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9 June 2017 Issue 848 Britain’s best-selling financial magazine

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moneyweek.com 9 June 2017 MONEYWEEK

“No one has the faintest idea how we back out of the dead end that is monetary policy”

Editor-in-chief: Merryn Somerset WebbExecutive editor: John Stepek Managing editor: Cris Sholto HeatonMarkets editor: Andrew Van Sickle Senior writer: Matthew Partridge Staff writers: Chris Carter, Sarah MooreContributors: Alice Gråhns, Emily Hohler, Ruth Jackson, Jane Lewis, Emma Lunn, David Prosser, Alex Rankine, Simon WilsonGroup art director: Kevin Cook-Fielding Picture editor: Natasha Langan Production editor: Stuart Watkins Chief sub-editor: Joanna Gibbs Website editor: Ben Judge

Advertising sales director: Simon Cuff (020-7633 3720) Commercial director: Vinod Gorasia Publisher: Dan DenningManaging director: Helen Hunsperger Founder and editorial director: Jolyon Connell Group publisher: Bill Bonner

Editorial queries: Our staff are unable to respond to personal investment queries as MoneyWeek is not authorised to provide individual investment advice. Email: [email protected] Phone: 020-7633 3651 Subscriptions & Customer Services: 020-7633 3780 Mon-Fri, 9am – 5.30pm Web: contactus.moneyweek.com

Subscription costs: £69 a year (credit card/cheque/direct debit), and £115 a year for orders placed and delivered outside of the UK. MoneyWeek is published by: MoneyWeek Ltd, 8th Floor, Friars Bridge Court, 41-45 Blackfriars Road, London SE1 8NZ. MoneyWeek and Money Morning are registered trade marks owned by MoneyWeek Limited. ©MoneyWeek 2017

ISSN: 1472-2062 • ABC, Jul – Dec 2016: 46,498

MoneyWeek magazine is an unregulated product. Information in the magazine is for general information only and is not intended to be relied upon by individual readers in making (or not making) specifi c investment decisions. Appropriate independent advice should be obtained before making any such decision. MoneyWeek Ltd and its staff do not accept liability for any loss suffered by readers as a result of any investment decision.

Losers of the week

Football stars David Beckham, Gary Lineker and Wayne Rooney, along with TV presenters Ant and Dec, have lost a legal bid to overturn a £700m tax bill. They were among 1,400 people to have invested in the Ingenious film financing schemes in a bid to cut their taxes. Ingenious, which helped produce films such as Avatar, qualified for tax breaks designed to support the UK film industry, but HMRC said Ingenious claimed relief on artificial losses from its films. Last week a tax tribunal upheld a 2016 decision to recoup the avoided £420m tax, plus interest, ruling that the incentives were “not allowable deductions”. Many investors now face large bills.

overturn a £700m tax bill. They were among 1,400 people to have invested in the Ingenious film financing schemes in a bid to cut their taxes. Ingenious, which helped produce films such as breaks designed to support the UK film industry, but HMRC said Ingenious claimed relief on artificial losses from its films. Last week a tax tribunal

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What did you worry about most during our generally rubbish election campaign? My guess is it wasn’t economics. The majority of our political conversation was about social care,

nuclear weapons, terrorism prevention (see page 14) and policing. These are all important, but how we deal with them depends on the underlying strength of our economy – and it is striking and disturbing how little this has featured.

We do, after all, have some very serious problems on our hands. We have an unsustainably large national debt. We have a consumer credit bubble. Everything to do with money has been hugely distorted by the behaviour of our uncontrollable central banks. We have super-slow productivity growth (see John’s thoughts on this on page 28). And, while we know that tax is a huge behaviour changer in the UK (anyone in doubt should look to the effect tax-relief changes are having on the buy-to-let market – see page 21), we have a tax system that everyone agrees is rubbish.

Nevertheless, no one has offered any suggestions as to how we can rearrange our welfare state so as to stop adding to our debt indefinitely. No one has the faintest idea of how we back out of the dead end that is modern monetary policy. No one has offered an explanation, let alone a solution, to our productivity problem (and hence the problem of low wages). Is it about tax credits encouraging part-time rather than full-time work? Is it super-low interest

rates allowing low-quality companies to stay in business? Research out this week suggests that a rise in rates would instantly bankrupt 80,000 companies. Another likely explanation is CEOs being given an incentive to prioritise short-term profits over long-term investment.

On to the tax system. Over the last six weeks we have heard a lot about which taxes should go up and which down. We have heard almost nothing about how our system should be reformed

so that it works – how it can raise the largest possible pile of cash while causing the fewest possible distortions.

Why not abolish national insurance and raise income tax to compensate? Why not dump inheritance tax for a gift tax, or capital gains for a land tax? Why not have a genuine bonfire of the tax reliefs and see what happens? And why, at the very least, can we not have a sensible conversation about all this? After all, the tax take now makes up 37% of GDP and, as George Bull of RSM points out, “households… would take a long, hard look at anything that cost them almost 40% of their… income”.

The UK economy is in a tolerable state at the moment. But unless some of our very big problems are addressed with some urgency it won’t remain that way. Over the last six weeks few of them have been addressed with any urgency. Now they must be.

From the editor-in-chief…

Merryn Somerset Webbemail: [email protected]

Good week for:Patty Jenkins: The latest blockbuster to hit the big screen, Wonder Woman, took $100.5m at the US/Canada box office last weekend, making it the biggest domestic debut for a film by a female director. The previous record had been set in 2015 by Sam Taylor-Johnson for Fifty Shades of Grey, with $85.1m.

Ananya Vinay: The 12-year-old Californian won America’s Scripps National Spelling Bee in a tense final in Washington DC, where she correctly spelled “marocain”, a heavy crepe fabric. She said she planned to split the $40,000 prize money with her younger brother, and put her bit towards her college fund.

Bad week for:Ice-cream makers: Vanilla prices have soared further in the wake of a tropical storm that has ravaged Madagascar, which accounts for 70% of production. Prices have risen to £415 a kilogram, compared with just £23 five years ago.

Chancers: Police are considering prosecuting British tourists who fraudulently demand compensation for food poisoning abroad. Britons in Spain are the worst offenders: fake claims have risen by 434% since 2013, costing Spanish hotels and resorts £50m a year.


MoneyWeek 9 June 2017 moneyweek.com

The way we live now

Those in the market for a more exotic scent than Chanel No.5 or CK One are in luck. The Demeter Fragrance Library has come up with a dizzying array of offbeat fragrances, including “Kitten Fur”, which has apparently “captured the olfactory essence of the warmth and comfort of that ‘purrfect’ spot, just behind a kitten’s neck”. If you’re not a cat person, you can opt for exotic smells ranging from jelly doughnut, laundromat and gin and tonic, to cannabis flower, baby powder and pixie dust. If you don’t mind smelling like food, there’s also a pizza fragrance. Meanwhile, Vladimir Putin has got in on the exotic fragrances act with a limited-edition scent called Russian Woman, on sale for £170.

4 news

Morocco: cementing ties

LondonEconomy regains momentum: May’s BRC Retail Sales Monitor, which captures the annual growth rate in like-for-like sales, fell back to -0.4%, suggesting the squeeze on real incomes is taking its toll. Barclaycard also noted that consumers were cutting back on non-essential items. House prices ticked up again in May,

according to the Halifax index, ending a four-month streak of flat or falling prices, although the annual rate of increases slowed to 3.3% from 3.8% (see page 21). Surveys of the manufacturing and construction sectors for May beat expectations. “The economy has regained some momentum in the second

quarter,” said IHS Markit’s Chris Williamson. It is likely to expand by 0.5% between April and June, an improvement on the first quarter’s 0.2%.

Danbury, ConnecticutPraxair agrees Linde tie-up: German industrial gases company Linde has agreed a merger with US peer Praxair to create the world’s biggest company in the sector. The combined entity, also called Linde, will be worth around $70bn, overtaking its French rival Air Liquide. The news ends months of suspense about whether the deal would go through, following opposition from employees, whose representatives sit on the board and enjoy equal status with shareholders’ delegates under German law. The deal is expected to close in the second half of 2018, and will combine Linde’s strong presence in Europe and Asia with an American rival that is “regarded as the epitome of efficiency”, said Aaron Kirchfeld on Bloomberg. However, it will face heavy scrutiny from antitrust regulators given ongoing consolidation in the sector.

BrusselsCommission unveils eurozone proposals: The European Commission has suggested bundling together the sovereign debts of eurozone governments and creating a joint fiscal budget in order to shore up the euro. The “reflection paper”, which also proposes a permanent president for the eurogroup – essentially a eurozone finance minister – is likely to face opposition from Germany, which has opposed previous attempts to create common “eurobonds” and similar financial instruments. The proposals are “ambitious and timely on banking and finance”, said Professor Luis Garicano on Economist.com, with the Commission also establishing a “tight calendar for completing the banking union” [bringing banks under eurozone supervision] by 2019. However, he reckoned that the latest ideas fail to address eurozone fiscal rules, which have stoked euroscepticism by letting Brussels interfere with national budgets.

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RabatWest African economic bloc admits Morocco: Leaders of the Economic Community of West African States (ECOWAS) have agreed in principle to admit Morocco during a meeting in Liberia. ECOWAS promotes economic integration between 15 west African countries and has a combined population of 350 million people, although no current member borders Morocco. The announcement

comes as the kingdom tries to strengthen ties with other African states; it rejoined the African Union earlier this year after a 33-year absence. Rabat already enjoys a close trading relationship with the EU. Morocco and

Tunisia are the only two Arab or African countries to be ranked in the top 50 of Bloomberg’s annual index of the most innovative economies in the world.

Housing: mixed news©

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moneyweek.com 9 June 2017 MoneyWeek

news 5

BrusselsCommission unveils eurozone proposals: The European Commission has suggested bundling together the sovereign debts of eurozone governments and creating a joint fiscal budget in order to shore up the euro. The “reflection paper”, which also proposes a permanent president for the eurogroup – essentially a eurozone finance minister – is likely to face opposition from Germany, which has opposed previous attempts to create common “eurobonds” and similar financial instruments. The proposals are “ambitious and timely on banking and finance”, said Professor Luis Garicano on Economist.com, with the Commission also establishing a “tight calendar for completing the banking union” [bringing banks under eurozone supervision] by 2019. However, he reckoned that the latest ideas fail to address eurozone fiscal rules, which have stoked euroscepticism by letting Brussels interfere with national budgets.

DohaQatar stocks plunge amid regional spat: Qatari stocks plunged by over 7% last Monday after Saudi Arabia, Bahrain, Egypt and the United Arab Emirates (UAE) cut diplomatic ties with Doha and said they would close off land, sea and air access to the Gulf state too. Around half of Qatar’s food imports come via Saudi Arabia and the UAE. Saudi Arabia and its allies accuse Qatar

of supporting terrorism and meddling in regional affairs. They have long deemed Qatar too tolerant of Iran, but have been emboldened by Donald Trump’s recent visit, said The Times. Trump is trying to unite the region against Iran. As for terrorism, Riyadh is attacking Qatar’s “patchy record on terrorism, the better to obscure its own. No Western government should be taken in.”

Pretoria South Africa falls into unexpected recession: South Africa’s economy has entered its first recession since 2009 after it contracted 0.7% in the first three months of this year, following a 0.3% fall at the end of last year. A recession is defined as two consecutive quarters of GDP contraction. The fall was a surprise as economists had predicted a rise in GDP for the period. All industries except agriculture and mining posted declines; there were especially sharp contractions in the trade, catering and accommodation sectors. Ratings agencies Fitch and S&P both downgraded South African government debt to junk status following the firing of finance minister Pravin Gordhan (pictured) in March this year. Protracted political uncertainty, a result of pervasive corruption and cronyism in the ruling ANC party, is likely to hamper growth prospects further.

KarachiStocks drop despite upgrade: Pakistan’s KSE-100 index recorded its steepest fall in almost two years last week despite the country’s upgrade to the MSCI Emerging Markets index. Pakistan was kicked out of the index – which includes high-growth economies such as India, China and Brazil –

after the 2008 financial crisis and its re-entry

was seen as a reflection of stronger growth

prospects and improved corporate transparency. But

foreign funds sold a net $82m of Pakistani shares on the eve of the

upgrade. The slump may partly be explained by investment funds re-adjusting portfolios as Pakistan moved between different indexes, said the BBC’s Karishma Vaswani. Moreover, “uncertainty surrounds the new... budget”, with higher dividend taxes dampening enthusiasm. Pakistan was Asia’s best-performing market in 2016.

MumbaiTelecoms giant’s future in doubt: “Brutal competition and 457 billion rupees ($7bn) of borrowings have finally caught up” with Reliance Communications, said Liantung Tu and David Yong on Bloomberg. The telecoms group has just rattled investors with its first full-year loss, a result of a multi-year price war. Rivals Bharti Airtel and Vodafone have cut call rates and offered higher-speed data. The stock has sunk to a record low and credit-ratings agency Fitch now reckons that “some kind of default is a real possibility”. Reliance is reportedly discussing a waiver until September on interest payments on loans worth $1bn. It hopes to use the proceeds of two disposals that are about to go through to repay lenders.

KSE-100: a sharp drop

Galilee Basin, QueenslandGreen light for controversial $12.4bn coal mine: India’s Adani Group has given final approval for the construction of one of the world’s largest new coal mines. The A$16.5bn (£9.6bn) Carmichael mine project aims to produce as much as 60 million metric tons of thermal coal each year, but has drawn criticism from environmental groups because of plans to ship the coal out through the Great Barrier Reef. Market analysts have also raised questions about the economic rationale given a looming global coal supply glut. Adani has already spent more than A$3bn on the project, but further financing for the group’s Australian division remains in doubt after several major banks refused to get involved following public controversy. The Australian government plans to help fill the group’s financing gap with a A$1bn loan.

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by Andrew Van Sickle

Gilts will have to get off the fenceby Alice Gråhns

It’s been a good few months for UK bond investors. The yield on the benchmark ten-year gilt dipped below 1% last week, a level last seen in October, says Kate Allen in the Financial Times (bond yields fall as prices rise). US and German yields haven’t fallen as far, implying that markets are “flagging a deteriorating outlook for the UK economy as the country negotiates Brexit”.

As for short-term political factors, it’s interesting to note that “whatever outcome you expect [of the snap general election], you get the same result”, Marcus Ashworth points out on Bloomberg. “Comfortable majority for Theresa May, yields dip. Polls tightening on signs that Labour Party leader Jeremy Corbyn might be less hopeless than thought, yields dip... hung parliament, yields dip.” A large majority for the Conservatives

is seen as a positive prospect for gilts, since it should give May more room for manoeuvre in Brexit negotiations. On the other hand, gilts’ status as a haven asset makes them appealing if Corbyn prevails.

But gilts will have to get off the fence once the vote is over. The new government’s spending plans, future inflation expectations and Brexit negotiations will all affect valuations. “Sub-1% ten-year yields may not stand up to those headwinds for too long,” Ashworth says. The key point, reckons Jonathan Loynes

at Capital Economics, is that the market seems too pessimistic about Brexit and the nearer-term economic outlook. “Market rate expectations [imply] that the first quarter-point hike won’t arrive until well into 2019.” But if the economy proves resilient in “Q2 and beyond”, as the indicators suggest, interest-rate expectations and gilt yields “are likely to rise accordingly”.

“Nothing seems able to prevent this market from reaching new highs,” says Ben Levisohn in Barron’s. America’s S&P 500 and Nasdaq Composite indices hit new records late last week. This set the tone for equities in general, helping Britain’s FTSE 100 reach a new peak.

Yet there seems to be plenty to worry about, as Patrick Hosking notes in The Times. In Britain, what everyone thought was “a nailed-on election triumph for the ruling pro-business party” has turned into “a close-run thing”. Nor do the “policy U-turns and pantomime antics” of the Trump government appear to have unnerved investors. America’s withdrawal from the Paris climate treaty is another “pointer to a more fragmented, inward-looking and unstable global community”.

Last week’s payroll figures, showing that a mere 138,000 jobs were created in May, were disappointing, adds Levisohn. Investors who have acknowledged that we probably aren’t going to get a “Trump bump” from tax cuts, higher spending and deregulation anytime soon have been saying that a pick-up in economic growth justifies piling into stocks. But now there must be at least some doubt about that.

Nonetheless, while US valuations are historically high, and investors seem too relaxed, it’s hard to see the rally

collapsing in the near future. US growth is set to quicken this quarter, and the global economy has strengthened too. The latest earnings season on Wall Street has been encouraging, with sales growth rising by 7.4%. The solid results aren’t just a question of boosting margins through cost-cutting, says John Authers on FT.com.

More broadly, however, the rally can still depend on the “constant nourishment of easy money”, as the Financial Times’s Michael Mackenzie notes. Since the crisis, the four key central banks – US, Japan, UK and eurozone – have bought a collective $14trn of assets, mostly bonds, with printed money. This year alone,

according to Bank of America Merrill Lynch (BAML), they have topped up the “liquidity punchbowl” by $1.1trn.

While the US Federal Reserve is raising interest rates slowly, other central banks have cut rates or kept buying assets of late, and the loosening will endure into 2018. For now, then, with global growth expanding and interest rates still near all-time lows, equity markets will still have a strong tailwind. The danger, of course, is that more and more investors pour into stocks and central banks are too slow to tighten, leading to a “speculative mania” reminiscent of 1999, as BAML points out. But we’re not quite there yet.

How long can this party go on?

6 markets

A speculative stampede is a danger, but we’re not there yet

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Chart of the week: a seismic shift in energy markets

Opec and the oil giants expect decades of growth “as they feed the energy needs of the world’s... middle classes”, say Jessica Shankleman and Hayley Warren on Bloomberg.But they may be missing “seismic shifts” in technology or policy that could nullify or crimp oil demand. The International Energy Agency thinks oil demand could peak in 2020 given ongoing efficiency improvements that are reducing fuel waste; these could save six supertankers of oil a day. Electric cars and alternative fuels, such as biofuels and natural gas, could also slash consumption.

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When 2017 began, most investors were looking forward to a hefty stimulus package for the US economy from Donald Trump. Instead, the big story of the year so far has been Europe’s recovery, says Chris Giles in the FT. The single currency area outstripped America in the first quarter, and its outperformance stretches further back. Despite the 2015 Greek drama, the eurozone has expanded by 5.1% in the past two and a half years, compared with 4.6% for the US.

And the expansion is gathering momentum. Consumer confidence has just reached a ten-year high. Corporate lending growth has hit a post-crisis peak. A survey of purchasing managers in both the manufacturing and service sectors points to the fastest growth in six years. Employment in the manufacturing sector is climbing at one of the fastest rates seen in the past decade.

This quarter alone the eurozone economy is likely to expand by 0.7%. Germany is leading the charge, but the periphery is also showing signs of life. Italy and Portugal expanded by 0.4% and 1% respectively in the first three months of 2017. Europe is also much more

exposed to global growth than Britain or the US, so the uptick in the global economy will help it more. All this explains why Goldman Sachs expects earnings for the companies in the pan-European Stoxx 600 index to jump by 15% this year. Throw in modest valuations, especially compared with Wall Street, and European stocks look set fair.

