Wednesday 15/01/25

• THE PODCAST WILL START AGAIN VERY SOON. The weekly podcast with Ralph will return and I will be doing a monthly podcast with a compliance lawyer at an investment bank to give you very interesting insights on regulation matters and how they are actually affecting what’s going on right now. I hope to re-start the daily podcast as well after a bit of a hiatus and ongoing technical issues – so there’s more to come!
• HAVE YOU NOTICED THE NEW AUDIO FUNCTION? A number of you asked for this last year, so I’m pleased that it could be sorted! I tried it initially with AI and didn’t like it – so it’s me reading it out loud 😁. I hope that you find this new functionality useful! I just thought that AI doesn’t love this stuff like I do, so thought it would be better for a human to read it…
• I’VE PUBLISHED A “WATSON’S YEARLY COMPETITION”. This is only be open to paying current subscribers. One of the prizes will be working with me in person at my office where you will be helping me to write Watson’s Daily for a day. You can enter HERE…

South Korea’s President Yoon Suk Yeol arrested after stand-off with police (Financial Times, Christian Davies and Song Jung-a) shows that South Korea’s suspended president Yoon Suk Yeol was arrested in a predawn raid on his compound after a six-hour stand-off. * SO WHAT? * This is the first time that a sitting president has been arrested in South Korea’s history. What an absolute mess. South Korea needs to get back on it asap, particularly given how delicate things have become in the region. Hopefully, this arrest will at least bring the country a step further towards restoring normality.

In Europe, New French PM opens door to rolling back Emmanuel Macron’s pensions reform (Financial Times, Leila Abboud) shows that the new PM, François Bayrou, is leaving open the possibility of reversing Macron’s very unpopular move to raise the retirement age from 62 to 64 as a way of winning back left-wingers – but only if an agreement could be reached. Macron’s pension reforms were forced through parliament in 2023 and came after months of strikes and protests. Push-back on this resulted in him losing badly in European elections and the subsequent legislative vote in the summer. * SO WHAT? * NO-ONE and I mean NO-ONE wants retirement ages to increase, HOWEVER, France’s finances are shot to pieces, its welfare state gets more expensive by the day and people are living longer (which means that more money is required in order to keep them going). If that retirement age isn’t shunted upwards, where’s the money going to come from?? More taxes! And who’s going to be targeted for the taxes? Businesses! And what’s that going to do? Raise inflation! Hit jobs! Whatever you think of him as a person, it seems to me that Macron originally came to power with a very powerful mandate and he has tried to carry out much-needed reforms (particularly to pensions). Unfortunately for him, he let the extremists under Le Pen to gain ground and slash his majority. After that, getting anything tricky

past parliament was always going to be an uphill task. The risk here is that he will have gone through all of this for nothing if everything he’s tried to do gets dismantled. It seems that the mantle of Europe’s economic basket case has most definitely passed from the traditional wearer, Italy, to France (although maybe they’ll need to make another one for Germany)!

Reeves refuses to rule out emergency Budget (Daily Telegraph, Chris Price and Tim Wallace) shows that the chancellor, in the face of ongoing pressure, dug her heels in over her policies promising to go “further and faster” despite current market turmoil. When asked if she could rule out tax rises and spending cuts in an emergency Budget, she did not expressly rule it out. * SO WHAT? * This is not going to do wonders for confidence and I think she needs to come up with a proper plan asap. I saw some of her chat on the telly and once again she blamed the previous government’s previous 14 years of economic mismanagement. Now I have to say that I’m not a raging Conservative, but I think that the government needs to get past this very weak and inaccurate statement. Clearly things haven’t been plain sailing and there is a lot that they did wrong, but let’s not forget that the UK was widely criticised – but subsequently begrudgingly praised – by the international community for getting the economy back on track in the years following the 2008 financial crisis and the fact that it had to deal with massive curveball of the pandemic during this period during which no-one covered themselves with glory (I think that the US only did better in relative terms because they had a lot of money to throw at it). In the run-up to the 2019 election, Jeremy Corbyn couldn’t even decide if he’d push through with Brexit, so let’s not pretend that Labour would have done much better. Blaming the last lot is just old hat now and the current government just needs to get on with the job in hand.

UK economy edges closer to stagflation (The Times, Jack Barnett) cites a report from those wild people at the accountancy body the ICAEW which shows that business confidence has dropped at its sharpest rate for two years thanks to the chancellor’s recent tax rises. The sector with the sharpest fall in confidence was, somewhat unsurprisingly, retail. There was a split in sentiment, though, depending on the size of the company – larger ones were more confident while smaller ones were less confident. * SO WHAT? * The UK economy is getting closer to stagflation as inflation looks like it could be higher for longer, economic growth looks like it could grind to a halt as a result of Reeves’s policies and hiring is slowing down. As I have said before, though, there may be other things – both within the chancellor’s control (trade agreements with other countries/the EU) and outside it (the resolution of wars freeing up supply chains which result in lower costs, meaning cheaper goods) that drag us out of this current rut. Will the underlying confidence we saw going into last year’s election and in the immediate aftermath weather the current storm or will it be beaten out of us??

