I love it. Marmite that is. I’m not sure what that says about me, but I’m sure if we voted to get rid of Marmite it would be about as close as the referendum result.
Two things to note from this story. Tesco, whose turnaround strategy has gained traction in the last few months, played a blinder by positioning itself as the protector of the great British consumer from unjustified price rises. A solution has been found and we have all been spared the horror of a lack of Marmite. The second thing to note is that it might well be a sign of things to come. Is inflation likely to kick in? According the Office for National Statistics (ONS), September saw the biggest monthly jump since 2014, rising to 1% from 0.6% in August.
Clothing has seen its biggest price rise since 2010 and fuel, which was falling a year ago, is also more expensive. However, the ONS said there was ‘no explicit evidence’ the lower pound was the reason for rising prices. I don’t know how reassuring that is, given that bets on a rising oil price amongst hedge fund managers are this week at their highest since 2014. Oil is currently trading at over $50 a barrel and we haven’t even started to feel the heat from the weak pound.
Having said that, the slump in sterling has eased a little, partly due to the message coming from the legal counsel at the High Court in the case brought by Gina Miller. The case is very simple and goes something like this.
Parliament has granted rights to individuals by way of several Acts of Parliament; to remove these rights, parliament (not the executive) should decide through an equivalent Act. Both sides appear to accept that A50, as drafted, means that a notification is irrevocable, which means that in two years we are out of the EU come what may – or, as Theresa May puts it, ‘Brexit means Brexit’. So, triggering A50 is the point at which rights are removed – not at the end of the two-year period. On this analysis, it’s incoherent for the government’s James Eadie QC to argue that any deal negotiated under Article 50 would be subject to parliamentary scrutiny as, even if there’s no parliamentary approval, we’ll be out of the EU the second an A50 trigger kicks an unstoppable timetable into action. There are other views, of course – if you have time, read this blog.
Confusion is also rife in the IPO market, which looked reasonably buoyant following Brexit, but many businesses – Misys, Pure Gym Group, Krispy Kreme and TI Fluid Systems in the UK; OfficeFirst and Telxius in Europe; and GPM Petroleum in the US – have been forced to pull or cut the price of their flotations in recent days. Others are rumoured to be struggling.
Biffa, the British waste company, was this week forced to cut its price by a third to 180p per share. Tellingly, Biffa’s owners – Bain Capital, Angelo Gordon and Avenue Capital Group – had to invest a further £49m into the company. The argument from fund managers we’ve spoken with is that recent IPOs have not been reasonably priced; i.e. if you want to get your IPO away, make sure it’s priced to a discount to its listed peers.
It’s also difficult to get an IPO away when your key listed comp takes a hammering from the date that you announce the IPO. Pure Gym announced its IPO on 14 September and pulled it on 11 October. Just look at its main listed comp’s share price in that time: Gym Group.
As noted last week, investment banks and advisors are continuing to ignore untapped retail investors. If you were going to sell your car, would you put a sticker in the window or would you try and reach the broadest possible pool of potential buyers? I know what I’d do.
According to Bank of America Merrill Lynch, inflation is on the horizon and it’s time to get out of financial assets and into real things. Strategists at the US investment bank say that after eight years of global central bank stimulus pumping up the price of stocks and bonds, it’s time to rotate ‘from Wall Street to Main Street’. Michael Hartnett, BAML’s chief investment strategist, notes the relative price of ‘real assets’ (real estate, commodities, collectibles) to financial assets (bonds and equities) is at its lowest level since 1926. ‘US stocks are close to all-time highs versus US house prices; US bonds at all-time highs versus diamonds,’ says Mr Hartnett. He should have also said go long on Marmite – I know that I do!