Links worth investing in: Buried pylon madness, cash ISA danger, a US China deal on the cards?
Weekend reading: another good set of results for Plus500, amazing London timelapse, definitive presentation on the gaming sector and house prices in the UK
A photography team has created a mesmerizing flow-motion timelapse of London, deploying novel techniques to tell the story of the U.K. capital. A Taste of London is the fifth instalment of FilmSpektakel’s long-running A Taste of series, which has previously been shot in Los Angeles, Vienna, and New York City.
Industry expert Matthew Ball has just released his magisterial video presentation on The State of Video Gaming in 2025 (224 slides). It focuses on the state of video gaming through the 2011–2021 growth wave, the mobile marketplace, AR/VR projections, console/PC market growth, and more. You can see it HERE
Factoids
January wasn’t great for the Mag7
China on tracks. China’s high-speed rail network is larger than the rest of the world's combined networks.
Nature vs. Nurture redux. A large study performed on 960 female mice suggests that genetics—and not diet or exercise—are the biggest predictors of which mice live longer than others.
The great shift to US markets speeds up. This from Bloomberg. The exodus of European and Asian companies to US stock markets is picking up steam. From Swedish buy-now, pay-later giant Klarna to Chinese bubble-tea maker Sexy Tea, businesses outside the US with a combined value of about $130 billion are working toward New York listings. Yesterday, Glencore became the latest company to unveil potential interest in a move. Higher valuations are a key part of the allure: European and Asian stocks trade at a roughly 35% discount to US peers. It’s all just more evidence of the incredible gravitational pull that American markets exert on the world.
Ageing US Bangers. The average age of passenger cars on US roads continues to rise. See the chart below
.Source: Bloomberg, Apollo Chief Economist
Scientists have reconstructed the insane weather of Tylos, a world so hot and so close to its sun that the clouds are made of vaporised metal and where it rains liquid sapphires and rubies. Using the European Space Observatory's telescopes in Chile to look into the exoplanet's atmosphere, they've discovered the fastest atmospheric jet stream ever recorded, made of 'iron winds' that blow faster than the planet rotates. Science Alert
China starts assembling a planetary defence team for the YR4 asteroid. Beijing has begun recruiting workers for a 'planetary defence' team. According to the latest NASA data the city-levelling asteroid now has a 3.1% chance of striking Earth in 2032 – making it the most threatening space rock ever recorded by modern forecasting. SCMP
Robot babies. RealCare Baby II-Plus dolls are highly realistic "infant simulators" programmed to mimic the behaviours of a real baby. They can drink from a bottle, wet a diaper, sleep, wake up, poop, burp when gently patted, and cry until comforted. These robot babies are used in programs designed to discourage teenage pregnancy. In a recent randomized controlled experiment in Australia, 13-year-old girls who were given RealCare babies to care for did so diligently—but instead of deterring pregnancy, these girls were actually more likely to become pregnant than those in the control group. (source: Father Time: A Natural History of Men and Babies by Sarah Blaffer Hrdy).
Solid progress at Plus500
I’ve championed Anglo-Israeli fintech Plus500 for quite some now. This cash machine has long made plenty of money out of spread betting. Still, in recent years, it has started to diversify, buying into institutional futures businesses in the US. Most years, it's been handing a big bundle of cash back to shareholders, and this year is no different. Earlier this week, the business released its preliminary results for the year that ended 31 December 2024. Group revenue grew by 6% year-on-year to $768.3m, comprising trading income of $711.6m and interest income of $56.7m, which grew by 6% and 9% year-on-year, respectively. That US OTC futures business contributed approximately 10% of total revenue and 15% of total New Customersfor FY 2024. Overall, EBITDA was $342.3m, equating to an EBITDA margin of 45%, reflecting the strategic investments that drove customer acquisition higher by 30% year-on-year, while basic EPS was $3.57, representing growth of 13% versus FY 2023. The reasonably constant share buyback programme also helped boost the EPS growth rate.
According to analysts at Jefferies, Plus500 also announced $200m of distributions comprising $110m of buy-backs and $90m of dividends, the majority of both being special. 2025 guidance is that the recently updated consensus is in line with management expectations.
“PLUS500 has remained on a c. 10x earnings multiple, despite giving the highest total shareholder returns of any stock over the period since its IPO in 2013. With revenues diversifying and an observable indicator of client activity in the US futures business, we think a higher multiple is justified. Accounting for the FX difference, means an 11x multiple gives a £33 price target.”
