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COMMENTARY
JUSTIN’S
COMMENTARY
Justin Urquhart Stewart is one of the most recognisable and trusted market commentators on
television, radio and in the press. Originally trained as a lawyer he has observed the retail market
industry for 30 years whilst in corporate banking and stockbroking, and has developed a unique
understanding of the market’s roles and benefits for the private investor.
THE SUM OF ALL THE FEARS?
Last week we saw a bursting of some of the complacency of the past few months. It was almost a final sum of
all the fears and concerns coming together – these included everything from worries over a Chinese
slowdown, falling commodity prices including Crude Oil, Ukraine, ISIS, Greece and of course even Ebola
fears finally breaking through.
The result was a set of bloody days on the markets as investors cared to ignore not only the corporate results
which generally have been pretty positive and the fact that the global economy is still growing at some 3%
which is its long term average.
So time to panic and head for the hills? No more like an autumnal storm blowing the froth of complacency off
valuations.
Perhaps we should also take some comfort from the fact that valuations at these levels provide far more
attractive yields and even some good opportunities to buy at better values.
Investing in Debt to Invest in Infrastructure
Are we just Debt junkies? From the levels of personal debt, primarily though our houses, to overly
enthusiastic use of credit cards and finally to the usurers of the pay day loan companies, we as a nation have
not shown ourselves as being especially well controlled at managing our debts. In fact we seem to go out of
our way to seek instant product gratification at the cost of short term debt. This also extends to our leaders,
where governments over the centuries have laden us with an increasingly heavy load of national debt.
Sometimes this has been caused by global conflagrations, but more often than not by populist policies of
petty politicians recklessly and irresponsibly spending our money.
Sadly, despite the much vaunted policy of austerity from our coalition government, our debt has not been
coming down and in fact has been reaching new record of £1.4 trillion. The deficit, although significantly lower
than when the coalition took over, is now levelling out and even showing some concerning signs of rising.
There is a question, though, of how you should regard debt. Some can be incurred by day to day expenditure
which would directly hit our cashflow and deficit. This would generally be regarded as bad policy and living
beyond our means. However there is another type of debt which is longer term investment debt. This is not
just current spending but rather investment in "stuff" that will make a positive return for the economy.
Seemingly we don't appear to separate these debt numbers out into different categories in our figures but
rather lump them all together into one amorphous blob.
This article represents a personal and lighthearted view from 7IM, and is based on current financial news and events around the world. Its content should
not be used for investment purposes and you should contact an independent financial adviser before making any investment or financial decision.
Seven Investment Management LLP is authorised and regulated by the Financial Conduct Authority. Member of the London Stock Exchange.
Registered office: 125 Old Broad Street, London. EC2N 1AR. Registered in England and Wales No. OC378740
JUSTIN’S WEEKLY COMMENTARY
However this need for investment is a key area for a recovering economy - as we can direct money where we
know we will be likely to be seeing a sensible return, and at the same time see the ripple out effect of such
expenditure into the wider economy. This year we will be spending around £28bn on net capital spending
which is about 1.5% of our GDP. Now with record low rates you would think that any sensible government
would use this as an excellent moment to raise cheap money for longer term investment for longer term
returns. But many fear that large government borrowing, even on investment, might destabilise the apparently
fragile confidence in our situation. Personally I am not so convinced. Yes, we must close the deficit to live
within our means, but that should not preclude the vital necessity of longer term investment in our
infrastructure. As any householder knows, failing to replace tiles on the roof now will only mean the higher
cost of replacing the entire roof later.
However even if our government is reluctant to go down that route, we know we have some of our largest
institutions ready to invest in reliable longer term projects. With the likes of the Pru, L&G and Aviva amongst
others, these insurance and pension companies have already expressed their interest and even commitment,
subject to the projects themselves, to participate. You only have to look at some of the Canadian pension
funds who have seemed very keen to find solid and reliable longer term investments.
I think though there is another untapped area which could be brought to provide more investment strength
here. I have already attended meetings where the opportunity for private investors participating in such
infrastructure schemes has been mooted. Most institutional investors regard this as being too complicated
and potentially expensive to address. I disagree.