In EU reassesses tech probes into Apple, Google and Meta (Financial Times, Javier Espinoza and Henry Foy) we see that Brussels is going to conduct a review into its ongoing investigations into Big Tech companies that it’s opened since March last year which could lead to the European Commission watering down or changing the remit of the probes. These investigations have been conducted under the auspices of the EU’s digital markets regulations and all decisions and potential fines will be suspended pending completion of the review. Meanwhile, Google investigated by UK watchdog over search dominance (The Guardian, Robert Booth) shows that our own competition watchdog, the CMA, is now investigating Google over the impact of its search and advertising practices. Seems logical to me given that it accounts for over 90% of general searches in the UK! It wants to ascertain whether Google is restricting competitors from market access and if it is showing signs of “potential exploitative conduct” by collecting consumers’ data without informed consent. * SO WHAT? * The advent of Trump 2.0 is really putting the cat amongst the pigeons isn’t it! You’ve got anti-Trumpers Bezos and Zuckerberg bending the knee and now the regulators are all in a tizzy about Trump and his tech bros taking over the White House. The big problem with the likely watering down from regulators is that there will be less protection for individuals – and given how fast tech (and especially AI) is moving, it won’t be easily reversed if things go wrong. Strap in for a bumpy ride, people!

In AI news, OpenAI appoints one of Wall Street’s most powerful dealmakers to its board (Financial Times, Cristina Criddle and Antoine Gara) highlights an important hire for OpenAI as it has just appointed Adebayo Ogunlesi, a billionaire investor and major Wall Street dealmaker, to its board. Ogunlesi is a co-founder of Global Infrastructure Partners and has advised some of the world’s biggest companies (including Warren Buffett’s Berkshire Hathaway, no less!) at crucial points in their journeys. He sold GIP to BlackRock for $12.5bn last year and so has the capacity. * SO WHAT?* Ogunlesi is clearly a big hitter and having him on board is a real sign of intent and potential indicator of where OpenAI is going to go. Having him on board will definitely help in funding rounds and getting more investors on board! It will be interesting to see what sort of acquisitions the company could make…

There seems to be a lot of scepticism about PM Starmer’s announcement of his commitment to AI and while UK has half of what it needs to be an AI hub (Financial Times, Lex) applauds his ambition and willing, the Achilles Heel to all of this is that we don’t have our own Google, OpenAI or Anthropic because access to capital here is way more limited than it is in the US. The

implication seems to me that we need to concentrate on what we’re good at rather than putting all our money and effort into building our own tech leaders at the expense of everything else. Could Keir Starmer’s AI dream derail his own green energy promise? (The Guardian, Jillian Ambrose) makes the point, for instance, that the AI push is all very well – but it’ll suck up a lot of energy, which puts further strain on our green agenda.  * SO WHAT? * Put very bluntly I would agree with the sentiment that we have the ambition (and the talent) but we just don’t have the cash to put behind it all. I really hope I’m wrong. The sad thing is that I can see that whenever we manage to do something that works, the Americans are just going to snap it up – just look at what happened with Microsoft and DeepMind! This means that we’ll never have a true successful tech behemoth now!

Elsewhere, Intel to spin off venture capital arm as chipmaker tries to cut costs (Financial Times, Michael Acton and Tabby Kinder) shows that the semiconductor maker is going to sell off its VC business, Intel Capital, as it continues to cut costs and ensure that its investments in China are beyond reproach (they wouldn’t want to get on the wrong side of Trump now would they!). Intel Capital has put over $20bn into around 1,800 companies since it launched in 1990, so it is a serious player! Intel itself would retain a chunky stake but the fund will rebrand under a different name (“I-Can’t-Believe-It’s-Not-Intel” perhaps?!). The move would mean that it could attract outside non-Intel money. * SO WHAT? * Intel is coming out fighting after a nightmarish 2024 and has been trying to cut costs while making efforts to improve its capabilities with leading-edge chips. Its long-time chief exec Pat Gelsinger was ousted by the board in December and two interim leaders have taken his place for now, so this company will be relatively rudderless until the right candidate comes along…

Then in Zuckerberg to axe thousands of low performers after vowing to be more ‘aggressive’ (Daily Telegraph, James Titcomb) we see that Zuck is going to embark on a cull of his lowest performers – around 3,600 staff (equivalent to about 5% of the workforce) – and replace them. TBF, such practices aren’t uncommon in big American companies. * SO WHAT? * It seems that the prospect of a Trump presidency has given him a rush of testosterone that has seen him kick out fact-checkers, remove D&I programmes and appoint UFC founder Dana White to Meta’s board. What’s next? Maybe he could take a leaf out of Putin’s manliness playbook and publish calendars of himself shirtless doing “man things” (remember this??). 

