By Mark Richards.
As we do at the beginning of every month, CL News looks back over the month just ended. What did April bring us? First and foremost – as you’ll see at the end of the Round-Up – it brought us a disappointingly sensible month. What it did not bring (of course) was Brexit, but it did bring more signs of a thaw in US/China relations, which saw most of the world’s stock markets enjoy a good month. And it brought us more news about Huawei and spying – but that is now as predictable as Brexit not happening…
Please note that nothing in this Economic Round-Up should be taken as financial planning advice: it is for general information and interest only.
The big story
Clearly, it is tempting to go with the story that our Prime Minister thinks putting a totalitarian, Communist regime that wants to control the day-to-day life of its citizens in charge of our 5G infrastructure is a good idea. But let’s instead head over to Wall Street, where some interesting trends are developing – which might end up costing us all money…
April saw the stock market debut of Pinterest – the social scrapbook that many people reading this article will use. The shares soared on the first day of trading, valuing the company at $16bn (£12.3bn, roughly three times the value of Marks and Spencer’s).
Meanwhile Slack – which does a neat job of replacing intra-office e-mail – is gearing up for its Initial Public Offering (IPO). The expected valuation? Around $7bn (£5.4bn).
But the big one, of course, is Uber, with the ride-sharing app now expected to be valued at $90bn – around £70bn – when the shares start trading in May.
What do all these companies have in common? None of them makes a profit. Uber says losses narrowed to $3bn (£2.3bn) last year, while the losses at Pinterest and Slack are ‘only’ measured in the tens or hundreds of millions. As one commentator put it, Slack is spending money to make money.
Worse than that, both Uber and Pinterest have admitted that they may never make a profit. The comment from Pinterest was that the company was heavily reliant on advertising, that a downturn in the economy would hurt it and that it ‘may never achieve or maintain profitability.’
As for Slack, it is hardly a difficult concept for a competitor to replicate, so how do these three companies merit such massive valuations? More importantly, does profit matter any more?
It certainly does if you are running a small business. Profit is what pays the mortgage and pays the wages. But there seems to be a parallel universe on stock markets and in the public sector where profit and financial controls do not seem to matter.
Crossrail is now delayed until at least 2020. Delays until 2021 and a massive overspend seem far more likely. No-one has the remotest doubt that if HS2 ever goes ahead it will be massively over budget – and this week Chris Grayling, our hapless Transport Minister, cheerfully tossed away £50m of taxpayers’ money as he cancelled the No Deal ferry contracts.
Let me keep the maths simple as it is Friday morning. At £25,000 a year, that £50m would pay the salaries of 2,000 nurses.
Profit is not a dirty word: it is the way businesses keep score. If we start to decide that profit and financial responsibility do not matter then there will be plenty more fifty-million-quids thrown away. And ultimately we will all pay the price.
So what happened in the UK?
Recently I divided my notes for this section into two – ‘retail gloom’ and ‘rest of the UK news.’
I certainly had plenty of entries for April in the first section – although ‘gloom’ might be an overstatement. Boots warned of possible store closures and Debenhams announced 24 stores that would close next year – which you suspect will not be the last of their closures.
Against that Tesco lifted its dividend to shareholders as profits rose 30%, and sales surged at Primark. The Sainsburys/Asda merger was blocked on competition grounds and shopper numbers for March were up on last year – although March 2018 was the month of the ‘Beast from the East.’ However, shoppers remained cautious with their spending: it will be interesting to see what the figures for a late, very warm Easter reveal about high street spending.
Aside from retail closures the month brought other bad news: UK car manufacturing was down for the 10th straight month, mirroring the problems which the car industry is having in Europe. House price growth was also at a six-year low and – as noted above – London’s Crossrail project could now be delayed until 2021.
But there was plenty of good news as well, with unemployment falling by a further 27,000 in the three months to February and the economy beating expectations to grow at 0.5% in the first quarter of 2019.
Perhaps the most encouraging news came from the Organisation for Economic Cooperation and Development (OECD) which confirmed that the UK is the leading destination for foreign investment in Europe, and the third most significant in the world behind the US and China.
So was the FTSE-100 index of leading shares cheered by this news? Yes, it was. The FTSE ended April up 2% at 7,418. The pound was virtually unchanged against the dollar and closed the month at $1.3041.
Countdown to Brexit
Countdown? I’m not sure that ‘countdown’ is the right word any more, as it implies that something will eventually happen…
Just when I had got used to writing ‘Brexit has been postponed for another month…’ April brought us the news that Brexit has been delayed perhaps until October 31st – which is, of course, Hallowe’en and was a predictable gift for the headline writers.
