David Fuller and Eoin Treacy's Comment of the Day
Category - General

    London Home Rents Fall for First Time Since December 2009

    This article by Julie Edde for Bloomberg may be of interest to subscribers. Here it is in full:

    Londoners are paying lower home rents for the first time in more than seven years amid rising supply and weakening demand from senior executives for properties.

    The average rent paid in April for new lettings in Greater London was 1,519 pounds ($1,968) a month, a 1.2 percent decline from a year earlier, HomeLet, the U.K’s largest reference- checking and rentals insurance company, said in a statement on Monday. Annual rental inflation across the U.K. was 0.4 percent in the same period, the lowest in seven years.

    "Rents have been rising at a more modest pace across the whole of the U.K. in recent months," HomeLet Chief Executive Officer Martin Totty said. "We continue to see landlords and letting
    agents weighing tenant affordability considerations very seriously.”

    London’s housing market is weakening amid affordability issues, new taxes and preparations for Brexit. Landlords rushed to buy homes before the introduction of a new stamp duty sales tax in April of last year, boosting supply and leading to greater competition for tenants.

    The number of tenancies agreed at 1,000 pounds to 5,000 pounds a week fell 3.7 percent in the first quarter from a year earlier, Knight Frank said on Friday. Demand in that segment of the market usually comes from senior executives in industries including financial services, the broker said.

    Home values in the U.K. capital grew at their slowest annual rate in almost five years in February as values in the most expensive boroughs including Camden and Kensington and Chelsea fell, according to Acadata and LSL Property Services Plc.

     

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    Tech and Talent Must Top the Next Government's Wishlist

    In the race for international tech talent and inward investment, the UK ranks third in Europe behind Finland and Sweden for digital inclusion and skills (EC Digital Economy and Society Index – DESI). But the new government should not forget that around half of our most valuable tech workers hail from overseas with some 30pc coming from the EU and 20pc from further afield. To avoid a post-Brexit brain drain, the UK must remain a destination for international talent, with an immigration policy to match.

    And to ensure that in the future more of our tech capability is grown at home with jobs filled by British citizens, the next government must 
do even more to encourage the 
take up of science, technology, engineering and maths (STEM) subjects in schools.

    Of the 320,000 students in England studying for A-levels last year, the number taking STEM subjects was largely stable, according to Department for Education data. Where it is increasing, it is in tiny increments.

    Last year, the number of students entered for A-level computing increased by just 0.3 pc to 1.7 pc. And the 23.8 pc of A-level students entered for mathematics represented an increase of just 0.5 pc. STEM subjects need to move further up the education agenda accompanied by more support for targeted vocational training and apprenticeships.

    Continued investment in infrastructure to support an increasingly digitised marketplace is also vital. Applications and productivity gains requiring world-class connectivity can only gather momentum if the physical backbone is there to provide the necessary support.

    The last government’s “Universal Service Obligation” aimed to give every business and individual in the country the right to request an affordable high-speed broadband connection. The intention was laudable, but in practice today the UK ranks no higher than sixth for overall European connectivity and just 10th for Next Generation Access. Further investment in digital infrastructure should remain a key priority for the next government.

    The UK is the fifth largest global economy and renowned for innovation and our entrepreneurial spirit. We are home to many world class businesses spanning technology, hi-tech engineering and pharma research, financial services, the professions, education and the creative arts. Government initiatives to cultivate the smartest talent and encourage the right investment will help capitalise on these strengths and accelerate our position at the vanguard of the 4IR.

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    Email of the day

    On Allister Heath’s column posted Thursday:

    Amen. Some might see this column - and your comments- as political. Not so, they are Realpolitik - a German concept that many in Brussels ignore while continuing to push a centralisation policy that is not very well appreciated by the electorates who are their ultimate masters, albeit currently disenfranchised by the delegated authority system of the EU.

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    On Target: Martin Spring's Private Newsletter on Global Strategy

    My thanks to the ever-interesting Martin Spring for his insightful look at the global scene.  Here is a brief sample:

    Good and Bad Aspects of Passive Funds

    Investing via exchange traded funds (ETFs) and other forms of index-tracking management can make sense, as it minimizes costs and avoids manager selection risk.

    The trouble with its alternative, active management, is finding those who are consistently good at it, without most or even all of the gains being gobbled up by fees and other costs. Usually such managers are too frightened of the risk to their careers in making idiosyncratic decisions to stray far from being almost-trackers. They are poor value for investors.

