Like Leonardo DiCaprio in The Revenant, we’ve just been savaged by a bear but we’ll probably survive. Leading UK-listed stocks have fallen 20 per cent from last April’s peak after a six-year climb, and the FTSE100 chart has taken on a saw-toothed downward trajectory that suggests, to those who rely on such indicators, that there are further falls to come.
The end of quantitative easing and the US Federal Reserve’s first interest-rate rise in almost a decade set the direction of travel. The sinking oil price, combined with worries about a global debt build-up, darkened the mood. Repeated bouts of mayhem on the Shanghai bourse, though little or nothing to do with western investors, have provided a news peg. But at least the professionals saw this bear phase coming, and will (or should) have adjusted their portfolios away from equities and towards cash, real estate, hedging plays and the safest categories of bonds. The manager of an endowment fund of which I’m a trustee told me confidently in early November, when the fall had reached 10 per cent, to expect the same again in the near term: so far he’s bang-on.
Seeing a well-signalled and long-anticipated market shift coming is a lesser skill than knowing how far it will go, however, and your guess is as good as his or mine as to where the bottom might be: whether to sell or sit out is, accordingly, a matter of individual risk tolerance. I met a reader last week who looks after the fortunes of several wealthy families; he had slipped out of a City seminar full of others in the same line of business — they were listening to experts on who’s doing what to who in Syria — to give me a quick seminar of my own on how the rich and their advisers, with an eye to the very long term, react to bouts of market turbulence like this one.
The approach tends to be defensive in good times as well as bad, he explains, because his client families tell him that if he’s smart enough to double their money it really won’t change their way of life; but if he accidentally halves it, that’s a serious problem. So he’s busy monitoring each client’s downside limit while being generally inclined to sit out what he sees as ‘a correction, not a crash’. As for the Brexit debate, he thinks that’s ‘a distraction we don’t need now’. But until the rate-rise trend has been fully digested, Opec gets its act together to nudge the oil price up, China’s share gamblers calm down and Britain’s future in or out of Europe looks clearer, don’t expect Mr Bear to shuffle back to hibernation.
Sweetheart tax deals
This column has long argued that the ‘fiduciary duty’ — to borrow a phrase from Google chairman Eric Schmidt — of multinationals to minimise their tax bills within the law is balanced by a duty of corporate citizenship to pay a modicum of profits tax wherever they operate; ‘a modicum’ means just enough to reflect the real nature and booking location of the underlying business, however it may be disguised by Double Irish or Dutch Sandwich avoidance structures.
So the news that Google has agreed to pay £130 million in back taxes for the ten years to June 2015 (£46 million relating to the last 18 months of that period, so £10 million for each of the prior years) sounded at first like a step in the right direction, as well as a precedent that other high-profile avoiders might soon follow. That was certainly how George Osborne sought to present it — until the flak started to fly.
The truth is that in relation to Google’s annual UK revenues of well over £3 billion, and analysts’ guesses as to what its real profit margin might be, the settlement is clearly modest, as well as being completely opaque in its calculation. It may not be quite as offensive as the ‘voluntary’ offer by Starbucks to pay £20 million of corporation tax for 2013 and 2014, having paid none at all in the three previous years. But what Google has actually done for others to follow is establish that it’s OK to strike a deal that gets you off lightly with HMRC, so long it includes a big enough number for the headlines. And that’s not at all what’s needed, which is a principle of transparent and fair tax falling on profits in every location where they arise.
But it’s hardly Google’s fault, or Osborne’s. The complexity of all modern tax systems leaves them wide open to be gamed by smart lawyers and accountants. And Labour’s John McDonnell, who has made much of all this, should remember that the unhealthy pattern of ‘sweetheart’ tax deals with multinationals began a decade ago, when Gordon Brown ruled the Treasury and HMRC with an iron hand.
My real-world Davos
How was the mood at the World Economic Forum in Davos this year? Don’t ask me: yet again my invitation got lost in the spam box. But am I bothered? Not a bit. The investment guru Jonathan Ruffer — very much the sort of man you need to devise a defensive strategy for your multimillion portfolio — told me long ago that he prefers to avoid talking to other fund managers because doing so clouds the clarity of his market analysis. I feel the same about the company of ‘global thought leaders’; I’d rather conduct my own real-world forum with the Scunthorpe Ladies’ Luncheon Club, who were resolutely cheerful despite recent job losses at the town’s steelworks; and with Garden Centre Association delegates in Brighton, who were looking forward to spring in the knowledge that consumers who are nervous of big financial decisions tend to spend more on their gardens instead.
Both groups were relatively optimistic compared with the 1,409 chief executives surveyed in PricewaterhouseCoopers’ Davos poll, of whom only 27 per cent said economic growth would improve in 2016, down from 37 per cent in 2015. As I said last week, we’re divided these days between the reinvigorated and the demoralised; answers so far to my question ‘How is it where you live?’ are creating a vivid collage, to be presented shortly. Meanwhile, please keep them coming, to email@example.com.