Where the City’s movers and shakers get a few things off their chest. Today, Ian Whittaker, founder of Liberty Sky Advisors and twice City A.M. analyst of the year, takes the Notebook pen to talk about inflation, the US’s Tiktok ban, and a little bit of life advice
When it comes to the polarisation of society, the numbers paint a bleak picture
For the past several years, one of the issues I have been increasingly asked by clients to speak on, as well as my core knowledge of the media and technology sectors, is the wider picture of what is happening from a macroeconomist standpoint, both in the UK and abroad. And the more I have delved into the numbers and looked at the picture, the more I worry increasingly about what they tell us of the direction – and likely attitude – of the poorest in the country.
First, an admission. I am not an economist by training (more a historian and – more recently – a war historian) but my forecasting track record to date has been very good and certainly better than the consensus. More to the point, as a financial analyst, you become accustomed to seeing patterns and trends through the numbers that might not be obvious. One of those trends I see is that the poorer in society will continue to lose ground unless there is radical intervention.
I admit when you look at the wider UK economic data and the averages, such cause for alarm may not seem justified. Inflation is falling, average wage inflation is still showing c. six per cent growth, which helps support many households, and the single biggest category of property resident are those households who do not have a mortgage – 31 per cent per cent of all households according to the Office of National Statistics (ONS). Consumers are still spending and corporate results, including for consumer exposed sectors, remains healthy overall. In fact, when it comes to UK advertising for example – which is linked in with consumer, corporate and economic well-being – the outlook looks reasonably good.
Yet drilling down and seeing what is happening with the lowest income deciles shows just how much of the population really is being dragged further and further into the mire. One cause of this is inflation. At the back end of 2022, the Institute of Fiscal Studies estimated that the inflation rate for the poorest 10 per cent of households over the past 12 months was 14 per cent as opposed to eight per cent for the richest 10 per cent. Yes, inflation is easing but those prices are now set at a permanently higher level.
However, this is not just a feature of the past two years. According to the Resolution Foundation, the percentage of net household income spent on essentials for the lowest quintile of the population by income went from just under 52 per cent in 2006 to 59 per cent in 2019. Meanwhile, for the top quintile, the percentage went up slightly from 42 per cent to 43 per cent. This is a problem that has been around for well over a decade.
Then there is asset inflation. Those who held assets, whether stocks and shares, private equity or houses benefited massively from well over a decade of huge government stimulus. Borrowing at rates close to zero and then investing for even a few percentage points of return meant very high absolute profits to be made, especially for buyers who could leverage. Yet the poor are, well, asset-poor. In 2020, the ONS found the top 10 per cent of UK households owned 43 per cent of all wealth (with wealth heavily concentrated in the top echelons) while the bottom owned nine per cent. The numbers are likely to have widened since then.
If I look at the numbers and the trends, I do not see anything that is going to improve these matters. More likely, they are going to get worse. Nor do I see anything in what the two main parties are suggesting will fundamentally change the outlook. If that is the case, we are in trouble: there is no way the poorest will continue to tolerate a continual (relative) decrease in their standards. The Rochdale by-election result should have been a wake-up call but I doubt that call will be heeded.
We are building up trouble for ourselves over the medium to longer-term.
The politics of Tiktok
A bill that will ban Tiktok from the States unless its Chinese owner Bytedance agrees to divest the platform was signed into law last week. With the Chinese government previously making it clear that it would not allow Bytedance to make such a move and Bytedance on Thursday confirming it had “no plans to sell” Tiktok , there has to be a reasonable chance that some form of action is taken against the platform.
In the midst of this, we also now have Republican Presidential (soon to be) nominee Donald Trump stating he is against a Tiktok ban on the grounds that it would provide a massive boost to Tiktok’s rivals, particularly Facebook. What is going on here?
It is worth maybe taking Trump at face value here. Many Republicans, including Trump himself, place a large degree of blame on Mark Zuckerberg and in particular his charitable donations to boost voter turnout for their 2020 loss. In addition, there have been wider claims that Facebook (and others) have deliberately blocked conservative-leaning material while promoting those for progressive causes. States such as Florida and Texas have taken action against the platforms for their efforts.
What this does increasingly show is that tech is no longer isolated from the world of politics. In countries such as China, of course, that was never the case. However, with India banning Tiktok in 2020, the EU now introducing an AI regulation act and even the usually friendly UK bringing forth its own legislation, it is clear that tech’s future will increasingly be shaped by the whims of politicians – for better or worse.
The silent giant
One of my favourite stocks in media is also one of the least high-profile but also one of the largest in the entire FTSE 100, namely RELX (the old Reed Elsevier). Over the past 10 years, the shares have outperformed the FTSE 100 in returns by well over 15x. The beauty of RELX is the simplicity of how the return is generated – it owns excellent, market leading assets, quietly but efficiently executes off a well-thought out plan and applies these principles consistently. It is not genius as such, it is just turning up and doing the job. Which is what RELX has demonstrated it can do.
Quote of the week
“The history of the failure of war can almost be summed up in two words: too late.”
General Douglas MacArthur – I would argue that applies to all things in life.
A piece of advice
Remember the power of small numbers to translate into great numbers with consistency and done daily. Doing or learning one new thing every day means 365 new things by the end of the year. That is a hell of a lot you have learnt.