Tue. Jan 25th, 2022

Let’s start today’s weekly Roundup with a look at AIM.


Claer Barrett

In FT, Claer Barrett examined AIM and its use to prevent IHT.

  • I’ve been managing a portfolio like this for the past four years and I just started selling it to pay for care home fees.

The tax exemption occurred some time ago, but the approach became popular eight years ago, when it became possible to hold AIM shares within an ISA.

  • Shares not listed on another recognized stock exchange and held for two or more years do not attract IHT.

It is the same goal of Business Property Relief (BPR) to family businesses and farms.

Today, up to half a million pounds a year flow into “IHT Isas” offered by investment management companies such as Octopus, Unicorn and RC Brown.

AIM via Covid

Despite its (deserved) high-risk reputation, AIM has performed well through Covid.

  • I should point out that the AIM-100 index is not representative of the overall AIM market, even more so than the FTSE-100.

AIM is a stock selection market, with only 25% of companies worth investing in.

Alex Davies of the Wealth Club commented:

The FTSE 100 is full of yesterday’s companies, but if you invest in Aim, you’ll be able to know tomorrow’s winners. It is closest to a British Nasdaq.

I’m a big fan of the Wealth Club and I buy most of my VCTs through them, but AIM is nothing like the Nasdaq.

Simon Thompson of Investors Chronicle said:

Overcoming small capitalizations reflects the higher weighting of Target indices in the fast-growing sectors (technology, e-commerce and healthcare) benefiting from benign monetary and fiscal tailwinds.

It seems more to me.

Big Mac Index

Big Mac Index 210720

The Economist made its periodic report on what burger prices can tell us about exchange rates.

A Big Mac in Vietnam seems to be 47% cheaper than in America. [This] suggests that the dong is undervalued. The American’s Treasury certainly believes it.

Twice a year he informs Congress of countries that could keep their currencies artificially cheap to increase exports and steal a competitive advantage. In April, it was confirmed that Vietnam was part of a trio of trading partners, along with Switzerland and Taiwan, who were pursuing “potentially unfair” monetary practices.

Now Vietnam has agreed to let the currency flow more freely.

It is common for poor countries to look cheap compared to rich ones. The price of a burger [in Vietnam] it is about what you would expect considering the country GDP per person. Taiwan remains surprisingly cheap, given how prosperous it has become. And Switzerland seems expensive by any measure.

At the end of the table is Lebanon:

The Big Mac costs the equivalent of just $ 1.68. One reason may be that Lebanese importers may acquire some of the ingredients at a subsidized and more favorable exchange rate. Lebanon’s monetary chaos is both a reflection of and contributing to its economic disaster.


Hargreaves Lansdown reported a change in the demographics of its users.

  • 50% of their new customers belonged to 30-54 year olds and 83% were under 55 years old.

The average customer is now 46, less than 58 in 2007 and 54 in 2014.

  • HL now has 1.65 million customers.

CEO Chris Hill said:

The pandemic has accelerated two trends that were already evident to us: a permanent shift to digital [98% of trades are now online]; and a change in the demographic mix.

We see that younger customers show interest in investing. They are beginning to benefit from the wealth transition of the older generations. Giving customers access to the platform sooner means we can support them for longer as their wealth grows.

AUM increased by 30% by June 30, 2021, to £ 136 billion, although somewhat fairly it will have been due to the growth of stock markets.

  • New business rose 13% to £ 8.7 billion, and revenue rose 15% to £ 631 million, and strong profits fell 3% to £ 366. millions of pounds sterling.

HL remains incredibly resilient, as it is the most expensive of the well-known trading platforms.


The Economist had three articles on cryptography.

When Gary Gensler was named head of the SEC in April, he was considered “good for cryptography,” like so many news outlets.

  • He used to teach a course on cryptography at MIT and had described bitcoin as a “catalyst for change”.

But he has now noted that he wants tougher regulation, describing cryptography as “full of fraud, scams and abuses.”

  • He said cryptocurrencies were not a means of exchange, but rather “highly speculative value stores”, and that investors could not access “rigorous, balanced and complete information”.

Strictly speaking, the SEC has no jurisdiction over bitcoins and ether, as they are not securities:

The “Howey test” asks whether investors have a stake in a joint venture and is made to expect profits from the efforts of a third party.

Stablecoins are more likely to pass this test, as they often represent a stake in a particular cryptographic platform.

Jerome Powell has hinted that they should be regulated as money market funds or even banks.