Accidents waiting to happen’ in private credit, says Wellcome Trust (Financial Times, Harriet Agnew, Amelia Pollard and Eric Platt) is an interesting article which cites a warning from the chief investment officer (CIO) of one of the world’s biggest charitable foundations, the Wellcome Trust. Nick Moakes warned that looser lending standards that have enabled the sector to mushroom in popularity mean that there are “accidents waiting to happen”. The big danger here is if the US falls into recession, private credit borrowers may be squeezed this year due to the prospect of interest rates staying higher for longer. * SO WHAT? * Trad banks retreated from lending initially in the aftermath of the 2008 financial crisis, but they’ve also been more cautious during and since the pandemic years – and this has left the door open to alternative lenders as companies still wanted to have access to capital! There are two main problems – one is that this sector is unregulated (so if debts go bad, there is no protection) and secondly, banks lend to private credit players so if they go down the swanny, so could the “conventional” banks because of their exposure.

In other markets-related news, Goldman Sachs’ David Solomon says US economy in a ‘fragile place’ (Financial Times, Gregory Meyer) shows that while Goldman chief Solomon is “incredibly optimistic” about the prospects for the US economy, he recognises that there are potential risks stemming from policies espoused by the incoming Trump administration that could push growth either way and increase government debt. Business-friendly policies could become a catalyst for business investment but restriction on immigration could hamper growth and push up prices (because labour costs would rise). Meanwhile, Pain is coming for emerging markets from a Trump trade war (Financial Times, Manik Narain) makes the very true observation that

although import tariffs in the US could prove to be inflationary there (because, for instance, the supply of cheap Chinese goods will be restricted) they may be deflationary elsewhere because China could just dump the cheap product excess that can’t go to the US to everywhere else – and this could be particularly damaging to emerging markets. Also, Trump has been voicing his displeasure towards countries with which there are trade deficits (i.e. they sell more into the US than they buy from it). Mexico, Vietnam, Taiwan, Korea and Thailand are all in this category. * SO WHAT? * A lot’s been made of what Trump has said so far, but we’re not going to get the full extent of this until he actually takes office. Not long to go now!

It seems that the push-back against environmental investing is continuing to gain momentum as Net-zero investment alliance halts activities after big firms quit (The Times, Ben Martin) shows that BlackRock, the world’s biggest investment group, has decided to pull out of the voluntary Net Zero Asset Managers (NZAM), prompting the latter to suspend its operations. * SO WHAT? * This climate coalition of financial groups that are supposed to take companies to account by using their collective investment power will be considerably weakened by this move. It follows other financial institutions – including JP Morgan Chase, Goldman Sachs and Citigroup – who have recently pulled out of other banking coalitions aimed at co-ordinating efforts by investors to cut emissions and fits into the broader move by corporates to roll back their environmental commitments and push them down their list of priorities.

In a quick scoot around some of today’s other interesting stories, King’s grocer Fortnum & Mason cheers record rise in Christmas sales (The Times, Isabella Fish) shows that it’s not all doom and gloom in British retailing as Britain’s oldest department store experienced strong profits and sales last year, Ocado Retail rings in the new year with ‘record’ Christmas sales (The Times, Isabella Fish) highlights the halo effect of M&S’s continued revival as Ocado Retail (the JV between M&S and Ocado) put in a strong performance and Warhammer maker Games Workshop plans fourth UK factory as sales boom (The Guardian, Sarah Butler) showcases the ongoing success of the wargame retailer as it announced expansion plans alongside a strong sales performance in the six months to December 1st. On the other hand, JD Sports cuts profit outlook amid ‘volatile market conditions’ (The Times, Emma Taggart) shows that the UK’s biggest sportswear retailer cut its annual profit forecasts, warning of “challenging and volatile market conditions”. Sales for November and December fell and the latest announcement marked the second profit warning in two months for the company. It blamed “increased trading volatility” and rubbish weather…

In real estate news, Country Garden Lost $24.33 Billion in 2023 (Wall Street Journal, Jiahui Huang) highlights massive losses at the hugely indebted Chinese developer in its long-delayed results. Trading in its shares had been suspended since March last year due to liquidity problems and the delay in publishing its results. * SO WHAT? * Country Garden used to be one of China’s biggest developers and this isn’t going to be good for already downbeat sentiment in the Chinese real estate sector.

Back home, Persimmon beats homebuilding targets to nudge forecasts higher (The Times, Tom Saunders) shows that the housebuilder managed to come in at the top end of expectations for properties built last year, enough to encourage it to upgrade its profit forecasts. The company sounded a cautiously optimistic note about its prospects but concerns remain about the effect of wage growth and higher-for-longer inflation.

You may well have seen this before, but Chris Pratt’s Essex accent is 👌. He should definitely do a cameo on TOWIE 🤣!