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The Financial Ironmonger Blog No 27/2017

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 27/2017–

Now that the Prime Minister’s role has been reduced from leader of the orchestra to some kind of forlorn political Sherpa, her Brexit facing colleagues have decided to strike out on their own to see what they can achieve.

First out of the blocks has been Michael Gove, reincarnated as Environment Secretary, after a most unfortunate knife crime committed on Boris, and then himself. He has given notice that we are leaving the London Fisheries Convention which allows our immediate European neighbours to trawl our inshore waters. This agreement preceded our membership of the EU, when Ted Heath gave away any protection we had, allowing any member state to fish our waters.

We will get that back when we leave the Common Fisheries Policy, justice, at last, for an industry that has been totally decimated in the name of political dogma. And also for Mr. Gove, whose father’s Scottish fishing business was one of the many destroyed. Self-interest can be an important driver of deals, which is why a delegation from the German car industry is heading this way, given that it is such a vital market for them.

It is thought that a hard Brexit would do them more harm than the financial crisis of 2008; anecdotally, I understand that car sales over the last couple of months have fallen below levels seen even then, so there is some urgency here. Likewise, we are sending people representing the City to Brussels to try and agree on a tariff free agreement for financial services.

Here again, there is urgency because the companies involved must start to implement a Plan B shortly, in case they have to physically set up shop in Europe in order to comply. Many have opted to open a base in Dublin, but obviously the high-ranking staff in London do not wish to have to uproot their families or social networks.

Perhaps this is one reason why the top of the housing market has dried up, since many of the people who swim in that pond will be bankers, accountants, lawyers etc. Uncertainty breeds inaction.

You will likely see similar moves in the pharmaceutical industry, which is global by nature, and in which we are leaders. The EU negotiator has expressed the hope that we will remain within the European Research Area which co-ordinates scientific study across Europe, and this is a very welcome move since the alternative would be that no European partners would team up with a British institution on mutli-year projects, fearing loss of funding in the interim. Last year’s autumn statement announced an extra £2bn a year for this area, which should also ensure that our top people do not emigrate.

Clearly, there is much to be done across many fronts, but there is an implication from these moves that the EU has much to lose if a fair deal cannot be reached; perhaps they have already seen the polls in France, Italy and Spain where the majority of their populations want a rethink on the project. Ironically, the Article 50 guidelines by which the divorce is organised specifically bans this sector by sector approach, but it seems a very pragmatic way of proceeding.

Whilst there are reasons to be cheerful on the trade front, with both America and China said to be very keen to do deals, Europe itself is finally recovering from the paralysis of the last ten years. The Polish economy is growing at 4% per annum, and despite many of them returning home, there is a chronic shortage of labour, so much so that they have had to issue 1.3mn work visas to Ukrainians. The market is finally working as it should, attracting people to where they are needed.

The idea that the UK needed total control over the immigration process has not lost its appeal to many, and there is certainly an argument for a points based system to control the quality of inflows, as happens in many other major countries, but I suspect that the real battle will be attracting enough numbers, rather than rejecting too many.

From all of this, you can see the making of a Brexit that will suit the wishes of most fair-minded voters, which is probably the major conclusion to the recent election outcome. Not that it will be any consolation for Theresa, who will forever appear in textbooks as a case study in how not to blow a political inheritance.

Meanwhile, the world moves on in different ways. Volvo announced that every car in its range will have an electric power train available from 2019, not that far away. It is going to require a whole new infrastructure, in due course, in terms of readily available charging points, let alone new power stations, since an electric car will use about as much as your house, on an annual basis. Perhaps the most significant thing is that Volvo is Chinese owned.

This afternoon, the UK received the first shipment of LNG made from US shale gas, where the success of fracking technology has created a glut. Indeed, the LNG plants have had to be reverse engineered, since they were designed for imports, and the law changed to allow exports. The law was originally passed to prevent cheap energy being exported for the benefit of competitor countries, but now America is poised to be the third largest exporter, behind Qatar and Australia, by the end of next year. The political ramifications of peak oil for the Middle East are for another day, not another decade.

–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.