Weekend reading: Again, everything is cyclical, again

What caught my eye this week.

I noticed UK commercial property giant Landsec posted decent first-half results this week.

CEO Mark Allan reckons:

“…property values have stabilised, with growth in rental values driving a modest increase in capital values, resulting in a positive total return on equity.

We expect these trends to persist, as customer demand for our best-in-class space remains robust and investment market activity has started to pick up.”

After four miserable years, things might be looking up for the owners of offices and retail parks.

Is this because fewer people are still working from home, new office supply has cratered, interest rates have stopped going up, or enough of the weaker players have thrown in the towel?

All of the above, I imagine.

But Landsec (ticker: LAND) shares still trade at a 30% discount to net assets, even as those asset values have stabilised. In other words it’s early days and the market is yet to be convinced.

What normally happens next is economic growth reaccelerates, office space tightens, increasingly marginal offices are built, discounts narrow and eventually maybe even turn to a premium, chubby guys in hard hats appear in the Sunday papers touted as ‘the new builders of Britain’, bank lending gets sloppy as the good years roll on, euphoria is misidentified as robust business confidence, and only when a shock finally hits us do we learn who borrowed too much when the music stops.

But it could be different this time. Maybe because of WFH. Maybe because of AI. Perhaps self-driving cars will rewrite geography.

It usually feels like something special is going on that could change the game.

Mostly though – big picture – it doesn’t.

The political big dipper

You see the same thing playing out in the wider economy – and more viscerally in this year’s politics.

In the Financial Times John Burn-Murdoch notes how voters globally have punished whoever is in power:

Like everyone and his dog I have my theories about why Trump won the presidency and the Tories lost. There’s a bull market in competing explanations.

The US result is especially perplexing – even terrifying – given how confused voters seem to have been.

In an excellent review of how Trump triumphed, Kyla Scanlon reminds us:

People think that violent crime rates are at all-time highs, that inflation has still skyrocketed, that the market is at all-time lows, and that unauthorised border crossings are at all-time highs.

None of those are true – it’s all the opposite. But those misinformed views informed how people voted.

In blind polling Republicans actually preferred the policies of Kamala Harris! Yet one narrative gaining traction among a certain ilk of terminally online ‘bros’ is that this election saw voters ‘liberated’ from the ‘gatekeepers’ of ‘mainstream media’.

That’s true in as much as many believed – and voted on the back of – unrealities that fitted their priors.

Bring back the media gatekeepers, I say.

Tracing the source

Given the universal slap in the face of incumbent parties though, we might do better to look for the global driver of voter unrest, rather than gaze too closely at the minutia of America’s psychodrama.

Inflation must be the culprit. People hate it, and they felt it everywhere. Partly because global supply chain disruption is – doh – global. But also because everyone suffered through the same pandemic.

For various reasons – natural and mandated – economies cratered in 2020 due to Covid. Many businesses were at risk of going bust, and households of going bankrupt.

People seem to have already forgotten this graph:

Mass unemployment faced the authorities that grim spring. In response they deployed vast support packages and/or stimulus and paid citizens to stay at home. Easier money kept firms on life support.

It worked to prevent a slump. But one way or another – and aided on by Russia’s invasion of Ukraine – it eventually gave us inflation a couple of years later. And then higher interest rates to knock inflation back.

It’s perplexed onlookers that despite a peerlessly strong US economy with record low unemployment and a soaring stock market, voters complained of living through economically awful times.

Few of them now seem to recall those job losses – far less think about the counterfactual of a depression if nothing had been done.

They just much higher prices, feel poor (despite higher wages in most cases), and rage.

What have you done for me lately

Would they have preferred high unemployment to high inflation?

The trade-off would never have been so simple. But yes, I think many secretly would have.

For most people, unemployment happens to the other guy. In contrast we all feel the pain of inflation.

For now at least the cycle has turned again, and inflation is subdued.

True, swingeing tariffs in the US might upset that soon. But until then, every day people get a little more used to prices at these levels, and they begin to forget what they were so cross about.

Why are interest rates so high, anyway, they ask.

