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.
–THE FINANCIAL IRONMONGER BLOG NO 52/2017–
Making New Year’s predictions is about as much a waste of time as writing a list of resolutions unless both are couched in such vague language as to be meaningless, or they are just outrageous. Who would have predicted twelve months ago that I am now wearing a Fitbit? Before returning to some of the more off the wall ideas, perhaps it is worth looking at more predictable outcomes.
The global economy finally seems to have shaken off the worst effects of the financial crisis of ten years ago, although there are still some horrors lurking out there, such as the Italian banking system, which might return to haunt us. Absent that, we are seeing growth in Europe, America and China, and given this boost in trade, there should be positive implications for the UK, such that it is possible to predict that there will not be a recession in 2018.
A tightening labour market, and a 4.3% rise in the minimum wage in April should boost productivity growth, which is already improving. The deflationary effect of the internet will continue to have a beneficial impact on consumers, but not retailers where the traditional high street model seems to be under relentless pressure.
Property developers think that converting redundant retail sheds on edge of town sites into internet distribution centres might be a possible solution for the unused space. Whatever growth we see in the UK, it is unlikely to be enough to cause interest rates to move far.
This is not the case in America, where growth is picking up from the Obama era of 2%, and it is quite possible that all four quarters will see 3% plus, and maybe even hit the Trump target of 4%, which is why interest rates are already climbing, and will continue to do so.
Politics will continue to dominate, as they have done in 2017. Whilst there are many elections planned, the important ones will be in Italy this spring, and the American mid-term on November 6th. It is probably safe to say that there will not be one in the UK, bar a catastrophic outcome to the Brexit negotiations, and even then, it would require two thirds of MPs to vote in favour. The numbers don’t add up.
All of the above would suggest a benign background for equities, and it is worth remembering that bull markets do not die of old age. 46% of investors polled by the Boston Consulting Group were pessimistic about equity markets next year, in a recent survey, which would indicate that there is plenty of mileage left. It is hard to remember a time when there was less enthusiasm for the asset class.
Some predictions are certain to be correct. America will not win the football World Cup, to be held in Russia, either because they didn’t enter a team, or failed to qualify. Should the hosts win at home, it would indicate significant advances have been made in drug technology. Worth a punt.
Tesla will miss production targets again, and with traditional car makers catching up on battery technology, shareholders will grow bored of being asked to throw money in to a bottomless pit. Indeed, any blue-sky concept stock is going to find life hard going in increasingly unforgiving equity markets, given the lack of animal spirit outlined above.
Which is not to say that people have become any more rational, or sensible, as the performance of Bitcoin, and other cryptocurrencies has demonstrated. Mining for these things consumes vast amounts of electricity such that a choice has to be made between that, and recharging electric vehicles. The former is totally outwith the politicians to regulate, or their tax authorities to pursue, so it will end in tears, much as it did for the gambling industry when it thought that moving to such centres of financial excellence as Malta would allow them to circumvent the established conventions.
The best performing equity market is likely to be in some country that you cannot spot on a world map, such as Zimbabwe, or maybe an eastern European equivalent like Turkmenistan, where it is forbidden to smoke outside, but encouraged in bars and restaurants. You need to think round corners.
Finally, two self-driving cars will crash in to each other, head on, as it turns out that AI has given them emotions. Thus the car insurance industry will have a new purpose, insuring against the “electric kiss”.
–MORE ABOUT OUR GUEST BLOGGER, DAVID OAKES–
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.