Trump, Tariffs, Budgets and Biscoff – what the big events mean for savers and investors

The AJ Bell Money and Markets podcast, hosted by Dan Hewson and featuring Charlene Young, discusses the significant market impacts of Donald Trump's return to the White House, highlighting the surge in "Trump trades" and shifts in major indices like the Dow Jones and NASDAQ. The episode delves into the UK budget's ramifications, including changes to inheritance tax and pension regulations, and the potential effects on UK-listed companies, with insights from Simon Go of the Merchants Trust. Additionally, the podcast covers the rise in university fees, BT Group's job cuts, and Lotus Bakeries' market performance, alongside a discussion on the company's flagship product, Biscoff.

• Discussion on the market reaction to Donald Trump's return to the White House and the concept of "Trump trades."
• Investors responded to Trump's victory with significant market movements, including record-breaking highs for major indices.
• Bitcoin and Tesla stocks surged due to anticipated policy changes under Trump's administration.
• The dollar experienced a surge, influenced by expectations of higher inflation and interest rates.

"Markets woke up to the news that we would have Donald Trump in the White House. Futures were going absolutely bananas. The Dow Jones closed up 3.6%, the NASDAQ nearly 3%, the S&P 502.5%."

• The quote highlights the immediate and significant positive reaction of the stock markets to Trump's election victory.

"Bitcoin hit a record high. Donald Trump was a renowned skeptic of bitcoin, had a change of heart. Now he says he wants to make the US the bitcoin capital of the world."

• This quote underscores the shift in Trump's stance towards Bitcoin, suggesting potential regulatory changes that could benefit the cryptocurrency market.

• Trump's policies favor fossil fuels over renewables, impacting related stocks.
• Concerns about tariffs under Trump's administration affecting consumer prices and international trade.
• Potential changes in banking regulations and interest rates due to Trump's economic strategies.

"Donald Trump is more into the sort of quick win fossil fuels than into renewables. We saw a lot of renewable companies really sort of looking glum."

• The quote emphasizes the negative impact on renewable energy stocks due to Trump's preference for fossil fuels.

"There could be up to 60% tariffs on Chinese goods and somewhere between 10 and 20% on goods from the rest of the world."

• This quote highlights Trump's aggressive tariff policies, which could lead to increased consumer prices and trade tensions.

• Analysis of the UK budget's impact on businesses and consumers, including national insurance and living wage increases.
• Discussion on inheritance tax changes and their implications for estates and tax planning.
• The impact of inflation and interest rate expectations on the UK economy.

"Businesses will push up their costs, that they will charge the consumer for the increased national insurance that they're going to have to pay following the budget."

• The quote reflects concerns that budget-related cost increases for businesses will be passed on to consumers, affecting prices.

"The threshold or the allowance that everybody could give away is going to be frozen for another two years."

• This quote addresses the freezing of inheritance tax thresholds, which could lead to more estates being subject to the tax as asset values rise.

• Ongoing uncertainty in markets due to potential economic and policy changes under Trump's administration.
• The impact of consumer confidence and spending habits in response to political and economic developments.
• Expectations of future interest rate cuts and their effect on the economy.

"Markets pricing in what could be the last cut this time for some months, which is quite a change if you go back two or three weeks."

• The quote illustrates the shift in market expectations regarding interest rate cuts, reflecting economic uncertainty.

"A lot of consumer lack of confidence, wasn't there? And of course, October, you know, normally you would expect to see a big sort of surge because people start squirreling stuff away for Christmas."

• This quote highlights the impact of economic uncertainty on consumer confidence and spending patterns.

• The IHT nil rate band has been frozen, eroding its value due to inflation.
• If the nil rate band had been adjusted for inflation, the IHT threshold would be higher than current levels.
• The freeze impacts wealthier estates, potentially increasing the inheritance tax burden.

"If the government had uprated both the nil rate band and the residence nil rate band every year since they've been introduced, that would actually give an individual an IHT threshold of just above £790,000, rather than the half a million pounds we have today."

• Demonstrates the potential financial impact of inflation adjustments on IHT thresholds.

"This kind of residents extra nil rate band has actually been swallowed up by that kind of stealth freezing of the allowances."

• Highlights how frozen allowances negate the benefits of additional IHT bands.

• Pensions are generally IHT-free, but this may change in 2027 with new government proposals.
• The inclusion of inherited pensions in IHT calculations could affect many estates.
• Beneficiaries may face income tax on inherited pensions if the holder dies after age 75.