Inflation is low. Don’t these central bankers know ANYTHING?

Master market

For those of us who breath the markets, these cycles turn at double-speed. Wheels within wheels.

The markets are like a nervous cabin boy, dashing about a ship that’s steadily forging through the surf.

The ship makes its stately way, over time passing through fine waters, choppy seas, storms, and worse.

But the cabin boy lives out all of those scenarios many times over every day in his imagination.

He sees cyclones from every mast, yelps at the slightest swell, and yet he also wants to break out the rum for a party the moment the sun comes out.

Every day is an adventure ride of ups and downs! With enough time however even the stock market’s scatterbrained progress looks inevitable.

Take a moment to remember all the drama of the past five years. Then look at this graph:

Golden years

The funny thing is I didn’t start this ramble to reinforce that equities eventually go up: so don’t worry, be happy.

In fact I was going to highlight the latest data on how US equity valuations are getting into rarified air – truly Dot Com Bubble-type multiples.

But like everyone else we’ve been saying similar all year. The US market has climbed onwards anyway.

Even the Trump Bump seems nothing special on that graph above.

I know it’s hard to imagine US stocks not being the only game in town. So it might be an instructive to read this Sherwood article about how gold has actually beaten US equities since the late 1990s.

According to Deutsche Bank data:

The asset of the new millennium has been gold, delivering a real return of 6.8% per year since the end of 1999 despite being a shiny rock that generates no earnings and pays no dividends.

So far, the S&P 500 has averaged total [real] returns of 4.9% over this stretch.

Incredible, no?

So bad were returns from US stocks between 2000 and 2010 that the almighty bull market that began in the rubble of the financial crisis has still barely lifted returns back into ‘adequate’ range.

And US tech in 2010? You could hardly give it away.

Life beyond AI

To return to where I started (thematically on-point, eh) Landsec shares actually fell on its reasonable results.

Because of course they did. Landsec is a forgotten share in a discarded sector that trades on the still mostly-unloved UK stock market.

But it probably won’t always be this way.

Okay – perhaps AI really is ‘all that’, as an ex of mine from the North used to say.

If ChatGPT 2030 can do all our jobs, then presumably we won’t need Landsec’s offices. Nor will most people have money to buy drinks from Diageo (ticker: DGE) or even to buy the houses they browse on Rightmove (ticker: RMV).

Sometimes things really do change. I started including an AI section in the links years ago – before most people had heard of LLMs and all the rest – because of this potential. AI is important because there’s a small chance of something truly seismic, existential even, for humanity.

But there’s no certainty.

Indeed it’s surely more likely that AI is overhyped, that the biggest US tech firms will invest hundreds of billions just to destroy their margins, the US market will accordingly falter, and something else will get a turn on the merry-go-round.

Maybe even boring British shares. After all they’re mostly cheap, pumping out cash, buying back their own stock – and yeah, many could hardly grow more slowly, so the only way is up…

Who knows? Perhaps they’ll be helped along by a global economy that finally forgets the pandemic and frets less about inflation, gets used to interest rates of 4-5% again, and at last goes back to normal.

For a while, at least. Until we go through the wringer again…

Have a great weekend!

From Monevator

Why a global ETF is delisting from the LSE – Monevator

Are building societies still a good place for your money? – Monevator

From the archive-ator: Family investment companies – Monevator

News

Note: Some links are Google search results – in PC/desktop view click through to read the article. Try privacy/incognito mode to avoid cookies. Consider subscribing to sites you visit a lot.

Reeves touts pension shake-up to boost economic growth… – BBC

…and as the economy stalls, something better had… – BBC

…but will scale solve the UK’s pension investment problem? [Search result] – FT

Squeeze on rental supply set to push up costs for tenants – RICS

Number of ISA millionaires soars; top 25 hold £8.9m on average – T.I.M.

