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Acquiring new customers is a costly business. Even attracting their attention is expensive enough, which is why those unlikely logos appear on the shirts of premier league footballers. Last year Plus500, a betting business for people who consider horseracing too tame, spent $934 for each new customer.

Many of us would happily accept $434 in cash in return for pledging never to become one, thus saving Plus500 $500 and us the worry of understanding contracts for differences or trying to guess next week’s price of bitcoins, dollars, gold or shares.

This is much harder than it looks, but lots of people (“mug punters” in the trade) think they can do it, and when the bet can be juiced up with borrowed money (“margin” in the trade) it is financially deadly. Indeed, it is so toxic that last August the European regulator imposed new rules to save the mugs from themselves.

Plus500’s spread-betting rivals signalled that this would seriously cramp their style. Us not so much, said Plus, and the following month the founders helped meet the market’s “significant demand” by selling roughly half their shareholding, netting £145m. Reassuringly cheerful trading updates followed for October, November and December.

Last week the penny dropped and so did the shares. The rules are going to hurt after all. Those losers will be harder to find, even at $934 a pop, and with the new margin restrictions, may take smaller risks and lose less.

Last June, Plus moved from Aim to the main market, necessitating a (legally binding) prospectus. This stated that the company had made “no net gains” for three years from trading against its customers’ positions.

It now seems that this activity produced a third of 2018’s profit, after substantial losses the previous year. The buyers of those shares last September may just feel they got it wrong. Alternatively, they may feel that having lost a third of their money, the terms of their bet were not quite what they had been told when they laid it.

Concentrating their minds

One of the more distasteful aspects of the collapse of Carillion was the contrast between the pension prospects for the bosses and those of the workers. While the workers’ scheme was £1bn in deficit, that for the executives was adequately funded. As a result, the failure will force a cut in benefits for all but those at the top.

This has prompted Joanne Horton at Warwick Business School to propose outlawing separate executive schemes. Were the bosses in the same boat as the workers, they  would think twice about paying dividends today while deferring funding a pension deficit into the far future.

Her research found that CEOs were significantly less likely to close a scheme if they were members. It would concentrate their minds wonderfully, or at least better than the government’s proposal to jail bosses who play fast and loose with pension funds.

Unfortunately, it is too late to do more than slow down the exodus from defined benefit schemes. It is not only the CEOs, with an eye on their share incentive schemes, who want out. The trustees have a miserable, and usually unpaid, task. As the guidance notes from HMRC point out: “You may be personally liable for any loss caused to the scheme if something goes wrong.” The advice to anyone tempted to become a trustee is to lie down until the feeling goes away.

Just another central bank

It’s tough being governor of the Bank of England. You are expected to see the future even when nobody else has a clue, and you get pilloried when it turns out differently. The return of inflation to its target this week was a rare triumph, and Mark Carney is surely counting the days for this cup to pass from him.

He would be less than human if he did not notice that Mario Draghi is retiring in November, and there is no stand-out candidate for the next president of the European Central Bank. They look like mythical old favourites Jacques-Anonyme Enarquee or Wim Wimp from the Rentadutchman agency. If a Canadian can run the BoE, then why not the ECB?

This is my FT column from Saturday





Any day now, the Competition and Markets Authority will reveal whether it has decided to approve the most blatant attempt to trample on the rules in a key industry that the UK has yet seen.

Put like that, barring the proposed merger between J Sainsbury and Asda looks like a simple decision. It presents an early opportunity for the CMA’s chairman Andrew Tyrie to show his teeth and stop this clear cut in competition in food retailing.

The wannabe partners would rather he did not see it like that, arguing that Sainsda would be barely bigger than Tesco, and look how those beastly Germans from Aldi and Lidl are eating our lunch! We really need to merge, and we’ll sell off dozens, hundreds of stores if you let us. We’ll even make some uncheckable promises about lower prices in the shops.

