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Mavericks and Hot Seats: 10 Things We Learned This Week


It’s been only a week since Boris Johnson resigned as prime minister but the Conservative party has moved on swiftly to its latest “Darwinian” beauty parade-cum-popularity contest. Zahawi, Javid, Braverman and, er, Rehman Chishti (who?), are out, leaving five: Truss, Badenoch, Morduant, Tugendhat, and Sunak. They’ve been promising a lot of tax cuts without much coherent vision for growth. Detail has been light, and some candidates (Sunak) have not exactly responded well to even the lightest of grilling. Still, forget what the country wants (vision, some morals, some economic nous), it’s what the Party wants: electability, keeping Brexit “on track” and looking good in front of the cameras. It’s no coincidence the frontrunners are the most photogenic (for politicians).

Gone are the days when Brits could look over at Europe’s brittle politics and feel smug about continental chaos. Italy looked to have been put on stable footing with the election of former ECB chief Mario Draghi, aka Mr “Do Whatever it Takes” or Super Mario. What Britain would do for a leader of that calibre, a technocrat with a great grasp of detail and one who radiates calm under pressure. But the Italians have just said “tieni la mia birra” (hold my beer) as its coalition, held together with the support of populist Five Star movement, appears to have crumbled. Draghi has offered to fall on his sword and there’s talk of more elections on the way. The euro’s fall against the dollar didn’t help the anxiety levels of European leaders this week. But some good news at least for fans of the euro: Croatia, latterly a haven for Game of Thrones fans, is adopting the single currency in 2023, eight years after Lithuania.

You Should Keep an Eye on Sri Lanka

Speaking of troubled countries, popular holiday destination Sri Lanka is having one of those crises that puts people off investing in emerging markets. Food and energy shortages have pushed locals to the brink, ousting the Rajapaksa political dynasty. President Gotabaya Rajapaksa finally got the message – but unlike the UK PM, he’s not hanging around. Cue farcical scenes as Rajapaksa tried (and failed) to flee the island nation via the Maldives to Singapore – with the ultimate aim being “the Gulf” (a shorthand for countries willing to accept political exiles with money without asking too many searching questions). He may meet lots of Putin acolytes there, so the conversations poolside will be interesting. Why should investors care? Well, Sri Lanka is a frontier market, and we’re looking at these risky (and dynamic countries) in our special report next week. FYI, MSCI Sri Lanka is down 68% so far this year.

It’s War on The Runway

British holidaymakers may have to scrub Sri Lanka off the bucket list this summer (the Foreign Office says no go), but they may have to be flexible with their plans anyway. Heathrow Airport has been at odds with the airlines in recent weeks, asking them to cancel thousands of flights. It’s a classic transport blame game that Britain specialises in. For once the airlines can claim to be the “good guys” because they really need a good summer after 2021 and 2020. Even with higher prices and disruption, many people are desperate to get back on planes. Now the government has stepped in, asking Heathrow to come up with an action plan for the crucial summer holidays and for the next six months. Oh, and there’s good news for people who’d rather get the train. More rail strikes are in the offing.

Cats Do What They Want

One airport customer with a story to tell, if she could tell it, is Rowdy the cat, who has been roaming around Boston’s Logan airport for three weeks. As cats tend to do, she led an army of potential feline whisperers on a merry dance before finally agreeing to be captured. At least she managed to get a holiday this year, as her owners were bringing her from Germany to the USA to relocate on the east coast. Whether movie agents have put out the call to Tom Hanks is still unknown, but it would make an interesting film nonetheless. (2004’s The Terminal was an early insight into logistical problems of moving goods across continents, and how a military coup can leave citizens stateless overnight.) No doubt the film would cast a dog as the hero, given Hollywood’s antipathy towards the feline race.

You Don’t Have to be Fit to Fly

And sticking with an aviation theme for a moment, the RAF has come up with a novel plan to boost its techn expertise. The youngest of Britain’s three armed services could drop its mandatory fitness tests to encourage a new type of candidate to join its ranks. Air Chief Marshall Mike Wigston said the RAF of the future may not need recruits that look like Tom Cruise playing volleyball shirtless on a beach. “It will be about data and digital and…we probably won’t need people that must pass a physical fitness test,” he said. Given Britain’s widening waistlines, declining physical fitness, and embrace of gaming and technology, this may not be a bad thing. My barriers to entry for the RAF were poor eyesight, vertigo, severe intolerance of airline turbulence, resistance to discipline, aversion to enforced laddishness, physical cowardice and hatred of early mornings. But apart from that I was a shoe-in.

BMW is Monetising Comfort

Car makers are in an unusual position. They are despised by environmentalists but somehow are in the vanguard of the energy transition. Tesla is also eating their lunch. Governments want them to accelerate (yes) their plans to stop selling petrol and diesel cars (2030 in the UK), but even consumers with the means to buy an electric car in an era of 10% inflation can’t get new models for love or money. BMW, a sector favourite for Morningstar automotive analysts, has in PR terms reversed over its own foot by branching into “software as a service” (Saas) by embracing a subscription model for heated seats (and steering wheels). Want to be “nice and cosy”? That’ll cost £15 a month (plus £10 a month for the steering). Drivers and motoring groups point out that the technology is already in the car and accuse the car marque of profiteering. Perhaps this is likely to appeal to well-heeled Scandinavian drivers, but Brits may have to make do wearing gloves and trousers during cold snaps. if this week’s heat continues, we dare say it’ll be pointless anyway. 

Woodford Has Binned His Comeback (For Now)

One man who could definitely afford a BMW with optional extras is Britain’s most famous fallen fund manager Neil Woodford. It’s been three years the implosion of Woodford Investment Management, and many investors are still waiting for the remainder of their money – and the industry is waiting for the definitive report into what went wrong by the Financial Conduct Authority. Lawsuits are still in motion, and the war of attrition continues. To say that Woodford’s comeback raised a few eyebrows in the press, investor and fund management community is something of an understatement, but it now appears comeback vehicle Woodford Capital Management is to fold. Will we see Mr Woodford again in some guise? I wouldn’t bet against it.

The Cyrpto Winter Has Claimed a Bankruptcy

Also throwing in the virtual towel is Celsius, a crypto lending platform that suspended withdrawals in June only to file for chapter 11 bankruptcy this week, a journey that felt inevitable even at the time. “Acting in the interest of our community remains our top priority,” the company tweeted in June. That community has nearly $5 billion with Celsius so how much it can claw back in the bankruptcy process will be an interesting test case for the crypto winter. There’s some talk Celsius will just mine some more Bitcoin to pay people back. I explored the nature of “assets” on crypto platforms in a recent piece., but I would urge readers to look at Frances Coppola’s latest blog on why Celsius’s depositors are going to be left empty pocketed. As an investor who has bought stocks that have bombed in the past, I refrain from passing judgment on crypto’s meltdown. But it’s a complete mess and is likely to get worse in the coming months.

Two Cheers for Globalisation

“The world is collapsing / Around our ears.” So sang REM in 1991. A full 31 years on, it’s hard to disagree. In our emerging market special next week, we’ll look in earnest at how investors have to “suspend their disbelief” with every piece of awful and dispiriting news. The prevailing narrative is that the wave of economic liberalisation witnessed since the end of the Cold War is losing momentum, and in some cases going backwards. That’s bad for investors, who have come to rely on free trade and economic growth to raise prosperity and fuel corporate earnings. Morningstar’s index guru Dan Lefkovitz has looked in depth at this issue and found that the data doesn’t entirely support it. He’s looked at how revenues are earned throughout the world, concluding that investors should still keep a global mindset.



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