Mind the inflation gap: real cash ISA returns are in negative territory again
Following a brief seven-month period during which returns on cash ISAs beat inflation, they are back into negative territory, meaning savers lose money in real terms, according to a new analysis from Quilter.
“With CPI inflation hitting 3% in the 12 months to January 2025, and the monthly interest rates available on cash ISA deposits, including unconditional bonuses, dropping to 1.77%, cash ISA savers face a real terms loss of 1.23%.
The news comes after significant speculation that Chancellor Rachel Reeves is planning to change the tax benefits of cash ISAs to help boost investment in the spring.
Source: ONS, Bank of England, Quilter
“January is the third month in a row where savers suffered a real terms loss on cash ISA savings since March 2024. However, back in July 2022, cash ISA savers were suffering a historic 9.4% loss on their money as inflation eroded their savings.
“This trend is likely to continue. Inflation may increase slightly again, and most predictions are that the Bank of England will cut interest rates at least twice in 2025, widening the gulf further.
“Quilter is warning cash ISA savers to mind the gap and consider a stocks and shares ISA in the new tax year if they are able to lock the money away for a few years, given stocks and shares have a better chance of keeping pace with inflation.
Someone who invested £10,000 in a cash ISA in December 2012 would currently have £11,955. Adjusted for inflation, this is just £7,918. In contrast, a £10,000 investment in the IA Global Equity index over the same period would be worth £33,526 or £22,221 after inflation.
According to the latest HMRC data available, 12.4 million adult ISAs were subscribed to in 2021/22, of which 63% were cash ISAs.”
Property Market strengthens
Strutt & Parker predicts that the housing market will continue to see a boost in transactions across the latter half of 2024; Q4 saw more than 300,000 transactions for the first time since 2022. The upward pressure on values will remain throughout 2025. \
Prime London is a trickier market. The improving fundamentals will assist sales and values, but changes to the non-dom status hang over the market.
According to Matt Henderson, Associate Director in Research at Strutt & Parker,
“In the latter half of 2024, we saw more movement in the market. Housing transactions topped 100,000 per month in Q4, as well as price growth of 3.6%. This activity was driven by pent-up demand from the previous 18 months; those who were keen to move home but financially unable to due to high and unstable debt costs. 2024 provided lower, and more stable, mortgage rates, as well as a more positive sentiment, which allowed this demand to be released, this will only improve throughout 2025.
“Further to this a positive market, with increasing values, creates a snowball effect. Buyers enter the market, creating demand and this pushes up prices, which in turn make the market look more positive and attracts more people to enter. If house prices are flat, or falling, there is no incentive to enter the market, positive price growth acts as an incentive to act in the housing market sooner rather than later. This momentum has started and will continue to build through the year.”
“Prime Central London transactions stayed flat in the £1m+ market against Q3, including sales under £1m the market grew 8%; typically, seasonality means Q4 is weaker than Q3. PCL prices fell -2% over 2024, continuing the trend of broadly stagnant sales values which peaked a decade ago in 2014. Agent’s report post the Autumn Budget and US Election sentiment feels more positive, although still more difficult than normal. The recent fall in the value of the pound is likely to be the major diver of the market; there are not many national buyers coming in at the top end, and whilst there have been some Americans transacting at high prices, further foreign money attracted by the advantageous exchange rate is required.
“Rents in PCL (prime central London) grew by 0.4% in 2024, towards the lower end of our forecast range. It was a year of two halves; the first half of 2024 saw rental growth with the second half of 2024 seeing rents come in by -0.5%. This reduced rental growth has helped to spur on new lets across PCL which peaked in Q3 before falling away, as is typical, in Q4. Across the year 2024 saw 8% more new lets than 2023, this was more heavily weighted towards flats which now make up 91% of the market, house new lets fell 6%.
A US-China Deal is possible
I think the big grey rhino – a predictable event that isn’t always forecast – is a deal between the US and China, probably involving some sell-out on Taiwan. President Trump clearly has a soft spot for President Xi and, rather like Ukraine, has a long list of complaints about Taiwan (another pesky democracy standing up to a bigger autocratic bully).
The idea of a grand bargain has been floating around now for a while, but it received an unusual endorsement from Graham Allison, the "Founding Dean" of Havard Kenndy School and author of the best-selling book "Destined for War: Can America and China Escape Thucydides's Trap?". Allison is an old China hand and well worth listening to as he speaks with Chinese academic Henry Huiyao Wang at a side event at the Munich Security Conference's "Author Reading”.