So what could go wrong? Italy. Its huge debt load and rotten banking system are recurrent headaches – although as Philip Aldrick says in The Times, a growing economy and bond-buying by the European Central Bank (ECB) will prevent a crisis for now. But what Italy “cannot manage is political risk”.

A national election may now be held this autumn rather than next year, and the anti-euro populist Five Star movement is on a par with the governing centre-left Democratic Party in the polls.

The populists have promised a referendum on Italy’s euro membership. That would spook bond markets and prompt a sell-off of Italian debt, propelling bond yields – and hence implied borrowing costs – upwards. The ECB could stem the tide by buying more Italian debt, but the crisis would dent confidence and probably abort the recovery. So investors should enjoy European equities’ rally while it lasts. Later this year, the crisis could make a comeback.

The subprime car bubbleHistory seems to be repeating itself, says Wirtschaftswoche. The US car-loan market is spookily reminiscent of the mortgage market before the crash of 2008. Eighty-six percent of new and 55% of second-hand cars are bought with borrowed money, and lenders seem happy to throw cash at pretty much anyone with a pulse. The total value of US car loans has soared by 40% to just over $1.1trn since 2007. A third of debtors are officially subprime borrowers, and a third of those are in the “deep subprime” category: people who barely have a hope of servicing their borrowings “without winning the lottery”. In 2010 only 5.1% were deep subprime.

As with the subprime mortgage market, lenders have packaged up the dodgy loans and sold them on. Air is hissing out of the bubble. Second-hand car prices are falling and will slide further if people have to sell because they can’t meet payments: 5% of subprime loans are 60 days in arrears. The subprime car market, unlike the $9trn mortgage market, is too small to sink the economy. But it could tear some big holes in hedge funds’ portfolios and give the markets a nasty fright.

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Enjoy Europe’s rally while it lasts

Viewpoint“There’s a part of the world that comprises 9% of the world’s population, more than 600 million people. Its consumer market stands at $1.2trn, exceeding each of India, South Korea and Brazil. It’s the world’s fourth-largest exporting region, accounting for 7% of global exports. Because it lacks our metastasised welfare state, it has lower government debt levels. And growth is projected to average over 5% between 2016 and 2020. The region in question happens to be Asean… Dividend yields in these parts are higher than in the West…price-to-earnings and price-to-book ratios dramatically lower.“

MoneyWeek contributor Tim Price of Price Value Partners

If the Five Star populists win the day in Italy, expect a wobble


City talk

n Deterred from listing in New York because of onerous anti-terrorist legislation, Saudi oil behemoth Aramco has turned to London. Listing here would “emphatically demonstrate that Brexiting Britain is open to the world”, says Patrick Hosking in The Times. Unfortunately, Riyadh only wants to list 5% of Aramco. That would “flout the iron law that the free float of any company… should be at least 25%”. This is “not a quibble”, says Hosking. Floating less than 25% “leaves minority shareholders with no clout”. A 5% float would leave Aramco answerable to nobody but Saudi Arabia’s “obdurate theocracy”. London should highlight its “investor-friendly credentials” by maintaining its standards and saying no.

n “For a couple of hours,” says James Moore in The Independent, “Ocado beat even the lucky punter who scooped the £133m EuroMillions lottery jackpot over the weekend.” Its market cap jumped by £140m on Monday when it announced it had struck a deal with its first overseas retailer. Unfortunately, says Moore, “when the City had digested the details of this deal, or rather the lack of them, it quickly came to the conclusion that it might not be up to much”, and “pop – all that extra value disappeared”. Still, “optimists might still care to see this deal as a baby step forward” – the company has “at least sold something”.

n Steve Caunce, boss of online washing-machine seller AO World, is “an expert in spin cycles”, says Alistair Osborne in The Times. He has trumpeted “another year of progress”, yet the shares actually fell 11%. AO isn’t generating enough cash, and “the suspicion remains that profitability largely depends on selling pricey warranties consumers don’t need“. Caunce can’t “keep rinsing investors”: sooner or later, AO “must deliver some decent results”.

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The British Airways IT systems meltdown over the spring bank holiday led to the cancellation of more than a thousand flights, the stranding of 75,000 passengers, and an estimated £100m compensation bill. It was arguably “the airline’s worst self-inflicted crisis since it was privatised 30 years ago”, reckons Anthony Hilton in the Evening Standard. Yet investors seem to have shrugged it off – the share price of its parent company, International Airlines Group (IAG), fell just 3% “on what was a poor day for airline stocks anyway”.

But perhaps investors should be a little more concerned, says Hilton. The outage is a symptom of a much more serious problem: modern management’s obsession with cost-cutting, which is “stripping big companies of their resilience”. What in the past would have been a “minor” setback now “tips the business over the edge and becomes a disaster” – because all the spare capacity has been “stripped out to save money”. There is no duplication of “facilities or of management and expertise”, leading to companies operating with “no safety net”. This may deliver larger earnings, but “you don’t get a greater return without adding to risk”, says Hilton. “There is absolutely no margin for error.”

Both Willie Walsh, chief executive of IAG, and BA boss Alex Cruz are well known cost-cutters. Walsh came to be known as “Slasher Walsh” during his time at Aer Lingus because he liked to wield the axe, says Tanya Powley in the Financial Times. He has made his name by turning around ailing airlines: IAG has gone from profits of €503m in 2011 to €2.5bn in 2106, with earnings at BA up from €518m to €1.47bn in the same time. That’s been “great”

for investors, who have seen the share price climb by more than 120% in four years.

Yet critics have been saying long before this week’s chaos that Walsh’s “penny-pinching ways” could result in “long-term damage to the brand and its reputation with customers”, says Powley. And while the IAG chief executive “briskly rebuffs any notion of staff or customer discontent”, adds Gwyn Topham in The Observer, even “City analysts who applauded his efficiencies” are now beginning to ask “if the cost cutting has gone too far”. “As financial analysts, we love BA’s product,” says HSBC aviation analyst Andrew Lobbenberg, quoted in the Financial Times. But “the magic of management is to balance the interests of customers and shareholders and employees... Whether they’ve got the balance right is a valid question.”

What caused BA’s IT fiasco?International Airlines Group has cut costs to the bone – jeopardising

its operations and customer relations. Ben Judge reports

Roche suffers cancer drug setbackShareholders in Roche suffered a nasty setback on Monday. The Swiss pharmaceutical giant announced that its latest cancer drug had performed poorly in tests. The stock price promptly fell by 5%, the biggest slide since January 2015. Perjeta, a $7bn drug for post-surgery breast-cancer patients, produced only a marginal additional benefit in preventing cancer recurring when used in conjunction with Herceptin, Roche’s existing treatment. Generic alternatives to Herceptin

go on sale this year, and packaging Perjeta and Herceptin as a dual treatment could have kept patients on Roche products if the trial had been successful.

“It’s hard to work out the size of the blow,” says Neil Unmack on Breakingviews. The setback “underlines Roche’s vulnerability to generic rivals as manufacturers develop cheaper substitutes”. Indeed, “the question of whether Roche can overcome competition for its three

biggest products from biosimilars… is arguably the only one that matters for the company”, says Max Nisen on Bloomberg Gadfly. Perjeta is already approved for some breast-cancer patients, and made nearly $2bn in sales last year. Roche had hoped it would be the company’s biggest driver of growth over the next four years. The recent news “isn’t reassuring”, says Nisen, and the company now has to convince investors that its pipeline is “strong enough to handle the pressure”.

“Slasher” Walsh: a damaging level of penny-pinching


Vital numbers

Price at 6 Jun

% change since 30 Jun

FTSE 100 7,526 0.39%

S&P 500 2,439 1.88%

Nasdaq 6,306 2.81%

Dax 12,768 1.36%

Topix 1,596 1.99%

Hang Seng 25,997 2.34%

$ per £ 1.29 -0.65%

€ per £ 1.15 -0.62%

¥ per £ 141.15 -2.27%

Gold ($ per oz) 1,292 2.42%

Oil ($ per barrel) 49.32 -7.59%

IPO watch

Touchstone Exploration is a Canadian oil and gas exploration and production company. As well as projects in western Canada it is one of the largest onshore oil producers in Trinidad & Tobago, where it produces around 1,300 barrels a day. The company has almost eight million barrels of proven reserves, giving it a reserve life of 15 years, and low production costs of C$7.35 per barrel. It has C$13m in cash, and generated C$6.1m in cash from operations in 2016. The company is already listed in Toronto and hopes to raise £1.45m on London’s Aim by placing 20 million shares at 7.25p. Reasons for listing include better liquidity and improved ability to access funding from international markets. The shares are expected to begin trading on 26 June.

A German view Bijou Brigitte is one of the German stockmarket’s most generous and reliable dividend payers. The Hamburg-based group, which makes jewellery and accessories for men, women and children, hasn’t missed a payment in 20 years and yields almost 5%. The company is debt-free and the outlook is encouraging, which suggests that investors can count on a decent yield in the next few years too, says Wirtschaftswoche. Bijou Brigitte has over 1,000 shops in 23 countries, mostly in Europe, where the economy is strengthening. Consumer spending is expected to increase by 1.5% in Germany this year, while store renovations in Spain and Italy are also helping. A recovery in the eurozone also implies a stronger euro, which will lower purchasing costs – much of the merchandise is acquired in US dollars.

Three to buyAuto TraderThe Sunday TimesSales of new cars are slowing, and analysts fear knock-on effects for Auto Trader’s used-car operation. Yet “even if new car sales fall, used cars still need to be sold” and the firm’s website dominates the market. The shares are expensive on 30 times last year’s predicted earnings, but 65% margins look “almost too good to be true” and falling car sales won’t stall its progress. 434.75p

CityFibre InfrastructureSharesThis fibre-network builder should benefit from the drive to bring superfast broadband to cities such as Sheffield and Bristol. Significant acquisitions in 2016 saw revenue more than double to £15.4m. With the regulator, Ofcom, demanding more competition and major mobile operators vying for fibre network access, the shares are a good way to cash in on the growth of “gigabit cities”. 66.5p

Lloyds Banking GroupThe Mail on SundayLloyds has put the bad old days behind it to become a “solid, back-to-basics bank, focused on UK retail and business customers”. The government sold its remaining stake last month and “the end is in sight” for the payment protection insurance imbroglio. Growth is solid enough to put the shares on a 6.4% yield. 69.25p

Three to sellBerendsenThe Daily TelegraphThe Telegraph tipped this laundry services business last month at 797p, and the shares have since climbed more than a third following a hostile bid from French rival Elis. Further upside seems unlikely in the short term after such a big leap and Berendsen now looks fully valued. There is also the risk that the shares could fall back if the bid fails. Investors would do well to take profits now. 1,082p

IAGThe TimesShares in British Airways’ owner have proved remarkably resilient despite the IT disaster that left passengers stranded. The market seems to accept the explanation that this was a one-off, but previous outages at big banks led to hundreds of millions in costs to fix broken systems. If the bill increases it is a “racing certainty” that the dividend yield will slip. Avoid for now. 603.5p

Wentworth ResourcesInvestors ChronicleFirst-quarter results show that production at Mnazi bay – the east African driller’s main gas asset in Tanzania – is going to plan. However, Wentworth’s business partner, state oil company TDPC, is struggling to meet its financial obligations. Cash flow is under strain. Add in heightened political risk as the Tanzanian government gets tough with foreign firms, and it is a sell. 22p

And the rest The Daily TelegraphShares in Southern Rail owner Go-Ahead are no higher than they were in January 2014; a 5.6% prospective dividend yield looks cheap (1,813p). Caledonia Investments has grown its dividend every year for the last 50 years, yet the trust trades at an 18% discount to assets (2,881p). Water utility Severn Trent’s expectations-beating results suggest its shares have further to go (2,534p).

Investors ChronicleWater giant Pennon offers growing dividends (933p). The market is yet to take note of the improving outlook at specialist engineer TP Group (6.5p). easyHotel looks primed for the summer high season (94.5p). Wealth manager Brooks Macdonald should benefit from pensions freedom changes (2,481p).

SharesBlackRock Emerging Europe Trust offers high long-term return potential (334p). Forthcoming full-year results at life sciences group Abzena should suggest it may turn a profit sooner than expected (38.75p). European floor-coverings distributor Headlam continues to outperform its peers (630p).

The TimesOnline gaming software firm Gan is ploughing a potentially lucrative furrow in the US (26p). Security firm G4S has put its scandals behind it (325p). Retailer J Sainsbury’s £1.4bn purchase of Argos is paying off (279.25p). Investment trust Pigit has had a “stinker of a year”, but looks cheap (407p). There is a solid case for student accommodation provider Watkin Jones (182.25p).

liquidity and improved ability to access funding from international markets. The shares are expected to begin trading on 26 June.

A German view Bijou Brigitte is one of the German

Lloyds has put the bad old days behind it to become a “solid, back-

The government sold its remaining stake last month and “the end is in sight” for the payment protection insurance imbroglio. Growth is

shares 9

MoneyWeek’s comprehensive guide to this week’s share tips


Is it time to sell out of Petrofac, or should you top up?So what if you are in the situation described above? Petrofac has already plunged in value, from a 2017 peak of around £9.40 to around £3.55 at the time of writing. This shows the value of having a stop-loss – at a 30% stop-loss, say, even relatively recent investors would have been forced out of the stock at above the £6 mark, before the real bad news broke, and as a result, they would have avoided a significant amount of pain.

But what if you are still holding on? The share price is now at levels last seen in early 2009, and is not far off its 2008 low of around 270p (near the height of the credit crisis). Its market capitalisation has more than halved since the start of the year – from around £3.1bn to £1.2bn. Oil industry analysts reckon that if the Serious Fraud Office does uncover wrongdoing, then the group could be fined up to $800m. As Lionel Laurent

of Bloomberg Gadfly notes, the slide in the company’s value already far exceeds that, and it has the financial resources to pay up if necessary (it’s paying out around $225m a year in dividends for a start). Its lenders have also continued to back the group. So that’s the bull case – the potential financial bad news is in the price, and in terms of sentiment, well, things don’t get a lot gloomier than they felt in early 2009.

However, there is a “but”. The risk is that the case drags on (the investigation could run into years) and that during that time, management is distracted, and new business is harder to win, in a sector that is already under pressure from the uncertain outlook for oil prices. On balance, a lot of bad news is priced in, but I’d want more clarity on the impact of the SFO case before I would consider investing (Full disclosure: I don’t own Petrofac).

Guru watchFormer Bank of England governor Mervyn King is worried about trade imbalances (which arise when a country consistently imports more than it exports, or vice versa). Having fallen in the financial crisis, imbalances have been expanding once more during the recovery. King pins the blame on countries trying to “fix exchange rates at levels that are inconsistent with” balanced trade.

China and the eurozone have been active on this front. The former “has had a large current-account surplus for much of the past 20 years”. Although this has fallen from 9.9% of GDP in 2007 to 1.8% last year, “the sheer magnitudes of China’s export surplus and its high savings have been enough to start the unprecedented fall in real interest rates”. Germany is worse, with a surplus equal to 8.5% of GDP. These distortions have led to the election of a US government that “has set out its stall to reduce the American trade deficit, even to the extent of embracing protectionism”.

Another consequence has been a huge build up of debt in the deficit countries (those who import more than they export), especially the US and UK. Globally, debt is higher, at “some 325% of world GDP”, than before the financial crisis. For now, this debt is just about manageable, because long-term interest rates are at historically low levels (US ten-year Tips – inflation protected bonds – yield just 0.5%, for example). The trouble is that “when interest rates rise, asset prices will fall back relative to income levels, but debt burdens will remain unaltered”. As a result, King worries that “the next financial crisis may well start with a few uncoordinated defaults that lead to a wave of debt restructurings”.

This is the worst of all possible strategies

10 investment strategy

Last month investors in Petrofac got a nasty shock when the FTSE 250 oil-services group suspended its chief operating officer. The move came as part of a wider probe by the Serious Fraud Office (SFO) into Monaco-based Unaoil, a consultancy that is alleged to have paid bribes on behalf of oil companies. Petrofac’s share price tanked – it’s now down nearly 60% on the year. This is another reminder that buying individual stocks is a risky business, and that even the biggest players can come a cropper. But what can you do when a stock you own is hit by unexpected bad news?

First, don’t avoid the issue. Losing money is painful, so you might find it surprisingly tempting to close your eyes, hang on and hope. But one notable statistic from The Art of Execution by fund-of-funds manager Lee Freeman-Shor should help to change your mind. Freeman-Shor looked at nearly 2,000 individual investments made by managers in his fund between 2006 and 2013. Of 131 investments where a share price had fallen by more than 40%, none recovered sufficiently to make back the lost money over that time period. So, as Freeman-Shor notes, when you have a big loser in your portfolio, you have two choices: cut your losses fast, or buy more and aim to profit if the share price rebounds.

The case for selling is simple. There is no point in throwing good money after bad. Crystallising a loss right away stops it from turning into a bigger loss. How can you make the “sell” decision easier? Freeman-Shor advocates using a stop-loss. This is simply a set price at which you will sell, no matter what. He suggests targeting a price of 20% to 33% below your purchase price (or from a recent post-purchase peak). That should give enough leeway to avoid being shaken out

by everyday volatility. The benefit is that you don’t have to second-guess yourself – if the target price is breached, you sell. Of course, ideally you have this target price in mind in advance.

The case for buying more is trickier. You need to look at the stock afresh and ask: would you buy at today’s price, in today’s conditions, knowing what you know now? If the answer is no (or “maybe, but...”, as Freeman-Shor puts it) then you should sell. This isn’t easy, but the point is to force yourself to act – if you aren’t prepared to buy more at the current, lower price, then there is no rationale for clinging to the holding you already have. If you think the stock is still good value, you should top up. This is one reason not to invest too much in any one stock – so that you have the ability to top up if desired, without having too many of your eggs in one basket. I’ve looked at how you might approach the question of Petrofac below.

How to survive a shock

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Who’s getting what■ Around a quarter of shareholders were in bellicose spirits ahead of advertising firm WPP’s annual general meeting this week. Chief executive and founder Martin Sorrell received £48.1m in pay for last year, down from the contentious £70.4m he pocketed for 2015. This year’s colossal windfall represents the final payment under a controversial bonus scheme that has seen Sorrell net almost £250m since 2009.

■ Christopher Bailey is to receive the first 600,000 of the one million Burberry shares he was awarded in 2013 when he hands over the running of the fashion label next month. With the share price at £17.50, Bailey, who controversially combined the chief executive and chief creative officer roles, will trouser around £10.5m.

■ In 2014, Michael O’Leary, the chief executive of Ryanair, was handed options on five million shares, vesting in 2019 at €8.35 a share so long as certain targets were hit at the no-frills airline. The share price hit €18.20 at the close of last week, meaning the options are now worth around €91m – nearly €50m over the exercise price.

■ Royal Mail has raised chief executive Moya Greene’s pay package by 23% to £1.9m, driven by a new £440,000 share bonus vesting after three years. Greene’s salary remains unchanged at £548,000, and she received £200,000 in pension contributions and £43,000 in perks, including car allowance and flights to her native Canada.