With the original deadline of March 29th having been pushed back to April 12th the longer delay was agreed after Theresa May once more failed to get her Withdrawal Agreement through parliament. As I write she is – to the fury of the Conservative grassroots – in discussions with the Labour Party in the hope of an even more watered down Withdrawal Agreement being passed by the Commons.
Quite where this will leave the Conservative Party as results come in from yesterday’s local council elections and – if they take place – in the elections for the European Parliament scheduled for May 23rd, is anyone’s guess. With Nigel Farage’s Brexit Party riding high in the polls and apparently set to fight the next General Election, we could even be seeing a fundamental realignment of British politics.
We will know a lot more by this time next month but – as always with Brexit – it is almost impossible to predict what we will know.
What happened in the rest of the world?
Let us start in Europe, where French President Emmanuel Macron finally agreed to cut taxes in response to the Yellow Vest protests but, worryingly, France is very firmly on course to overtake Italy as the world’s fourth most indebted country, with its public debt now just a whisker behind its southern neighbour.
Meanwhile, the forecast for German growth in 2019 has been slashed to just 0.5% – roughly a quarter of the level the German Government was predicting a year ago. As Europe’s car crisis continues to worsen in the face of driverless vehicles and the end of the internal combustion engine, these are nervous times for the economy which effectively powers Europe.
On the political front, Spain held its third election in four years, which resulted in a victory for the Socialist party of Prime Minister Pedro Sanchez. But the most significant development was the 24 seats won by the right-wing, anti-immigration party Vox – the first time a far-right party has won seats for decades.
Over in America Jeff Bezos, boss of Amazon and the world’s richest man got divorced. The settlement to his ex-wife was an eye-watering $35bn (roughly £27bn). It says much for how Amazon has performed recently that this still leaves Jeff Bezos holding his title as his modest little company comfortably announced record figures. Net income for the first three months of 2019 more than doubled to $3.6bn (£2.76bn).
There was better news for the wider US economy as the US trade deficit continued to shrink as exports to China rose, and it was confirmed that the economy had grown more quickly than expected in the first quarter of the year, growing at an annualised rate of 3.2% which was well ahead of analysts’ forecasts.
Not that anyone will soon be able to read salacious gossip like that in Russia. Taking a leaf out of Xi Jinping’s playbook, Vladimir Putin is seeking to control the internet. All the stages have now been passed for Putin to sign the controversial ‘sovereign internet’ bill into law, which will give the Kremlin wider control of the internet and which critics describe as a form of censorship.
Go Bitcoin! Having closed March at £3,133 the virtual currency had a tremendous month in April, romping up to £4,067. That means it was up by 30% for the month and is up by 40% since the start of the year. It is still a long way from the heights it enjoyed in 2018, but for investors, Bitcoin is at least moving in the right direction.
I have been writing this Round-Up for some months now and April 2019 has broken all the records. Looking at the number of notes I have for this section – two – it appears to have been the most serious month since records began.
We begin, though, in Norway where local fishermen found a beluga whale with a ‘strange harness:’ the authorities were quick to claim that the whale was spying for the Russian navy. Apparently, Russia has been training the whales to carry out spying missions. Well, there are rumours that the script for the new Bond film needs a new plot twist…
And now to Japan, and news which will have parents up and down the land jumping for joy. A Japanese firm has invented a robot which tidies a child’s bedroom.
I am a long way from an expert in artificial intelligence, but it appears that tidying your son or daughter’s bedroom is a much more difficult job than navigating a driverless car around a busy city.
Robots are good at repetitive jobs – and they never get bored. So if you take a job like welding a car chassis in a factory, doing the same job day after day, a robot will be far superior to a human. But where robots struggle is with chaos – patterns that are not orderly. And what could be more disorderly than your child’s bedroom?
But in a basement in Tokyo, a tech start-up is trying to fix that. Preferred Networks are applying machine learning and AI to ‘disorderly situations.’ Essentially, it is the same technology that will be in driverless cars – but what the robots have to do here is identify every object. Is that really just a piece of crumpled paper, or is it your child’s latest masterpiece? Are those underpants meant to be on the floor? And what about all these discarded sweet wrappers…
Quite clearly, if Preferred Networks get this right, there will not be a bank big enough to store their cash – and a certain title might change hands…
“Jeff Bezos? The richest man in the world? Not any more, mate. Some chap in Japan worked out how to tidy children’s bedrooms.”