This is so much chop suey. Sainsbury’s is starting “from a position of weakness” as Clive Black of Shaw Capital puts it. A merger is a diversion its from everyday ills, while Asda’s US parent Walmart sees its future in America. It is a thin case for banging the two behemoths together, even if the “lower prices” mantra were true.

Across the Channel Margrethe Vestager has just barred Europe’s two rail giants from forming a “European champion”. and please don’t call it a monopoly. Sir Andrew might look there to see how these beasts should be handled, and stiffen his resolve to stop this ‘orrible merger.

Look at the money we’re saving!

Another rail spike into the coffin being prepared for the wretched HS2: David Lidington, the number two in the UK government, would like to know how slowing down the trains would help to meet the timetable targets for the UK’s leading vanity project.

The line would slice through his Aylesbury constituency, which probably concentrated his mind to oppose it before he joined the May administration. Now he has become the second senior minister to question whether the misery that realising this overpriced fantasy would cause is really worth it. The report, in the Sunday Telegraph, of his intervention attracted 72 comments, all of them hostile to the project.

The case for building this line was flimsy from the start, and has morphed from saving time (not much, if the trains ran more slowly) to raising capacity, as its proponents desperately seek to justify the unjustifiable. The HS2ers have suddenly found “cost savings” at Euston and Old Oak Common, perhaps sensing the danger to the scheme.

Next we can expect to be told that “we are in blood stepped so far…that returning were as tedious as to go o’er.” History tells us that this argument is nearly always false. Every careful analysis, from the National Audit Office to parliamentary enquiries, has concluded that HS2 is a waste of public money, and that compared to the final cost, the billions sunk so far are merely a rounding error.

Building a proper connection between Lancashire and Yorkshire instead would cost far less and self-evidently benefit the north,  It’s time Mr Lidington pulled rank on the hapless Chris Grayling, and told the transport secretary to derail this wealth-destroying project.

Gross returns from fund management

A bright young thing does not generally go into fund management to make owners of capital rich. The metric that matters most is the size of the sum he controls, not whether he can turn the saver’s pound into two.

It is some time since Bill Gross qualified as a bright young thing, but age has shown clearly the winners in this industry. It is nearly five years since the “bond king” moved with great fanfare to Janus Henderson. Since then his magnificently-named Global Unconstrained Bond Fund has turned $10,000 into, er, $10,224.

The fund’s website betrays where the money has been made on his watch. The annual expense ratios for the seven (count ’em) classes of share vary between 0.69 and 1.79 per cent, and there is $950m in the fund. You do the math, as they say.

Gabriel Altbach, founder of consultancy Asset Management Insights, told FTFM: “The industry owes Bill Gross a giant debt of gratitude”. The punters who put up the money might think they have paid it.

This is my FT column from Saturday

It is almost exactly a decade since you could last buy shares in Vodafone at today’s price. Considering the growth in its markets, the leaps in technology that the twenty-teens have brought us, and the history of rising dividends, the price looks like a distress signal from its telephone exchange.

Those dividend rises have taken the payout to 15.07 euro cents, or 13.1p in your Brexit pounds, for a yield of over 9 per cent at 138p. This looks too good to be true, and despite last month’s cheery third-quarter update (underlying organic adjusted EBITDA should grow by 3 per cent!) of course it is.

The company is gasping for cash, thanks to the demands of capex, tough markets, leverage for acquisitions and spectrum auctions. Selling a stake in its telecom towers is no way to pay for the dividend and even the cut to 11 euro cents, as Kepler research suggested last week, would scarcely set a sustainable base for the future.

Voda is only one of a group of big UK companies which are paying dividends that they cannot afford. Under pressure from income-addicted fund managers, many CEOs fear that a cut would be career-ending, and like Dickens’ Mr Micawber, they are hoping something will turn up.

Perhaps it will, in the shape of others doing it first. In no particular order, here are some other candidates: BT, GlaxoSmithKline, Centrica, Standard Life Aberdeen, SSE. Their executives, and those addicted fund managers, need to understand that if a dividend is not earned, it is not sustainable.

Doomed! We’re all doomed!

