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The Financial Ironmonger Blog No 41/2017

The Financial Ironmonger Blog No 41/2017

Every week our guest blogger, David Oakes of Mosaic Money Management (aka The Financial Ironmonger), shares with us his take on some of the major UK and overseas macro and political events that shaped the previous week.

Please be reminded the value of investments, and the income from them, may fall or rise. The views expressed in this article are those of the author at the date of publication and not necessarily those of Chelverton Asset Management Limited or Mosaic Money Management. The contents of this article are not intended as investment or tax advice and will not be updated after publication unless otherwise stated.


Last week’s blog predicted this week’s chaos, although not the exact timing. Markets have since stabilized, but whether we are seeing the end of a long bull run, or simply a reset is not clear, at this stage. The biggest falls were seen in American tech stocks, which have been the only ones showing gains this year, and holding up indices both in America, and globally.

It is therefore not surprising that once they started to lose favour, sharp falls resulted. Some, including the Donald, blame it on the Fed. The Chairman, Jerome Powell, a week last Wednesday, said “The really extremely accommodative low interest rates that we needed when the economy was quite week, we don’t need those anymore”.

“Interest rates are still accommodative, but we are gradually moving to a place where they will be neutral. We may go past neutral, but we are a long way from neutral at this point”. There are various models that seek to predict where this tipping point is, but an average would indicate a figure around 4%, and we are miles away from that. Moreover, these rate increases have been widely flagged, and are not a surprise.

More likely, the sell-off has more to do about investor fears that the tech growth rates are slowing down, which you have already seen in the mobile phone market; consumers do not see the need to upgrade every time a new model comes out, something I suspect applies to new cars, as well.

It is not only high tech companies that have rocked the market this week. On Wednesday, shares in Patisserie Valerie were suspended after the company announced “significant, potentially fraudulent accounting irregularities”, resulting in “a material misstatement of the company’s accounts”.

At the suspension, this chain of 206 cake and coffee shops had a highly improbable value of £446mn, with the chairman, Luke Johnson holding a 37% stake, worth some £165mn. The full year accounts last November showed net cash of £21.5mn, which had increased to £28.8mn by the interim results in May. Most, if not all, of this cash would appear to have disappeared since then with HMRC filing a winding up petition for tax unpaid of £1,14mn.

The chief financial officer was suspended, and subsequently charged with fraud. The business has grown very quickly from just 8 shops when Mr. Johnson bought in to it in 2006, to the 206 today. And this for a company that has no barriers to entry in the market; it takes no skill to open a cake shop. It is widely known that the whole casual dining sector has had a rough time, with both pubs and restaurants closing down, and there is no obvious reason why a cake shop would be immune to these trends. Perhaps the pressure to produce ever better numbers led to this situation, much as it did at Conviviality in March.

That one took a month to roll over, not least because alcoholic drinks have no sell-by dates on them, unlike cake which tends to go stale pretty quickly. At the time of writing, Mr Johnson has offered to lend £20mn, providing other shareholders stomp up £15mn of new equity. The Directors point out that further irregularities may be uncovered during investigations, hardly reassuring. Conviviality went under because shareholders did not know the size of the black hole, and therefore would not support a rescue fundraising. Valerie will be very lucky to avoid a similar outcome.


David joined Manchester stockbroker Henry Cooke, Lumsden in 1977 and after becoming a member of the London Stock Exchange in 1984 held a number of senior positions within the firm including Managing Director of the in-house fund management company and member of the Executive Committee.

After senior appointments at Cazenove Fund Management and latterly Mercater Capital Management, David joined Mosaic Money Management in 2013. He has successfully managed private client and fund portfolios for over thirty years and has particular expertise in providing a multi manager service to his loyal client base.

The Financial Ironmonger is a hat-tip to Ironmonger Lane, the location of Chelverton’s London office.