Nice work if you can get itGoogle’s British employees are in for a treat when the online giant’s new London headquarters open. The building, designed by Bjarke Ingels Group and Heatherwick Studios, will be longer than the Shard is tall and stand 11 stories high next to King’s Cross railway station. Frazzled workers will be able to take advantage of a wellness centre, with gym, massage rooms, a swimming pool, and indoor sports pitch. There will also be four cafés in which to get a bite to eat, before walking it off on the building’s multi-tiered roof garden bordered with a 200-metre-long running track. The office will form part of a new campus in north London, housing 7,000 employees. Construction is due to start next year.

He’s a slow-motion disaster for the economy

12 city view

Industry will be freed from meddling regulation. Manufacturing will have access to cheap energy, making it more competitive against the rest of the world. The United States will be cut loose from global agreements, and allowed to forge its own path. It is not hard to understand why Donald Trump took his decision to take America out of the Paris climate change agreement – and why he sees it as part of his mission to revive the country’s traditional economic base. There is a problem, however, and it’s not a minor one. He has got it completely wrong.

Opting out of Paris is not going to make any significant difference to US industry. All he is doing is cutting American business off from the rest of the world. There will be a price to be paid for that – and investors are going to notice.

Why? There are four main reasons. First, businesses have already adjusted to the costs of climate-change legislation. Most firms know what the rules are, and have started to take account of them. If they need to buy new equipment, switch the kind of fuels they use, or to make manufacturing processes less energy intensive, they have already spent the capital to make those changes, and they can’t take it back. So there won’t be any benefit from reversing course.

Second, the only companies that are likely to see any savings are old smoke-stack industries. Sure, those were the kinds of blue-collar jobs that Trump promised to bring back during his campaign. But nobody – probably not even the people who work in them – can really claim they are the future. Pulling out of the Paris agreement was fiercely opposed by business leaders such as Tim Cook of Apple and Michael Bloomberg, the former New York mayor and founder of the financial data firm. There is a lot more growth to come from the likes of Apple and Bloomberg than there ever will be from steel mills and metal bashers. The businesses that really matter won’t see any gains at all.

Third, there is huge growth to come from alternative energy sources, which are turning into one of the biggest industries of the 21st century. True, some of these technologies need subsidies and regulation initially. But solar power allied to cheap, high-capacity batteries is proving economically viable. Those that take a lead in that will do brilliantly. The US, with its technological and entrepreneurial tradition, should be one. But it won’t if it opts out of the race.

Finally, Trump is taking the United States out of the global consensus. If he thinks the Paris accord was that bad, why not work with other counties to reform the agreement? It was hardly necessary to opt out unilaterally. It is increasingly clear that Trump’s America is going to be an isolationist state, with very little interest in working with other nations. For its multinationals, there may not be an immediate price to be paid for that – but little by little they may find they have no voice in decisions the Europeans, Chinese, Japanese and others are making. And that is going to hurt.

After six months, Trump is becoming a slow-motion disaster for the US economy. The threat of impeachment hangs over him. There is no sign of the promised tax reforms. A renewed push on infrastructure this week amounted to a six-page plan with no funding in place. Meanwhile, Trump is losing allies around the world, and taking the US out of issues and debates it has usually led. It will take a while for business to be affected by Trump’s erratic judgements. But sooner or later it is going to happen – and the economy and stockmarket won’t look so strong when it does.

Trump’s climate call is bad for the US

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Trump’s climate call is bad for the US

Matthew Lynn

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What does this mean for investors?One reason social-media giants enjoy such bumper profits and free cash flows is that (unlike traditional media companies) their users create the content and there’s no need to employ a small army of editors to check it, says Lex in the FT. As political pressure increases, that competitive advantage will be diminished. There will either be greater regulatory oversight and sanctions, and/or the companies will be obliged to take much more responsibility for what is published. Either will mean increased costs – and lower returns. “Political frustration has yet to manifest itself on the statute book. Even so, social-media companies should guard against complacency. Network effects protect them from competition. But a growing perception that they are better at paying lip service than taxes could create ‘safe space’ for governments to transfer the costs of policing cyberspace on to those who have profited most from it.” This is a – potentially very high – cost that few investors will have factored into their stock-picking decisions.

Zuckerberg: creating a hostile environment

14 briefing

What has happened?Following the terrorist atrocity at London Bridge last Saturday, Theresa May beefed up her manifesto promise to introduce greater government controls over the internet and how people use it. “We cannot allow this [jihadist] ideology the safe space it needs to breed,” she said. “Yet that is precisely what the internet, and the big companies that provide internet-based services, provide.” She then called on “allied democratic governments” to join together to regulate cyberspace and “prevent the spread of extremism and terrorist planning”. It remains to be seen to what extent the London Bridge attackers were radicalised via the internet, or used online communications to plan their rampage. But her call should nonetheless be seen as part of wider shift in the approach of Western governments to controlling the internet with a view to dealing with everything from hate speech and extremist recruitment to online bullying.

How can the UK regulate cyberspace?“Some people say that it is not for government to regulate when it comes to technology and the internet,” said May last month. “We disagree.” Her starting point is to introduce a law that all internet firms will be required to pay for advertising that tells people about “the dangers of the internet”. There will be a shift in the responsibility of policing content on the internet – particularly on social media – from the police force and from users to the platform providers themselves (the likes of Facebook and YouTube). The idea would be to introduce huge fines for firms that did not remove illegal material fast.

Are other states trying this? The UK government will be closely watching the German government. There, new legislation will compel social-media sites to delete offensive material – hate speech, illegal content such as terrorist propaganda, and fake news – within seven days. They must also run 24-hour helplines for concerned users. Failure to remove posts would result in fines of up to €50m, if plans proposed by justice minister Heiko Maas are approved.

Will firms co-operate?In the UK the Conservative manifesto made it clear that “it

is for government, not private companies, to protect the security of people and ensure the fairness of the rules by which people and businesses abide”. Big tech isn’t going to get a choice. Social-media firms operating in Germany clearly get it: Facebook has already introduced a tool that lets users flag suspicious content, and the company is employing an extra 700 staff in Berlin to monitor flagged material. And amid a spate of nasty videos of gruesome events posted on the site, chief executive Mark Zuckerberg announced last month that he wants Facebook to be a “hostile” environment

for terrorists and that he is hiring an extra 3,000 people to monitor videos. Google (owner of YouTube) says it has already spent millions of pounds tackling the issues involved, and is working on an “international forum to accelerate and strengthen our existing work”. Both are likely to need to use their formidable financial and technological resources to do more, but it is clear that a significant shift in responsibilities is underway.

Job done then?Not quite. This isn’t just about controlling publicly available content online. In the case of terrorism and all other criminal activity, it is also about accessing communications. Following the Westminster Bridge attack in March, Home Secretary Amber Rudd said that it is “completely unacceptable” that the police and counter-terrorist agencies were unable to access people’s messages on WhatsApp and other encrypted messaging services. “We need to make sure that organisations like WhatsApp, and there are plenty of others like that, don’t provide a secret place for terrorists to communicate.”

How can governments control that?With great difficulty. WhatsApp, which is the world’s most popular messaging app (with more than a billion users), uses “end-to-end encryption” for all devices. Only the sender and recipient of a message can access the content, whether that is text, photos, videos or audio recordings. WhatsApp can’t read users’ messages, and end-to-end encryption means there’s no “back door” for eavesdroppers (be they MI5 spies or cybercriminals) to do so either.

Is there an easy solution? No. To give governments access, WhatsApp would have to de-encrypt the service, thus making it insecure for everybody (and to many minds, pointless). That makes this issue far more complex than it looks. And even if WhatsApp (or Apple, or anybody else) removes encryption, criminals can simply move to a similar platform. In recent years the messaging service of choice for Isis has been Telegram (which it used to claim responsibility for last weekend’s attack), despite persistent attempts by Telegram (it says) to suspend jihadist accounts.

A clampdown on the internet

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The internet has for too long been a “safe space” for terrorists to communicate and spread propaganda, say politicians. That is about to change. Simon Wilson reports

briefing XX

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Money talkLarge rural estates stir up the “revolting peasant” in us all, says Libby Purves. The fact that those buying farmland today are “often mere investors” makes it worse. Since the mid-2000s, land prices have shot up, in part because the landowners, no matter how “unspecked their designer wellies”, can “pass it all on free of gift or inheritance tax (IHT)” provided they have owned and occupied it for two years or rented it out for seven. No wonder land prices are rising, and no wonder the young find it so hard to get into farming. “The original reason for the law is obvious”: if IHT were levied after farmers died, some land would have to be sold each time and viable farms would “fragment” into tiny, uneconomical units. “But the universal privilege, lingering on unquestioned in an age of cynical investment and applied to immense acreages, is hard to justify.” There are good landowners, of course, but no distinction is made between them and the “artful tax-dodgers for whom a field is just another share certificate. Is that fair?”

“If I was single now and meeting people, you’d

never know if they were with you for the right

reasons. Is it the money? You’d never really know.

So I’m lucky that I’ve got a childhood sweetheart.”

Football star Harry Kane (pictured), quoted in The Times

“Products don’t really get that interesting to turn

into businesses until they have about one billion people using them.”

Facebook founder Mark Zuckerberg’s appraisal of WhatsApp in 2014, quoted

in The Atlantic

“If the yellow-spotted toad is so rare, why is it found on every building site in

the land?”Digby Jones, former director-general of the CBI, quoted in The Sunday Times

“Money is like manure; it’s not worth a thing

unless it’s spread around encouraging young things

to grow.”Thornton Wilder, quoted

on Facebook

“France is a very fertile country.

You plant bureaucrats and taxes grow.”

Georges Clemenceau, quoted in The New

York Times

“When we did the first series, I… thought, that

was sweet – paid off a bit of the mortgage, thank you very much. And then this bizarre thing emerged.”

TV presenter Mel Giedroyc on being taken by surprise by the success of The Great British Bake Off, quoted in

The Times

Tax dodges are distorting land prices

Libby Purves

The Times

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The boom in bitcoin is “extraordinary”, says The Economist. If you had bought $1,000 of bitcoins in July 2010, your “stash” would now be worth $46m. Other cryptocurrencies have soared too, taking their collective market value to around $80bn. “Ascents this steep are rarely sustainable,” but is this just “speculative mania”, or is it “something else entirely”? The best comparison might be the internet and subsequent dotcom boom. Cryptocurrencies “both embody innovation and give rise to more of it”. They are experiments in “how to maintain a public database” (the blockchain) without anyone being in charge. And blockchains are platforms for further experiments. Take Ethereum, which allows projects to raise funds by issuing tokens. “This may seem like a dangerous way to generate innovation”, but the risks appear limited. Investors are likely to be aware of the risks; since it is a fairly self-contained system, “contagion is unlikely”. “If there is such a thing as a healthy bubble, this is it.”

The healthy bubble in bitcoin

Editorial

The Economist

Japan’s prime minister Shinzo Abe “enjoys three strengths that are exceedingly rare in Japanese politics”, says William Pesek: “a bold revival blueprint, healthy majorities in both houses of parliament and decent public support”. It’s time for him to use those to “engineer the turnaround Japan urgently needs”. He should abandon his “weak yen policy”: it’s aimed at an extinct export-manufacturing model and serves only to “protect unproductive jobs at the top of the food chain and reduce the urgency to create new ones”. Get more women into work, through quotas and penalties if needed. Japan’s annual output would jump 15% if female labour participation matched men’s. Big firms are sitting on unused cash – so “tax excessive cash hoards” and “name and shame” companies that aren’t sharing their wealth. Tackle the “change-averse bureaucracy” that “stifles innovation and progress”. Finally, ditch nuclear power and embrace renewables. They are a growth industry that Japan is “uniquely qualified to lead”.

Five steps to kickstart Japan

William Pesek

Nikkei Asian Review

From the founding of Harvard College in 1636 until 2011, US college enrolments have risen “almost continuously”, say Richard Vedder and Justin Strehle. Yet between 2011 and 2016 they fell from 20.6 million to 19 million. Why? Rising costs probably play a major role. From 2000 to 2016, tuition fees rose 74.5%. At the same time, the payoff is less certain. In 1975 the average annual boost to earnings from having a degree was $19,776. This rose to $32,900 in 2000 but had fallen to $29,867 by 2015. And around 40% of graduates are unemployed today. So young Americans will be considering cheaper vocational training that is more likely to land them a well-paid job. To be sure, the payoff from higher education varies according to subject and college, and is also higher for women, Hispanics and blacks. But as the proportion of Americans with degrees rises above 33%, the qualification is no longer the “reliable signalling device it once was”.

Diminishing returns from a degree

Richard Vedder and Justin Strehle

The Wall Street Journal

16 bestofthefinancialcolumnists


The economics of the honorary degreeThe history of the honorary degree is an “ignoble” one, says Zachary Crockett on Priceonomics.com. The first – from Oxford University – went to Lionel Woodville, a young but influential bishop in 1478. A smartly dressed courier delivered him a 100% effort-free PhD. Shortly afterwards he agreed to be the university’s chancellor. The precedent was set and throughout the 16th and 17th centuries hundreds of the “noble elite” were given degrees in exchange for their influence.

Harvard followed a similar path and the idea took off fast: in the ten years to 1889, 3,728 effort-free degrees were given out (often in exchange for cash). Benjamin Franklin ended up with seven and “was known to strut around

town pronouncing himself Dr Franklin”. Today, they are big business and getting bigger: 64% of those awarded by Harvard have been in the last 15 years. That might be OK, if the degrees went to, say, influential scientists or engineers. But in the main they don’t: instead it is “pop culture icons, big name political figures and wealthy businessmen”. Meryl Streep now has more degrees than Oscars. Bill Cosby has over 100. And most degrees go to donors: between 2002 and 2012 the average donation made in advance of getting an honorary degree at

the University of Vermont was $69,000. In 1889 Charles Foster Smith (who had a real PhD) complained that the whole system was a “sham and a shame”. It still is.

Let’s make taxes voluntaryIn defence of the triple lock

How worried should we be?

XX the best blogs

We have a lot to thank the Ancient Greeks for: maths, science, drama, philosophy... and we should add taxes to the list, says Dominic Frisby on Aeon.co. What was admirable about this was not so much how the Greeks taxed, as how they didn’t. There were no taxes on income. Instead, there was a voluntary alternative: the liturgy.

Perhaps the city needed a new bridge. Perhaps a war loomed and military spending was required. Perhaps some kind of festivity was deemed necessary. Then the rich were called upon – and they were expected to not only pay for the undertaking, but to carry it out as well. This idea had its roots in mythology and was developed by Aristotle. According to him, the “magnificent man” gave vast sums to the community. True wealth consists in doing good, handing out money and gifts, and helping others to maintain an existence, he said. This benefaction was enforced not by law or bureaucracy, but by tradition and public sentiment. The motivation for the rich was benevolence, a sense of public duty and the reward of honour and prestige. It also meant that public works were overseen by those with relevant expertise, rather than state bureaucrats. In this age of the super-rich, perhaps it’s time to revive the liturgy. It worked for the Ancient Athenians – maybe it could work for us too.

The human brain has a hard time understanding risk, says Ben Carlson on his A Wealth of Common Sense blog. Tell a patient about to go through a surgical procedure that they have a 10% chance of dying, and they are less likely to go through with it than if told they have a 90% chance of surviving. It’s easy to freak out about scary-sounding statistics when the reality is that the drive to the hospital was in all likelihood the riskiest thing they’ll have to face.

It’s the same with terrorism. In the wake of 9/11, people were so terrified of flying they took to the road instead. One study calculated that nearly 1,600 more people died in car accidents in the year after

9/11 as a result. You are 35,079 times more likely to die of heart disease than in a terrorist attack. Part of the problem is that the human brain is wired to recall what is shocking and unusual, get alarmed, and conclude that the risk is high when it probably isn’t. The media doesn’t help, since it knows fear sells.

This matters for investors. Investors are always fighting the last war, trying to hedge against risks that have already occurred. They don’t pay attention to markets until something bad is happening; then they panic and dump their long-term plans. Risks exist, but it makes sense to slow down and think before overreacting to the headlines.

Great thinkers produced a great tax system

Commentators and policymakers have been too quick to accept the idea that the triple lock on pensions is unaffordable, says Craig Berry on the blog of the SPERI think tank. The lock, which means pensions rise by the higher of average earnings growth, inflation or 2.5%, is under threat because it is considered to exacerbate “intergenerational unfairness”, as pensioners get more out of the state than those of working age.

But this is nonsense. A double lock, as proposed by the Conservatives in the election campaign, would not save much, and even the triple lock is proving cheaper than the old system that raised pensions by an alternative measure of inflation (RPI). And the UK is hardly a pensioners’ paradise. It has one of the least generous state pension systems in the developed world. The purpose of the triple lock is to close that gap over the very long term, but the impact will be modest. Today, the full state pension represents only 31.4% of average earnings. If the triple lock were to stay in place, it will take 11 years to pass 32% and 20 years to reach 33%. An individual aged 18 today, retiring in 50 years at 68, can expect a state pension worth only 36.4% of average earnings.

The triple lock does not cause intergenerational strife, as is often claimed – it is popular among all age groups. To the young, a future state pension appears as the one ray of light in an otherwise gloomy picture. If anything, we should be moving to a more generous pension system – one that raises the level of entitlement being accrued for each year of national insurance contributions, for example. This would incentivise private saving too, by enabling individuals to take greater investment risks.

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Brexit: what happens next?Theresa May called the election to get “strong backing” ahead of Brexit negotiations, due to start on 19 June, says Amita Joshi in The Daily Telegraph. The Tories said they planned to leave the single market and customs union, while seeking a new partnership with the EU, and wanted to pass a Great Repeal Bill that transfers power for our laws back into the hands of MPs and peers. May said “no deal is better than a bad deal”.

Labour’s message on Brexit, on the other hand, was

“mixed”, say Patrick Scott and Ashley Kirk, also in The Daily Telegraph: Labour voters were “split on what kind of Brexit they wanted”. What we do know, says Joshi, is that Labour intended to scrap the Brexit white paper and replace it with a new list of priorities. The Great Repeal Bill would be replaced with an EU Rights and Protections Bill to safeguard workers’ rights, and Labour would guarantee the rights of all EU citizens currently living in the UK. Corbyn said no deal is “not an option”.

Both May and Corbyn failed

to spell out the consequences of the hard Brexit they both advocated, says Nick Clegg on Independent.co.uk. The “Brexit squeeze” has already begun. Inflation is starting to bite. How will the NHS cope without thousands of hard-working immigrants? How will Britain be kept safe without the EU-wide cooperation we enjoy today?

Even if Brexit does eventually lead to “higher growth and a more dynamic economy”, the process of leaving the EU, concludes Sean O’Grady in the same paper, will be an “arduous march”.

Betting on politics

by Matthew Partridge

By the time you read the print edition, the election will be done and dusted, so any betting tips would be pointless. We went to press before the election, when the polls were showing a surge towards Labour, but at the time of writing I still predict a Tory majority of around 80-90, with Labour losing around 25-35 seats. If I’m right, Corbyn will try to cling on, but that sort of result will lead to a leadership challenge sooner or later.

