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The Financial Ironmonger Blog No 3/2017

The Financial Ironmonger Blog No 3/2017

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.

–THE FINANCIAL IRONMONGER BLOG NO 3/2017–

This was a good week if your name happened to be Theresa or Trump; for those opposed to Brexit or the Donald, it was one where all the fears came home to roost. Whilst you would expect wailing and tears round at the Guardian, the BBC seems to have abandoned any attempt at impartial reporting, leading to suggestions that the latter is merely a televised version of the former.

Little was expected of Theresa’s speech, which made the outcome more interesting. We are leaving, deal or no deal, which seems to have been a surprise to the European establishment, and furthermore, if they attempt to impose punitive conditions, the UK will adopt the Singapore model of low taxation and light regulation with which Europe could not compete.

By the end of the week, the Germans had wised up to the problem with the finance minister stating that “we have to minimise the damage for the United Kingdom and Europe. The German government will work in the negotiations always in this direction, to minimise any risk for both of us”. Which is a very abrupt about-turn, and given that Germany is the anchor of the whole European system, the other 26 countries are very unlikely to step out of line.

They may not like the stick before the carrot, but it has certainly turned the situation to our advantage. Maybe that had taken heed of the Donald who said, “I will be meeting with Mrs. May. She’s requested a meeting and we’ll have a meeting right after I get in to the White House and it’ll be, I think we’re going to get something done very quickly”. Rumours circulating this weekend suggest that it could be as soon as next Thursday.

Thus Trump becomes the unlikely white horse of Brexit, but if the EU cut up rough, we can always enlist the London based divorce lawyers, recognised as the best in the world. I debated during the week with two blog readers why it was going to take two years of negotiation if we wanted nothing from the deal, to which we failed to find an answer.

His powerful inauguration speech stunned the establishment, with the TV cameras cutting to show the Clintons chewing on a shared lemon. They must know that this is the end of the line for their brand of politics. And the rest of us must hope that the band of advisors assembled from such places as Goldman Sachs can persuade him that free trade is better than protectionism. Or, maybe that is Theresa’s next task.

You can see where he is coming from, calling out BMW for building cars in Mexico rather than America for sale in that market. There are, of course, limits on what he can do, and the first 100 days will show how much support he can expect from his adopted Republican party. It is going to be a binary outcome; either he is going to be a brilliant President, or a total disaster.

Meanwhile, it was a thoroughly bad week for two major British companies, Rolls Royce, and the Pearson publishing group. Rolls have agreed to pay fines of £671mn to settle claims against it of bribery and corruption, and have been given five years to pay, given the dire state of its’ balance sheet. Had criminal convictions been handed down, they would have stopped it delivering on deals worth at least £11.5bn and possibly £22.9bn, some 30% of the order book. Given the excellence of the product, it is not clear why they went down this road.

Pearson has been hit by a slowdown in the North American educational market, the shares hitting a 14 year low. In fact, it is rather simpler than that. Their army of sales people are paid commission on the gross number of books sold, and there is no risk for the shops, since there is a sale and return policy. Which is just what happened. Expect some new management.

Perhaps the only interesting thing to come out of the annual meeting of the global elite in Davos this week, (bar the thoughts of the German finance minister above), was a survey of chief executives carried out by PwC. This showed that 89% of UK CEO’s were confident about the business outlook over the next twelve months, the largest share since 2013. Presumably, they didn’t bother polling either Rolls, or Pearson. Only Canadians were more confident, but I not aware the Donald has brought his thoughts to bare on his northern neighbour, yet.

Presumably the attractions of Davos will diminish, given the changing world order. I cannot see the man himself attending, and why pay the $50,000 for a ticket when a Twitter feed to Trump will give you much greater insight, for free? His thoughts on drug pricing wiped $26bn off the value of the biotech sector on Monday morning, whilst a tweet about the strength of the Dollar caused it to crash by 2% on Monday night. If only he ran a hedge fund.

The Chinese curse of “may you live in interesting times” has never seemed more appropriate.

–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.