"At the budget, the government announced that it wants to include inherited pensions as part of someone's estate for inheritance tax from April 2027."

• Indicates a significant policy change that could impact estate planning.

"Inherited pensions, it's probably worth spelling out exactly what that means. It's usually what is left in a pot when someone dies."

• Clarifies what constitutes inherited pensions in the context of IHT.

• People may alter their financial strategies to reduce IHT impact, such as drawing from pensions earlier.
• Utilizing gift exemptions can be a tax-efficient way to manage estates.
• Professional advice is recommended to navigate complex estate planning and tax implications.

"People who have significant other income that kind of covers their day to day and their standard of living might also consider turning on that pension income tap to fund regular gifts."

• Suggests a strategy to mitigate IHT by leveraging income for tax-free gifts.

"If this is worrying you and it's confusing you, help is out there. So in my view, this was definitely a budget for professional advice."

• Encourages seeking professional guidance for estate planning under new tax rules.

• Speculation around changes to tax-free cash rules led some to access funds prematurely.
• Individuals have a limited window to reverse the decision if they regret accessing tax-free cash.
• The process involves understanding cancellation rights and potential fees.

"There's also a right to cancel when you access a personal pension like a SIPP for the very first time."

• Outlines the option to reverse a decision to access tax-free cash under specific conditions.

"If you really want to cancel that move and you feel that's the right thing for you, that you might think that's a small kind of price to pay."

• Emphasizes the importance of considering the financial implications of reversing tax-free cash access.

• The budget introduced changes affecting companies, including national insurance and minimum wage increases.
• These changes may impact labor-intensive businesses but could also boost consumer spending.
• The budget's clarity allows companies to resume planning and investment activities.

"The main thing is to get it out of the way because it has been. There's been so much uncertainty ahead of the budget that a lot of activity has been paused or put on hold."

• Highlights the relief companies feel post-budget, allowing them to focus on business operations.

"If there's more money in the pockets of consumers, then actually there may be more spending in the shops as well."

• Discusses the potential positive impact of budget changes on consumer spending.

• The investment strategy involves buying undervalued stocks and selling overvalued ones.
• This value investing approach is contrarian and focuses on long-term returns.
• The strategy requires constant reassessment of company valuations and market conditions.

"As a share price comes down, if nothing else changes, the company is cheaper and therefore you should be logically increasing in position having more of it."

• Explains the rationale behind increasing investments in undervalued stocks.

"That's fairly contrarian strategy. It has worked very well in the long term for us."

• Affirms the success of a contrarian investment approach over time.

• Stronger sterling can negatively affect companies earning overseas revenue.
• The portfolio is slightly less exposed to international stocks compared to the market average.
• Long-term company performance is prioritized over short-term currency fluctuations.

"In theory, yes, the strongest sterling is the less advantageous it is to earn money overseas."

• Acknowledges the potential impact of currency strength on international earnings.

"It's much more important to be in the right companies that can generate strong returns and decent growth."

• Stresses the importance of company fundamentals over currency movements in investment decisions.

• Investment involves regular evaluation and adjustment of holdings based on valuation and market conditions.
• Competitive tension exists within a portfolio, requiring decisions on whether to increase or decrease holdings.

"There's always a competitive tension within the portfolio of companies that you might want to reduce and other companies you might want to increase because of where they are in terms of valuation."

• This quote highlights the dynamic nature of portfolio management, where constant evaluation is necessary to optimize performance.

• China's current economic stimulus package is altering investor sentiment.
• The Chinese economy's state is crucial for commodity companies like Rio Tinto.

"China is a massive market, incredibly important for the commodity companies such as Rio Tinto."

• The quote emphasizes China's significant role in the global commodities market, impacting companies dependent on Chinese demand.

• Copper is favored due to its demand in electrification and constrained supply.
• Rio Tinto's diverse commodity positioning includes strong copper and aluminium sectors.

"We think the long term demand and supply balance for copper is particularly attractive."

• This statement underscores the strategic importance of copper in future energy solutions and its impact on investment decisions.

• Electrification drives demand for copper and aluminium, influencing investment strategies.
• Companies like SSE and National Grid are pivotal in electricity delivery.

"If we're going to have a lot more electric cars... there's going to be a massive demand in the need for electricity over time."

• The quote indicates the growing need for infrastructure supporting electrification, impacting commodity demand.

• Tate & Lyle has transitioned from commodity production to specialty ingredients.
• The transformation is significant but not fully reflected in market valuation.