This is therefore a good time to look at how we’ve done over the past year. In the year between issue 795 (27 May 2016) and 846 (26 May 2017) we made 43 grouped tips (69 if you count them individually). Excluding the bet on the cancelled Manchester Gorton by-election, 20 of them were settled (39 individually). The grouped bets returned a profit of 43%, though even if you treated each individually they still returned 19%.

Our best bets were on an election in 2017, 2018 or 2019 (281% profit) and on Hillary Clinton’s running mate being either Cory Booker, Tim Kaine or Sherrod Brown (252%). The best individual bet was the first one I made on Betfair – on Remain getting between 45% and 50% of the vote (589% profit after Betfair’s commission). Tim Kaine as Hillary Clinton’s running mate also made a 500% profit. The most embarrassing loss was betting on Corbyn going before the 2017 election, at digital odds of 1.38.

Some things I’ve learnt are: 1. You need to treat betting like investing, only taking a punt when the odds are significantly in your favour. 2. Some of the best opportunities come from side-bets (such as on turnout) rather than the main event. 3. Sometimes the best returns come from taking a view on a range of outcomes (as with the referendum bet). 4. Markets can get caught up in hysteria (such as when Marine Le Pen’s odds shortened following Trump’s November victory).

Theresa May pledged to start toughening anti-terrorism measures if reelected, and claimed she wouldn’t allow human-rights laws to “stand in her way”, says Christopher Hope in The Daily Telegraph. Since Saturday’s attack, the third terrorist outrage in three months, she faced a “barrage of questions” about why the three terrorists were free to kill despite two being “on the radar of the police or MI5”. She also faced criticism for presiding over major police cuts during her time as home secretary.

May, who denied the cuts had made a difference, said that she would extend powers to restrict the freedom of terrorist suspects and make it easier to deport them. In a speech on Sunday, she talked of defeating the “evil ideology of Islamist extremism” and of clamping down on the “safe space” (online) that permits this ideology to “breed” (see page 14). That’s all very well, says Dr Michael Arnheim on HuffingtonPost.com, but last year’s plans to tackle extremism stalled over the definition of the word, and much of what May said is not only “unrealistic”, but also “flies in the face of fundamental rights to freedom of expression and freedom of belief”.

So what can be done? Raffaello Pantucci points out in the Financial Times that the “proliferation” of “low-tech attacks” has made the job of security agencies much harder. But what we do know, says Tom Burgis in the same paper, is that the “most potent element” in the Islamist threat is the al-Muhajiroun network (to which at least one of the London Bridge terrorists belonged), which emerged in an “era when the British authorities had a very different attitude towards Islamist extremism”. When Omar Bakri Mohammed, the Syrian-born preacher who “nurtured” the network, arrived in London in 1986 after being

“ejected” from Saudi Arabia, “armed Islamists were viewed as cold war allies”. Members of the network make up “the overwhelming majority of people convicted of Islamist extremist activities in the UK”.

There’s also a correlation with poverty and segregation, says Rachel Sylvester in The Times. Research by the Henry Jackson Society found that more than 75% of Islamist-related offences were committed by people living in the poorest 50% of English neighbourhoods. Yet neither Jeremy Corbyn nor Theresa May appear “able or willing” to confront the “fatal consequences of social division”. “All the longer sentences or extra police officers in the world” won’t stop somebody from “buying a knife and going on a rampage in the name of Allah. You have to prevent them wanting to do it in the first place.”

How can we tackle terror?

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Goldman Sachs snaps up “hunger bonds”The asset-management division of Goldman Sachs is in the middle of a controversy following its purchase of $2.8bn worth of Venezuelan bonds, writes Alice Gråhns. The firm paid $865m for the bonds, a near-70% markdown that reflects Venezuela’s parlous finances: many analysts expect the country to default on its debts. The bonds, which were originally issued by the state-owned oil company PDVSA in 2014, had been held by the country’s central bank, which sold them to Goldman through a small third-party broker. The proceeds will presumably

find their way into the coffers of the government of Nicolás Maduro. “That is to say, the same government that guns down pro-democracy protestors on a near-daily basis and otherwise subjects its people to vast corruption and economic privation,” says The Washington Post. The cash will arguably help Maduro stay in power “by imposing more brutal austerity on his people”.

The Venezuelan government has continued to service its debts, even as an economic meltdown has led to an outbreak of malnutrition in the

country. Ricardo Hausmann, the Venezuelan planning minister during the early 1990s, described the bonds as “hunger bonds”, while the Venezuelan opposition said it would cancel the debt if it gains power. That leaves Goldman Sachs in the “awkward position of having to root for a party that is causing the starvation of its people” in order to get paid, says Ellen Wald in Forbes.

The deal sparked debate about the morality of investments that may help support repressive regimes. “Emerging market bond

funds almost have to invest in Venezuelan bonds,” says Matt Levine on Bloomberg, since the bonds are a major part of emerging market bond indices. “Investment managers cannot be expected to make moral decisions about investing for themselves, not when an index lurks in the background.” One idea is for index providers to eject Venezuela from the indices, says Hausmann. But this is also tricky, says Levine. The providers will argue their job is to compile lists. They are “not in the business of saving you from moral anguish”.

“Donald Trump has access to the world’s most extensive intelligence network, an array of national security brains and all the early warning systems,” says Rob Crilly in The Daily Telegraph. “Yet his first public response” to the London Bridge terror attack was to re-tweet an alert from The Drudge Report, a provocative right-wing news website that trades in political gossip.

The president woke the next morning to launch a Twitter broadside against Sadiq Khan, misrepresenting the mayor’s reassurances to Londoners as an attempt to play down the attack, and then accusing Khan of making a “pathetic excuse” when he pointed out that Trump had twisted his words around. “It need hardly be said that such a reaction is ugly and demeaning to the entire office of the president,” says Crilly.

Trump’s tweets, hitherto sometimes viewed as a harmless hobby, are now undermining his own agenda, according to Dahlia Lithwick and Mark Joseph Stern on Slate.com. Take the legal case surrounding his second travel ban. White House lawyers have been arguing for months that the president’s executive order is not a ban and not about Muslims. Yet on Monday morning the president “burned that argument to the ground” with just a few tweets. “People, the lawyers and the courts can call it whatever they want,” Trump tweeted, “but I am calling it what we need and what it is, a TRAVEL BAN!” Trump has “directly subverted the exact legal arguments used to prop it up in court”.

Trump also took to Twitter the following day to “thrust himself into a bitter Persian Gulf dispute… taking credit for Saudi Arabia’s move to isolate its smaller neighbour, Qatar”, says Mark Landler in The New York Times. Secretary of State Rex Tillerson and Defence Secretary James Mattis initially tried to smooth over the Gulf rift, “with Tillerson offering to play peacemaker”. Yet less than 12 hours later Trump discarded this approach and unequivocally took the Saudi side. “During my recent trip to the Middle East I stated that there can no longer be funding of Radical Ideology,” he wrote in a mid-morning post. “Leaders pointed to Qatar – look!” The tweets, which “a senior White House official said were not a result of any policy deliberation, sowed

confusion about America’s strategy and its intentions toward a key military partner”.

“Trump is not wrong about Qatar funding extremism,” says Slate.com’s Ben Mathis-Lilley. But then America also has a close military relationship with Saudi Arabia despite the latter’s “own long history of fostering jihadism”. “The problem, rather, is that Qatar plays both sides of the street”, turning a blind eye to extremist funding on the one side, but also playing host to the al-Udeid Air Base, the largest US military base in the Middle East and a crucial base for operations in Iraq and Syria.

What is really alarming about the whole episode is what it says about how US policy is made, says Ankit Panda in The Diplomat. “The decision to alienate Qatar within the region, which now has the US president’s public imprimatur, does not appear to have been broadly planned for or supported by the rest of the US government” and shows that the words of Tillerson and Mattis are “hollow in light of the president’s tendency to take important decisions himself, without anything close to whole-of-government message discipline or coordination.”

“Trump does not appear to be aware of the existing US military presence in Qatar” and his tweets suggest that “the US president is willing to capriciously drop important US partners with little prior signalling”. The consequences won’t go unnoticed in other regions of the world, such as the Asia-Pacific, “where questions about US resolve and commitments loom large”.

Trump’s tweets undermine his agenda

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by Alex Rankine


In the news this week…Asset managers are changing the way they report performance figures, says Madison Marriage in the Financial Times. In March an analyst at brokerage Numis criticised the asset management industry for its presentation of performance figures, saying that managers did not always make it clear whether or not figures took fees into account, and that firms did not always have the data to measure performance of all assets (so a 99% outperformance figure

might only account for the performance of 85% of assets, say). These clarifications were sometimes buried in the reports’ small print, or not reported at all. Probably in response to Numis’ criticisms, Henderson Global Investors reported in its latest results that 77% of its funds outperformed over the three years to December, going on to clarify that this figure referred to 99% of its assets under management, and was after fees for retail funds

and before fees for institutional funds. In the past, Henderson had not included this information in its results. Premier Asset Management has similarly confirmed that the 95% of its assets where performance was “above average” over the past three years only reflected 83% of assets, and was net of charges. Previously, it only said that its performance figures referred to non-institutional assets under management and excluded certain strategies.

Max King

Activist watchActivist investor Quarz Capital has published an open letter to Singapore-based steel manufacturer HG Metal Manufacturing, urging the company to take “immediate steps to address the severe undervaluation” of its shares, says Zavier Ong in The Edge Singapore. At the end of May HG’s shares were trading at a 60% discount to book value (the value of the company’s assets minus its liabilities), according to the activist’s letter. Among other measures, Quarz proposed a “full strategic review” of the potential sale of HG’s 23% stake in steel-mesh manufacturer BRC Asia, estimated to be worth $30m, and recommended the “immediate distribution” of $10m out of the company’s net cash of $29m.

In bygone times the division between capital and income was generally regarded as sacrosanct. Income was for spending, while capital was for preservation and handing down to the next generation. Spending from capital was the first step on the road to the poorhouse. Modern theory and practice says that this division is impractical. Investors should seek to maximise total returns and then allocate a pre-determined slice of those returns to spending. But old habits die hard and many investors prefer to keep income and capital separate. Unfortunately, the returns of equity markets have been skewed towards capital, leaving many investors with insufficient income.

Equity income funds seek to squeeze their net yield higher by charging management costs to capital and by tilting their portfolio towards higher-yielding shares. This results in the exclusion or underweighting of both the US market and high-growth companies. Raising income in the short term can come at the price of reducing income growth and hence capital returns in the future. The average return, weighted by size, of investment trusts in the global sector over three and five years has been 57% and 100% respectively. In the global equity-income sector, it has been 37% and 61%. Admittedly, the latter

numbers are held back by the sector giant, Murray International (LSE: MYI), with £1.7bn of assets, but the unweighted average performance has still only been 45% and 85%.

Murray’s poor performance is simply explained. It has 55% of its assets invested in emerging markets (EMs) and Asia (excluding Japan), regions that have performed poorly in recent years – but which have picked up significantly in the last 12 months. The shares yield nearly 4% and, despite a poor five-year record, stand on a premium to net asset value (NAV) of nearly 4%, thanks to fond memories of the trust’s performance in the last bull market for emerging markets. Continued improvement in Asia and EMs might justify this premium, but it needs to be remembered that strong economic growth is not synonymous with high stockmarket returns, that EMs are cyclical and the manager has not shown an ability to exit when risks rise and valuations become excessive.

For these reasons Henderson International Income (LSE: HINT), recently expanded by a £21m equity issue, should prove a better long-term alternative. It also stands on a premium to NAV, but justifies this with a five-year return of 97%. Although the yield is only a little over 3%, that gives the manager, Ben Lofthouse, more freedom to invest in lower-yielding stocks. His focus is on

consistent dividend growth rather than just high yields, and he believes this will deliver significant outperformance of the broader market. The forecast yield is 4.2% from a portfolio trading on 14.6 times expected 2017 earnings. The inclusion of stocks such as Microsoft, Roche and Coca-Cola in the top-ten holdings point to quality investment rather than distressed companies paying dividends they can no longer afford.

The trust was only launched in 2011 but now has nearly £300m of assets. This makes liquidity reasonably good, while a management fee of 0.65% is modest. For investors who require a bit more income than global equities would normally provide, this looks the pick of the available funds.

Where to invest for a solid income

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Coca Cola: a good option for a stream of income


Guess the price: Moor Place Farm, HampshireThis Grade II-listed farmhouse is set in the North Hampshire countryside, with excellent equestrian facilities and commercial units within the grounds that bring in a substantial annual income. The main six-bedroom farmhouse dates from the medieval period, with the immaculate interiors reflecting the house’s history. A separate Grade II-listed barn with vaulted ceilings and integral kitchen is suitable for an event room, and also includes a one-bedroom flat. The properties sit in landscaped gardens with a swimming pool, tennis court, horse paddocks, a manège and a 6.2-furlong all-weather gallop, all set across 42 acres. Can you guess the asking price? See the side of this page for the answer.

Derelict mews house for £2.5m

A “beautifully derelict” one-bed London property has gone on the market for £2.5m, says Hannah Boland in The Daily Telegraph. The crumbling mews house in Little Venice, Maida Vale, “complete with leaky ceilings, unplastered walls and dated electrics”, is on the same street that punk musician Sid Vicious used to live on, and is now the most expensive one-bed house on Rightmove. The fact that the property is “quite possibly the most derelict inhabited house in prime central London” is the very reason it is “one of the most desirable” properties in the area, says James Robinson, the estate agent marketing the property. “It is the first house I have seen with gutters, both inside and out, to carry the rainwater away.”

Are house prices set to slump?

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There’ll be no bargains for most buyers anytime soon

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UK house prices fell in May for the third month in a row, according to figures from building society Nationwide. This is the first time we’ve seen three consecutive months of price falls since the financial crisis. But while this suggests we may finally have reached the upper level of what people are prepared to spend on property, it doesn’t mean we’re about to see the much-predicted house-price crash yet.

Indeed, it’s worth noting that the average price paid for a house still rose over the month – from £207,699 in April to £208,711 in May – to set a new record-high price. The monthly drop of 0.2% only comes in after Nationwide applies a “seasonal adjustment” to the figures; in other words, after it’s factored in a price rise that would be expected at this point in the year anyway.

The most straightforward explanation for weaker prices is that demand from some types of buyer has fallen. And certainly the government’s recent introduction of a stamp-duty surcharge on second homes and the elimination of certain tax reliefs for landlords will have dissuaded many investors from adding to their property portfolios. But when you look at HMRC’s records of completed property transactions, the monthly numbers have stayed within a range of between 80,000 and 110,000 since November 2015 (barring a sharp jump in the month before extra stamp-duty charges came into force last April).

So it seems likely that average prices are being affected disproportionately by falling demand at the upper end of the market. Over the past year the regions that have seen the lowest price rises are those where properties are already very expensive. In the year to March, London, the southwest and the southeast saw prices rise by the smallest percentages (only the northeast was lower), according to the Office for National Statistics.

This is not surprising. The changes to the stamp-duty rules mean significantly larger tax costs on deals involving higher-priced properties: a £1.5m property incurs stamp duty of 12% – or 15% if bought as a second property. That makes houses in the capital and the southeast, which are more likely to reach these prices, a lot less appealing. It appears that

sellers of expensive houses are being forced to drop their asking prices to offset the extra tax bills. The average gap between asking and selling prices for £2m-plus houses in the first three months of this year was 8%, compared with 3.2% across all properties, according to property search site Rightmove, quoted in the Financial Times. Over the same period in 2014 asking prices of £2m-plus properties were dropped by only 4.4.%.

The trend towards weaker prices is especially evident in some expensive inner boroughs of London, where completed sales of new-build flats were down 41% by the end of last year, with average prices falling by 8.7%, according to figures from

property firm London Central Portfolio. Sales for prime central London as a whole – including old and new properties – fell by 29%, although prices for this part of the market still rose by 3.75%.

However, while it’s tempting to think that three months of falling house prices is the start of a downward trend, it’s clear that significant falls are yet to spread outside of the most expensive areas of the UK. The continued shortage of housing seems likely to prop up prices for the near future at least, while low interest rates mean mortgages remain affordable for those who can pull together a decent deposit. This is not to say that things can’t change in the future, but unless we see radical changes to interest rates or housing policy, most buyers are unlikely to be able to pick up a bargain soon.


In the news this week…n Are you one of those parents who has left your childs’ savings languishing in a Child Trust Fund (CTF)? If so, they could be losing out on thousands of pounds, says Emma Simon in The Sunday Times. It is two years since parents were able to switch their childs’ savings from CTFs to junior individual savings accounts (Jisas), but millions of accounts still haven’t been switched. Both offer tax-free savings, but Jisas have lower charges and provide a wider choice of investments. Over the years this can really add up. For instance, a £10,000 investment in a CTF charging 1.5% to track the FTSE 100 would be worth £16,959 in 12 years’ time, assuming 5% annual returns. In a comparable Charles Stanley Direct Jisa with charges of 0.31%, the fund would have risen to £19,427 – £2,468 more.

n A Daily Telegraph report about an Orange customer who received a bill for nearly £18,000 after a four-day trip to Dubai is a timely reminder to check your mobile roaming charges before you head off on your summer holiday. Although EU rules coming into force on 15 June mean that roaming within the EU should cost no more than using your phone at home, travel further afield and you need to take care, says Rosie Murray-West in The Independent. If your provider isn’t offering a good deal, consider a specialist sim. Sims from local providers can be extremely good value: pick one up in South Africa, for instance, and 2GB of data will cost you around £29 (compared with £10,000 with Virgin Mobile roaming). Alternatively, 3Mobile offers a free pay-as-you go sim card; once you activate it,

you will be eligible for their Feel At Home tariff which costs 1p per MB.

n Thousands of expatriates with undeclared savings may be at risk of penalties as a “stash of financial data” has been transferred to HMRC as part of a “global transparency drive”, says Vanessa Houlder in the Financial Times. Although some British expatriates may not realise that they have to declare their income in the countries where they live, in most countries, “people are taxed on their worldwide income, gains and, in some cases, wealth”. Anyone with undisclosed assets should seek advice about coming forward voluntarily as this generally results in reduced penalties, and some countries impose hefty fines that can exceed the value of the assets.

Many of us scour flight comparison websites in order to find the cheapest way of getting to our destination. However, while these sites can save us a good deal of money, many users may not be aware that they often won’t get the same level of consumer protection as if they booked a package flight or directly with the airline.

First, check whether your planned booking is covered by the Air Travel Organisers’ Licensing (Atol) scheme. This offers protection when holidays are booked through a travel agent or third-party website. Atol protection means you will get your money back if your travel operator goes bust before you travel, or ensures you’ll be able to get home if the company collapses while you’re away. You don’t get Atol protection if you book directly with an airline, or if you book flights via a third-party site, such as Expedia or LastMinute.com, and then book accommodation or car hire more than one calendar day later, or via a different agent entirely.

Another option is to pay with a credit card in order to benefit from Section 75 of the Consumer Credit Act. This means if something goes wrong with what you’ve purchased – and it cost between £100 and £30,000 – your credit-card provider is jointly responsible with the retailer for refunding you. Just note that for Section 75 cover to come in there has to be a direct chain between you, the credit-card payment and the service or product you bought. The website you buy the flights from has to be a principal agent selling tickets for the airline – something that it can be difficult to

ascertain. The other catch with Section 75 is that each booking must come to more than £100 – it won’t count if you buy two single flights for £60 and £85.