The SEC controls ETFs, and so far, applications to launch bitcoin ETFs have gone nowhere.

  • Strangely, Gensler suggested that bitcoin mutual funds and ETFS based on CME bitcoin futures could be more acceptable.

Gensler also suggested that it could request additional powers to deal with DeFi, smart contracts and cryptographic trading platforms.

Stablecoin market capitalization

The second article examined stablecoins in more detail.

Because banks offer amortizable deposits on demand and superficially risk-free, but which are backed by long-term assets, less liquid and more risky, they are vulnerable to operations. The stablecoins are similar.

Tether is the obvious example: it has $ 62 billion in tokens that in March 2021 had only 5% backed by Treasury bills and bills.

  • Tether’s self-report would also imply that it is the world’s seventh largest investor in commercial paper, close to Vanguard and BlackRock.

Tether’s leverage is estimated at 383, providing a safety shock of only 0.26%.

The Economist compares stablecoins to money market funds:

[They] were created in the 1970s to circumvent rules that limited the interest banks could pay depositors. After promising to keep the value of its shares in dollars, money market funds exploded in 2008 in the global financial crisis.

U.S. taxpayers intervened to prevent the sale of assets from their assets and a fall in the commercial paper market, on which the real economy depends.

I find a rescue of Tether taxpayers unlikely. The article concludes that stable currencies should be regulated like banks:

Subject fixed currencies to banking rules of transparency, liquidity and capital. Those who fail to comply should be separated from the financial system.

Which seems reasonable to me, but then I’m a stable skeptic.

  • I cannot see the meaning of stable private currency from unknown sources, and I hope that they will be expelled by central bank coins and by those issued by trusted private companies.

Apple, Google and Amazon would be my options.

Cryptographic trading volumes

The third article was a stress test of the cryptographic space that asked “What if Bitcoin went to zero?”

  • There were 11,145 cryptocurrencies listed on CoinMarketCap at the time of writing, compared to the “only” 6,000 the previous year.

The total market cap has gone from $ 330 billion to $ 1.6 billion (Canada’s GDP).

  • And there are 100 million digital portfolios, three times the 2018 figure.

“Institutional” trade (operations of more than one million dollars) is now 63% of the total, compared to 10% in 2017.

What would happen if the price went down to zero?

A routing could be triggered either by shocks caused by the system, for example by a technical error, or by a serious breakdown of a large cryptocurrency exchange. Or they could come from outside: a reduction by regulators, for example, or an abrupt end to the “upswing of everything” in the markets, for example, in response to rising central bank interest rates.

Mohamed El-Erian described three types of cryptoinvestors: fundamentalists, tacticians, and speculators.

  • Speculators will sell and fundamentalists will not, so the behavior of tactics (who believe the crypto will increase in value as more people adopt it) will be crucial.

Bitcoin miners, who compete to validate transactions and are rewarded with new currencies, would have fewer incentives to continue, ending the process of verifying and supplying bitcoins.

Unrealized cryptographic gains

Long-term holders have low entry prices and unrealized massive gains.

  • Last year’s buyers, including most institutional buyers, would face the worst “real” losses.

In addition to the $ 1.7 trillion capitalization of the crypto market, there are another $ 90 billion in listed crypto companies and $ 37 billion in investment in unlisted crypto companies at stake.

  • Payment companies (PayPal, Visa and Revolut) would also be affected, and even mining hardware companies (like Nvidia) would suffer.

A total of $ 2 billion could be lost, although margin calls to derivatives could inflate it even further, perhaps by an order of magnitude.

  • And then there are the stable currencies (as discussed above).

Bitcoin trading volumes

The Economist is concerned about spreading to other assets:

The sale would start with the most leveraged bettors in high-risk areas: memes, good trash, acquisition vehicles for special uses. Investors exposed to these issues, faced with questions from their investment committees, would continue to take turns, making risky assets less liquid and perhaps causing a general fall.

The newspaper notes that Shenanigans Gamestop caused a 2.5% daily drop in the S&P 500.

  • I don’t expect to see a total collapse of cryptography, but the risk of something like Tether exploding and causing an 80% price drop is the main thing holding me back from investing right now.
Quick links

This week I only have three, the first two from The Economist:

  1. The newspaper said American biotechnology is booming
  2. And I wondered how the Chinese companies could go down in the US stock markets.
  3. Alpha Architect analyzed the role of intangibles in value investing.

Until next time.

Mike Rawson

Mike is the owner of 7 Circles and a private investor living in London. He has been managing his own money for 35 years, with some success.

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