So many topics – the gods have provided blog fodder in abundance but arthritis and RSI restrict the number of keystrokes I’m willing to complete so the below will have to suffice for now.
On the topic of Boris, he has been his own worst enemy but I think he is right when he says the Red Wall constituencies elected HIM rather than the Conservatives. They were attracted by his post-Brexit vision, although progress on this front has been at a snail’s pace. It is difficult to see any of the contenders for No 10 holding onto these seats at the next General Election unless they are seen to progress the Boris vision and rather more quickly than has been the case thus far. As for the list of wannabies, most are probably just stalking horses for the few bigger names. Sunak’s video release five minutes after Boris’s defeat pretty much confirms he had been plotting for some time and his claims of integrity seem to overlook the little problems of a green card and the wife’s non-dom status. As for the rest? We shall see.
As far as the global inflation problem is concerned, the price of gold is surely telling us something. Its price has historically shown it to be a safe haven during inflationary times but it has fallen over 10% since its March peak. Is this saying that inflation is beaten? Well, we have to remember that gold is priced in US Dollars and I think it is telling us that, yes, US inflation is beaten. It might not show yet but the cures are already in the system and, that being the case, the peak in US interest rates will probably be a fair bit less than the Federal Reserve has been indicating.
At the root of the cure is money supply which, as we have mentioned several times over recent months, has declined rapidly. This is a solid indicator of economic slow-down and, at the extreme, recession. Central banks counter inflation by increasing interest rates to induce economic slowdown/recession but if it is happening already the need for heavy handed increases lessens and this, I believe, is where the US sits at the moment.
Europe and the UK are a little different as neither possess the US’s energy self-sufficiency although we are in a slightly better position than much of the EU and could be much better off if the substantial quantities of gas upon which we sit were allowed to be accessed. The gold price in Euro and Sterling terms has maintained its value due to the decline in those currencies versus the US Dollar so it has done its job in the face of rising inflation here and on the Continent. At some point markets will envisage the peak in US interest rates, precipitating the turning point for the strong Dollar – that could be closer than we think. The Fed has been more hawkish on interest rates than central banks this side of the pond so we have really endured a bout of Dollar strength rather than intrinsic weakness of the Pound and Euro. The Dollar’s turning point will, therefore, assist our fight against imported inflation, which accounts for the majority of it, as the Pound reverses its fall against the Dollar. The nature of inflation measurement means that quite a few of the major early drivers of the high numbers will drop out later this year/early next year so we will probably be within sight of the peak over the coming few months. That being the case I think history will show that Sunak’s wish for fiscal tightening on top of monetary tightening and quantitative tightening would have been overkill.
Kistos – Update
My nap for both 2021 and this year has been coming along nicely. Yesterday the Board announced completion of the acquisition of the 20% stake in the Greater Laggan Area gas producing assets and infrastructure from TotalEnergies. This purchase vests from the beginning of 2022 so Kistos will have captured the huge rise in the gas price over recent months. This morning the Kistos board announced that they had approached the board of Serica Energy, a North Sea gas player twice its size, with merger terms. These were rejected and Serica responded with terms of its own which were equally firmly rejected. Both teams appear to see the commercial logic of combining the two businesses but clearly disagree over terms and who runs the enlarged show. The Kistos share price has risen to 490p as I write versus last year’s recommendation at 165p and this year’s at 418p. Clearly there is scope for more excitement here so I suggest holders sit back and enjoy it.
Russell Dobbs FCSI
Chartered Wealth Manager