If you are booking particularly expensive flights, you may find the only way to have real peace of mind about getting your money back if things go wrong is by booking direct with the airline using your credit card, or via a travel agent (preferably a member of the Association of British Travel Agents). Alternatively, make sure your insurance covers you for end supplier failure, which should cover your airline or travel operator going bust.

How to book a flight safely

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Which are the best flight comparison sites?There is a huge number of flight comparison and travel booking sites. The best one to use depends on what you want to achieve.

Best for finding bargains: Skyscanner. You can compare prices for your journey over every day for a month, or every month for a year. If you don’t have fixed dates for your trip, this could save you hundreds of pounds.

Best for seeing the all-in price: Kayak. The site allows you to filter your comparison based on whether or not you will be checking luggage and by credit and debit-card fee. This means you can be sure you are getting the best deal, even when all the hidden extras are factored in.

Best for flights and hotels: Expedia. This booking firm provides a slightly clunkier search experience than others. But if you are looking to book flights and accommodation, do so via Expedia on the same day and you should get the benefit of Atol protection.

Best for route planning: Momondo. This site’s strength is that it will show you the cheapest flight, the quickest flight and the best flight you could take. It will also show you if you could save money on dates either side of your intended travel date, plus alert you if you could save money by flying to a different airport nearby.

Best for choosing your seat: SeatGuru. Once you’ve booked your flight, check SeatGuru before you reserve your seat. It has seating plans for just about every airline and plane you could be flying on, plus verdicts on the seats to avoid and the ones to grab. This includes reviews from passengers so you can research exactly where to sit.


Pension Protection Fund sweeps to Hoover’s rescueSome 7,500 members of the pension scheme at Hoover are to see responsibility for their benefits transferred to a rescue scheme, even though the household goods company continues to trade. The Pension Protection Fund (PPF) has agreed to take on the Hoover scheme after accepting the company is likely to go bust within a year unless it is able to rid itself of its pension liabilities.

The PPF was set up to take on the pension schemes of companies that have gone out of businesses, but has the powers to intervene if it believes a company that is

still solvent would otherwise inevitably fall into insolvency. The Pensions Regulator, which must approve such transfers, said that given an assessment of Hoover’s finances, the PPF move was in the best interests of members. Before it transfers the pension liabilities, Hoover is to pay £60m into the pension scheme. It will also hand the scheme a 33% stake in the company, which would allow it to benefit if Hoover’s prospects improve in the future.

Nevertheless, the transaction is not without controversy. Hoover, which has a £250m

deficit in its pension fund, largely closed its operations in the UK after being bought more than 20 years ago by the Italian group Candy, though it continues to operate a sales and distribution subsidiary here. Candy has no legal obligation to provide Hoover’s pension scheme with additional funding and the Pensions Regulator says it has declined to do so. Moreover, the switch to the PPF means more than 2,100 members of Hoover’s scheme who have yet to retire will see the value of their pension benefits reduced immediately by 10%. And while the pensions of more than 5,300 former

Hoover workers already receiving benefits should be protected in full, the PPF rules allow for smaller future pension increases.

The PPF said transactions of this nature were relatively rare, with the regulator keen to ensure that companies can’t simply offload pension promises. However, while there have only been a handful of similar cases over the past decade, the increasing size of the deficit in many employers’ pension schemes could see the regulator come under pressure to sanction more such deals.

David Prosser

It has proved one of the toughest nuts to crack: despite a series of regulatory reforms, 80% of pension savers who buy an annuity each year still do so through the firm with which they built up their pension fund, even though shopping around will often secure a substantially higher income. And now the latest attempt by the Financial Conduct Authority (FCA) to tackle this issue has come under fire, with advisers and pension providers arguing that it could lead to more people missing out.

Last month, the FCA announced new rules for pension providers and financial advisers dealing with people who are in the process of converting pension savings into a guaranteed lifetime income. From next March, savers will have to be told if a better annuity rate is available elsewhere, including details of how much extra annual pension they might be able to secure, though not the details of the providers offering better deals. The FCA hopes that providing savers with cash figures showing how much they might be missing out on will shock people into taking action, with providers required to refer them to the government-backed Money Advice Service’s annuity comparison tool to locate the best deal.

However, the FCA’s rules only require pension providers and advisers to

give savers quotes based on standard annuities, even though sizeable numbers of them will qualify for enhanced annuities that pay out higher incomes to people who have lifestyles or health conditions that are likely to reduce their life expectancies. The omission of enhanced annuities from the new rules reflects the difficulties for providers of sourcing accurate information; securing such quotations requires the provider to have detailed information on each saver’s personal circumstances, while to comply with the FCA’s new rules, providers will only need to access standardised comparison tables.

However, groups such as the Association of British Insurers warn the FCA’s decision could mean that large numbers of pension savers miss out – either because they decide the higher income apparently on offer from shopping around isn’t worth the bother, or because even when they do look elsewhere for a quote they do not consider enhanced products. The detriment could be widespread. Although annuity purchases have declined since the pensions freedom reforms of two years ago made it easier for people to draw pension income down directly from their savings, some 50,000 people a year are still buying annuities.

Moreover, as many as two-thirds of these savers could be eligible for enhanced annuity rates by some estimates. That reflects increasing sophistication in the pensions market – ten years ago, enhanced annuity rates were only offered to savers with very serious health conditions; now, however, providers use detailed underwriting techniques to offer better rates to people from particular professions and those who are overweight. Where savers are in particularly poor health, the annuity rate on offer could be anything from 50% to 100% higher, but even in less clear-cut cases, many savers are missing out on uplifts of 10%-20%.

For its part, the FCA points out that pension providers will be required to inform savers that they might do better with an enhanced annuity, even if they don’t have to provide quotes. Currently, however, the majority of enhanced annuity products are sold to a small minority of savers who buy through an independent financial adviser.

Don’t miss out on the best annuities

pensions 23

Big bones? Scoot around for a better deal ©

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4.4%Annual growth in tourists

to emerging markets between now and 2030

I’ll never forget my first visit to Colombia in 2007. First, I survived a robbery attempt as I crossed the border from Ecuador. Then later that day, a police station blew up in front of me. It was quite an experience for a freelance journalist looking for stories. But in hindsight, it was also a last hurrah for the old Latin America. Today, Colombia’s murder rate has fallen sharply, as it inches towards a peace deal with the guerrillas who have battled the government since the 1960s. Peru, meanwhile, defeated its terrorists in the 1990s, and Nicaragua has healed the wounds of its civil war to become the safest country in Central America.

The decline of violence is, of course, to be welcomed for many reasons. But one should be of particular interest to investors: the potential that peace and a greater sense of economic stability creates for a tourism boom. It might take some time for Latin America’s international image to improve – the popularity of films and TV shows that portray it as a land of cruel dictators battling violent rebels and ruthless drug barons certainly doesn’t help – but as the generally peaceful reality becomes clear, it will attract growing numbers of international visitors.

That’s worth watching, because tourism is big business – in fact, according to the UN’s World Tourism Organisation (UNWTO), it is the third-largest export industry in the world, with around $4bn spent on tourism each day. In 1950, across the entire globe, 25 million international journeys were taken. Last year, there were 1.2 billion, and by 2030 that number is expected to rise to 1.8 billion, reckons the UNWTO. This growth has proved remarkably resilient over the years, continuing throughout regional crises, global economic downturns, disease scares and armed conflicts. It is also a global phenomenon – UNWTO expects all areas of the world to see growing numbers of visitors between now and 2030.

Clearly, booming tourist numbers are great news for the global aviation industry. However, some areas will do better than others, and the biggest trend is set to be the growing importance of emerging markets to the global tourism business. For now, the world’s rich countries still dominate the rankings, receiving 55% of all international visitors. Yet between now and 2030 the number of arrivals to emerging destinations is expected to grow at 4.4% a year, twice the rate of arrivals to advanced economies (2.2%). The good news for investors is that Latin America looks particularly well placed to

benefit from this global boom – and with the region emerging from recession, now could be the ideal time to invest.

Why Latin America?At the start of this decade the long commodity boom went into reverse. First the price of metals and minerals collapsed, then the slowdown moved onto oil, and eventually even reached agricultural products. This slump hit Latin America very hard. Copper, iron ore, gold, silver, soybeans and oil are all major Latin American exports, and the falling price of these commodities undermined growth across the region. Worst hit were the commodity-dependent Andean countries of Chile, Colombia, Peru, Ecuador and Venezuela. However, with the exception of the latter two (which don’t have free-floating currencies), the slide in commodity prices came with a strong silver lining – massive currency depreciation. The Chilean peso, the Colombian peso and the new Peruvian sol very quickly lost around a third of their value against the US dollar.

That helped to make these countries’ non-commodity-related industries a lot more competitive. Of those, tourism was the first to benefit. Unlike manufacturers, who have to be convinced that currency depreciation is permanent before they are willing to invest in expanding production in order to capitalise on overseas demand for their goods, tourist businesses are ready to reap the gains as soon as international visitors realise that their country has suddenly become a lot cheaper and come flocking in. In 2015, the last year for which the UNWTO has full figures, the numbers of international visitors to Chile grew by 22%, to Colombia by 16%, to Peru by 7% and to Uruguay by 3%. Early signs suggest that this double-digit growth continued in Chile and Peru last year, bringing the number of tourists visiting these countries to record highs.

Of course, Latin America’s powerful northern neighbour is an important factor in this growth – America is the second-biggest spender on tourist services in the world, and Latin America is a reasonably convenient destination for the more adventurous American tourist. So strong employment growth and the apparently sound economic backdrop in the US are good news

for Latin American tourism. Depreciation is also a plus for international investors (like us) who are looking to invest in the region, as it means we can invest more cheaply than before and hopefully benefit from future currency appreciation too.

Investors should follow the tourists into Latin America

24 cover story

Latin America is putting its violent past behind it, and is poised to ride the wave of a global tourism boom. Invest now to reap the rewards, says James McKeigue

“Tourism is the third-

largest export industry in the world,

with around $4bn spent each day“

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“Thanks to the decade-long commodity boom from 2003, tens

of billions of dollars have

been spent on infrastructure“

Continued on next page

The fall in the value of local currencies, meanwhile, has also convinced more Latin American citizens to take holidays in their own country or within the region, rather than travel abroad and spend in dauntingly expensive dollars and euros. Yet even in the absence of currency depreciation, this is a vital source of ongoing growth in the industry – according to the UNWTO, around 80% of international journeys start and end within the same region. Indeed, this is one of the main reasons that the tourist industry in emerging markets is growing more quickly than in mature ones. As economies expand, so do the number of individuals with both the wherewithal and the desire to explore their neighbouring countries.

Interregional visitor numbers in Latin America are only likely to grow even more strongly in the coming years. The region has just endured two consecutive years of recession, but is set to return to growth this year. This was largely down to Brazil’s economic woes – most of the area has in fact been growing steadily for the past few years. And now that the Brazilian behemoth – which accounts for almost half of Latin America’s GDP – is emerging from its worst recession on record, the region’s tourist industry should be a big beneficiary.

Greater safety, better facilitiesClearly, some Latin American countries still have a serious crime problem – Venezuela, El Salvador,

Guatemala and Honduras are the most egregious examples. But, with the exception of Venezuela, where the government is losing control of crime in the same way that it has lost control of everything else, this violence isn’t necessarily a barrier to tourism. El Salvador, Guatemala and Honduras do have security problems. But the first two in particular are far safer than they were during the 1980s when they were torn apart by civil war.

Moreover, from a hard-headed investment perspective, the violence in these countries tends to be restricted to poor people living in the sprawling urban ghettos. This is a tragedy and a problem for those societies, but this sort of crime has no impact on tourists visiting the main attractions, which tend to be very safe. This is already being reflected in Central America’s improving tourist numbers. International arrivals rose by 7% in 2015 to exceed ten million for the first time. Panama led this growth with a 21% increase in arrivals. Belize welcomed 6% more arrivals, Costa Rica and Honduras 5%, El Salvador and Nicaragua 4%, and Guatemala 1%.

Another long-term factor in Latin America’s favour is the region’s improving transport links. Poor infrastructure has long been one of the major hurdles to improving economic productivity in the region. But thanks to the decade-long commodity

Adventurous tourists are heading to Latin America – smart investors should pack their bags too

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The three stocks to buy nowMexican airport operator Grupo Aeroportuario del Centro Norte (Nasdaq: OMAB) manages 13 airports across nine states in northern and central Mexico, serving Monterrey, the industrial heartland, and tourist destinations such as Acapulco, which means it benefits from leisure and business travel. It also makes money leasing out airport concessions and managing hotels and parking facilities.

The share price tanked when Donald Trump became US president due to fears that anti-Mexico policies would lead to less travel between the two countries. As investors have decided Trump’s bark is worse than his bite, the share price has rallied somewhat. On a forecast price/earnings (p/e) ratio of 19.5, it’s not cheap (although it yields 4%). But long term it should benefit from Latin America’s fast-growing number of international visitors.

Panama’s Copa Holdings (NYSE: CPA), owner of Copa Airlines, uses its strategic location in the business hub of the Americas to operate flights to 70 destinations in Latin America and the Caribbean. It has a more extensive network of intra-Latin American flights than any other airline, and late last year it also launched a Colombia-based, low-cost carrier, Wingo, which means it should benefit from growing interregional tourism.

Copa’s first-quarter results showed a healthy 9.9% increase in traffic and a 6% rise in revenue per available seat mile, driven mainly by growing sales in Colombia, Brazil and Argentina. Copa has a good record of controlling costs, yet is cheaper than many of its Latin American rivals on a forward p/e ratio of under 13.5 – about half that of Chile’s Latam. It also has a 1.8% dividend yield, more than most peers.

Concentradora Fibra Hotelera Mexicana (Mexico: FIHO12), or simply FibraHotel, is a real-estate investment trust (Reit) that owns the largest hotel portfolio in Mexico. It has 75 hotels up and running, with ten more due to be added this year. FibraHotel doesn’t operate the hotels: instead, it owns and develops the land and buildings, which it leases to select hotel brands. It is mainly focused on business hotels and partners with mid-market brands such as Marriott and Sheraton.

As the Latin American travel boom increases demand for hotels, Fibra will continue to generate healthy revenues to redistribute to its investors. Meanwhile, its aggressive real-estate acquisition and development will boost the value of its holdings.

The US$370m market-cap Reit has grown incredibly quickly over the last few years (it floated in late 2012 with just 34 hotels). As it consolidates and more of its hotels become operational – its medium-term target is 100 – it will be able to distribute more cash to holders. At the moment, its payout amounts to a dividend yield of around 8%, and that is expected to continue growing. The firm trades on a forecast price to funds from operations (P/FFO) of 9.5, compared with around 11 for its nearest peer, Fibra Inn.

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26 cover storyContinued from previous page

Latam: now Latin America’s largest airline

boom from 2003, which poured money into most Latin American countries’ economies, recent years have seen huge investments in road transport. Tens of billions of dollars have been spent on roads, tunnels and bridges that have improved overland travel within and between Latin American countries. The transformation in Ecuador, Colombia, Peru, Nicaragua and Panama has been particularly impressive.

The benefits of the improvements are twofold: on one hand it makes it easier for regional travellers to visit neighbouring countries, while on the other, it makes Latin America more attractive to those coming from further afield, as they can visit more tourist hotspots during their stay. The Ecuadorian road network has improved to the point where it is now possible for a tourist travelling by car to breakfast in the Amazon jungle, have lunch in the Andean highlands, and then enjoy the sunset on the Pacific Coast with their dinner.

High-flying Latin American airlinesThe other big change has been in the airline business, where new competitors have sprung up to challenge Latin America’s lumbering aviation oligopoly. The old system of protected, inefficient national airlines has been swept aside

by a wave of liberalisation. Panama’s Copa, Colombia’s Avianca, Brazil’s Gol, Mexico’s Aeromexico and Chile’s Latam are now globally competitive airlines that offer Latin American customers the level of prices and flight frequencies that we’ve long taken for granted in the UK. Indeed, Latam, formed by a merger between

Chilean and Brazilian rivals, is now Latin America’s largest airline.

Budget airlines are being launched too. Until recently just Mexico, Colombia and Brazil benefited from low-cost carriers, but now they are spreading out across the region. The International Air Transport Association (IATA) reckons that airline passenger numbers in Latin America are growing at a rate of 4.8% a year, making it one of the world’s fastest-growing air-traffic regions. Aircraft-maker Boeing is even more optimistic about the future, pencilling in 5.8% growth per year for the next few decades. Investors should always regard long-term statistics with a healthy dose of scepticism – but investment is already being made in new airports to cope with the extra traffic. Mexico, Brazil, Ecuador, Costa Rica and Colombia are just some of the Latin American countries currently working on major new airports. Not bad when you consider the decades that we’ve wasted talking about fixing London’s airport capacity problem.

“In the aviation

business, new competitors have sprung

up to challenge

Latin America’s lumbering aviation

oligopoly“

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As MoneyWeek goes to press, the country is going to the polls. By the time you read this, we’ll know who will lead the UK for the next few years (barring any more surprise elections, which, sadly, we can’t rule out at this point). We’ll know if Theresa May made a massive miscalculation when she decided to go for the snap general election, or if Jeremy Corbyn’s polling comeback was all about the noisy yet elusive “youth” vote. And we’ll know which polling companies are massive shorts, and which you should be paying attention to for next time. But whatever we’ve woken up to on Friday – a Tory landslide, a hung parliament, or a “coalition of chaos” – we can already make a few pretty safe predictions about the themes that will help to shape the course of politics over the coming years.

1. Bigger governmentWe’re looking at a bigger, more interventionist government than we’ve been used to in recent years. Whether it’s through moral suasion and tighter regulation, or full-blown renationalisation, one way or another companies are not going to be allowed to conduct “business as usual”. Some sectors will be more vulnerable than others (for example, an intriguingly timed paper from Greenwich University, cited in the Financial Times this week, claimed that privatising the water utilities had cost consumers £2.3bn a year more than keeping them in public ownership). But even the big, international players will be affected. The debate over tech companies and their responsibilities for the content they provide a platform for (see page 14 for more) is just the start.

There will be more scrutiny of takeover bids for companies deemed vital to the national interest (which can, of course, mean anything from genuinely important to merely headline-grabbing). Corporate boards will feel increased pressure over everything from executive pay to worker representation to debates over precisely how high the minimum wage should be. That’s not necessarily a bad thing, but the problem with political intervention is that it is often poorly thought through, tends to create skewed incentives and is as much dictated by how it will look on TV as by any actual practical benefit.

Britain is far from alone in this growing desire to force corporations to contribute more. Across the world this month 70 countries signed a pact to crack down on international tax avoidance. It’s all part of

the OECD group of rich countries’ efforts to prevent multinationals from using elaborate schemes to play national tax systems off against one another. All of this is likely to mean a squeeze on corporate profit margins, as companies find themselves being expected to do more of what might be described as “social policy” heavy lifting than they have been.

