Searching for optimism amid a cost-of-living crunch
“The whole aim of practical politics is to keep the populace alarmed…by menacing it with an endless series of hobgoblins, all of them imaginary.” Thus HL Menchen, who would surely have added the press and social media to his practical politicians today. Nobody denies that there is a looming cost-of-living crisis, the price of President Putin’s frightful gamble in Ukraine. But crises come and go, and somehow we survive them.
After the turmoil, strikes and general misery needed to accept that we are significantly poorer then we thought we were a couple of years ago, there is no shortage of opportunities. Start with the first law of commodities: Today’s shortage is tomorrow’s glut. The price of gas is stimulating exploration all over the place while simultaneously encouraging ways to use less of it. Even if the supplies from Russia are turned off completely, there will be a global glut in a year or three.
Meanwhile, the oil price is already showing signs of weakness. Despite the stimulus from buying sanctions-busting Russian crude at a discount of $25 a barrel, the Chinese economy is faltering, while the bankrupting £2-a-litre for UK diesel is now confined to price-gougers on the motorways.
There are not many economic benefits from double-digit inflation, but one of them may be the return to work of those who had decided that after lockdown WFH should become retire at home. If the squeeze means their financial sums no longer add up to a comfortable retirement, some of the 500,000 who have gone missing from the workforce will decide to return. With the jobs vacancy rate exceeding the unemployment total, and the pleasure of permanent holiday fading as the nights draw in, the office may not look as unattractive as it has done during the heat wave.
Neither of the candidates for prime minister seems to have much clue what really needs to be done, and it is safe to assume that the machine-gun promises of nice things will be abandoned as soon as the winner takes power. Something along the lines of “nothing to offer but toil, tears and sweat” might be appropriate. The administration’s top priority must be the humdrum business of making the state and its public services work better with the immense resources it already has. We have surely had enough of headline-grabbing initiatives which barely last beyond the next day’s newspapers.
If the UK is to improve its depressing record and actually generate some economic growth, the new government must resist the temptation to pass yet more business legislation that dribbles sand into the economic machine. Less ESG would allow companies to release resources to concentrate on working for the shareholders (and maybe their customers).
An admission that Net Zero by 2050 is a fantasy, that the NHS is not the envy of the world, and a pledge to stop kicking the Bank of England, despite its incompetent governor, would also help. Oh, and finally pulling the plug on the white elephant of HS2 (of course) would send a message about the need for proper evaluation of vanity projects. A serious attempt to make peace with the European Union, involving some painful compromises, is long overdue. Tax rules that ordinary mortals can understand would be an added bonus. Well, we can all dream.
Life, but not as we know it
It has not been very lucrative being a shareholder in Legal & General in recent years. A fat dividend yield has flattered the total return, but the share price is much the same as it was seven years ago. If only, sob the shareholders in Aviva and the vowelectomied Abrdn. Aviva shares have perked up a bit recently, but are still a quarter of the price they commanded nearly 25 years ago. As for the former Standard Life Aberdeen, shares which once cost almost £6 apiece are now 176p.
Last week all three produced results which, in the frenetic wash-up before the summer hols, were not given the treatment they deserved. The dog of the day was, not for the first time, the wretched Abrdn, although you would hardly have thought so from the pretty ditty sung by Stephen Bird, the newish CEO. He trilled of “tailwinds” and “our disciplined approach to allocating capital to deliver shareholder returns,” while reporting a pre-tax loss of £320m, as investors migrated away from its flock of poorly-performing funds.
The merger of Standard Life and Aberdeen Asset Management in 2017 must rank among the UK’s most value-destroying of all time, from a market value of over £11bn to £3.8bn today. Aberdeen had always looked a slightly flaky outfit, but Standard Life was a solid, if dull, life assurance business. The mismanagement since the merger has been on an epic scale.
The misery at Aviva has gone on even longer. Its shares have fallen by two-thirds since the ‘orrible merger of Norwich Union and CGU (itself a shotgun marriage of General Accident and Commercial Union) in 2000. Yet, as if to prove that there’s a great deal of ruin in a big fat insurance company, the appointment of a feisty female CEO seems to have stopped the rot, and last week’s results triggered a jump in the share price on the prospect of returns of surplus capital. Even after the rise, the price is a pitiful shadow of the glory days of the 1990s.
Which brings us to Legal & General, which has demonstrated over several generations of management why fancy mergers are for others. Instead, under Nigel Wilson it has plunged into buying bulk annuities from companies eager to escape their legacy pension liabilities. And rather than lending the money from insurance premiums to the government, it has reinvented the business as a developer of long-term assets, like buy-to-let housing, to match its long-term liabilities.
Us long-term shareholders might argue that the share price does not reflect his achievements, but what we fear the most is the corporate governance police. Sir Nigel has just passed a decade as CEO, which means his time is up, in their eyes. Let us hope he is the exception that tests the (arbitrary) rule.