Good news: the Doomsday clock, representing the distilled wisdom of the world’s atomic scientists, is no nearer to midnight than it was a year ago. Mind you, at two minutes to, it’s still pretty close, so short of actually striking the death knell of humanity, there is not much scope for the scientists to get still more gloomy.

That the world faces deep and intractable threats is hardly in doubt, but are we really in a state to justify such pessimism? The clock-watchers have never put us further than 17 minutes away from armageddon since they set it ticking in 1947, and we first got to “two minutes to” in 1953, when the Soviet Union produced its first nuclear bomb.

In the 66 years since then, billions of people have been lifted out of poverty, endemic diseases have been tamed, almost everywhere lives are longer and healthier, and far from running out of oil, energy has become cheap and plentiful. So we have found new ways of spooking ourselves with projections of disaster, from climate change to over-population.

Yet humanity is stubbornly refusing to do the pessimists’ bidding. Almost everywhere outside sub-Saharan Africa, birth rates are falling. Half the world now lives in cities, where parents can see that their children – including the girls – must be educated if they are to thrive. Education is expensive, so family sizes are shrinking. The problem in future, argues a new book melodramatically entitled Empty Planet, will be an ageing, declining population.

The first consequence of better survival rates for infants and the elderly is a population increase, but the next one is apparent in Japan and Italy, where births are below the replacement rate. The future will bring its own problems, but over-population is not going to be one of them. Time to wind back that doomsday clock.

It’s a dog

How much is that shopping centre in the window? The one with the waggly tail of struggling tenants? Property watchers dearly want to know, after a ghastly year for the occupants. We may soon find out, if Intu manages to sell half of its Derby centre to Cale Street Partners.

At 119p, where the historic yield is almost 12 per cent, the Intu share price reflects the fear that current valuations are a fantasy, and that the risks in highly geared property businesses are much greater than investors once thought.

The obvious quick fix for cash flow is a dividend cut, but the rules oblige REITs to pay out 90 per cent of their net income. With or without Derby, this is not the moment to get into the mutt called Intu.

This is my FT column from Saturday

We are in a strong position where electricity supplies are secure and costs are falling, says Greg Clark. He should know, since he’s today’s Business Secretary, writing to the FT last week. Never mind that the contractors behind two nuclear power stations have pulled out because they dare not take the risk, while a third promises to be an epic financial disaster, and that the remaining two on the drawing board seem increasingly likely to stay there.

Mr Clark is relentlessly upbeat: “Britain’s electricity requirement for the 2030s is not a problem of shortages but the much better challenge of abundance.” This challenge has already translated into a rise of 8 per cent last year in the cost of domestic electricity, and a looming 11 per cent rise in the absurd “price cap”, as the cost of subsidies for “green” energy slides sneakily into household bills.

However, he is right about abundance. The fracking revolution has utterly changed the balance for both oil and gas supplies, and made a nonsense of the UK government’s decade-old assumptions about ever-increasing prices.

As Dieter Helm, Mr Clark’s go-to expert on energy costs, argues in a paper last week, the trouble dates back to when the LibDems were tossed the energy brief in the coalition government. Chris Huhne and Ed Davey were achingly green, but because they assumed oil was running out, the pair reluctantly supported new nukes, laying the foundations for today’s meltdown.

The grim truth is that these massive projects are a financial dead end, driven there by changing technology along with escalating safety requirements and the costs of decommissioning . As Mr Helm argues, there is a powerful case for abandoning nuclear altogether. Mr Pollyanna Clark, meanwhile, promises yet another energy white paper this summer. Oh dear.

How to do fund management

You have to hand it to Andrew Formica. Well, the shareholders in Janus Henderson had to, since they had no choice. In 2017 he concluded that Henderson, the fund management business he ran, was “sub-scale” with only $127bn to play with, and merged it with fellow fund manager Janus. The deal helpfully included a near-trebling of his old salary to become joint CEO of the new combine.

