I interviewed financial expert, media guru and professional speaker – Justin Urquhart-Stewart for my live chat show earlier this month.
Jill English transcribed the fascinating discussion which ranged from negotiation our way out of the lockdown to how we are going to pay for it. Printing money, quantitive easing, furlough, fees on investments, debt to GDP, new normal, property values, the euro financing of the southern European countries, and some very funny stories from Justin’s life.
Justin Urquhart-Stewart – Red Brace Man
Justin’s red braces brand was an accident. But what a powerful accident. He is known as the red braces man.
Derek said he had met Justin working for Barclays Derek started as a tea boy while Justin has been a management trainee. Almost immediately Justin was sent to Uganda. did Justin still drive a Mini traveller 1964 and what was the background to the red braces?
Derek asked Justin if he had been shot defending a Ugandan branch of Barclays Bank. Justin explained that most of his family has been in the army, he was the exception having decided to take the safer route into banking, yet he was the only one to have been shot. His defence of the branch wasn’t very effective as the building had been subject to a mortar attack.
The red braces (his father’s?) and tie had been an accident he then found out that he was stuck with it and that this was good branding.
Attitude Towards Fees
Derek asked Justin about his interest in fees. 5% to 6% of trading fees were used in each year.
Justin said that this was the main reason for starting Seven which had a simpler fee structure. Most financial institutions have lots of underlying charges and even these can vary between organisations. In the current situation, it was important to be wary as it was doubtful that any of the investment houses would adjust their fees.
In 1945 there had been some 45 stock exchanges this then reduced to 7 regional exchanges and now there was just the London Stock Exchange. The purpose of a Stock Exchange was to raise capital for businesses. London has forgotten how to do that.
An alternative investment AIM started in Glasgow. London took over and we are now in a bigger muddle. We should be able to raise money locally for local businesses. Justin was looking to start something in Birmingham or some other West Midlands location. Boris was desperate to get capital into the region so some West Midlands ISA or EIS to get money into the local area, it would need 2 to 3 million pounds to go.
Question with regards to the UK economy.
What will happen to the stock market?
Is there life after lockdown?
No idea. We need some sort of new deal or Marshall plan, not a banking crisis.
What matters is already being done – keep systems going as much as possible, revive and get the economy moving. Furlough was a good idea, there have been lots of mistakes and it will cost a fortune.
The debt to GDP ratio before controls was applied were about 88% – 90% down to 82%. This was now 150% + we have been there in the past. After World War 2 it was 250% +, post-Bonaparte it was 200%. You can have debt as long as you can service it.
The British government is trusted as a borrower. Single quantitative easing is when the government makes its own money. £20 billion interest paid from ourselves to ourselves, the government uses to support companies and infrastructure.
In Japan the largest holder of Japanese bonds is the Japanese government. We will see more of this in the US and here too because short of anything else they would be a depression. The world runs on confidence. We have a confidence trickster in the White House, we need global leadership currently there is an absence of proper leadership.
The fall in the global oil price is an active measure of Global weakness. It will pick up a bit, this is a tough time. We need clear effective leadership so people can spend and invest – it’s a difficult situation but manageable to get through it.
This is bear trap territory with lots of issues to resolve. We will have to wait and see and consider world policy. Good quality companies will be making some money & will have low levels of debt. Shares in these available at lower prices would be good assets, sit on these investments.
Question what is the difference between quantitative easing and printing your own money?
There’s no difference. Printing money you can get better terms and put money into the system. We forget that the Bank of England is not independent. Deflationary at the moment.
Question what will happen to property prices?
It depends on demand. If there is no confidence it will change the structure. At the moment there is no huge demand. Retail has been weak for the last 18 months, light industry is also weak. With regards to office space, jobs will be going in the city and some people will not be back. Office space is very weak indeed. Your home is your home not an investment, buy to let has effectively died.
'Ali the Physio' demonstrated using a water bottle for bicep curls, tricep curls and reaching the arm above the head, she said it was important to keep moving, ideally at least every 30 minutes
Question will Justin’s regulatory investment scheme offer tax efficiency akin to venture capital trusts 30% refund or tax free etc?
It depends on what the government allows, they won’t bother to do anything until its operational. 3 groups in the West Midlands have a strong demand.
Question what about small pharma stock and requirements provide Covid 19 equipment?
We have seen the current reduction in long supply trade routes challenged before. Will we rebuild them in the same way & risk again in the event of a virus, or look for shorter production lines closer to home?