    The trouble with passive management is, it means putting your money into the most popular shares, which are the most expensive because of their popularity, and may be the poorest choices for the longer term.

    As Ian Lance of RWC Partners reminds us: “Passive investors in 2000 were allocating large chunks of their money to bubble stocks like Cisco, Sun and Yahoo, and also to accounting frauds like Enron and Worldcom, which were on their way to zero.”

    The bias towards buying the biggest stocks, which are not likely to be the best, seems to be particularly true in the emerging markets sector.

    Well-known fund manager Terry Smith says increasing amounts are being allocated to its largest companies, but “they are not good companies.”

    Last year the return on capital employed of the top ten constituent stocks of the MSCI Emerging Markets index averaged just 12 per cent. Over the past ten years their returns have shown a more or less continuous decline. That has been particularly true of Chinese companies, “which seem to be investing on the basis that debt capital… for them is close to free.” Such an assumption is always dangerous, “as the Dotcom era and Japan in the late 1980s illustrated.”

    These giant companies are expensive, currently trading on price/earnings ratios averaging 28 times, compared to 23 for all firms in the MSCI index. It doesn‟t seem likely that this reflects expectations of significant improvement in earnings.

    Trouble is, “if money pours into markets via ETFs, it will cause the shares of the largest companies… to perform well irrespective of their quality or value, or lack of it, even though active managers seeking quality and/or value will not want to own them.

    “The weight of money flows will make it a self-fulfilling prophesy that the index will outperform the active managers who behave in this rational manner.”

    Longer-term, it makes sense to buy more shares in good companies. They will eventually produce superior returns. But you need patience to wait for that to happen. In the meantime, the weight of index-tracking buying makes it difficult to manage actively, focusing on good companies that are not popular. That‟s why most investors would do better to opt for index funds such as ETFs.

    A courageous admission by an expert who himself manages an emerging markets fund.

     

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    Kuroda Confident Can Raise Wages, Prices "Significantly"

    This note by Chua Baizhen Bloomberg may be of interest to subscribers. Here it is in full:

    “The mindset is still quite cautious about inflation expectations, but I’m quite sure that with continuous accommodative monetary policy, supported by fiscal policy, we’d be able to eventually raise wages and prices significantly,”

    CNBC cites BOJ Governor Haruhiko Kuroda in interview.

    * Projected growth rate of 1.5% “not great” but it’s well above medium-term potential growth rate

    * Means output gap to shrink and become positive while labor market continues to tighten

    * Wages, prices would eventually rise to achieve 2% inflation target around fiscal 2018

    * Yield curve control “has been functioning quite well”

    * 10-yr JGB target should, for the time being, be maintained around 0%

    * Acknowledges that “headline inflation has been quite slow to adjust upward” in part because of weakness in oil prices

     

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    Avocado prices hit record after bad weather dents supply

    This article by Alan Beattie for the Financial Times may be of interest to subscribers. Here is a section:

    The US market, the largest consumer of avocados, is facing a 50-60 per cent decline in Californian output from average levels, because of bad weather, while its main source of imports, Mexico, is expecting a 20 per cent fall in production, says Óscar Martínez at Reyes Gutiérrez, a Spanish avocado importer and distributor.

    “The US needs to get extra avocados, and Peru is expected to divert their supplies attracted by their high prices,” he adds.

    Avocado trees tend to alternate between “on” years, producing a bumper crop, and “off” years, where the tree recovers from the stress of the previous year’s large production.

    In Mexico, the world’s largest producer and exporter of avocados, the off-year has coincided with bad weather, sending the market soaring.

    Prices for Mexican Hass avocado have more than doubled since the start of the year, with a 10kg box of avocados jumping to 550 pesos ($26).

    Supplies from other producers have also been hit. “Lower output is also expected for the US and Peru where the harvest has been delayed due to heavy rains and flooding,” says Jara Zicha, analyst at Mintec.

     

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    Can Wal-Mart's Expensive New E-Commerce Operation Compete With Amazon?

    This article by Brad Stone and Matthew Boyle for Bloomberg caught my attention. Here is a section:

    The video worked exceedingly well. In August, Wal-Mart Stores Inc. announced it would acquire Jet.com for $3.3 billion in cash and stock. It was an extraordinary sum for a 15-month-old, purple-hued website that was struggling to retain customers and is still far from making a profit. Even more astonishing, Lore and his management team in Hoboken, N.J., were put in charge of Wal-Mart’s entire domestic e-commerce operation, overseeing more than 15,000 employees in Silicon Valley, Boston, Omaha, and its home office in Arkansas. They were assigned perhaps the most urgent rescue mission in business today: Repurpose Wal-Mart’s historically underachieving internet operation to compete in the age of Amazon. “Amazon has run away with it, and Wal-Mart has not executed well,” says Scot Wingo, chief executive officer of Channel Advisor Corp., which advises brands and merchants on how to sell online. “That’s what Marc Lore has inherited.”