These double-headers never work, and last year he graciously accepted $12m to resign. Now he has popped up as CEO-designate at Jupiter, another fund management group. The $445,000 salary may look like a comparative bargain, but it just gets him out of bed. Bonuses could add 425 per cent, and his long-term incentive plan “opportunity” is a further 375 per cent.

If the shareholders do well enough, they will not begrudge him the money, although the signs are not encouraging. Janus Henderson shares have almost halved since the merger, as all those benefits of scale seem to have accrued to him and the executives who were not fired at the time.

On the Formica rule, Jupiter is definitely sub-scale, with just £42bn under management, spread between scores of different funds, all of which appear from the company’s website to have lost money last year. Time to ‘and it to Andrew!

Peak passive investment

The high-cost stock-picking fund managers like those at Jupiter and Janus Henderson were anathema to Jack Bogle, the father of the passive investing revolution who died earlier this month. Passive funds now control $10tn of investments, half of it through his Vanguard group.

At first sight, this seems an odd way to invest, since Exchange Traded Funds buy shares when the price has risen far enough to get into their chosen index, and sell if a share falls out of it. But as Warren Buffett and many others have observed, the ability to beat the benchmark is rare, hard to spot, and may not last. The cost of those highly paid fund managers generally outweighs any consistent ability to outperform.

However, ETFs are now so big that they are almost the market themselves. At some point an average fund manager might use the knowledge of an ETF’s mechanical trading to get an edge bigger than the cost of paying him. We are probably not there yet, but had Mr Bogle lived to a still riper old age, he might have seen the peak.

This is my FT column from last Saturday

The Big Mac index is an absurdly imperfect attempt to measure purchasing power parity, but then no other yardstick is very precise as an indicator of whether a currency is relatively cheap or dear. In their latest binge, writers from The Economist bravely ate their way through burgers in 55 countries, and concluded that sterling is 27 per cent undervalued against the dollar.

Leading British equities, meanwhile, are among the lowest-rated in the west. Measured against the biggest US companies, they are almost absurdly cheap, as the international investors who call the shots these days have taken one look at our parliamentary pantomime and fled to less exciting destinations.

As a result, the historic yield on the FTSE100 is 4.7 per cent, a level that is signalling widespread corporate misery. There are some big companies which are clearly overdistributing – think Vodafone, Centrica, GlaxoSmithKline, Standard Life Aberdeen, BT for a start – and when their managements eventually work out that dividends have to be earned to be sustainable, there will be painful cuts.

However, other index constituents will be paying out more, and if the forward yield on the Footsie is, say, 4 per cent, that compares with the so-called risk-free rate of 1.3 per cent from lending to the UK government for 10 years. Once upon a time, that difference would have been called the yield gap, the extra return for the risk of equity investment. Those who bet then that it would close and reverse in a period of high inflation were proved more right than they could have dreamed.

Inflation at around 2 per cent is not today’s problem. The Bank of England is facing the novelty of its price forecasts coming true, although this has not discouraged governor Mark Carney from leading the Cassandra chorus. Typical of the warning of impending catastrophe is Stephen Jones, CEO of the trade body UK Finance, who reckons London has already lost its pre-eminence as Europe’s financial centre, and that a hard exit from the EU would leave people unable to pay their mortgages.

This is little short of hysteria. Calmer minds will be looking beyond March 29 and seeing bargains in British businesses, while companies which have put off investment decisions will take the plunge. In a few months’ time, we may look back at today’s combination of low sterling, cheap corporate valuations and little inflation as an extraordinary opportunity, had it not been drowned out by the noise of those who could see only apocalypse now.

RIP RPI? Not likely, says UKSA

We have got ourselves into a wonderful muddle over measuring inflation. The Retail Prices Index, which suited us well enough over decades when a one-point change was little more than a rounding error, has been exposed as an inflation generator. It might be left to moulder away in a corner, rather like the FT30 index, but for the fact that it dictates the setting of index-linked government securities, legacy National Savings certificates, student loans and rail fares.

