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The Financial Ironmonger Blog No 1/2017

The Financial Ironmonger Blog No 1/2017

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 1/2017–

It was a great privilege for me, at least, to have lived through 2016, and to have witnessed the start of the demise of the liberal elite, which has been running the show for far too long. In the UK, this is best summed up in one person, Tony Blair, who is now forming a new organisation to fight Brexit. There could be no clearer example of why they just don’t get it.

The average worker in the UK earns 10% less than they did pre-crash, whilst in America, they have not seen an increase in pay for some forty years. In Greece, the figure is minus 60% pre-crash, Spain, Portugal and Italy are all minus 50%, whilst the only gainers are Germans, plus 10%. The euro is nothing more than a giant subsidy for German exporters, funded by all the other hapless participants.

Not surprisingly, those who have been disadvantaged decided that they had had enough. This came as a great shock to their elected representatives, and large parts of the media who did not see it coming, but then they inhabit the same hall of mirrors. Indeed, if they are left rattled by the events of the past year, what is coming down the line will surely rid them of any complacency.

It will be fascinating to see how the Trump administration rolls in to action, but with equity markets hitting all-time highs, (not supported by earnings upgrades, yet), expectations are running. Whether he can achieve much, in the time that he has got, is doubtful, but the change of mood could be infectious. Ford have already announced that a new plant in Mexico has been cancelled, and that the 700 jobs will now be created in America.

It is, of course, much more complicated than this; many of the parts in American cars are built in Mexico, and such supply chains are not unpicked any time soon, but these small interventions give people self-belief, and as that great nation has proved before, it is an incredibly powerful stimulant. Some have compared it to the 1920’s, which might be right; it will certainly not be dull.

Meanwhile, closer to home, we will have ringside seats for what could prove to be a political earthquake in Europe. This kicks off with the Dutch elections on March 15th, (the Ides of March), where the anti-immigration and EU Freedom Party is likely to be the biggest individual party, but government will be formed by a coalition of the Liberal and Labour parties. Nevertheless, it will be a shot across the bows.

This is followed in April and May by the French Presidential elections, which looks like a choice between the Republican Francois Fallon and Marine Le Pen of the Front National. The former has been described as a French version of Margaret Thatcher, the latter as a female Nigel Farage. Whichever wins, it is clear that the mood has shifted away from the enlightened socialist theme that has prevailed before.

After a break for summer, the Germans will hold federal elections in September, where it seems inconceivable that anyone other than Angela Merkel will win, should she stand. But the right-wing AFD will make significant progress, reinforcing the trend.

At some indeterminate point, the Italians may, or may not, hold an election, perhaps as early as next month, if they can decide what voting system to use. Both the Northern League and the Five Star Movement are likely to see big gains, as “populism” sweeps forward.

It is now very obvious that the opinion polls are no guide to the outcome, which is somewhat unfair on them, since they are highly sophisticated, but whether the contact is in person, over the telephone, or by internet, they are unable to capture the views of those who have never previously voted, and they have been the swing constituents in both Brexit and Trump victories. As I pointed out above, the mainstream politicians, and media, are way out of touch with the voters. On the ground, in both countries, you could tell how this was going to pan out. I am off to Italy next month, so it will be interesting to see if this holds true.

One consequence is that our exit path could become much easier, once political parties across Europe see which way the wind is blowing.

Back in the markets, I could tell you that Next have issued yet another profit warning, and the coming weeks will see Christmas trading updates. What does seem clear is that people are deserting the High Streets, and transacting much more online, with implications for home delivery specialists, and those who have to sort the returned goods.

One final thought on Brexit, which I picked up this week; once we invoke Article 50, we are excluded from the decision making process, although still liable for the bills. What if, anticipating the break-up of the Euro, and the EU, (both of which are entirely possible depending on the French or Italian vote), the very next day, the remaining 27 invoke their own Article 50s, and leave within a fortnight?

Fanciful, I know, but…

–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.