    Lore’s ascendancy at Wal-Mart adds bitter personal drama that wouldn’t seem out of place on Real Housewives of New Jersey to a battle between two of the most disruptive forces in the history of retail. In 2010, Wal-Mart tried to buy Lore’s first online retail company, Quidsi Inc., which operated websites such as Diapers.com for parents and Wag.com for pet owners. But it moved too slowly and lost out to a higher bid from Amazon.com Inc. Lore then toiled at Amazon for over two years before quitting, in part out of disappointment with its refusal to invest more in Quidsi and to integrate his team into the company, according to two people close to him.

     

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    The EU's Attempt at First World War-Style Reparations Revenge Will Only Make Britain More United

    It is not the British government that is living on another planet but the Europeans, or at least those briefing the anti-Brexit media. I have always resisted falling into the old trap of endless Second World War analogies: they make it impossible to have a sensible discussion.

    But I’m finding it increasingly hard to avoid concluding that the EU is actually engaging in a bizarre attempt at reenacting the settlement that followed the First World War: the €100 billion figure is so extreme, so devoid of any rational basis or genuine legal logic that it must be seen as an attempt at imposing reparations on Britain. We are guilty of crimes against the European dream, and must therefore face cruel and unusual punishment.

    This is a shocking state of affairs, not least because of what it tells us about the increasingly delusional state of mind of many in Brussels (and even some in Germany), who see us as some sort of weak, vanquished foe ripe for the clobbering.

    The last time this sort of idiocy was attempted was in 1919, at the Treaty of Versailles, when a defeated Germany was ordered to accept full responsibility for the war and to pay vast reparations to the allied powers.

    A “Reparation Commission” was set up, and Germany was told to pay an immediate 20 billion marks in gold, commodities, ships, securities and other assets, while accepting occupation, oversight and endless humiliations.

    John Maynard Keynes called it a Carthaginian peace, likening it to the total subjugation imposed on that Tunisian city-state by Rome. He decried France’s revanchism, and its obsession with extracting tributes from the Germans, and rightly predicted that the whole affair would end in tears in The Economic Consequences of the Peace.

    History never repeats itself, of course, and we are a successful, powerful nation that won’t be bullied by anybody. But the fact that Juncker is even trying it on should serve as a reminder that the Eurocrats are out of their depth, intellectually as well as practically; far from being accomplished negotiators, they are pathetic amateurs desperate to conceal the fact that they are terrified that the British cash will soon run out. Their arguments are bogus.

    The EU isn’t a force for economic freedom. It keeps demonstrating its mercantilism, and explicitly sees trade as a one-way favour, a privilege in return for which money and control (via European-imposed rule and the jurisdiction of its court) must be surrendered.

    In reality, trade is always mutually beneficial, and no other “trading block” charges a “fee” for access. The fact that Barnier and his gang want to make us “worse off” by imposing protectionist barriers on UK firms expose them as economic illiterates with no interest in free markets.

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    Belgian Finance Minister Warns EU: Change or Die

    Here is the opening of this refreshingly outspoken article:

    Brexit has “shattered” the principle of ever closer union in the EU, according to the Belgian finance minister, who warned that the bloc had to transform itself to survive.

    Johan Van Overtveldt said there was “clearly a problem” with the European Union, as he called for a quick, comprehensive trade deal with the UK and warned that punishing Britain would be counterproductive.

    Mr Van Overtveldt said a “different” and “better” EU, that focused on key areas such as security, migration, jobs and trade instead of policing trivial policies would help to boost prosperity in the bloc and remove the discontent sweeping across the Continent.

    “Sixty years after signing the Treaty of Rome, and 25 years after the Maastricht Treaty, the European Union is in trouble and is certainly in need of new inspiration and new directions. The EU cannot continue operating the way it does today,” he said at an event organised by the European Economics and Financial Centre in London.

    He urged policymakers to take a different approach to integration and said the idea of an EU forged in crisis put forward by Jean Monnet - dubbed the father of Europe - was “dead”.

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