"It's moved from being primarily a commodity type producer... to really a specialty ingredients company."

• This highlights the strategic shift towards higher value-added products, enhancing company value.

• Market pricing already factors in potential political changes.
• The focus remains on fundamental stock picking rather than political outcomes.

"We spend our life trying to find good companies that we can buy at attractive valuations with decent prospects."

• The quote reflects a long-term investment approach, prioritizing company fundamentals over political uncertainty.

• BT Group faces challenges with profit decline and job cuts, impacting investor sentiment.
• Persimmon and other companies are affected by rising building costs and market conditions.

"BT has already been in the middle of that... it has shed 2,000 positions just in the first six months of the year."

• This statement highlights cost-cutting measures and their financial impact on BT Group.

• Yum Brands faces challenges with declining sales despite budget-friendly strategies.
• Economic disparities in the US affect consumer behavior and company performance.

"Same store sales at KFC falling 5% over the quarter, the third straight decline."

• The quote illustrates the difficulties faced by value restaurant chains in maintaining sales amidst economic pressures.

• Lotus Bakeries, known for Biscoff, has expanded into healthy snacking through acquisitions.
• The UK is a significant market for Lotus, contributing a substantial portion of revenue.

"Biscoff is short literally for biscuit with coffee... it's transformed itself quite significantly in recent years."

• This showcases Lotus Bakeries' strategic diversification to enhance its product portfolio and market reach.

• Biscoff remains the flagship product for Lotus, accounting for around 50% of the company's revenue.
• The company's shares have seen a significant increase of 375.4% over five years, compared to a 61% rise in the MSCI World index.
• The current share price is nearly €12,000, which is approximately £10,000.
• The family owns 50% of the shares, implying a focus on long-term growth rather than short-term share price fluctuations.
• The valuation of the company is high, with earnings multiples of 68 times this year and 56 times next year.

"Well, Tom, yeah, it's, it's not cheap for a biscuit company with earnings of, well, for start, the share price, just to put everything in context, is just shy of €12,000."

• The quote highlights the high valuation of Lotus, emphasizing its premium market position despite being a biscuit company.

• Lotus has achieved an organic sales growth rate of 12% annually since 2015, with Biscoff growing at 15% during the same period.
• The company plans to increase its capital expenditure to €275 million to expand production capacity in Belgium, South Africa, and Thailand.
• These investments are aimed at addressing capacity constraints but will take time to realize their full impact, expected by 2026.

"The latest results saw better than expected sales growth of nearly 20% in the first half of 2024."

• This quote underscores the strong sales performance and the company's ability to convert sales into cash flow, supporting dividends and a robust balance sheet.

• Lotus has formed a partnership with Mondelez to introduce Biscoff into Mondelez's chocolate product range in Europe and to expand Biscoff's presence in India.
• The strategy mirrors the successful diversification of Oreo into various product categories.

"So in June, the company announced a partnership with Mondelez. So this is the company behind brands like Oreo that you mentioned and Cadbury."

• The quote highlights the strategic partnership with Mondelez, which is crucial for product diversification and market penetration, especially in India.

• Lotus aims to double its sales and become the third-largest cookie brand globally, following Oreo and Chips Ahoy.
• The company plans to increase marketing efforts to enhance its consumer reach beyond its core markets.

"Exactly. And in doing so, go from being the fifth largest cookie brand to the third largest behind Oreo and Chips Ahoy."

• This quote reflects Lotus's ambitious growth objectives and its strategic focus on expanding market share and brand positioning.

• University fees in the UK are set to rise by £285 to £9,535 from the next academic year, marking the first increase in eight years.
• Maintenance loans will also increase, providing additional support amidst the cost of living crisis.

"The news is that university fees are going up, so they're going up by £285 to £9,535 from the next academic year."

• The quote highlights the increase in university fees, which may impact students' decisions regarding higher education.

• The repayment period for student loans has been extended from 30 to 40 years, with the repayment threshold lowered to £25,000.
• These changes mean that while monthly repayments remain the same, the overall repayment period may be longer, affecting total repayment amounts.

"Nobody's actually going to be paying any more each month despite the rise."

• This quote explains that although the repayment terms have changed, immediate monthly financial obligations for graduates remain unchanged.

• The discussion emphasizes the importance of early financial planning for education costs, such as utilizing junior ISAs to save for future university expenses.

"If you are now at that point where you've got young kids and you have got a bit of extra cash to put aside."

• The quote stresses the value of foresight in financial planning for educational expenses, encouraging early saving strategies.