Retirees may need to pay tax on their state pension from 2027 – Which

Homebase enters administration with 2,000 jobs at risk – BBC

Klarna chooses New York over London for much-anticipated IPO – Guardian

Court: mini-bond firm London & Capital was a Ponzi scheme – This Is Money

Republican voters suddenly feel good about the US economy – Axios

2022 was weird: why 60/40 portfolios are working again [US but relevant] – Morningstar

Products and services

Mortgage rates below 4% disappear as rate cut expectations ease – This Is Money

Why ‘sustainable’ is being dropped from investment fund names – Which

Get up to £1,500 cashback when you transfer your cash and/or investments to Charles Stanley. Terms apply – Charles Stanley

Do you need inheritance tax insurance? [Search result] – FT

Amazon Haul is an attempt to take on Shein and Temu – CNBC

Open an account with low-cost platform InvestEngine via our link and get up to £50 when you invest at least £100 (T&Cs apply. Capital at risk) – InvestEngine

Are premium cashback and reward cards worth the annual fee? – Which

New cheapest energy deal from EDF could save households £109 – This is Money

Homes for sale in converted buildings, in pictures – Guardian

Comment and opinion

John Reckenthaler: So long, and thanks for all the gains – Morningstar

Don’t worry about what the market is telling you – Behavioural Investment

The US stock market gains 30% in a year more often than you’d think – A.W.O.C.S.

Advice for the kids – Humble Dollar

How to find genuinely good Black Friday deals – Guardian

Time isn’t an asset class – A Teachable Moment

Redefining the terms – Money with Katie

A rant about (a lack of) evidence-based investing – Klement on Investing

Beyond your career  – Humans vs Retirement

Naughty corner: Active antics

The disappearing ‘index effect’ – Alpha Architect

Private market pitfalls: IRR does not equal rate of return – CFA Institute

Crypt-o-crypto

What Trump 2.0 really means for the crypto industry – Sherwood

HMRC and crypto capital gains – This Is Money

MicroStrategy acquires another 27,200 bitcoin for $2bn… – The Block

…and it plans to issue $21bn in stock to buy more – FT

Kindle book bargains

I Will Teach You To Be Rich by Ramit Sethi – £0.99 on Kindle

Eat That Frog! Get More of the Important Things Done by Brian Tracy – £0.99 on Kindle

Growth: A Reckoning by Daniel Susskind – £0.99 on Kindle

A Confederacy of Dunces by John Kennedy Tool [A fav, not about money] – £0.99 on Kindle

Environmental factors

Regime of Unreason dawns in the US – Cold Eye Earth

What you can do – Humble Dollar

Quite parched: global demand for desalination is soaring… – Sherwood

…and what a difference cheap water could make – Unchartered Territories

He’ll try, but Trump can’t stop the clean energy revolution – The Grist

What backlash, anyway? Few ESG investors are divesting – Klement on Investing

Scientists just discovered a coral the size of two basketball courts – Vox

Robot overlord roundup

Lessons from 130 hours in self-driving Waymos – Matt Bell

The deep learning boom caught almost everyone by surprise – Understanding AI

Practical AI: Magic draft style [A few weeks old] – Echo Beach

Ex-ing X etc mini-special

The Guardian has quit X, citing ‘disturbing content’… – Guardian

…but does traditional media just hate what the Internet represents? – Hot Takes

BlueSky got one million sign-ups in a week – Engadget

How to migrate to BlueSky – Fast Company [Here’s us. Nothing doing yet]

Satire site The Onion buys Infowars out of bankruptcy – NBC

“How I escaped the alt-right pipeline” [Video] – YouTube

Off our beat

Are love songs over? [Interactive thingie] – The Pudding

Why some coffee shops are charging remote workers on laptops – Sherwood

China’s monster espionage campaigns – Freethink [h/t Abnormal Returns]

Favourite remote spots in Europe – Guardian

The rise of Nicole Kidman, pop culture folk hero – Stat Significant

‘Middlebrow’ doesn’t mean bad – Vox

Don’t dumb down – Seth Godin

And finally…

“As G. K. Chesterton put it: ‘To be clever enough to get all that money, one must be stupid enough to want it.’”
– Andrew Wilkinson, Never Enough: From Barista to Billionaire

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