Lord Jim O’Neill on inflation, Man Utd, and where investors should look next

The second episode of The ii Family Money Show with Gabby Logan is live.

Today, interactive investor, the UK’s second-largest DIY investment platform, publishes its second interactive investor Family Money Show podcast, this time with Lord Jim O’Neill.

Hosted by Gabby Logan, who has signed up as interactive investor’s Family Money ambassador, in each episode, Gabby speaks to a famous face about the role money has played in their family life and professional success.

Today’s podcast features Manchester-born,Lord Jim O’Neill, a British economist best known for coining ‘BRICs’, the acronym that stands for Brazil, Russia, India and China.

He is a former chairman of Goldman Sachs, and former Conservative government minister.

Below are some extracts from Jim O’Neill’s interactive investor interview, which is well worth a listen in full.

Are we in for a Roaring 20’s?

Jim O’Neill says: If I look at what I call the cyclical indicators - things that are in my veins from spending the best part of 30 years doing this - I've never seen anything quite like it…which suggests to me [that] for the balance of 2021, we're in for a big economic recovery around the world. I have quite a lot of confidence about that.

Where it doesn't help is beyond that period. There are so many things that could go wrong, many of which relate to topical issues, whether it’s the spat between America and China, whether it’s the whole fight against climate change…whether we can be prepared better for future pandemics or something else (I'm heavily involved in antibiotic resistance which is a much bigger threat than what we've just gone through worryingly...). And of course, the whole seeming inequality of growth over the past decade in many Western societies, and the pressure on policymakers to redistribute. All of those things make me think we're in for, let's just say a very interesting decade.

I think there will be certainly periods of extremely strong growth, but…we're seeing a few signs of…the return of something [that] people younger than me haven't really experienced, which is the inflation we had in the 70s and 80s. And if that's the case, markets are going to be extremely volatile and I wouldn't dismiss that that's going to be the case - especially because we've travelled so far in the past few years.

On inflation, Jim O’Neill says:

Somebody asked me to participate in a survey in recent days. And I said, ‘I don't know.’ And they came back to me said ‘you can't say you don't know - we want an answer yes or no.’ I said well, ‘I can and I am saying I don't know because the evidence isn't strong enough for me to have a strong opinion.’

Another thing that's important about both forecasting but particularly investing is, don't get dragged into having to do something unless you have to.

And I think you can see why inflation might rise a lot, because there's been staggering amounts of monetary and fiscal policy support. We've all ended up doing something in the UK and other places that none of us would have thought we could do collectively which is save a lot of money because we can't spend it on anything. And we're now going to spend like lunatics. And there's anecdotal evidence of price increases coming through and various things that you see in housing already - notwithstanding the pandemic. And so it could happen and I'm watching credible measures of inflation…described as inflation expectations.

There's a couple of universities around the world that undertake particularly reliable ones, and if that starts to get embedded and you get into this circular thing where people expect inflation influences wages and so on, then you know you've got it.

But at the moment, it kind of still depends on what's going to happen a bit with policy. So my best guess is…we might get away with it for a while, but we aren't going to be able to keep growing at the kind of rates we're likely to do in the next two to three quarters without inflation.

On trying to take over Man Utd

Jim O’Neill says: I often say it was probably the biggest professional failure I’ve ever had in my life to date. But it was…the approach I was trying to sit in the middle of was ridiculously complex but it… it was essentially a philanthropic approach to try to own Manchester United, which is… fast-forward to what has happened recently [with the European Super League] is obviously pretty topical.

“Listen, it was ludicrously complex, and the truth of the matter is once the current owners got hold of it, it was pretty… it proved to be, and it still is, very difficult for virtually anybody in the world to get it off them. It would’ve been heaven to have pulled it off, but it is also true, I remember Fergie [Sir Alex Ferguson] once said to me that he couldn’t understand why anybody would want to own a football club, and that often sits in the back of my mind.

On skin in the game…and asking tricky questions

Jim O’Neill says:…the truth of the matter [is that] being good at investing is really hard. If it was that easy, we'd all own our own Caribbean island, and it is really hard. And so, most investment managers can't outperform for very long. And a lot of them can't outperform ever. And so, you got to be careful that you get sucked into a clever sales pitch. And it's important that people ask awkward and tricky questions including how much skin in the game, as the person that's trying to promote the fund got themself. Because as soon as you hear, oh no… I don't have anything to do with it I just sell it, it's like that that is a red light in my opinion.

On sustainable investing, investments away from the obvious, and not getting sucked in by hype

Jim O’Neill says: I would say three things: First of all, be careful, don't get sucked into something just because it's gone up, and everybody's talking about it if, on the contrary, you might get in at the wrong point. So my first message is don't do that, think about what it is and why you really want to invest in something.

The second thing is, even though valuation will never give you reward, the next day or the next month. If it's something you want to stick with. I would make sure you look carefully at whether something's fairly valued or cheap or expensive. And in that regard, actually linked to the BRIC world. In the world of equities right now so-called emerging market equities, reasonably cheap certainly on a relative basis. And so, if it were being taken today as an investment decision that would seem more sensible than it seemed for a while certainly compared to the US.

And then third…I think this whole sort of profit with purpose thing is in its really nascent and early stage and I see with my own two kids that their values and interest in life are a lot broader than the ones that came through my generation,

[If you can invest in something that helps society] which can also make a profit, whether it's via some kind of fund or directly into some kind of crowdfunded investment, I encourage people to do that. Some of them will fail but you'll end up helping make the world a better place.