Hi-tech products like phones will still probably be made in China but we may find that PPE will be made by people locally to the right standards so there’s a good reason for these business cases. No Iphones made in Ipswich.
Question how many companies in the city have left office space go?
Many – some will have leases that they can’t exit, others will be using break clauses; in an 8-year lease there would be a break clause after 4 or 5 years. Quite a lot of companies will use less space and not take up new space. More office space is coming on stream like the new Bishopsgate development.
Question why haven’t the FTSE and pound gone down further?
The FTSE is a global index and the current situation has in the main hit small companies more than large companies. We will see more damage to developing supply. The real return compounding dividends which will be much smaller overall. The NASDAC has passed where it was at the start of the year in the expectation that technology will fulfil it all – it’s a fashion fad, the technology is there but needs care, it won’t cover everything.
The pound is quite a small currency and tends to bounce around between the dollar and the euro. It depends on the other currencies. The euro will remain weak mainly because you can’t run a single central bank well. The US dollar is relatively weak. The pound sits in the middle.
Question the government is giving away millions – who’s lending it?
Domestic and international institutions because they are getting a reasonable return. Buying on the basis of producing one’s own debt. Why not produce Corona bonds, in the same way, there used to be war bonds? Make it an inflation-proof bond and pay a loyalty bonus after 5 years, that would be great.
Question Justin, I think you were surprised at the Brexit vote being to leave? do you think there will be an extension at the end of the year?
No idea. Logically it shouldn’t be rushed (but then who these days uses logic?) The dogma is to exit. Being realistic what is required is good negotiation skills to take a long time and get the right deal rather than run the risk of a rushed deal just to satisfy the dogma.
Question what’s your view on what will happen with unemployment?
The USA unemployment levels at 14% are actually closer to 20%. This goes back to unemployment levels in the 1930s. After furlough will everybody go back to work? probably not. Primary growth is probably small businesses so need to make sure that capital is there. Small businesses have been successful before. Britain has smaller businesses another Germany or France so it’s much more entrepreneurial. We mustn’t lose the magic of small business and innovation.
Question re this local Stock Exchange idea, what regulatory body will it be subject to?
If it were a Stock Exchange then the FCA. but it’s not a Stock Exchange. Stock exchanges are expensive, they have costs like market makers & brokers. What is needed is an order matching platform, otherwise the costs are too high. A concept of a fixed price also can be false as small businesses do not trade that often, the price will be as required at the time when they do trade. Regulatory requirements would be quite small, there’s a question of confidence and who issues the licence number – that would be the FCA.
Question interested to know your thoughts of euro banks?
Deutsche bank loaned money to Greece and Italy, not the most reliable of loan recipients. If there are enough money and the political will / a political group of businesses – that’s a huge question mark over the political expenditure – political & financial expenditure are separate. The euro will fail because of how to run a single currency. The pound has the same regulatory structure and taxes and can be controlled; that doesn’t happen in Euroland. You can see the Benelux and Germany working. and that’s it.
Why would we take responsibility for the Greek debt for a country not disciplined at repaying debt collecting taxes? Possible to see euro being split into north and South currencies (as Belgium and South Africa did) keeping the debts with the euro knowing these will never be paid back. This would let the domestic economy start growing again. The economy is in all but the permanent crisis, not resolved without the discipline of a single currency.
Question whatever you think of Boris and his shortcomings, he seems to be doing a fine job, dealing with the unexpected. How much do you think the experts know what’s going on?
Justin quotes Churchill: “keep your experts on tap not on top.”
We are getting to grips with difficult figures like the R number. The politicians have never faced anything like this before. We now have a leader of the opposition at last, a former barrister & someone who can ask proper questions. Boris has done the right sort of things, he has made some mistakes, there will be more. Some action was probably too late, yes and it’s not been too good on ordering PPE kit. What has gone well is the structure of the Nightingale hospital and the lockdown: in comparison to Italy and Spain the UK has got off quite lightly.
The government has done a reasonable job so far but we don’t know what will happen next regarding the virus. What happened with the Spanish flu was that the virus changed and became a bigger killer. Right now I wouldn’t want to be a politician. Too much money being spent on furlough and grants.
There have been the same figures in the USA, large corporations have claimed lots of money and still paid big bonuses. There is a need to be very careful. Capitalism has to show it can be a solution and not a greedy opportunity to open all the taps, control, get liquidity flowing as soon as possible. Must make sure it’s going in the right direction, it’s difficult to control. With hindsight what else could have been done this to get a quicker mechanism for getting money to people quickly, few have savings to call on. If this goes on for another 3 to 6 months it will be almost untenable.