2. Higher taxes and borrowingBigger government costs money. So that means we can expect higher taxes and yet more government borrowing. Just to get a bit of perspective on this, former chancellor George Osborne had aspired – as recently as late 2015 – to balance Britain’s annual budget by the 2019/2020 tax year. Indeed, we were meant to bring in £10.1bn more in tax than we spent that year. That’s changed somewhat, to say the least. The earliest we’ll even be thinking about balancing the budget now will be closer to 2025/2026 – and that’s so far into the distant future (in political terms at least) that it might as well be never.

Our concern is that – whichever party gets into power – someone is going to have to pay for this. There’s only so much money that can be raised from cracking down on tax avoidance (see above) and targeting “the rich”. So it’s likely that borrowing will have to take the strain. At the moment, the gilts market (which reflects how willing investors are to lend to the UK government, and at what price) couldn’t care less about the election. And while there

The five trends that will shape Britain’s future

28 analysis

Will it be May, Corbyn or a “coalition of chaos”? As we went to press, we didn’t know. But there were some safe predictions to make, says John Stepek

Whether you’re celebrating or drowning your sorrows – what you wake up to will be formed by bigger forces than the government

“Bigger governments cost money: so expect

higher taxes and yet more government borrowing”


analysis 29

might be a blip if Labour takes power, we suspect that – for now, at least – markets have been so well-conditioned to “buy the dip” on political shocks, that any predictions of a “gilts strike” or a sterling crash would be well wide of the mark. The danger, however, in the long run, is that interest rates and inflation won’t always be as low as they are today (if they are, that suggests something else will have gone badly wrong with the economy) – in which case, markets may not always be as accommodating as they are today.

3. The generation warIf the general election campaign proved anything, it’s that you don’t mess with the pensioner vote, and you don’t mess with a British citizen’s right to pass huge chunks of property-related wealth to the next generation. May’s proposal that anyone with less than £100,000 in wealth wouldn’t have to pay for social care, and anyone with more than that would have to use their money, but could defer selling their house to pay the bill until they died, was by any measure an extremely progressive policy. It asked the very well off to pay for their own care (rather than using taxpayers’ money to do so) and left the not very well-off entirely unscathed. However, the reaction forced a rapid U-turn.

Yet May’s abortive efforts to tackle just one small corner of this problem, as well as her promise to turn the “triple-lock” on pensions into a “double-

lock”, demonstrate the direction of travel. As the Institute for Fiscal Studies points out, the UK is likely to need an extra £100bn a year by the middle of this century just to deal with our deteriorating demographic picture. Younger people, meanwhile, feel extremely hard done by, with house prices in many areas beyond their reach, and the gilded retirement offered by a defined benefit pension scheme pretty much gone (from the private sector, at least). Don’t be surprised to see future attempts to unlock the housing wealth held by the older generation – potentially in the form of incentives to downsize, or a more straightforward wealth tax. As for those who are yet to retire – the state pension age is only likely to increase more rapidly than any of us expect as it becomes increasingly unaffordable.

4. What about productivity?One thing is fundamental to making any real progress tackling the other problems we’ve outlined above, and that’s the UK’s persistent productivity problem. Productivity in the UK was hammered by the financial crisis. Only now has output per hour just about returned to its pre-financial-crisis level, but it’s still well below rivals such as the US, France and Germany, and about 16% below the G7 average. As Chancellor Philip Hammond pointed out in last year’s Budget, “it takes a German worker four days to produce what we make in five”. Employment has risen strongly, but we’re not producing anything more per hour worked than we did in 2008. As Jagjit Chadha of the National Institute of Economic and Social Research points out: “It is as though the economy, rather than working smarter, has simply been working harder.”

Without major improvement, it’s hard for wages to pick up and living standards to get better. The trouble is, solving the productivity puzzle isn’t easy (or quick) to do. While politicians pay lip service to it, as private-equity investor Guy Hands tells Bloomberg: “It’s like watching a business which has a real fundamental problem, and the CEO is saying: ‘What packaging should we use?’” Our own view is that, among other things, addressing the skewed incentives created by our overly complicated tax system (notably our treatment of debt versus equity) would help a great deal (see the editor’s letter for more ideas). But that doesn’t look to be on the cards.

5. Brexit means BrexitThe general election has revealed at least one thing: the majority of Britons either remain sanguine about their vote to leave the EU, or are resigned to the idea that the UK has voted, and should now “get on with it”. That’s one reason why there wasn’t a huge amount said about Brexit during the election. The other is that, for all the talk of “soft” and “hard” Brexits, as Pieter Cleppe of Open Europe puts it, “there aren’t so many different ways to implement Brexit”. Overall, Britain wants an end to freedom of movement, and thus to membership of the single market and customs union, but all the while maintaining a close trade relationship with the EU. The only real questions are: how much might that trade deal cost and what will it consist of; and what rights will EU citizens in the UK have, and UK citizens in the EU continue to have? The eventual outcome probably depends as much on the shape of the European political landscape after the German elections in September and the Italian elections next year, as it does on our own general election.

Whether you’re celebrating or drowning your sorrows – what you wake up to will be formed by bigger forces than the government

©G

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“Productivity in the UK was hammered by the financial crisis. Output

per hour is still well below the US, France and

Germany”


Five questions for… Richard Canterbury, Love Smoothiesn What does your firm do?We sell 100% natural frozen drinks, with a range that includes smoothies, frappes, fruit teas and bone broth. Our tagline is “Nature on

Demand” – we use fruit and vegetables from just eight farms that are frozen within minutes of being picked to retain their freshness. Just take out of the freezer, add juice or milk and blend!

n What’s been your greatest achievement so far?Starting from a stall in London’s Borough Market in 2005, we now sell to over 5,000 outlets across the world with retail sales of £40m. We have had a number of landmark achievements, such as a listing with Ocado and signing up Virgin Active.

n What has been your biggest challenge?We built a new category from scratch. Creating something revolutionary takes immense hard work to educate and explain and build a business from the bottom up.

n What are your plans for hitting your targets this year?Our strategy is to invest in premium positioning, and drive availability in a variety of markets, from Australia to the United Arab Emirates. Smoothies are popular in warmer months in the UK, but they’re always popular in the Middle East and Australia where the temperatures are high all year. n What’s the one piece of advice you’d give fellow entrepreneurs?Invest in a high-quality team to broaden your business capability and experience.

Staying on top of their finances can be a major headache for many small businesses. They may not have the resources to appoint specialist staff even though existing employees lack skills such as accounting expertise. In this situation, accounting software could be a smart investment. This can give you access to automated accounting tools and help ensure that you’re keeping all your relevant financial data in one place.

Such software is more affordable than ever before. Small businesses used to have to pay hundreds or even thousands of pounds up front for an accounting package. But today online services cost less than £20 a month – and provide enough sophistication for the vast majority of small business users. Hence take-up of these services is increasing rapidly. Xero, one of the most high-profile online accounting providers, now has more than 200,000 subscribers in the UK. More than 100,000 have joined QuickBooks, which is run by Intuit, one of the original developers of accounting software for small businesses. Other well-known providers include Sage, FreshBooks and FreeAgent.

Most of the services offer similar functionality, ranging from the ability to do simple book-keeping, through to invoice processing, inventory management and payroll management. They’ll usually sync

automatically with other systems – such as those used by your customers’ finance departments and your bank – and you should be able to access them by mobile from any location, rather than just via the office PC. One big advantage is that many providers offer different levels of service at different prices. Smaller businesses will pay a lower monthly fee in return for reduced functionality; as their business grows and becomes more complex, they have the option of moving up to a more wide-ranging service.

So which service to go for? In a review published recently by PC Magazine, QuickBooks UK and AccountEdge Pro won the top ratings for small business accounting. The magazine also highlighted FreshBooks as particularly good for sole traders. In practice, however, you need to choose a service based on your own business’s needs. Consider cost, but also look at the functions you need. Try out several different services to see which you find easiest to use, and check what customer support is available.

You’ll often be able to secure a free trial, which allows you to switch service if you don’t like the package. However, consider the issue of access to your data carefully. Ideally, you want a package that allows you both to import and export your data freely and easily, so that you can move on to the system quickly, and can go elsewhere in future if you so desire.

Accounting made simple

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30 small business

by David Prosser

New tech can give you a helping hand

small business XX

How safe is your data?

Data security should be a key priority for any small business using an online accounting package. That’s one argument for sticking with a well-known provider with the scale and experience to safeguard customers effectively. There is no guarantee such providers won’t be breached – check the extent to which they indemnify you in case of losses – and you should compare their security policies carefully, but they should at least have the resources to invest in improving data security.

One issue to consider is the relationship between your accounting service and your bank. Some providers have deals with the leading high-street banks in the UK, enabling them to take a direct and secure feed of your transaction data directly from the bank. That’s a very useful way of getting key financial data straight into your accounts system without manual intervention. Accessing such feeds usually requires you to pay a small monthly fee (eg, around £3-£5 per month) to your bank.

However, not all providers use direct feeds and most who do only offer them for a limited number of banks. Many offer a different way of accessing your transactions, which – put simply – involves logging into your account and reading (“scraping” in web jargon) the data from the web page. Most online accounting providers rely on Yodlee, a US-based firm, to do the scraping for them.

However, scraping means you are giving Yodlee your log-in details so that it can access your data. While Yodlee says that it keeps all details secure, doing this may still violate your bank’s terms and conditions. This issue has yet to be tested and the law isn’t absolutely clear. But in theory if you lost money through online fraud – eg, because Yodlee was hacked and your details stolen – your bank could try to refuse to refund you because you had disclosed your details.


12mth high 12mth low NowRDW 597.5p 100p 545pIII 944p 468.5p 943pPRU 1,096p 1,801.5p 1,748p

The three stocks that Ed Legget likes

If only you’d invested in…

Dublin-based Hostelworld Group (LSE: HSW) provides an online platform for young travellers to book rooms in hostels and other budget accommodation around the world. Bookings slipped by 1% in 2016, revenue fell by 4% and earnings rose by just 1% – but the group’s growing cash pile still led to a special dividend of €0.105 per share. The share price has risen by over 100% in the last year.

Be glad you didn’t…

South African platinum producer Lonmin (LSE: LMI), which was spun off from the colonial conglomerate Lonrho in 1998, has lurched from crisis to crisis in recent years. It has endured years of violent labour disputes that have hampered production, and is saddled with crippling debt. The company last reported a profit in 2013. Shareholders have seen the value of their investment all but wiped out – since its peak in 2007, the price has fallen by 99.98%. And anyone brave enough to buy in the last year has lost almost 60%.

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For a stockpicker rather than a pollster, the periods surrounding general elections can be frustrating. Swings in the polls mean increased volatility in sterling

and a mood of provisionality clings to the equity market. So for me, the main positive aspect of having an election this year is that it pushes the date of the next one forward to 2022.

This delay makes some form of transitional deal for the UK after the two-year Brexit negotiating period comes to an end more politically acceptable and thus more likely. This, in turn, reduces the perceived risk of a “no deal” Brexit, which is helpful for sterling.

The negotiations to leave the European Union will also shape the fortunes of UK stocks, particularly those most attuned to domestic demand. And while I remain positive on a number of these UK-focused companies, I accept that the valuation multiples that the market awards them will probably struggle to move decisively higher until there is greater certainty about the outlook. In the meantime, they will need to rely on increasing their earnings or offering a solid income if they are to generate good returns.

One industry that should continue to grow profits and provide dividends is housebuilding, where we own Redrow (LSE: RDW). A combination of undersupply of new houses combined with low mortgage rates should mean that current returns on capital across the sector prove more sustainable than today’s share prices imply.

However, not all the stocks in my portfolio depend on the domestic UK economy. Take 3i (LSE: III), the private-equity group, for instance. Its investment in European discount retailer Action accounts for more than 30% of its portfolio. Action is similar in concept to B&M in the UK – a non-food discount retailer – and is currently growing its revenues and profits rapidly by opening around 200 stores a year in Europe. Action is one of the few retailers I have seen where opening a new store pays for itself within a year. This puts the company in the enviable position of being able to pay out significant dividends to 3i while still funding its own growth.

Another UK-listed stock that is growing overseas is Prudential (LSE: PRU), the insurer, whose Asian business is large and growing. My enthusiasm for this firm reflects early signs that the recovery in new business is broadening out beyond its core markets in China and Hong Kong. I believe that it can grow profits at a double-digit rate for the foreseeable future. This is not reflected in a price-to-earnings ratio of just 12 times. Prudential is withdrawing from the annuities market in the UK and, in time, may dispose of its “back book” of annuity business. This will free up significant capital that can either be reinvested in Asia or, more likely, be returned to its shareholders.

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A professional investor tells us where he’d put his money. This week: Ed Legget, Artemis UK Select

XX personal view

Three good growth stocks

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The “millennial whisperer” who’s helping the young grow their savings“For someone who built a career on getting what it means to be cool”, Acorns’ chief executive Noah Kerner is not – “at least not in the aloof, exclusive way 2017 seems to deem desirable”, says James Watkins on Ozy.com. Kerner is a “millennial whisperer”, according to Jeff Cruttenden, the man who recruited him to run Acorns, a start-up that helps low-income earners to save and invest. The firm targets “the 182 million Americans who make under $100,000”, rounding up their card purchases to the nearest dollar and directing these micro-investments into passive exchange-traded funds. Today, around 1.8 million account holders save with Acorns. Almost 70% of Americans have under $1,000 in savings and Acorns aims to “democrat[ise] access to the financial industry” for them.

Kener is “a product and marketing guru” with expertise across hip-hop culture and brand consultancy. Before Acorns, he was the co-founder and chief executive of Noise, a product development and marketing agency that helped firms from Intel to Vice connect with “millennials”. Together with Chase Bank, Noise created a credit-card product aimed at college students that became the first product to launch on Facebook.

Raised in Manhattan, Kerner showed an entrepreneurial spirit early by selling baseball cards. When he received a set of turntables at 13, “everything changed”. As a self-taught DJ, he worked his way

up playing at events in New York’s hip-hop scene. The gigs funded most of his economics and psychology degree from Cornell University, during which time he interned at firms such as Merrill Lynch and Vibe magazine. By 28, Kerner had founded online hip-hop culture marketplace OneLevel, music

agency Soundproof, and Noise. In 2010, London-based Engine Group acquired Noise and Kerner started working with various start-ups as an investor, adviser and board member. Six months after investing in Acorns and serving as a mentor to Cruttenden, its co-founder, he was asked to run the business. “He’s a brilliant product builder, marketer and branding mind,” says Cruttenden.

Five years ago, teaching assistant Alice Hall was struggling to pay her mortgage, despite having three jobs. To help pay the bills she bought a £90 pack of eight dresses and then sold them on eBay for £240. Her mother, Julie Blackie, advised her to reinvest the money, and she did. Eventually, when Hall’s 30-minute lunch breaks became too short to dispatch all the customers’ orders from the local post office, mother and daughter decided to focus on the business.

In its first financial year, Pink Boutique turned over £500,000. During a single day last month it sold 3,500 garments for £101,000. This year’s turnover is expected to be £22m. Central to its success is “its close connection” to the target 18- to 35-year-old customer, says Chris Tighe in the Financial Times. The company, which advertises solely on social media, has 336,000 followers on Instagram and 1.3 million Facebook fans. In five years, Pink Boutique has taken off without borrowing or a business plan. With a stock shelf life of about 12 weeks, the firm is “part of a wave of low-cost, fast-fashion online retailers”.

The doctor peddling smart drugsDoctor Molly Maloof optimises health instead of just fixing illnesses, says Michael Coren in Quartz. Her concierge medicine practice in Silicon Valley charges patients $5,000 for an initial assessment, while comprehensive care can cost more than $40,000 a year. Her clients are often engineers and executives “looking to hit peak performance, or recover from an overstressed work life”. Maloof’s data-heavy approach begins with a battery of tests – measuring thousands of biomarkers in all – to understand her patients at the cellular level.

After analysing the results, Maloof (pictured) prescribes a diet and lifestyle tailored to each individual. If needed, she also helps patients practise

harm reduction

with

nootropics – “smart drugs” designed to enhance cognitive function – and micro-doses of LSD. Some investors are betting this approach will become standard, with start-ups such as Color Genomics, Forward and Nootrobox aiming to go mainstream. “In a perfect world, your body is like the airplane and I’m the co-pilot and we’re using all these tools to identify if there are issues going wrong with the engine,” Maloof says.

Investors bedazzled by bike sidelightsWhen Dan Goldwater first attached kaleidoscopic LED lights to the spokes of his bicycle wheels, festival crowds were “wowed”, says Christie Hemm Klok in The New York Times. But Goldwater couldn’t at first see how to make a commercial project out of it. Today, his company MonkeyLectric has been in business for ten years, “convincing night cyclists that front and back lights are inadequate and that they need bright side lighting too”. Cyclists pay $25 to $60 for a set of lights to attach to their bicycle wheels, and MonkeyLectric makes $1m in sales annually.

The product is a result of Goldwater’s time as an electrical engineer at the MIT Media Lab, where he was researching smart paint and self-assembling robots. Twelve years ago he made

what he calls “a monumental art piece” – the bicycle with kaleidoscope wheels. MonkeyLectric sits at the intersection of safety and art, “with an overlay of whimsy”. When the wheels spin, they produce rotating light

shows with various designs. The market is growing as more and more people start commuting on bicycles. MonkeyLectric has raised capital via Kickstarter several times. On the last occasion, it raked in $248,331.

harm reduction

with

MonkeyLectric has been in business for ten years, “convincing night cyclists that front and back lights are inadequate and that they need bright side lighting too”. Cyclists pay $25 to $60 for a set of lights to attach to their bicycle wheels, and MonkeyLectric makes $1m in sales annually.

The product is a result of Goldwater’s time as an electrical engineer at the MIT Media Lab, where he was researching smart paint and self-assembling robots. Twelve years ago he made

32 money makers

money makers XX


by Chris Carter

AuctionsGoing…The lunar bag that astronaut Neil Armstrong (pictured) used to collect rock samples during the Apollo 11 moon-landing mission in 1969 is expected to fetch at least $4m at Sotheby’s in New York on 20 July. The bag, still containing traces of lunar dust, had been the subject of a legal dispute between Nasa and the seller, lawyer Nancy Carlson. Carlson bought the pouch for $995 in 2015 after it had been mistakenly included in a government online auction, and sent it to Nasa to authenticate it. The American space agency on realising the error seized the bag, but in February, a federal court ordered it to be returned. Carlson has said she plans to donate some of the money to charity.

Gone…Last summer, a sale of space

memorabilia at auction house Bonhams in New York raised a total of $1,315,063. Among the lots were 15 casts of the hands of astronauts, including Neil Armstrong and Buzz Aldrin, his fellow Apollo 11 astronaut, which were

used by Nasa to tailor-make spacesuit gloves. That single lot sold for $155,000 including buyers’ premium – ten times the initial estimate. A full-scale test model of the

Soviet Union’s Sputnik 1, the first manmade satellite in space, fetched $269,000.

Tips for bag buyersRarity and material, such as crocodile skin, are things to look out for when choosing handbags to invest in. The brand is the other deciding factor, with names such as Hermès and Chanel consistently in demand at the pricier end of the auction market. At the lower end, “bags produced by Christian Dior and Louis Vuitton remain strong investments”, holding their value well, says the Financial Times.