Here's Allison’s take: it’s all about Trump
“ …..the reason for being slightly more optimistic at this point is that in President Trump, we have this new change agent. Now, there's lots to be said about him. Much of it, and especially here that we're in the Munich Security Summit after the last three days, makes one think, oh my god, okay, and I may be stretching a little bit to try to find silver linings. But at Davos this year, I was asked to try to be constructively optimistic. And I said I'm now prepared to make a bet, and I made a public bet about the proposition that a year from today, so January 2026, relations with the US and China will significantly improve. So we'll be surprised on the upside. And I think the main reason why that's the case is that I think if you ask whether President Trump is a China hawk or not, and you then go back, the broad consensus, broad bipartisan consensus in the US today is quite hawkish towards China and most people would be some version of China hawks.
So what about Trump? And if you go back and look at the election that we just had, so we had a whole year of campaigning until November 5th. 1,000 people running for national office for 435 seats in the House, 100 seats in the Senate, President, Vice president. 80% of Americans have negative views of China. Not one candidate had anything nice to say about China. All 1,000 except for one. And this one said things like, "I respect China." He says here, he said, "I respect, I very much respect Xi Jinping. Xi Jinping is brilliant. People tell me I shouldn't say this, but he's brilliant. I know him. He says, I want China to do well." So I think it's quite likely that, I mean, why would you say such things like that in an election? You're trying to appeal to people's votes. There's no, those are not applause lines if 80% of people think negative. So I think he might actually believe what he said or some portion of it. So I think he may have quite a different conception of what the US-China relationship could be like.
And now watching what's happening since the election, on the one hand, you have the appointment of Rubio as Secretary of State. He's a classic Republican hawk on China if you look at everything he ever said about China until he became Secretary of State, now he's falling completely in line because Trump is setting the terms and everybody else works for him. Look at Mike Waltz who's the Secretary of Defense. He's a traditional Republican, a hawk. Ratcliffe, the Director of CIA. But here is Trump. And Trump is determined to be the CEO and to be running things.
No, I would say watch the space. The most promising thing on the horizon for me is the prospect of a peace agreement of some sort that brings an end to the war in Ukraine. I believe that's gonna happen in short order. And I see in the tea leaves the possibility that Xi will become part of this process. Even part of the negotiating or the confirmation of whatever is negotiated and maybe part of the guarantor/guarantee framework that'll give people like Zelensky and Europeans confidence that this is not simply a short intermission in a war for Putin to reboot, but that actually it's gonna be a sustainable peace. Now, it won't be the peace that Zelensky would prefer and won't be the peace that the Danish prime minister was talking about today. And which she says, "until we have a victory in Ukraine and Russia can never again possibly attack Ukraine, we shouldn't give up on the war." So obviously that's her view, but it's not gonna be very relevant, I believe. But I think China may be quite relevant, given both its influential role with Putin and Russia, and also the fact that if it's part of a peace agreement the way it was part of the peace agreement that brought an end to World War II, it has a stake then in ensuring that the parties live up through their obligations. Sorry, that's a longer speech”.
You can read, watch and listen to the full interview HERE
The Virtues of Tri partite government
I thoroughly recommend subscribing to the newsletter of Canadian academic philosopher called Joseph Heath, a Professor in the Department of Philosophy at the University of Toronto. I’ve long found Heath a helpful, liberal-minded critic of prevailing progressive mores, patiently explaining and exploring issues like free speech and wokeness. His latest piece is especially interesting as he takes aim at the potential executive overreach of the Trump government and how it might shred the founding concept of tri-partite government (executive, legislature and judiciary).
“The key thing to recognize is that Trump is challenging a constitutional convention. If successful, his actions may create a permanent realignment of power between the branches of government in the U.S. The fundamental problem, I should note, is that the U.S. has a completely dysfunctional legislature. Since power abhors a vacuum, the rise of judicial power in the 20th century was driven by this legislative weakness. People wanted certain outcomes, and since Congress was unable to deliver, they were happy to have those outcomes imposed by the courts. But judicial supremacy has a number of pathological effects on government, including a near-complete disregard for questions of cost and efficiency. The current play by the Trump administration to expand executive power is a response to both of these issues — the absence of an effective legislature and the accumulated inefficiencies of judicial rule.
All of this seems likely to further exacerbate the tragedy of the Democratic Party in America, which has basically painted itself into a corner on these issues. Democrats are convinced that many of the problems faced by Americans can only be resolved through an expanding the role for the public sector. They have trouble convincing Americans of this, however, because the U.S. public sector is supremely incompetent when it comes to carrying out even simple tasks. The reason that the U.S. public sector is so incompetent is that the executive branch is shackled by accountability relations, both to the public and to the courts, that are inconsistent with efficient public administration. The only way to solve these problems is to grant more discretionary power to the “administrative state,” which is to say, the executive. Democrats, however, are not willing to do this, because they are too afraid of what Republicans would do with unshackled executive power.
