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The Financial Ironmonger Blog No 50/2017

The Financial Ironmonger Blog No 50/2017

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.


Those who were hoping for some respite from the wretched Brexit debate were disabused on Wednesday when 11 Conservative MPs voted against the Government on a technical row about getting a vote on the final deal. The vote itself was not as significant as the fact that they were prepared to defeat their own side, surely not a good pointer for the future.

It is therefore a good time to escape to America, where I am sure that they have better things to worry about. It is more than a year since the election of Donald Trump who continues to be a sharply divisive figure. Whilst his efforts to overhaul Obamacare came to nought, his plans for the tax system seem to have been well received. Mostly.

The Fed raised interest rates on Wednesday, to 1.5% with policymakers expecting three more increases in 2018, two in 2019, and two in 2020, levelling out at just above 3%. Unemployment is heading below 4%, and the tax changes are likely to boost consumption and capital investment. The trick is to raise interest rates quick enough to control inflation, but slow enough to avoid blowing the recovery out of the water. It is, actually, a very difficult task.

Come election time, the only thing that really matters is the economy, so getting this right will have a big impact on Donald’s chances. Hardly a week goes by without some new controversy; the latest is naming Jerusalem as the capital of Israel, which it has been in practise since 1948. It is also claimed by the Palestinians, so it has been parked in a box marked “too difficult to handle.” Predictions of widespread violence have proved wide of the mark, so maybe this unconventional approach will bring results. Certainly, the status quo has achieved nothing positive.

One way of measuring the health of the economy is to look at the S&P 500 index, which is up some 20% since the election more on anticipation, and expectation, of change. It looks like the tax cuts will become law before Christmas, and in the background, progress has been made on deregulation.

This surge in the market has convinced many investors that they do not need the expense of employing active fund managers, and now one third of all the money invested in the US stock market is in passive funds. In the first six months of 2017, $500bn was withdrawn from active funds, and reinvested in passives. Buying shares on the basis of the size of the company, with no regard to the investment merits, becomes self-fulfilling. Over-valued stocks become ever more so.

This bull market has been running since 2009, during which time the S&P 500 has quadrupled; such runs do not end due to old age, but equally nothing goes up in a straight line. Perhaps it will continue for a while yet, fed by money from passive investors, but sooner or later, something will bring it to a halt.

My host at dinner last night suggested that the possible impeachment of the Donald might be the trigger, (wishful thinking on his part), but I doubt it would, given that nothing he has actually done has precipitated the rise.

In this part of Pennsylvania the biggest problem they have, (apart from the arrival of the winter snow), is a shortage of labour. Nearly every establishment from shops to bars and restaurants is looking to hire, so clearly the locals are not concerned about any possible downturn.


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.