While examples such as the Hermès matte white Himalaya Niloticus crocodile diamond Birkin 30 (see left) can sell for hundreds of thousands of pounds, you can start your collection with a far more modest sum, as resale website Vestiaire Collective’s product director Sophie Hersan tells Vogue.

For example, Mansur Gavriel is “New York’s coolest new label”, says Hersan. Its Bucket Bag, which costs £300 new, “sells out each season, making it the perfect style to invest in”, while “the soft leathers only get more beautiful over time and the basic nature of this style brings an easy elegance to any casual outfit”.

Louis Vuitton’s Neverfull bag sits at the entry-level price point of £500 for this ubiquitous luxury brand. Its “monogrammed canvas remains popular and is a great style to start your designer bag collection, with its roomy shape making it practical and timeless”.

For another £500 more, the Chanel Timeless “is a fail-proof investment”. This is the only bag that increases in retail value each year, says Hersan. A favourite of Kate Moss, Bianca Jagger and Catherine Deneuve, it’s “a powerful fashion statement” that, as its name suggests, never goes out of style.

You might think HK$2.94m (£292,000) is a lot of money to spend on a handbag. And you’d be right. But then again, the Hermès matte white Himalaya Niloticus crocodile diamond Birkin 30 with 18-carat white gold and diamond hardware (pictured) is not just any old bag. It is, as Christie’s puts it, the “Holy Grail in a handbag collection”. No wonder, then, that it broke the record for the most expensive handbag sold at auction on Wednesday last week at the auction house’s Hong Kong offices. That was also good news for the anonymous buyer who bought the same version of the bag last May, also in Hong Kong, for HK$2.33m (£206,000), representing a theoretical £86,000 gain in a year. If you’re kicking yourself for missing out, fear not. Christie’s in London is selling a Matte White Himalaya Niloticus Crocodile Birkin 35 with palladium hardware on Monday with an estimate of between £60,000 and £80,000 (viewing starts today). Who’s knows what it would fetch this time next year?

“Handbags, rather than fine wine, art or other collectables, are ‘going through the roof’, say auctioneers, and look like continuing to rise in the future,” The Daily Telegraph reports. “Next time your partner says she wants a handbag and the price horrifies you, just think that it may in fact prove to be an investment,” Pontus Silfverstolpe, co-founder of collectables website Barnebys, tells the paper. “The value

of these bags are linked to their limited availability, the rare quality of their materials, the elegance of their design and the condition they are in and also

at times who owned them previously.”

“Limited availability”, however, can be a double-edged sword. While rarity undoubtedly drives up prices, the illiquid nature of collectable assets means prices are dependent on market whims. That means you may struggle to get the price you want if you need to raise cash quickly,

particularly when selling fashion items. “Certain brands [of handbag] have longevity,” as the Financial Times noted in November, meaning they never go out of style. Others, however, “either suffer the vicissitudes of fashion or the ubiquity of overproduction”. Knock-offs are also a problem, having become increasingly sophisticated in recent years.

Still, demand has been robust. The collectable handbag market rose by an average of 7.8% a year between 2004 and 2016, according to Just Collecting’s Rare Handbag Index. The best performer in that time was the Chanel 2.55 Medium Classic Flap Bag, which cost $1,500 in 2004, and last year would have set you back $5,000 – an increase of 233%. So, rather than eschewing the market altogether, it’s perhaps now more important than ever to choose your handbags carefully. See the box on the right for pointers on how to do this.

The Holy Grail of handbags

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by Chris Carter

You might think HK$2.94m (£292,000) is a lot of money to spend on a handbag. And you’d be right. But then again, the Hermès matte white Himalaya Niloticus crocodile diamond Birkin 30

of these bags are linked to their limited availability, the rare quality of their materials, the elegance of their design and the condition they are in and also

at times who owned them previously.”

“Limited availability”, however, can be a double-edged sword. While rarity undoubtedly drives up prices, the illiquid nature of collectable assets means prices are dependent on

The Holy Grail of handbags

collectables 33

The lunar bag that astronaut Neil Armstrong (pictured) used to collect rock samples during the Apollo 11 moon-landing mission in 1969 is expected to fetch at least $4m at Sotheby’s in New York on 20 July. The bag, still containing traces of lunar dust, had been the subject of a legal dispute between Nasa and the seller, lawyer Nancy Carlson. Carlson bought the pouch for $995 in 2015 after it had been mistakenly included in a government online auction, and sent it to Nasa to authenticate it. The American space agency on realising the error seized the bag, but in February, a federal court ordered it to be returned. Carlson has said she plans to donate

Gone…Last summer, a sale of space

memorabilia at auction house Bonhams in New York raised a total of $1,315,063. Among the lots were 15 casts of the hands of astronauts, including Neil Armstrong and Buzz Aldrin, his fellow Apollo 11 astronaut, which were

used by Nasa to tailor-make spacesuit gloves. That single lot sold for $155,000 including buyers’ premium – ten times the initial estimate. A full-scale test model of the

Soviet Union’s Sputnik 1, the first manmade satellite in space, fetched $269,000.

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The world’s greatest investorsThis week: James Robert Keene

Who was he?Keene was born in London in 1838 to a prosperous family and moved to the US in 1852. After a brief spell as a journalist, among other jobs, he made a fortune in mining, which he lost in speculation and went broke. A senator gave Keene his seat on the San Francisco Stock Exchange and told Keene he could pay when he was able to. Keene thrived and was eventually

appointed president of the San Francisco Stock Exchange and a governor of the Bank of California. He lost his fortune due to a bet on grain prices in 1884, made a comeback managing a stock fund, and later became a well-known manager of “investment pools” and a very successful horse breeder. He died in 1913.

What was his strategy?Up until 1884, Keene invested using a combination of fundamental analysis, attempting to gauge market sentiment and going with his gut instinct. His later career was characterised by his involvement in “pools” and “rings”, shadowy syndicates where people would spread rumours designed to inflate a company’s share price, before dumping large amount of shares on the market.

Did this work?Before his disastrous bet on grain prices, Keene was said to have a fortune of $13m ($324m in today’s money). When he died in 1913 his estate was estimated at $15m ($370m). The legendary trader Jesse Livermore rated Keene highly. He called him both a “master manipulator” and a “consummate trader”.

What were his biggest successes?In the early 1870s Keene’s doctor advised him to take a long sea voyage to restore his health. Before he left, he bought a couple of shares in mining companies that were poised to strike it rich, on the advice of a friend. On his return a year later his investment of a few hundred dollars was now worth $200,000. As the mining craze intensified, he cashed in his stake and sold some of the most overvalued mining shares short. He subsequently made $3m from these short sales.

What lessons are there for investors?While regulation is (thankfully) stricter than it was in Keene’s day, market bubbles still occur. This creates an opportunity for short-sellers to step in, provided they have enough courage and can endure volatility. His wife’s insistence that Keene hand over half of his profits to her, to be invested in high-quality bonds, also enabled him to ride the occasional downturn in his fortunes. Interestingly, Keene himself advised the general public to stay away from speculation.


“We have gotten the Mexican side to agree to nearly every request made by US industry,” said the US commerce secretary, Wilbur Ross, this week as he announced a provisional deal to settle a bitter dispute with Mexico over sugar exports to the US. You could almost hear the relief in his voice – a lot hinged on the talks. Botching them could have meant a damaging trade war with Mexico, says the Financial Times. It would also have put the Trump administration on the back foot ahead of crucial renegotiations of the Nafta free-trade deal later this year, for which these talks were seen as a “dress rehearsal”. There’s just one fly in Ross’s sugar bowl: the industry’s big barons are refusing to play ball.

The US sugar lobby, whose big beef is that Mexico has been trying to sideline its refineries, is demanding even tighter curbs on refined sugar imports than the “significant concessions” already made, reports Reuters. Leading the charge, as they always do when their interests are threatened, are Florida’s Cuban-born “Sultans of Sugar” – brothers Alfonso (Alfy, left in our picture) and José (Pepe, right) Fanjul. Before being kicked out by Fidel Castro in 1959, the family owned vast plantations on the island and the brothers, now in their 70s, have been scrabbling all their lives to rebuild their sugar fortune. And with great success.

The Fanjul’s initial 1960 purchase of a tranche of swampland in Florida has mushroomed into a vast sugar and real-estate conglomerate in the US and Dominican Republic, with subsidiaries including Domino Sugar, Florida Crystals and Tate & Lyle European. Now they never give an inch. As Alfy noted in a rare interview in 2001: “We do not want what happened in Cuba to happen to us again”. To head off that danger, both brothers became major backroom players in US politics, says the Financial Times.

“Alfy and Pepe grew up in the closed world of Havana’s colonial aristocracy,” says Vanity Fair. Descended from Lebanese immigrants through their father (also named Alfonso), they derived their wealth and social cachet from their Spanish mother, Lillian, whose Gomez-Mena clan had dominated the Cuban sugar scene since the 19th century. When the couple married in 1936, the two families’ holdings were put at $100m, says Wealth-X. Then, in 1959, “Castro rebels threw their guns down on the conference table of the family’s HQ” and said: “This will be ours. All of it”. The Fanjuls fled soon after.

The family has remade itself (according to Wealth-X, Pepe alone is worth $1.4bn), but they have some way to

go before they rebuild the vast fortunes the family once enjoyed. “The essence of the Fanjul brothers’ lives in exile has been their relentless determination to get back what they lost in Havana,” says Vanity Fair. Time will tell if they achieve that. Meanwhile, there’s solace to be had from extracting every last cent they can from the negotiating table. The Fanjuls are, as both the Mexicans and Donald Trump’s White House are discovering, “formidable adversaries”.

Trump’s battle with the Sultans of Sugar

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José and Alfonso Fanjul

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Three holidays for cycling enthusiasts

Wine of the week: a fail-safe rosé for the summer2016 Château Saint Baillon Rosé, Réserve du Château, Côtes de Provence, France (£10.95, bottle; £24.40, magnum; £65, double-magnum, Goedhuis.com).

There are a few French estates that make great inexpensive wine year in, year out. This is difficult to do given the vagaries of the seasons. I love Fred Filliatreau’s Saumurs (Yapp.co.uk) – the Loire is a tricky region for reds in cooler years, but he always pulls the rabbit out of the hat.

Daniel Dampt’s Chablis (HHAndC.co.uk) are also impeccable, even in awful years – I have bought every vintage for two decades! On the high street you can rely on Louis Jadot’s Beaujolais-Villages (Waitrose.com) and the superb Chapoutier Côtes-du-Rhône Bellruche (Majestic.co.uk) is always a pleasure.

But the summer is upon us, so is there a fail-safe rosé out there? The answer is yes, one. For as long as I can remember, Saint Baillon has nailed it – every single vintage. The price is still tiddly, the larger formats hilarious and the flavour has never been better than in 2016. I was afforded a pre-release screening by the great Johnny Goedhuis and this wine took my breath away with its haunting, cherrystone-scented nose and silky-smooth, sea-spray-kissed palate. This is a very rare beast – a truly delicious, unbelievably reliable and yet eminently affordable French classic.

● Matthew Jukes is a winner of the International Wine & Spirit Competition’s Communicator of the Year (MatthewJukes.com).

by Matthew Jukes

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The stunning landscape around the summit of Beinn Eighe, a peak near the village of Torridon in the Scottish Highlands, has “well and truly arrived on the mountain-biking map”, says Roo Fowler in Mountain Bike Rider. Fowler went “old school”, arriving with just a big map and a hostel booked for the night, and if you’re figuring it all out for yourself, you’ll be spoilt for choice: there are “so many amazing trails threading their way through the landscape it’s barely believable”. If you’re on a tight schedule, however, you’ll be better off speaking to a tour guide. Either way, if you can “outrun the midges and dodge the rain, you’ll enjoy one of the best mountain-bike experiences in the world”.

Tour guides can be found at be found at Nineonesix.co.uk and Go-Where.co.uk.

A slow trip through RomaniaIf you want to get away from the bustle of modern life, try a “slow-cycling” holiday in Transylvania, Romania, “where the emphasis is on experiencing local food and culture, not madly dashing from A to B”, says Will Hide in The Daily Telegraph. You pedal sedately along country roads shared only with a horse and cart, past pastures filled with an “amazing array of wild flowers”, and amble along shaded woodland tracks. At each stop, you rest in hamlets unchanged for hundreds of years – bar the comfortable 21st-century guest houses.

The Slow Cyclist (TheSlowCyclist.co.uk) has five-night trips to Transylvania from £1,175 per person, including meals.

A challenging ride in ItalyDeep in the heart of Italy lie wild mountains, isolated roads and a 31km climb of the Gran Sasso, made famous by the Giro d’Italia, one of cycling’s grand tour races, says Mark Bailey in Cyclist magazine. It makes for an unforgettable trip, but not one for the faint-hearted. The rewards for the brave, however, are considerable. The Gran Sasso national park is a “2,014 square kilometre arena of brooding limestone and dolomite peaks, slithering glaciers and seductively silent roads” in the Apennines of central Italy. The “spiritual silence and aristocratic grandeur is enough to make

any cyclist stop pedalling and stare”. The rides takes you from the city of L’Aquila to chilly and primeval peaks, through the eerie emptiness and raw beauty of the mountain landscape, to atmospheric hilltop villages and historic cities, alongside gurgling rivers and rocky plateaux. It is a 38km cycling odyssey that is well worth making.

Download the route at Cyclist.co.uk/61gransasso. ABCycle.org can provide local guides. Hotel 99 Cannelle (Hotel99Cannelle.it) in L’Aquila is comfortable and has a good restaurant. Doubles from €60.

Romania: an unspoilt landscape dotted with hamlets unchanged for hundreds of years

Six pages of holidays, toys and property

by Stuart Watkins


The best bikes for all terrains

36 toys

by Stuart Watkins

When choosing a bike, buy for your terrain, advises Stuff magazine. A road bike with drop handlebars is great for speedy Sunday rides, for example, but light cross-country bikes can be just as fast while giving you suspension to soak up the bumps on off-road jaunts. If you’re not sure what to go for, head to your local bike shop and try a few out.

But don’t be tempted to buy too cheaply, says Stuff – especially if you’re in the market for your first bike, a budget model may “kill your cycling passion” or “leave you craving a better bike just a few months down the

head to your local bike shop and try a few out.

But don’t be tempted to

If m ountains are your preferred terrain, the YT Industries Jeffsy CF Pro 29 is one of the fastest “29er” mountain bikes we’ve tested: it has a turn of speed that will take your breath away, says Paul Burwell in Mountain Biker Rider magazine. (The 29 refers to the tyre diameter in inches – enthusiasts debate furiously which

bikes eventually “trickles down” to more affordable machines. The best all-round package is the Emonda ALR6 (pictured below left). It employs its trickle-down tech simply and holistically: the high-tech alloy frame, electronic gears and puncture-proof tyres make it “spring with aplomb” to make short work of climbs and gives assured handling. (Price: £1,600. Contact: TrekBikes.com/gb.)

Electronic gear shifting was once the preserve of the pros, but these days it’s offered by all the major brands on mid- to high-end models, says Matt Page, also in Bikes Etc. One of the best bikes you can

buy with all the electronics already installed is the

Litening C:62 Pro. It is a comfortable machine for all-day riding, says Page, with a smooth and refined ride, and it uses the most popular gear-shifting technology on the market. This

is a “near-perfect” bike that is “hard to

fault” and “an absolute joy to ride”. (Price:

£2,999. Contact: Cube.eu.)

line”. Here are some of the reviewers’ favourites.

Electric bikes are “powering a massive new interest in cycling”, providing a simple, fun and green way to get around our congested cities or commute to work, says Martin Love in The Observer. Smart technology means the batteries are now lighter, last longer and recharge more quickly than they have in the

recent past, and the bike frames are being designed with integrated motors as opposed to simply having the mechanics added post hoc. You don’t need

a licence or to pass a test to ride one either. One of the best is the Gocycle Portable G3 (pictured left). “It

is loaded with smart tech, but is simple to live with. No cable, no chains and no

oil all mean no mess.” Its predictive electric gear shifting ensures you are never in the wrong gear either, says Bikes Etc magazine, and the motor provides “plenty of oomph” to make short of work of hills. (Price: £3,499. Contact: Gocycle.com.)

If you’re after a first road bike, the Vitus Razor VR is perfect, says Stuff magazine. It combines a lightweight alloy frame with a carbon fork to get the perfect balance between “price and pothole absorption”, and it has a relatively upright riding position that is perfect if your main use will be for commuting. (Price: £495. Contact: ChainReactionCycles.com.) If you have a bit more to spend, the Genesis Equilibrium Disc 30 could be the reliable “bike for life” you’ve been looking for, adds Stuff. It has electric gears and hydraulic brakes, and a Kermit-green colour to help you “stand out from the Sunday pack”. (Price: £2,000. Contact: GenesisBikes.com.)

If your preferred terrain is the future, there’s never been a better time to buy technologically impressive bikes, says Marc Abbott in Bikes Etc. For less than £2,000 you can now buy bikes with electronic technology that only recently would have cost you as much as a family saloon, and with frame technology available only to millionaires. The high-end research and development that made this possible for top-end

9 June 2017 MONEYWEEK

toys 37

Folding bikes are popular with commuters – many journeys on train and Tube can only be made with bikes that fold. The Brompton (pictured right) is one of the classiest: it’s handmade in London, and once you’ve tried one of these nippy, stylish bikes, “you may never go back” to any other model, says The Independent. The Brompton Nickel Edition is a “limited-edition stunner”, says Stuff, and will “turn heads faster than your pedals”. It folds away in seconds. (Price: £1,470. Contact: Brompton.com.)

What Mountain Bike magazine gave its trail bike of the year award to the Canyon Spectral CF 8.0 EX (pictured left). You must buy direct from Germany,

but it makes

Finally, to find the best sportive racing bike, the top contenders were put through their paces on the Fred

Whitton challenge in the Lake District, the “daddy” of rides for serious cyclists, says Peter Stuart in Cyclist magazine. The route takes in 3,900m of vertical ascent with repeated steep bursts of 25% gradient over 180km. For work like that, you’ll need a bike with the best combination there is of comfort and forgiving engineering to reduce road vibration, yet that’s also fast on the flat and light enough to tackle big climbs. The Giant Defy Advanced Pro 0 (pictured left) is the bike for

the job. “With a wide range of gears, a tall front to throw from side to side, excellent tubeless tyre traction and a low overall weight, I think the Defy could deliver me up here even on a bad day.”

(Price: £3,875. Contact: Giant-Bicycles.com.)

for an “unbeatable complete package”. There has been “no compromise” in the build quality, with top-quality components throughout, and the result is a bike that “just feels superb whatever you are doing”. “We simply can’t think of a better example of a modern, state-of-the-art trail bike, certainly not one at such an excellent value price.” (Price: £3,099 plus £33 shipping. Contact: Canyon.com/en.)

size is best, but beginners and all-day trail riders will probably be better off with a 29er.) The Jeffsy is “tons of fun and will flatter any rider, no matter what their ability”. (Price: £3,399.99. Contact: YT-Industries.com/uk.)