The RPI is “not a national statistic” says the Office for National Statistics, while the UK Statistics Authority (do keep up) has decided not to fiddle with it. This reluctance, perhaps through fear of legal action from holders of gilts, has spurred a House of Lords committee to suggest UKSA might be in breach of its statutory duty to make the stats as accurate as possible. No wonder that John Pullinger, Britain’s (official) National Statistician, has decided to retire in June.

It’s another world

If you have tears, prepare to shed them now. Poor Andrea Orcel is terribly upset, and all because of the little matter of €50m he had accrued in seven years in his last job at UBS. His new employer, Santander, decided that even for a hot-shot banker, meeting this bill was a bit much, so its invitation for him to run the bank was withdrawn.

Apparently, his career is in a shambles as a result,  although it seems he will eventually get the €50m, which should provide some modest comfort. Mr Orcel is widely admired on Planet Investment Banking. In 2007, when he was at Merrill Lynch, he was on the team that advised Royal Bank of Scotland to pay cash for ABN Amro, the transaction that practically bankrupted his client. Advice like that does not come cheap.

This is my FT column from Saturday


Liz Truss wants to see a cull of government white elephants. We would all like to see the herd thinned out, but she is financial secretary to the treasury, and so is in a position to load the elephant gun, even if she cannot fire it. There is no shortage of targets.

The biggest tusker stands out, despite its attempt at disguise. Hinkley Point C is the nuclear power station which is set to achieve the dismal double of almost bankrupting its builder while delivering power (if it ever does) at twice today’s price. Its cost will be hidden inside everyone’s electricity bill, as has already happened with renewables.

A study for the Global Warming Policy Foundation concludes that continuing the “dash for gas” policy of the 1990s would have cut CO2 emissions by the same amount as has the fashion for renewables which replaced it. The subsidies for green energy have simply pushed up prices, and since the cost is hidden, successive governments have blamed the power suppliers.

As the next tusker grows up, he is likely to outgrow even Jumbo Hinkley, into Britain’s vanity project for the 2020s. He is, of course, HS2, that gravy train for consultants, which has defied all attempts to justify its economics. While the rest of Britain’s network is in dire financial straits, this railway without a cause has led a charmed life, free of serious challenge by successive governments. If Ms Truss can bring this gleaming pachyderm into her sights, we would all be richer.

The others in the herd are mere calves by comparison. The satirically-named smart meters are so helpful to consumers that the companies are struggling to give them away. The subsidies on electric cars will have to be reversed if they ever catch on.

None of these money-eating behemoths is at serious risk from Ms Truss’s enthusiasm for slaughter, since they have seen off many chief secretaries in the past who made similar threats. Still, it does no harm to highlight a few of the state’s wealth-destroying projects. They help to explain why the UK’s economic growth is so pedestrian, even during the good times.

It’s grim in grocery

Of all the beggars’ sores on display in the high street last week, Sainsbury’s was the one that stood out. Look how badly we’re doing! Those beastly discounters are forcing us to merge with Asda! Think of how much happier we can make everyone,  with bigger profits for shareholders and happy, smiling customers rejoicing at lower prices!

Next month we shall see whether Andrew Tyrie and the Competition and Markets Authority are taken in by this guff, when they produce their first findings into a proposal to put 30 per cent of the UK’s grocery market into the hands of a single company.

Big mergers invariably disadvantage consumers. So whatever the grocers claim about passing on the benefits of scale, nobody seriously expects the deal to be waved through. However, there also seems equally little likelihood that it will be blocked completely, despite the compelling case to stop the UK’s second and third largest grocers from merging.

The Sainsbury argument is that Aldi and Lidl represent an existential threat. Both are much bigger than they look to UK shoppers, but so is Asda, owned by one of the world’s biggest grocers. Indeed, Clive Black at brokers Shore Capital argues that the merger is effectively a no-premium Walmart takeover.

Looked at this way, Sainsbury shareholders might be less keen to accept the terms, even if the CMA fails to force substantial sales of stores. As the company’s results showed this week, there is much for the management to do without the distraction of this anti-competitive deal.

