The headlines are grim. The motor trade is gasping for air, foreign investment into the UK is plunging, the shops are struggling, nobody is buying London offices, and there are a couple of nasty little liquidity crises at Woodford (equities) and H2O (bonds).
You cannot get more than 1.5 per cent lending to the UK government no matter how long you are prepared to tie up your money for. Index-linked stocks are only available at a guaranteed loss in real terms, giving a fresh meaning to the term protection money.
A recession, surely, is just around the corner. Yet those forward indicators of trouble, the price of shares, seem oblivious. The FTSE all-share index is only 9 per cent short of its peak, and has recovered strongly since last December’s panic.
The historic yield of 4.14 per cent may overstate the forward return, given the clutch of big names such as BT, Vodafone, and Centrica that have been paying more than they can afford, but the boost from lower sterling will compensate for at least some of the cuts. The Brexit effect has beaten down ratings compared with other equity markets.
The yield comparison with government bonds is stark, and probably not much help, since the bonds’ usefulness as an indicator of conditions has been destroyed by a decade of central banks’ quantitative easing. Meanwhile, the private equity specialists, with billions to invest, are finding plenty of value in the UK’s public markets, helped by a currency that looks too cheap. When words and figures do not agree, it is advisable to trust the figures. For all the doom and gloom, the figures for British stocks look really quite good.
Nobody’s in charge of the printing press
This is “an orderly succession process” at De La Rue, banknote and security printers: last month the CEO quit with a profit warning, and this week we learnt that the chairman is going, along with the senior independent director. To be fair, they are all hanging around until their replacements have been found, but it does rather beg the question of what a disorderly succession process might look like.
It would also be less concerning had the shares not fallen two-thirds in six years. The succession process may be orderly, but other processes are not, as a bad-tempered results call last month demonstrated. This was of a piece with the petulant reaction last year to losing the contract to print blue post-Brexit passports — not a good look for a company wanting to print for other countries.
The latest setback is the failure of Venezuela to pay its currency printing bill, prompting wags to urge the company to run off a few extra bolívars — rather as the Venezuelan government is already doing.
For De La Rue, the prospect is for more disruption. Banknote printing has turned into a commodity business, and just when it looked as though printing clever, fake-proof, hologrammed documents was a promising way forward, along comes the eticket to threaten the whole idea of anything physical.
The company is reorganising. It needs a chairman, CEO and a pair of non-executive directors. There will surely never be a better moment to launch a bid for the business.
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Who’s the guv’nor (part II)
The Queen appoints the governor of the Bank of England, on the advice of the prime minister. Unlike many other government appointments, this one requires time to learn how to do it, and with Mark Carney due to go at the end of the year, time is getting short.
That, though, is the least of it. Should Theresa May put forward a name to the Queen next week, she might be reminded how short her remaining tenure is, and surely this is better left for the new PM? Well, obviously, but the problem then becomes: who wants the job?
The chances of a swift general election and a Corbyn government with John McDonnell pulling the economics strings have not diminished. Perhaps the best hope for conventional applicants is to risk getting fired (with a pay-off) for a left-leaning replacement. Either that, or Mr Carney gets yet another extension. After all, he has nowhere obvious to go next year.
A full list of Neil Collins’ financial interests can be found at www.ft.com/collinsportfolio
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