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The Financial Ironmonger Blog No 5/2018

The Financial Ironmonger Blog No 5/2018

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.


M&G were right with their call on bond markets, with the selloff well under way this week. 10 year bond yields are up to 2.85%, with 3% being the point at which the alarm bells start ringing. There is a view that natural buyers will appear at that point, seeking to match long term liabilities, and that there will not be that many sellers because of fixed asset allocations. Seems wishful thinking.

Bond yields are backing up because interest rates have started to rise in response to increasing inflation both in raw material, and labour costs. Across most markets, quantitative easing is either being scaled back, or stopped altogether, so the point of peak liquidity has passed. Not surprisingly, this has taken some of the steam out of equity markets, which were due a break anyway.

Nevertheless, there is good reason to stay optimistic for American equities, and those in other countries. The 20 largest markets, accounting for 90% of Global GDP, are all experiencing growth, which is virtually unheard of. An American equity strategist phoned on Monday to say that he was “wildly bullish”, which is not the sort of thing that these people tend to come up with.

He gave two main reasons for this; the transformational advances in technology, and the tax cuts, which we spent half an hour going through. The headlines implied that these were only of benefit to large corporations, and billionaires, but they will actually have a major, positive, impact on most of the population; this will only add to the existing growth in the economy, and might even be self-financing. Certainly, the cut in the rate of corporation tax makes it very competitive internationally.

I mentioned last week that the President had changed his tone with his speech at Davos, confirmed by people present who I have caught up with this week. The State of the Union address was both positive and inclusive, not that he got any credit from the media, and the opposition, who behaved like children. The next job is to get the Infrastructure Plan sorted, fiendishly complicated, since it relies on states, cities and counties, (and some private equity partners), to leverage up the government’s $200bn input to get to $1.5 trillion.

Given that many of these entities are strapped for cash, it implies that only the richest parts of the country get included in the plan. Thereafter, come November, it is the midterm elections, which will either make or break his first term of office. Meanwhile, the crackers have been hard at it, and the US is now on course to overtake Saudi Arabia and Russia to become the largest producer of oil globally, with all the geopolitical implications that brings. All achieved without a shot being fired.

The Trump leadership, whether you like it or not, is getting things done, which is sadly not the case here in the UK. The second stage of Brexit negotiations have yet to start, but both sides are positioning, with the EU demanding that nothing changes during the transitional period, and thereafter measures will be introduced to ensure that we cannot cut taxes, or reduce regulation. In return, we would get access to the customs union, but only a limited ability to strike trade deals with third party countries. All of which would mean leaving was pointless, and self-defeating, not the wishes of the electorate, however deplorable they may be.

Prime Minister May’s reaction to this shows the problem, graphically. The two sides of her party are totally irreconcilable, so she survives by giving something to each, occasionally. Having capitulated to nearly every EU demand so far, (see the full agreement on Stage One, best summed up as “nothing has changed”), she has now decided to dig her heels in on the free movement of people during the transition period.

Free movement is one of the four pillars of the EU, and not up for discussion. Either you participate, or not, in or out. Whilst this is a red line for the hard right of her party, it makes no sense. Those born in the EU who live here on Brexit Day, March 31st, 2019, are to be allowed to stay, whilst those who arrive on the following day have no right of access.

But, there is no register. So, you might have been born in France, say, moved to the UK, and raised a family, which is a perfectly normal scenario. As it stands, if you go back to France to celebrate Easter 2019, (April 21st), with your family, you have no more chance of re-entry than anyone else.

It needs some serious rethinking, or I will have to move to Trumpland, if he will let me in.


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.