Berkshire Hathaway’s annual AGM in Nebraska has been dubbed “Woodstock for capitalists”, with hundreds of US investors turning up to hear words of wisdom from founder and chief executive Warren Buffett, the so-called Sage of Omaha. This year the focus was on succession plans, rather than investment strategies, perhaps not surprisingly given the CEO recently turned 92, and fellow founder Charlie Munger is 99. Buffett reiterated that the heir apparent remains Greg Abel, a sprightly 60-year-old who is currently vice-chairman for non-insurance operations. Abel certainly has had more of a presence at these investor-facing events since being named successor in 2021.
Buffett said he was “100% comfortable” with the decision, and there was no plan B. He added it would be a ‘business-as-usual’ transition, although no timetable has been set. Buffett is famous for his long-term investment style, commenting that the best period to hold a stock is forever. Perhaps seeking to reassure investors he pointed out that Abel “understands capital allocation as well as I do” – but added his longer-term view meant the company has already “laid out the [investment] framework for the next 30 years”.
The Bank of England raised rates to 4.5% this week — its 12th consecutive hike. This is the highest rates have been since October 2008, just after the collapse of Lehman Brothers. But it does not look like we are at the end of the current cycle of rate rises yet. The BoE said that on current projections for inflation and economic outlook, it would expect the base rate to peak at around 4.75% in the last quarter of this year, before falling back again to 3.5% – suggesting a ‘new normal’ for interest rates that is very different to the rock bottom rates of the last decade.
Of course, one more rate rise could easily tip into two, particularly if the economic outlook changes. In its accompanying notes the BoE says it now expects inflation to be above target for the whole of this Parliament, falling to between 3% and 4% this time next year. Given inflation is currently running at 10.1%, this suggests the Prime Minister’s pledge to “halve inflation this year” could be in doubt, depending on the trajectory of this fall. All eyes will be on next week’s inflation figures to see whether CPI, which has remained stubbornly high is finally starting to edge downwards.
…. as Mortgage Lenders Entice Borrowers
Interest rates may have gone up again, but this hasn’t stopped bank and building societies relaxing lending rules to help stretched renters get on the housing ladder. Skipton Building Society launched a 100% mortgage this week, allowing people to buy a house without any deposit at all. Borrowers will need to meet affordability criteria though, and show they have been paying rent for at least 12 months without missed payments. Other lenders are following suit with The Co-Operative Bank relaunching its 95% mortgages, which come with the additional sweetener of a £500 cash back for first-time buyers on selected products.
While this will no doubt be welcomed by those struggling to get on the housing ladder – particularly those who don’t have the Bank of Mum and Dad to fall back on – you have to ask whether this is solving current problems, or simply creating new ones? Data published this week suggests house price have stabilised again, after edging downward this year. But this hasn’t stopped concerns that these deals could leave some borrowers in negative equity, particularly if future rate rises cause a more serious wobble with house prices.
ASOS Takes a Tumble
It is not so much cut-price fashion, as cut-price profits, with Asos reporting that its losses, already substantial, have widened. The fast fashion company, which now owns Topshop and Miss Selfridge, reported a £290.9m loss for the year – significantly more than a £15.8m loss reported the year before. The company which flourished during the pandemic has, like many online retailers, suffered as people have returned to the high street, and reduced spending generally amid a cost-of-living squeeze. ASOS says it plans to return to profit later this year, after reducing its headcount, writing off stock and amending its pricing strategy so more clothes are sold at full price rather than being heavily discounted. Its share price fell by 12% in response to these results, but Morningstar says the retailer is still undervalued.
FCA Talks Tough – Again
The regulator is talking tough about its new Consumer Duty rules, due to come into force at the end of July. These set far higher standards of consumer protection, requiring all financial companies – including, banks, insurers, pension companies and fund managers – to ensure products are ‘fair value’ and meeting the customer’s needs and objectives. This week the regulator warned it will act “swiftly and assertively” with “robust action” taken against firms failing to meet these new standards. It is hoped this will draw a line not only on the decades of mis-selling scandals, but overcome criticism that regulators have often been slow to act. It remains to be seen, of course, whether the regulator will walk the walk as well as talk the talk. And whether these new rules really do result in more transparent financial products that offer better deals for consumers.
Office Party Peril
The office party could soon be a thing of the past, certainly in its current booze-filled form. The number of work-related social events has been in decline thanks to hybrid working patterns and more people opting to work from home. However, organisations are now urging firms to limit the amount of alcohol at these events or consider alcohol-free alternatives. The guidance comes from the Chartered Institute of Management, which says there is particular support from younger managers and women for this change in corporate culture. Its guidance follows a survey which found that excess alcohol leads to inappropriate behaviour and harassment at work events. Who knew? The question is what sort of team-building exercises will be encouraged instead. Tough Mudder challenges perhaps, or a team 5K? Or possibly a return to the simple pleasure of a decent meal out, which doesn’t have to accompanied with wine flowing.
Multimodal Mobico
Corporate rebrands aren’t always a huge success. Remember Royal Mail’s disastrous and short-lived time as Consignia, or the ribbing the fund management group got on social media when it extracted most of the vowels from its name. Will the same fate befall National Express which next month will become ‘Mobico Group’ to better reflect its “multimodal operations, global reach and future ambitions”? At the least the company seems to have recognised the almost universal brand recognition it has in the UK and will keep the National Express name emblazoned on its coaches as they pootle up and down the motorway network. The brand is one of the few that have featured in a top 40 hit — in the Divine Comedy’s 1999 single “National Express” for example. So hopefully this means they won’t need to rewrite the lyrics. “Take the Mobico Group, when your life’s in a mess” doesn’t have quite the same ring to it.
Safe as Houses?
Purplebricks investors have certainly learned that the housing market is not a one-way bet this week. The troubled online estate agency confirmed it is still in talks with a couple of potential buyers, but warned investors they are unlikely to be in line for any payout, even if a deal goes through. This latest warning caused shares to fall even further and they’re down 83% this year. Back in July 2017 shares were trading for as much as 513p; shortly after the bank holiday weekend they were worth just 2.16p and could still track lower. Morningstar has published a useful article on what happens if a company’s stocks fall to zero — and how some investors may benefit. Useful reading for many Purplebricks shareholders.
Virgin Galactic Back on Track?
The first space tourists look set to head into orbit next month with Virgin Galactic announcing plans to start its commercial service in June. This has followed years of delays, but the first passengers won’t be taking off until further test flights are completed this month. Virgin owner, Sir Richard Branson completed a test space run two years ago, in what was dubbed “the billionaire space race” – with Elon Musk and Amazon’s Jeff Bezos piloting similar space ventures. Since then, Branson’s programme has been hit with a number of supply chain challenges. News that the programme now appears to be back on track sent shares in Virgin Galactic (SPCE) skywards, despite the fact that Branson’s other space company, Virgin Orbit, filed for bankruptcy recently after failing to launch commercial satellites from the UK.
Update: LinkedIn is Firing
LinkedIn is the latest tech company to be downsizing, with plans to axe over 700 jobs at the business-focused social media site. The firm is also withdrawing from China and will close it ‘InCareers’ app that cover the market there. It is a bitter irony that the site – which has sometimes garnered unwelcome publicity for posts full of business jargon and unnecessarily emoting CEOs – is often the first place people go to when their get their P45 to “connect” with former colleagues and associates.