38 propertyThis week: properties for around £1m – from a one-bedroom penthouse apartment in London’s Saint Katherine Docks to a Georgian townhouse in Chester

Ivory House, St Katharine Docks, London E1W. A one-bedroom penthouse apartment in the renovated St Katharine Docks, close to the Tower of London. The apartment has exposed brickwork, arched windows and tiled floors. Bed with walk-in wardrobe, bath, recep with dining area and terrace, study with roof terrace, parking, leasehold. 75 sq m. £1m Knight Frank 020-7480 6848.

Slack Foot, Troutbeck, Windermere, Cumbria. An 18th-century house in the village conservation area with views towards Lake Windermere and the surrounding fells. The house has beamed ceilings, large fireplaces with wood-burning stoves and oak panelling. 5 beds, 2 baths, 2 receps. £925,000 OnTheMarket.com 01539-291941.

Tudor House, Clanfield, Oxfordshire. A Cotswold stone house with landscaped gardens that include Elizabethan-style box hedging and an open-sided summerhouse. The house has stone-mullioned windows, exposed ceiling timbers and stonework, and inglenook fireplaces. 4 beds, 3 baths, 2 receps, library, cinema in attic room, double garage. £1.095m Butler Sherborn 01993-822325.


property 39

This week: properties for around £1m – from a one-bedroom penthouse apartment in London’s Saint Katherine Docks to a Georgian townhouse in Chester

Highfield House, Tintern, Chepstow, Monmouthshire. A country house set on wooded slopes above Tintern in the Wye Valley. The house has arched stained-glass windows, a bespoke oak staircase, a stone fireplace with a wood-burning stove and a large kitchen with an Aga. 4 beds, 4 baths, 2 receps, study, leisure suite/office complex, open-plan studio, coach house with workshop, greenhouse, gardens, 3.5 acres. £995,000 Roscoe Rogers Knight 01600-772929.

Orchard House, Bridge of Allan, Stirling. A large Victorian house set in gardens that back onto open countryside. It has a grand entrance hall with period tiled flooring, period fireplaces, a wood-burning stove and a modern fitted kitchen. 5 beds, 3 baths, 3 receps, 0.8 acres. £950,000 Savills 0131-247 3720.

La Roche, Send, Woking, Surrey. A split-level contemporary house in a semi-rural location with views across open countryside. The galleried main reception room has a full-width balcony with sliding doors. 5 beds, 2 baths, open-plan living room, study, conservatory, gardens. £1m Carson & Co 01483-773101.

Ivy House, Christleton, Chester.

A Grade II-listed Georgian townhouse opposite the church in a popular village. The house retains a number of original features, including the staircase, shuttered sash windows and period fireplaces. It has French doors leading onto the garden. 5 beds, 3 baths, 4 receps, study, workshop. £995,000 Strutt & Parker 01244-354880.

Ashmore House, Norton, near Evesham, Worcestershire. An 18th-century country house with Victorian additions surrounded by gardens laid out in a series of rooms. The house has a tiled entrance hall, period fireplaces and a large country kitchen. 6 beds, 2 baths, 3 receps, attic, outbuildings, paddock. 2.4 acres. £1m Savills 01451-832832.


Tabloid money… the disappearing rich

■ One in eight of those living over 80 will get dementia, according to estimates from the Alzheimer’s Society. “So huge numbers of us will either suffer from it ourselves or end up caring for a loved one who’s lost out in this tragic lottery,” says Saira Khan in the Sunday Mirror. Given that, “I realised why so many families were up in arms” over Theresa May’s plans for a so-called “dementia tax”. “If you or I got, say, cancer or heart disease, the NHS would… pick up the bill. But if we get Alzheimer’s, or some other form of dementia, our care will be means-tested… Never mind the fact we might have paid a sizeable fortune in tax and national insurance all our adult lives. At our moment of greatest need, the state is more interested in how much we can stump up than how we can be helped to cope.”

■ Actress-turned-lifestyle-guru Gwyneth Paltrow (pictured) has hit back at those who laughed at her for “consciously uncoupling” from her husband, the Coldplay

singer Chris Martin, three years ago, says the Daily Mail’s Jan Moir. “I know it’s a dorky term, but it’s very worthwhile”,

Paltrow told Net-a-Porter’s digital magazine The Edit recently, where she explains how it worked. She’s right, of course, says Moir. “To struggle through, to park your own grievances and concentrate instead on having a civilised and grown-up divorce is no little achievement. Gwynnie, if I had one of your £260 sex-dust smoothies in my hand I would toast you and your good sense. Cheers!”

■ How much money do you need to be rich, asks Philip Collins in The Sun on Sunday. Labour says it will increase tax for anyone earning more than £80,000 a year.

Meanwhile, half the country thinks you are rich if you pay 40% income tax, a YouGov survey has found. “The most interesting thing,” says Collins, “is that, when you ask people whether they are rich, the rich disappear.” Just 4% of people admit to being rich. “That’s quite a problem when your economic policy depends on taking from ‘the rich’.

People who don’t feel rich resent it.”

One in eight of those living over 80 will get dementia, according to estimates from the Alzheimer’s Society.

cancer or heart disease, the NHS would… pick up the

(pictured) has hit back at those who laughed at her for “consciously uncoupling” from her husband, the Coldplay

singer Chris Martin, three years ago, says the Daily Mail’s Jan Moir. “I know it’s a dorky term, but it’s very worthwhile”,

Paltrow told Net-a-Porter’s digital magazine The Edit recently, where she explains how it worked. She’s right, of course, says Moir. “To struggle through, to park your own grievances and concentrate instead on having a civilised and grown-up divorce is no little achievement. Gwynnie, if I had one of your £260 sex-dust smoothies in my hand I would toast you and your good sense. Cheers!”

■ Philip Collins in The Sun on Sunday. Labour says it will increase tax for anyone earning more than £80,000 a year.

Meanwhile, half the country thinks you are rich if you pay 40% income tax, a YouGov survey has found. “The most interesting thing,” says Collins, “is that, when you ask people whether they are rich, the rich disappear.” Just 4% of people admit to being rich. “That’s quite a problem when your economic policy depends on taking from ‘the rich’.

People who don’t feel rich resent it.”

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The cult of the competitive honeymoon

40 blowing it

With the economy slowing down and house prices beginning to slide, the only thing that can rescue us is a royal wedding. But “until Prince Harry answers the call of an impatient nation”, last month’s nuptials of Pippa Middleton and James Matthews “will have to do”, says Esther Addley in The Guardian. Despite having to settle for a 41-year-old hedge-fund manager, Middleton hosted a party “fit for almost-royalty”. Highlights included “a huge glass conservatory-style marquee in the garden of the Middletons’ home, priced by observers at £100,000”. Ironically, the reception was held in Englefield House, previously used “for the filming of a US TV series in which 12 women competed to win the hand of a lookalike they believed was the prince”.

Even if you weren’t invited, you can get your own memento from the big day. “A personalised menu card used by Prince Harry has gone up for sale on eBay,” says Hello magazine’s Gemma Strong. A snip at £499, it includes a guarantee “that the menu is ‘genuine and original’ and was used by HRH Prince Henry of Wales”. For the same price, you can get “Pippa and James’s personalised wedding menu cards”. If those aren’t your style, there’s also a “used souvenir wrist band, which granted entry to Englefield village while the wedding was taking place at St Mark’s Church”.

After the ceremony, the couple kicked off their honeymoon “with an exclusive stay on a private island in French Polynesia,

following a short layover in LA”, says Orla Pentelow in Vogue. During this time, they “stayed at the Brando, the most luxurious eco-friendly resort in the world, reportedly costing them around £3,000 a night”. After a brief sojourn in New Zealand, they moved onto Australia, choosing the Park Hyatt – “a hotel situated in the sought-after Rocks area of Sydney”, costing “nearly £11,000 per night”, before moving off to South Africa. While most people would be shattered by such travelling, the couple previously “together completed a 54-

mile bike ride from London to Brighton, a 33-mile cross-country ski race in Norway and the Otillo Swimrun World Championship”.

Such extravagance is expected for celebrities, but even “normal” couples don’t have it easier. “When I told people that my soon-to-be husband and I were planning to go to Cornwall for our honeymoon, they would do a sort of sad-but-confused face,” says Rebecca Reid in The Daily Telegraph. So, after “six months of justifying our Cornish honeymoon to everyone”, it “all got too much”, and they changed the plans to Tuscany. But if she and her intended thought it “would get people off our backs”, they were wrong. “There is still a faint note of disappointment. We should, it seems, be jetting off to Mauritius or the Maldives.”

The question is where all this “one-upmanship fever” is going to end. It’s not just about money – although where do “other

brides and grooms find the money for a massive international bonanza after the most expensive day of their lives”? (The average cost of a British wedding is £30,000.) It’s the desire for experiences “that can make a proper splash on Instagram”. The pictures of Middleton and Matthews in climbing harnesses heading up Sydney Harbour Bridge are surely a sign that “the cult of competitive honeymooning has gone too far”.

The next-best thing to a royal wedding

blowing it XX


Tim Moorey is author of How To Crack Cryptic Crosswords, published by HarperCollins, and runs crossword workshops (TimMoorey.info).

9 1 72 4

7 2 9 63 6 8 2 4

6 4 1 5 21 7

8 25 4 6

7 5 6 8 2 9 1 3 41 8 2 3 6 4 9 7 53 9 4 7 1 5 2 8 66 3 9 4 7 2 5 1 82 7 1 5 8 6 3 4 95 4 8 1 9 3 7 6 29 2 7 6 4 1 8 5 34 1 3 9 5 8 6 2 78 6 5 2 3 7 4 9 1

104 A1083 KJ2 AQJ7 AQ973 852 942 QJ75 8 Q3 K963 10852 KJ6 K6 A1097654 4

Tim Moorey’s Quick Crossword No. 848 Bridge by Andrew Robson A bottle of Taylor’s Late Bottled Vintage will be given to the sender of the first correct solution opened on 21 June 2017. Answers to MoneyWeek’s Quick Crossword No. 848, 8th Floor, Friars Bridge Court, 41-45 Blackfriars Road, London SE1 8NZ.

ACROSS 7 Closing part of music such as... (6) 8 ...Carmen and Aida, say (6) 9 Christiana (4)10 Money-lenders with modest hairpieces? (8)11/13 (7, 5)16 Aden (5)18 Batavia (7)21 Constantinople (8)23 Blood; US politician (4)24 Shorts for former rebellious Chinese nationalists? (6)25 Bombay (6)

Sudoku 848

MoneyWeek is available to visually impaired readers from RNIB National Talking Newspapers and Magazines in audio or etext. For details, call 0303-123 9999, or visit RNIB.org.uk.

Taylor’s, a family firm for 325 years, is dedicated to the

production of the highest quality ports. Late Bottled Vintage is matured in wood for four to six years. The ageing process

produces a high-quality, immediately drinkable wine with a long, elegant finish; ruby red in colour, with a hint of morello cherries on the nose, and cassis, plums and blackberry to taste. Try it with goat’s cheese or a chocolate fondant.

Solutions to 846Across 6 Rose 7 Graduate 8 Clarinet 9 Grey 10 Skipper 12 Tunis 14 Onion 16 Colours 19 Blue 20 Mona Lisa 22 La Boheme 23 Taco.

Down 1 Jowl 2 Tear up 3 Darts 4 Kung fu 5 St Helier 7 Ginger 11 King Lear 13 Bonnie 15 Oregon 17 Of late 18 Amber 21 Sick.

The clues of a kind were people with COLOURS in their names.

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The winner of MoneyWeek Quick Crossword No. 846 is: Stella Lathangie of Kelso.

DOWN 1 Garish, tasteless; shtick (anagram) (6) 2 County; salad dressing (4) 3 American lexicographer (7) 4 Edo (5) 5 Plastic toy originating in Denmark (4) 6 ______ Onassis (6)12 Scottish negative (3)14 A cooker (3)15 Source of street lighting once (3, 4)17 A London railway station (6)19 Scottish woollen cloth (6)20 Excessively fat (5)22 The last word (4)23 Rugby, say, and up for it (4)

Unclued 11 and 13 explain how six other clues are to be answered.

To complete MoneyWeek’s Sudoku, fill in the squares in the grid so that every row and column and each of the nine 3x3 squares contain all the digits from one to nine. The answer to last week’s puzzle is below.

How to do a Strip Squeeze On this week’s Six Diamonds from the World Junior Championships, West leads the three of clubs, dummy’s bid suit. You decide the lead is a bit suspicious and successfully finesse the knave. You’re far from out of the woods though – plan the play. Bear in mind West has bid spades, so expect the ace-queen to be offside.

The biddingSouth West North East

1 1 2 pass2 pass 2 * pass3NT pass 4 pass4NT ** pass 5 ** pass6 pass pass pass

* More information please. ** How many aces? Answer: two.

Superficially it seems you need West to have started with a trebleton king of clubs, enabling you to ruff it out and so establish the queen as a fourth-round winner. There is a better strategy – using Strip Squeeze technique. Cash the king of diamonds, lead the knave to (East’s queen and) your ace, and simply run all your remaining diamonds. With five cards remaining, you hold all your five major-suit cards. Dummy holds a spade, the ace-ten of hearts and the ace-queen of clubs. West holds ace-queen of spades, a singleton heart, and king-nine of clubs. Now you cash the king of hearts and lead to dummy’s ace. West has to discard the queen of spades, to retain a guard for his king of clubs, but you then exit with a spade to West’s now bare ace and wait for his club return into dummy’s ace-queen. Twelve tricks and slam made.

Dealer South Both vulnerable

XX crossword

crossword 41


The bottom line£404 How much on average two people renting a two-bedroom property would be better off every time they moved house if the government was to ban letting-agency fees, according to pressure group Generation Rent.

£3.2m The combined total of fines imposed on British companies last year by the Information Commissioner’s Office for breaching UK data protection laws, up from £1.2m in 2015. The number of fines rose from 18 to 35.

£5.48 How much it will cost a non-UK resident to

send an email to the Home Office to ask about visas. The charge is a result of the government department outsourcing the service to private provider Sitel.

364,000 The number of people expected to be earning above the £150,000 threshold, and therefore paying the

top tax rate of 45% by the end of this tax year, according to HMRC. This is a record

high and a 10% rise on the previous year.

£3.3m How much Harry Potter star Rupert Grint (pictured) raked in last year, despite not appearing in a film over the period. Royalties from the JK Rowling franchise

continued to roll in and his company Clay 10 now holds £13.6m in funds.

$200,000 The value of over 100 items of Stars Wars memorabilia that was stolen this week. Steve Sansweet,

who runs the Rancho Obi-Wan museum in California, appealed to fans to help track down the missing collectibles.

£130 The cost of a pair of camera-enabled glasses named Spectacles that connect with the photo and video-sharing app Snapchat. The sunglasses, which went on sale in London last week, allow users to record video clips as well as take pictures.

£897 The average cost to the taxpayer of holding a detainee for 24 hours, while the bill for 12 hours is £449, according to figures from the Metropolitan Police.

moneyweek.com

send an email to the Home Office to ask about visas. The

expected to be

therefore paying the

top tax rate of 45% by the end of this tax year, according to HMRC. This is a record

high and a 10% rise on the

continued to roll in and his company Clay 10 now holds £13.6m in funds.

$200,000over 100 items of Stars Wars memorabilia that was stolen this week. Steve Sansweet,

Exceptional location, exceptional wine

42 last word

Regular readers will know about our ranch in Argentina. It is not very productive. It is too far, too high, and too dry. It is marginal in almost every way. There’s not enough water in the seasonal rivers. And without water, well, it’s a desert. Each year brings less rain… and more problems.

We could just pack up and move out. It was always meant to be an adventure and a learning experience. (It has been more of both than we reckoned on!) We don’t depend on it for our livelihood. But the people who live here do. Our ranch is the only employer in the valley. Gustavo, Natalio, Pablo, Carlos, José – they, and their families, depend on us to figure out how to keep the ranch going… or they will have to move out. Right now, we do that by subsidising it, heavily. That can’t last forever. But we have an idea.

When we bought the ranch, we didn’t just buy a cattle operation. The previous owner told us when he left that he planted a few grapes “up in the valley, near Tacana” as an experiment. But we paid little attention. A few years later, however, the grapes were ready to harvest. We took them over to a

neighbour. (Lower in the valley, there are many wineries.) He made wine with them. Malbec. No “oak”. No mixing grapes. No chemicals. Just pure malbec grapes from what must be one of the highest, most remote, and most naturally healthy vineyards in the world. Finally, the bottles came back. It was strong. Intense. Rich. “It’s very good,” pronounced our neighbour, Raúl Dávalos. “Easily as good as mine.” Dávalos’s own winery, Tacuil, has been tested by famed wine expert Robert

Parker. He gave it a 93 – near the top of his rating system.

Why is it so good? First, it is so high, so dry, and so far from other vineyards that there is no need to use a lot of chemicals. Second, the temperature variation between day and night is extreme. It will be very hot when the sun is out (which is almost every day). And the nights will still be cold. The grapes protect themselves with thick skins. These skins are where the flavours and sugars (the source of the alcohol) collect. Third, the grapes are irrigated, but they get little water compared with most vines. What water they do get is absorbed into limestone rocks in the soil. As the roots pull out the water, they also get nutrients and minerals. The wine is exceptional because the location is exceptional.

The trouble is, thanks to charges from middlemen and the taxman, it’s hard to sell great wine. Our vineyard can never be even close to profitable unless we can sell the wine directly to consumers. Fortunately, selling direct to customers by offering subscriptions is a business we know. We’ve been drinking wine for 40 years, but only making if for five, so we can hardly trade on our reputation. But we can offer a guarantee – if our American subscribers don’t like what they get, they can keep the wine and we’ll send them their money back, no questions asked. As far as we know, this is a first in the wine business. Our customers seem happy so far. Our entire output of 4,000 bottles has sold out.

Raise a glass to save our ranch

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We needed new ideas to make our farm profitable. An old idea suggested itself…

lastword XX

Bill Bonner

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The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.Issued in the UK by Janus Henderson Investors. Janus Henderson Investors is the name under which Henderson Global Investors Limited (reg. no. 906355), Henderson Investment Funds Limited (reg. no. 2678531), Henderson Investment Management Limited (reg. no. 1795354), AlphaGen Capital Limited (reg. no. 962757), Henderson Equity Partners Limited (reg. no.2606646), Gartmore Investment Limited (reg. no. 1508030), (each incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3AE) are authorised and regulated by the Financial Conduct Authority to provide investment products and services.

BROADER EXPERTISEBRIGHTER INVESTMENT IDEAS

Introducing Janus Henderson Investors

Janus Henderson Investors was born out of a shared belief in helping clients achieve their long-term financial goals. The combined company has the enhanced breadth of capabilities and distribution reach to serve clients better together, harnessing the intellectual capital of some of the industry’s most innovative thinkers. As a global manager, we offer actively managed solutions to diverse investment goals. Janus Henderson’s high calibre teams are focused on client needs and are ever ready to share their views, an approach we call Knowledge. Shared.

janushenderson.com

p32 hk$3m p33 p36 britain’s best-selling financial … · email: [email protected] good week...

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