News & Analysis

Inflation is normal. It's the investor revolts in tradable assets that show real people power

Andrew Saks, Thursday, 13 May 2021

There is most certainly a changing dynamic and a brightening mood among analysts, traders and forecasters, and indeed ever since the British government allowed a small amount of personal liberty to be restored, talks of economic boom and a new 'roaring 20s' is being anticipated.

This is very counterintuitive indeed, considering today's ramblings about potential inflation. The thing to consider here is that broad expressions such as 'there will be inflation' just doesn't cut it anymore.

In total contrast to the current conditions in which the British economy has endured the deepest recession in 300 years and the public made weary by endless draconian lockdowns which have dented their everyday life and livelihood in some cases to an irreparable level, the immediate period ahead is being viewed as one in which the modern-day Jay Gatsby, the tuxedo-clad fictitious icon of decadence during the previous 'roaring 20s' almost 100 years ago, may arise.

In the 1925 novel by F. Scott Fitzgerald in which Jazz era New York was the setting, Mr Gatsby threw caution to the wind, liberally spending his wealth on lavish parties and positioning himself as a dapper host with almost celebrity status.

Should a roaring 20s come to fruition with a different Centennial prefix, it will be analytical skill that will replace decadence.

The over-confident chin-in-the-air stance and debonair aura of one-upmanship made famous by Jay Gatsby will be replaced by detailed digestion of market reports and shareholder meeting results.

The British psyche has been subjected to 15 months of battering at the hands of an over-reaching government, and there is no substitute for recent experience upon which to base future plans. The advantage of this is the ability to approach a new era with caution, and the advantage of another important thing that Mr Gatsby's aspirers did not have - modern technology and information at the touch of a button.

Yes, the media talks of an impending boom, however the public and market participants alike are largely ignoring such hyperbole.

Instead, they are encouragingly considering their position carefully, and even more importantly, beginning to do something which has never been done before - influence the leadership of companies in which they own stock.

Despite the imagery and media coverage which is heavy on the champagne and high-living imagery and scant on actual detail, those in the know are ignoring such portrayals and focusing on the bottom line.

In fact, they're not just focusing on it, they are taking their part in actually influencing it.

Yesterday, we reported on a very much unprecedented shareholder revolt within the big pharmaceutical companies, in which shareholders objected strongly to the £18 million pay packet granted by the board to the current CEO of AstraZeneca.

This 'people power' veto by majority shareholders - some of Britain's most respected blue chip companies - demonstrated how board members of publicly listed companies cannot simply look after their fellows and expect the shareholders to tolerate it. Instead it sent a message that shareholders will go to fiscal war on the companies in which they have invested by vetoing such motions and if the motion is passed regardless, dumping stock.

It isn't just big companies, either.

Today, another such mutiny has occurred, this time with a far smaller firm. This time the stock concerned is a very small firm which is little known. A far cry from the news-dominating big pharmaceutical companies and their enormous profits.

This time it is perhaps more poignant. The company concerned is called Allied Minds, which is one of the former stocks of discredited investment management firm Woodford.

The shareholder revolt has been over the pay received by the chairman of the company, which is a relatively modest £107,000. Yes, £107,000. Not the huge £18 million which AstraZeneca's CEO received the green light for. This time an annual salary of £107,000 has caused shareholders of Allied Minds to conduct a stand-off, meaning that the new dynamic of shareholders putting themselves in power is one to watch.

Allied Minds, which invests in start-up ideas to help them succeed, experienced 47% of shareholders voting against chairman Harry Rein. The US businessman was paid £107,000 in his non-executive role last year – almost as much as some FTSE 100 chairs, when the company itself is worth just £58million.

This is very interesting. There are some startup CEOs whose companies are worth nothing at all who take more salary than that.

Investors who put their money in the Woodford Equity Income fund, which is now being wound up, still own around 2% of Allied Minds.

Over and above the imagery of suits, champagne - cue this morning's commentary by Moet & Chandon bosses who are touting a year of lavish spending ahead - the underlying sentiment is one of extreme caution and investor prudence.

For this reason, stock investing and share prices have got far more opportunity to be influenced by shareholders rather than the boys’ clubs on executive boards, and that in itself provides an opportunity.

Indices are perhaps the new method of transferring power from government and big corporation boards back into the hands of the freedom-hungry public.

In these roaring 20s, if we can call them that, financial freedom will be what people seek.

 

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