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The Financial Ironmonger Blog No 41/2017

The Financial Ironmonger Blog No 41/2017

Every week our guest blogger, David Oakes of Mosaic Money Management (aka The Financial Ironmonger), shares with us his take on some of the major UK and overseas macro and political events that shaped the previous week.

Please be reminded the value of investments, and the income from them, may fall or rise. The views expressed in this article are those of the author at the date of publication and not necessarily those of Chelverton Asset Management Limited or Mosaic Money Management. The contents of this article are not intended as investment or tax advice and will not be updated after publication unless otherwise stated.


Another week, another investment conference, for it is that season. Most still seem bullish on emerging markets, both equity and corporate debt, but these asset classes have already enjoyed a good run, a weak dollar and a recovering oil price providing support. If I have an area of expertise, it is not here, so another thought goes to one who does understand; he pointed out that you would never buy a corporate loan which yielded less than the sovereign debt of its home country, which makes sense, so I shall not be tempted.

Other topics covered include the very real threat of cyber-attack, with only 2% of companies carrying insurance; the hackers favourite targets are where two companies are trying to merge systems, following a takeover, for instance, bringing a whole new meaning to execution risk. The big insurance brokers are hiring anyone they can get from M15, and GCHQ, which together provide the UK intelligence effort.

Political risk is another element which is much discussed, but seldom understood. The expert who addressed us on the middle east was asked what he thought about north Korea, to which he replied that it was a binary outcome; either nothing happens, or it is going to be a dreadful mess. 50% of the emerging markets index is made up of countries neighbouring that state. Maybe they do not see it as we do.

I had lunch on Thursday with a New York based manager who had spent his entire 32 year career in global emerging markets, which is quite exceptional. He reckoned that only the legendary Mark Mobius had served longer; there is a very high churn rate, because it involves so much travel. He seemed happy that he had managed to cut his air mile accumulation from 650/- a year, seven years ago, to about 350/- now. As to geopolitical risk, he reckoned that the biggest was Trump, who has no foreign policy at all, apparently.

I pointed out that since the Democrats do not have an obvious candidate for 2020, and no strategy bar blaming the deplorables who switched sides, there was a real chance that Trump would be re-elected. “Unthinkable, but quite likely” was his response. From which one can only conclude that the elite liberals have not moved on from the shock election result, one year later. I am off to take soundings there mid December, so will send a future blog on my findings.

Watching all this from afar, (which is a natural tendency), blanks one to the realities closer to home. Iraq, and Syria will never return to the borders established 100 years ago, (Sykes-Picot), which feeds in to Libya and Egypt, on the southern shores of the Mediterranean, Europe’s soft border. It is easy to argue that we caused these problems, because of the highly insensitive way in which the territory was carved up, and sovereign states thus created, which never had a legitimate basis, as understood by the people who lived there.

Thus, there is very strong reasoning why regions, or tribes, that have been swept in to larger conglomerations want their identity back, however much that is sugar-coated by how things used to be. The EU don’t help, because it cannot say anything stronger than the views of the weakest 27th member, and many have virulent independence movements within their own countries. These are serious issues, and given that they are occurring in many of the 27, perhaps they could take a lesson from the departing 28th.

It takes time to organise, and legitimise, and the losing side will always question the outcome, but it has a basis on which most can agree. Catalonia is the richest region in Spain; were it a state in its own right, it would be the 15th largest, with a GDP of some £200bn last year, bigger than the whole of Portugal. So, both sides should have a sensible discussion, based on the Scottish model, where passions ran high, but legality, largely, prevailed. Ordering the police to beat up defenceless citizens is no way forward, and has raised the story from a regional dispute to an international headline. Idiotic, given that there was no majority. Maybe some 40% in favour, but not properly tested, which is the problem.

A poll by Europe Elects puts Catalonia at 44%, with Sardinia and Scotland on 40%. But the one that interests me is Venice and the Veneto, on 56%, following an informal vote in 2014, which is going to be a proper one at the end of this month. Again, I will be posting a blog from there, with some thoughts.

For both countries, let along regions, separation is unthinkable, since they are locked in to the Euro, and deeply in debt. Spanish banks have been moving their registered addresses out of Catalonia, even to Majorca, to ensure that they can still access EU funds, whatever the outcome.

For either of these regions to leave, without any preparation, would make Brexit look like a picnic, or a tailgate party, as our friends might understand. No currency, no trade agreements, nothing. But it would be wrong to underestimate the feelings evident here; legitimate governments, secure in their purpose, do not send the police force to beat up old ladies, who remember the civil war, all too well.

None of the above, I would contend, is priced in to any asset class. Zero interest rates does not mean no risk. Any sailor will tell you that mirror glass seas, and no wind, are followed by much more challenging situations.


David joined Manchester stockbroker Henry Cooke, Lumsden in 1977 and after becoming a member of the London Stock Exchange in 1984 held a number of senior positions within the firm including Managing Director of the in-house fund management company and member of the Executive Committee.

After senior appointments at Cazenove Fund Management and latterly Mercater Capital Management, David joined Mosaic Money Management in 2013. He has successfully managed private client and fund portfolios for over thirty years and has particular expertise in providing a multi manager service to his loyal client base.

The Financial Ironmonger is a hat-tip to Ironmonger Lane, the location of Chelverton’s London office.