Edward Chancellor: The horse breeder who The ex-minister, why I voted for built the UK’s hottest the nuns and the Brexit P18 baby brand P30 $9m P34 24 June 2016 Issue 799 Britain’s best-selling financial magazine Heading for disaster? How central banks lost control Page 24 £3.95 > 25 771472 206092 9 moneyweek.com HOW TO MAKE IT, HOW TO KEEP IT, HOW TO SPEND IT MONEYWEEK 24 June 2016 Issue 799 Britain’s best-selling financial magazine From the editor-in-chief… As I write I don’t know fuelled by our unsustainable system of their buyers care more about preserving what the result of the tax credits. We will still have a horrible most of their money than they do about UK referendum on current-account deficit (see our website a guarantee that they will lose a little Europe is. You will for Bernard Connolly’s take on this). of it. That’s just too nuts to last for very have to wait until long. So on page 24, Dan Denning looks next week to hear Our big companies will still be at what might happen next. The answer, MoneyWeek’s views overcommitted (in terms of dividend in a nutshell, is nothing good. “We’re on the actual result promises to shareholders), underinvested at a stage where it’s hard to see how we (though we’ll be giving (capital expenditure has been falling avoid a future monetary crisis. The lower our immediate take on the results in a dramatically) and dependent on the rates go, the more extreme central banks’ podcast on the website on Friday – you’ll kind of corporate cronyism we all say efforts to avoid or escape deflation be able to listen to that or download it at we disapprove of to keep their shows on will become. The more desperate their MoneyWeek.com). However, one thing the road. Our equity market will still be policies, the greater the risk that we’ll see I can say already is that, however we overpriced and horribly vulnerable given destructive levels of inflation.” voted, the actual result will be much the companies’ weak profits. And of course same either way in the short-to-medium The EU referendum has been important term. If we’ve voted in, we’ll be trying “How we deal with the fallout of and it will continue to be important: to reform the EU from the inside (not how we deal with its fallout could make easy at all) and if we have voted out by a the EU referendum could make a huge difference to our long-term small margin we’ll be getting to work on a huge difference to our future. However, it is also a symptom reforming at least our deal with it from long-term future” of a deeper economic malaise across the the outside (easier, but still not that easy). West. And as Dan says in our cover story, we will still be at the mercy of the same in the end that makes it something of a Either way, we’ll be demanding change – grand monetary experiment that has sideshow to the main event: the endgame as will the electorates of many other EU been slowly confusing our economies for of modern monetary madness. countries (see page 20). And regardless the last 20-odd years. from which side we are fudging around with the EU, all our other problems In this week’s cover story we take a break will still be with us. We will still have a from talking about the EU to look at how stunner of a public-debt problem (total we got to where we are now – to a point government debt is knocking around where more than half of all government Merryn Somerset Webb £1.2trn and still rising – see page 5), bonds globally trade on a negative yield: email: [email protected] Editor-in-chief: Merryn Somerset Webb Executive editor: John Stepek Good week for: Managing editor: Cris Sholto Heaton Microsoft: The software giant has routed more than £8bn in Winner of the week Deputy managing editor: Alex Williams UK sales through Ireland since 2011, saving £100m a year in Mälardalen University, in Markets editor: Andrew Van Sickle corporation tax, as part of an “advance pricing agreement” with Sweden, has been ordered Senior writer: Matthew Partridge by a Swedish court to Contributors: Chris Carter, HM Revenue & Customs, according to The Sunday Times. Mischa Frankl-Duval, Emily Hohler, Jane Lewis, refund US student Connie Sarah Moore, Natalie Stanton Askenback 170,182 kronor Group art director: Kevin Cook-Fielding London Business School: The business school has been able to Picture editor: Natasha Langan end its five-year fundraising drive two years early, after raising (£14,000) in tuition fees, Designer: Sam McMurchie £125m. Jim Ratcliffe, founder of chemicals giant Ineos, who plus interest, after the two- Production editor: Stuart Watkins year finance course she Chief sub-editor: Joanna Gibbs graduated from the school with an MBA in 1980, donated £25m. Website editor: Ben Judge had been on was slammed as “almost worthless” Advertising sales director: Simon Cuff Bad week for: (020-7633 3720) Commercial director: Vinod Avocado lovers: Rising demand for avocados in by the country’s higher Gorasia (020-7633 3664) Publisher: Dan Denning New Zealand has pushed the price per fruit educational authority, Managing director: Helen Hunsperger to NZ$6 (£3), sparking a crime wave – since UKÄ. The court in Founder and editorial director: January, 40 “large-scale” thefts have been Västmanland agreed Jolyon Connell Group publisher: Bill Bonner recorded. An extra 96,000 households bought that the degree that Askenback Editorial queries: Our staff are unable to avocados in 2015, according to New Zealand respond to personal investment queries as Avocados, a growers’ association. had studied for MoneyWeek is not authorised to provide individual from 2011 to 2013 had Getty iStockphotos Images; investment advice. 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MONEYWEEK and MONEY MORNING are registered trade marks owned by “The point of philosophy is to start with something so simple as not to seem worth stating, and MoneyWeek Limited. ©MoneyWeek 2016 to end with something so paradoxical that no one will believe it.” ISSN: 1472-2062 • ABC, Jan – Jun 2015: 47,986 Cover illustration: illustration: Cover Philosopher Bertrand Russell (1872-1970) MoneyWeek magazine is an unregulated product. Information in the magazine is for general information only and is not intended to be relied upon by individual readers in making (or not making) specifi c investment decisions. Appropriate independent advice should be obtained before making any such decision. MoneyWeek Ltd and its staff do not accept liability for any loss suffered by readers as a result of any investment decision. moneyweek.com 24 June 2016 MONEYWEEK 4 news Washington DC Clinton’s war chest trumps Trump’s: Figures released by another $2.5m; he has now put $46m of his own money America’s Federal Election Commission show that Hillary towards his presidential bid. Republicans, rattled by a turbulent Clinton has an overwhelming financial advantage as she few weeks in which he fired his campaign manager and racially begins her presidential campaign against the Republican abused a judge, will be feeling even more nervous now. nominee Donald Trump. She had $42.5m of cash on hand at the beginning of June, compared with Trump’s $1.3m. In May, Trump raised only $3.1m, while Clinton raked in $26m. Last month also saw Trump lend his own campaign Palo Alto, California Tesla bids for SolarCity: Elon Musk, the founder and CEO of Tesla, the electric car maker, has announced a $2.7bn all-stock bid for SolarCity – of which he is the chairman and a 22% stakeholder. Tesla’s shares fell by 10% on the news. You can see why, said Lex in the FT. For all Musk’s insistence that electric cars and solar panels are a great match, Tesla shareholders “smelled the deal for what it was”: a bail-out between two Elon Musk companies. Tesla really doesn’t need a solar company, “and if it did, it could have bought a good one”. SolarCity is carrying more than $3bn of debt and it could come close to breaching its covenants, according to Goldman Sachs. Analysts at Oppenheimer & Co expect “a robust shareholder fight over his acquisition”. The way we live now Brasilia Brazil’s biggest bankruptcy: Oi, Brazil’s biggest fixed-line telephone company, filed for bankruptcy this week, seeking protection from creditors on $19bn of debt. It’s Brazil’s biggest bankruptcy on record. The company had failed to reach a deal on restructuring its debt after a long series of mergers and leadership changes. The group’s performance has gradually deteriorated over the past few years: last year interest costs were almost double operating income.