In a population where we are all living longer, and where the annuity rules have been relaxed, the need for
reliable low cost, steady investments is going to be vital. Private investors obviously already have access to
government bonds through the Gilt market and a growing amount of Corporate debt as well. However the
opportunity to be able to invest into an infrastructure project or fund could well be attractive. Actually this is
not as new as some would think. Such infrastructure funds have been around before but the ability for
investors to participate in individual projects has not really been so easily available. This could change if
investment projects were packaged not just for the institutions but also for the retail investor to participate in.
Despite the bleating from the politicians, I think that they would find that there is no shortage of money to be
invested; it's just that none of them seem to have seriously considered how best such support could be
channelled through to where it is needed.
Of course the financing is just one side; it is also the preparation of the infrastructure project that is also so
crucial. The planning world in the UK seems to be sloth-like in its movements, and there comes a stage where
such tortuous inaction becomes both economically and socially damaging. From housing, to transport and
energy production and delivery, we need some leadership to overcome the "nimbys'" and get on with this
strategically necessary investment.
As cheap as chips? Or as cheap as cabbage?
If ever there was a sign of the falling prices in China it is that the steel product "rebar" has been reduced to
some $424per tonne, according to the industry web site Steelhome. Apparently, the FT tells us this now
means that on a like for like basis it is now cheaper than the retail price of cabbage.
This is going to increase the pressure on other steel producers around the world as excess supply in China
seems to be feeding into low cost exports. We may no doubt feel the back wave of this domestically in due
course.
This article represents a personal and lighthearted view from 7IM, and is based on current financial news and events around the world. Its content should
not be used for investment purposes and you should contact an independent financial adviser before making any investment or financial decision.
Seven Investment Management LLP is authorised and regulated by the Financial Conduct Authority. Member of the London Stock Exchange.
Registered office: 125 Old Broad Street, London. EC2N 1AR. Registered in England and Wales No. OC378740
JUSTIN’S WEEKLY COMMENTARY
Greeks in Turkey?
I have to say that I was unaware that there was still a Greek community in Turkey. This is the Pontic Greek
community who speak a Greek dialect which apparently came from the southern shores of the Black Sea but
is also found in the Caucasus as well as northern Greece. Given the antipathy between these peoples - both
having the most astonishing history and culture - I was encouraged to hear that a new radio station is to open
in Istanbul as the Voice of Istanbul, but broadcasting for the first time in the Pontic Greek language. Is this a
sign that the enmity between these two peoples may be easing? According to 28 year old Nikki
Christopoulou, one of the presenters, “we discuss the politics of Greece and Turkey in a humorous way” which is usually the best way to try and build social bridges across the communities.
***
And finally... A charming tale of school meals from California.... Kyle Bradford, 13, didn’t want to eat his
burrito. “I wasn’t really that hungry.” Then alongside him a friend of his also decided that he didn’t want to eat
his cheese sandwich either - he didn’t like it. So Bradford gave his friend the burrito.
Problem solved? No, this was a Californian state “public” school — and therefore this was a problem created.
“We have a policy that prohibits students from exchanging meals,” said the Trinity Alps, school superintendent
Tom Barnett. “Because of safety and liability we cannot allow students to actually exchange meals.” Bradford
got detention.
If I remember correctly, school “tuck” was a form of currency far more effective than many national ones, with
Mars bars being the Dollar reserve currency and penny chews the weaker Euro equivalent.
I think they are missing out on a key part of trading education, as well as going hungry.
Have a good week.
Justin Urquhart Stewart
Co-Founder
Seven Investment Management
www.7im.co.uk
This article represents a personal and lighthearted view from 7IM, and is based on current financial news and events around the world. Its content should
not be used for investment purposes and you should contact an independent financial adviser before making any investment or financial decision.
Seven Investment Management LLP is authorised and regulated by the Financial Conduct Authority. Member of the London Stock Exchange.
Registered office: 125 Old Broad Street, London. EC2N 1AR. Registered in England and Wales No. OC378740