Category: Knowledge

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38 Years and Counting

This month I celebrate 38 years since the beginning of my career. In the beginning it was purely a sales job. Armed with a suit and a rate book, I was unleashed on the great British public to spread the gospel according to Abbey Life. I was taught to sell savings plans and life assurance plans. With a little further training and an additional rate book my sales repertoire extended to “personal retirement plans” the fore-runner to personal pensions which arrived in 1988. And so it was for 10 years.

I’m proud to say that some of those initial clients are still with me today. Thank you;

Rory, Ruth, Mo, Stuart, Joan, Ruth, Dek, Janet, Tony, Robert, Belinda, John, Roy, Kim, Brian, Julie, Ken, Geri, John, Chris, Diane, John, Philip, Graeme, Wendy, John & Andy.

I lost my insurance company religion when I realised that Abbey Life was making more money than the policyholders were and became an Independent Financial Adviser in 1997. If you want to read the full career backstory you can read it here.

Privatisations.

When I joined Abbey Life, Margaret Thatcher was our Prime Minister. She was re-elected with a manifesto to sell off state owned monopolies. She dreamed of turning ordinary citizens into an army of private shareholders. Thatcher vowed no industry should remain in private ownership. Do you remember the TV advertisements to, “Tell Sid” that British Gas was to be privatised?

Those privatisations left a lasting impression on me. I managed to invest £100 here and £100 there and made a profit in the short term. I couldn’t hold on to those shares for the long term unfortunately as there were mortgages to be paid, and children to be brought up. I’ve no regrets, but……

A little recent research revealed that if you invested £1000 in British Gas on flotation –” in 2023 you would now have £40,600, of which £24,400 is due to dividends being reinvested to buy more British Gas shares”.

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What’s all the fuss about?

Haters gotta hate

By now you probably all understand I am not a fan of the economic and social policies of this UK Government. To be fair I didn’t like most of the last shower’s either. Two sides of the same global agenda coin, putting global ideology before the people. I am unapologetically a Capitalist. I believe that capitalism works. It may be flawed, more rewards tend to end up going up the ladder than down, but it has proven to be the system that has lifted over 2 billion people around the world and counting, out of poverty. Socialism, Marxism, Command Capitalism all impoverish the masses, if not, then the price an individual pays is the loss of freedom.

So from a political point of view I do hate any ideology which impoverishes and removes personal freedoms. Which brings me to the position UK citizens currently find themselves in with this iteration of democratic government.

The UK economy is in a bit of a pickle.

As someone who is deeply interested in the future prospects of governments, economies and companies (we have the wealth of 200 families sat on our shoulders) I do read extensively and try to keep that reading balanced. I’m a capitalist and yet I will read articles in The Guardian to maintain that balance. Ultimately I source material from individuals with “skin in the game”, money on the line, rather than graduate journalists or editors with chips on their shoulders.

To cut to the chase, UK governments have already borrowed too much, and investors who hold that debt are worried. There was a time when investors in UK Government debt were domestic in nature. Large UK investment funds and UK pension funds especially. But over time that domestic loyalty has waned. A typical UK pension fund only holds the minimum mandatory level of UK gilts to remain within the law. Those funds have also reduced their holding of UK listed shares from around 40% to, wait for it, now just 4%! The Chancellor is currently trying to force UK pension funds to invest more. Watch this space.

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Long and Variable Lags

Milton Friedman, the conservative University of Chicago economist and Nobel Prize winner, started talking about long and variable lags in the late 1950s. He described that the process central banks follow to aid or retard economic activity by adjusting interest rates up or down is fraught with timing issues. When interest rates rise, they will eventually show their effect, but very little change occurs immediately.

Think of economic activity as a fully laden oil tanker, when the brakes are applied it takes miles and miles before the slow down to a standstill finally occurs. The knack therefore is not to brake too late or the tanker will run aground.

There is an emerging fear that central banks should have applied the brakes months ago.

We have watched valuations of our portfolios ebb and flow over summer in typical fashion. Veteran investors have experience of lower return summer months and higher return winter months. But suddenly September is back to haunt us once more as the month of the year which typically gives the lowest returns. This year it’s negative returns so far, taking our valuations down to the lowest point since April.

The US Federal Reserve has maintained the confidence of market participants so far as a delivery of a “Soft Landing” seemed to be achievable. In turn this soft landing was anticipated here in the UK and across Europe. Last October in “Have Interest Rates Peaked?” I said;

The real indicator for central banks is the level of unemployment. So far the rises have been low, but at some point the trickle picks up speed and then it positively floods higher if central banks send rates too high and put companies out of business. The level of un-employment itself is a lagging indicator. The numbers aren’t reported until it is too late and those individuals are placed on “the dole” or whatever it is called today.

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