Not a turkey after all

What a tip! While you were recovering from the turkey, this column picked the bones out of the Kier Group rights issue. The short sellers had driven the price down and stuffed the underwriters, who had to take up 62 per cent of the deeply-discounted shares at 409p, and then panicked out at 360p. At the end of the week the price was 380p, which looked too cheap, even for a construction company. They were. After a return to something nearer reality, they now cost 515p.

This is my FT column from Saturday



…there’s bound to be far worse to come.
That just about sums up the sentiment as the year turns.  After all, it has not been much of a festive season for equity investors. Those who can still bear to look at their portfolios might prefer to eat more cold turkey than survey the damage the last quarter has inflicted on their savings. What looked, at the end of September, like another almost routine up year has turned into the worst for shares since 2008.

Suddenly, it seems, there are too many things to worry about. Rising interest rates in the US, tariff wars, faltering growth in China, too much debt everywhere, and the UK’s home-grown political crisis on top: it’s a decidedly unseasonal recipe. No wonder investors dashed for cash.

The dashing has been fastest out of domestic UK businesses. The lament of the shopkeeper has been well documented, but shares in housebuilders, insurance and utilities have shared a miserable Christmas. From an outside investor’s viewpoint, the sliding pound has compounded the damage into a truly grim year.

These are just the conditions for bargains in the January sales. Housebuilders mostly have solid-looking balance sheets. While nobody can understand the balance sheets of the big insurance companies, faltering life expectancy will be a bonus next year.

Now BT’s dreams of glory seem to be over, it may find it can make money sticking to the knitting instead. Land Securities, the UK’s largest property company, is at a seven-year low. The water and electricity companies shares are discounting the worst in their regulatory reviews.

In all these sectors, yields of six or seven per cent abound. Elsewhere, some are much higher: Dixons Carphone’s historic yield is nearly 10 per cent. A cut from the new CEO is odds-on, but the price is discounting much worse. Physical shopping may have to reinvent itself, but is not going to disappear.

The rise of the global passive investor has made exchange traded funds the largest single force in markets, amplifying swings in sentiment. To these investors looking in from overseas, Britain today sometimes seems like a place where the lunatics cannot decide who should run the asylum.

Yet crises always pass, and perceptions change, sometimes with dramatic speed. When that happens, and international investors armed with their ETF billions combine with M&A bargain-hunters purchasing cheap sterling to buy UK businesses, the turn could be as dramatic as the fall.

Constructing a case for Kier

A postscript on the year’s most unsuccessful rights issue, from construction group Kier. The shares had traded around £8 before the launch of a 33 for 50 issue at the deep discount price of 409p. In this uncompetitive corner of the City, these issues are underwritten as well as discounted.

In this case, raising £264m left £250m after fees, but as Lex pointed out, it was not the usual risk-free money. When shareholders subscribed for only 38 per cent of the shares, the price crashed to 346p, helped down by some enthusiastic short selling.

The underwriters had to take the rest, but even this disastrous result would have been less painful had they kept their nerve. They had their fees for the whole issue, but had to subscribe for only 62 per cent, so their actual break-even was just over 360p.

The 62 per cent was placed at that price, including to some grateful short sellers, and the shares quickly rebounded, ending the week at 395p. Assuming the stock market’s war on construction companies ends in 2019, Kier looks cheap at today’s 380p. So no triumph, but no tragedy, either.

Adult employees on the block

Sad festive season news for employees at the website Spankchain, which plans to use blockchain technology to revolutionise the porn business. The team is being cut from 20 spankers to just eight, although that might give a misleading impression of what they actually do.

Far from active service, so to speak, they are developing a virtual currency to “allow us to eliminate third party intermediaries and unfair payment practices” in the ahem, adult entertainment community. This rather stretches the definition, since porn is not generally a communal activity, but on Spankchain’s flotation nearly a year ago, the price shot to 71 cents. It’s now 1.4 cents, where it is worth $4m. Quite a hard hit, then.
This is my (slightly modified) FT column from Saturday. Happy New Year to both my readers.