in the interests of shareholders or themselves. There are also problems with having fund managers on the boards of directors, with unwise performance incentive fees and several other issues. I suggested that ShareSoc should develop some guidelines on these matters and others and there are many other minor issues that crop up with VCTs.

There also needs to be an active group of people pursuing the improvements to VCTs. Cliff Weight of ShareSoc is looking for assistance on this matter and would welcome volunteers – see https://www.sharesoc.org/campaigns/vct-investors-group/ for more information on the ShareSoc VCT group.

Political Turmoil Ongoing

Apart from the disruption to markets caused by the Covid-19 virus which is clearly now having a significant impact on supply chains and consumption of alcohol as reported by Diageo, another issue that might create economic chaos is the decision by Prime Minister Boris Johnson to ditch the political declaration which the Government previously agreed as part of the EU Withdrawal Agreement, i.e. that part which was not legally binding.

The Government has today published a 36 page document that outlines its approach to negotiations on a future trade deal and its ongoing relationship with the EU – see https://tinyurl.com/tlhr3pk . It’s worth a read but there are clearly going to be major conflicts with the EU position on many issues and not just over fish! Needless to say perhaps, but the Brexit Party leaders are happy.

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

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FinTech Valuations, EU Harmonisation and Fundsmith Report

I received an interesting item from Sharepad/Sharescope by Jeremy Grime this morning. It was headlined “Culture in Payments” but the interesting part was the coverage of the valuations of Fintech companies. It listed some of the recent takeover transactions of such companies where the valuations ranged from multiples of 1.1 to 7.8 times revenue (Source: W.H.Ireland), but many of them were on more than 7 times. Profits are not even mentioned! One example was UK listed company Earthport, taken over at 7.3 times revenue by Visa when it had been consistently loss making.

The article also mentions three small such UK listed companies – Alpha FX (AFX), Argentex (AGFX) and Equals Group (EQLS) and explains how they seem to be evolving from being primarily suppliers of foreign exchange to evolving into banks. I have an interest in one of those companies and another in the sector, but some of  the valuations seem to be way too high to me. There are clearly a lot of share speculators betting on their future, but not all are likely to be successful. Maybe they are just looking further ahead than me (source of the word “speculator” is Latin “speculatus”, the past participle of the verb speculari, which means “to spy out” or “to examine” but it tends to now mean acting without looking).

Chancellor Sajid Javid has put the cat among the pigeons over the weekend by suggesting on Friday in an FT interview that UK businesses need to prepare for divergence from EU rules. He said “There will not be alignment, we will not be a rule taker, we will not be in the single market and we will not be in the customs union”. This may create potential difficulties for large importers/exporters from/to the EU, such as auto manufacturers, aerospace companies, pharmaceutical companies and food/drink suppliers. It is also somewhat inconsistent with the “political declaration” which was part of the Brexit Withdrawal Agreement.

Perhaps this is just a negotiating position. I hope so because some harmonisation on goods might surely be preferable to ease trade flows, even if we depart to some extent from EU financial regulations and other rules. However, just to give you one example where harmonisation might be objected to, the EU is mandating Intelligent Speed Adaptation (ISA) for all new cars from 2022. Many UK drivers consider this unreasonable as speed limits are often inappropriate and there are a number of technical objections to it. Exporting compliant vehicles to the EU should not be difficult for car manufacturers but for German manufacturers if the UK drops that rule then problems may arise. The devil is in the detail on harmonisation. The answer is surely to agree harmonisation on technical standards where there is an obvious benefit to both parties, but not where the regulations attempt to dictate policies in the UK, or how our citizens behave.

Lastly I covered the latest Fundsmith Equity Fund Annual Report in a previous blog post (see https://roliscon.blog/2020/01/18/another-good-year-for-fundsmith/ ). It’s now available from this web page: https://www.fundsmith.co.uk/docs/default-source/analysis—annual-letters/annual-letter-to-shareholders-2019.pdf? and is well worth reading.

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

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It’s a New Day and a New Era

It’s 7.30 on Friday morning and the Conservatives have won a very large overall majority. This is a seismic change with what one might expect to be solid working-class constituencies such as Blyth Valley, Workington, Grimsby and Leigh being won by the Tories. This was very clearly a Brexit election with the SNP winning more seats in Scotland where most people wanted to stay in the EU, but the rest of the country deciding otherwise it seems.

However the Brexit party has won no seats although they have undermined the Labour vote in some areas. This is disappointing because they might have provided some moderation in Parliament to an over-dominant Conservative Government. All the concerns of the other losing parties may be lost also which might increase social division. We might see even more street demonstrations.

The pound has already jumped up against the dollar and other currencies which might put a damper on some of the large UK listed companies with major dollar earnings. But market confidence and business confidence should now rise substantially now that some uncertainty is over. We will no doubt see in a few minutes when the market opens at 8.0 am.

Not that I have much cash in my portfolio to invest because I have been betting on a Conservative win and resolution of Brexit for some time. I did not like to mention it previously because I did not wish to encourage speculation on the outcome. Perhaps the market may have already discounted the likely outcome in the last few days but overseas investors in the UK market will now be reassured that financial stability and prudence will be in place for some time.

We are of course not totally out of the woods yet because Boris will still have to negotiate a trade deal with the EU and other aspects of the final separation. But I judge he is clever enough to do that.

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

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