The problem is further exacerbated, at the moment, by the fact that Republicans are acting on so many bad ideas for the reform of the administrative state. This leads Democrats to want to fight back against the changes, using the only remedy currently available to them, which is judicial power. This is why Trump’s actions have generated an average of two law suits per day since he has taken office. Yet by relying on the judiciary to stymie executive “overreach,” Democrats are doubling down on the most dysfunctional aspect of the American system. After all, if there is one thing the U.S. government is good at doing, it’s preventing anyone from changing anything. This “vetocracy” is the most significant barrier to the realization of progressive policy goals. And yet Democrats are now relying on precisely these features of the system to control Trump.
The lesson they will learn from all this, somewhat predictably, aligns with the conservative view of the Roberts court, which is that the administrative state needs to be subjected to more careful judicial oversight. At best, this will reinforce the status quo. But it is precisely frustration with the status quo that is driving voters toward increasingly desperate solutions, like voting for Donald Trump. I find it extremely difficult to see how anyone breaks out of this vicious circle.”
I’ll finish with some incredible magic tree economics, courtesy this time not of our Corbynite friends on the left but Reform on the Right. This wonderfully idiotic spending idea emerged in Richard Tice’s speech about scrapping what he labels “stupid net zero”.
Over to Sam Dumitriu of think tank Britain Remade for an explanation of why all electricity pylons should be buried underground. No, seriously, all pylons including existing ones…
“The most significant policy announced by Tice was a requirement that all new transmission lines built by the National Grid be buried underground. In essence, they want to ban pylons. Reform’s powerbase is in the East of England (Essex, East Anglia, and Lincolnshire) and also happens to be where the largest transmission projects will be built over the next five years.
Reform isn't the first to call for pylons to be buried underground, but what sets their policy apart is their plan to force National Grid to tear down existing recently-built pylons and bury the cable underground. And if they don’t, they’ll be banned from paying out dividends. Put simply, it’s a threat to the National Grid. Stop what you’re doing now, or we’ll take a hammer to your balance sheet in five years time when we’re in power.
Many opposition parties are often criticised for announcing unfunded policies. To be fair to Tice, Reform aren’t guilty of that. Their pylon policy has a clear funding mechanism. Like all grid spending, it’ll appear on household energy bills. It is, in essence, a poll tax on every household in Britain.
And let’s be clear. This is an extremely expensive policy. In the next five years, National Grid has been tasked by the National Energy Systems Operator with building roughly 620 miles (1000km) of new transmission lines onshore. And for those who ask “Why can’t they do it offshore?” The answer is: they are. National Grid will build 4,500km of transmission offshore. In fact, they’re building as much offshore as possible. The issue is we need to take the power to where people live and, with a few exceptions (e.g. North Sea oil riggers), most of us live on land.
How much does it cost to add 620 miles to the network? It depends. If you build it above ground using overhead wires and pylons, the Institution of Engineering and Technology (IET) estimates it costs between £2.2m-£4.2m per km. In other words, the onshore grid built to hit the Government’s 2030 Clean Power target could cost between £2.2bn to £4.4bn. That’s a lot of money – paid for by our energy bills – but there’s a benefit too. At the moment, our lack of grid infrastructure means wind farms are paid to switch off when it’s windy because the grid can’t take enough power from where it’s produced to where people live. Last year, British bill payers paid over £1bn to do this and with more renewables coming online in places like the North Sea this figure is only going to rise (unless we fix the grid).
So what if we adopted Tice’s plan today. Well, the IET estimates the cost of burying cable underground is around five times higher at between £10.2m to £24.1m per km. So for the 620 miles or so of new onshore transmission in National Grid’s pipeline, we are looking at a cost of between £10.2bn and £24.1bn.
In other words, the best case scenario for Reform’s plan (i.e. the upper estimate for pylons and lower estimate for underground cables) is one where households collectively end up paying £5.8bn more. That’s £200 for each and every other household in the country.”
So, let's get this right. The country desperately needs to spend countless tens of billions to build up a military that can defend our way of life, but here we have a policy that would snaffle all of that on digging for pylons. It’s almost as mad as the government’s carbon capture scheme, which I predict will be bludgeoned to death in the coming months.
