CITY GRUMP
How many times over the last thirty or so years have you read an interview with some public figure who, when asked what they do with their money, happily replies with, “Well, my best investment has always been in my house”? Not anymore. In fact, not to put too fine a point on it, domestic property is Donald Ducked. Indeed, in real terms, London peaked in 2014 and just about everywhere else is now following on.
Do you remember being told by an army of pension fund consultants and actuaries (come in, John Ralfe) that your pension fund can’t go wrong by investing the biggest portion of its portfolio in bonds because you had certainty of income and you could match that income against the fund’s liabilities? Well, this week the 10-year rolling return on US Treasuries reached minus 2%, the worst in 100 YEARS (source: B of A Global Investment Strategy, Polymarket, Bloomberg). In other words, the real-time value of thousands of pension funds has gone to hell in a handbasket.
Common sense, that oh-so-scarce commodity in financial circles, should tell us that none of this is surprising. Domestic property just sits there all day long saying, “Feed me.” It requires endless expensive maintenance. As I write this, there is a chap repairing our sewage system (don’t ask). Why would anyone consider this money muncher to be a failsafe appreciating asset?
Government bonds are, of course, just IOUs. Trouble is, states down the decades can’t resist pumping them out like confetti and, more often than not, confetti is what they become. None more so than right now, as governments’ debt-to-GDP ratios around the world frequently exceed 100%, as our leaders continually slip into eat, drink and be merry mode, for tomorrow we die mode. Trump clearly has reached the apotheosis of this, as on Wednesday he proclaimed every adult American will get $5,000 if Republicans win the November midterm elections. Carry on with the confetti.
Let us cast aside those foolish things and think about equities. Companies issue equity to citizens and institutions as they are in the business of growth. If a company grows, that will, in time, be reflected in a higher share price, and in the meantime you may also receive a rising stream of dividend payouts. We can all be part of that by owning some equity. Yes, I hear you say, we know all that. Actually, I submit that most adults in the UK don’t think about such things, and especially those in the 18–35 year group who, if they think financially about anything at all, just play about in non-productive crypto such as Bitcoin.
My spirits slightly rose in April when eighteen major institutions launched a £20m campaign to persuade the public to invest in equities. But then, disaster. Some idiots at the campaign manager, M&C Saatchi, or elsewhere, had decided to front the campaign with a picture of a red squirrel and the strapline “Squirrel it away.” As the redoubtable financial journalist Merryn Somerset Webb pointed out, the red squirrel is an endangered species and is notorious for not remembering where it has stored half its food. I agree the London Stock Exchange is currently an endangered species, but if this is the message, combined with “you are bound to lose half your investment,” then we might as well all give up and watch weeds grow instead of companies.
So, there is much to be done to persuade the great British public of the attractions of investing in equities. But now we can clearly see domestic property and state-issued bonds consume our capital, whereas company equity provides the seed to grow our capital. Surely, we are now reaching the inflection point where this message will fall on fertile ground — but it won’t be coming from a red squirrel.
The City Grump has spent some 40 years in the City of London. He started as a stockbroker’s analyst but after some years he decided he was too grumpy to continue with the sell side of things so he moved to the buy side and became a fund manager for the next 20 years, selling his own business in the 1990s. Post the millennium, he found himself in turn chairing a stockbroker, a financial PR company, and an Exchange. He still keeps his hand in, chairing a brace of VCTs and investing personally in start-ups. The City Grump’s publications are available here.