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The Financial Ironmonger Blog No 31/2017

The Financial Ironmonger Blog No 31/2017

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 31/2017–

In the fourth paragraph of last week’s blog, I questioned how long Mr. Scaramucci would last as the incoming White House Director of Communications, and now we know, collateral damage as people went down like pins in a bowling alley. Perhaps the most significant was Reince Priebus, chief of staff, the main link between Trump and the Republican party. Having been defeated on attempts to reform Obamacare, due to the defection of three of his own voting with the Democrats, the signs are that he is moving towards an independent operation, separate from either party.

This is dangerous for the Republicans, for they can hardly campaign in a parallel universe; they are fortunate in having no meaningful opposition.Press reports suggest that Mark Zuckerberg, co-founder of Facebook has been hiring former Clinton campaign personnel with a view to running in 2020. His odds are 16-1, compared to Hillary’s at 50-1, with the Donald on 2-1. However, I shall miss Mr. Scaramucci; it was going to be a lot of fun, but I think he will be back with a slot in the media. I hope so.

Reducing the cost of Obamacare was meant to pay for the changes to the tax system, which should lower rates for corporations, and most individuals. The Democrats have indicated that they will go along with this, providing that it does not increase the deficit, and they will probably require an increase for the top 1%. Much the same has happened in the UK. The reductions are designed to stimulate growth, and whilst the economy is ticking along in a tidy fashion with 2.6% growth in the last quarter, it needs something to kick it in to a higher gear.

US unemployment is now down to 4.3%, pushing close to what economists regard as full, evidence that people are reskilling as the economy changes around them. In 1900, 70% of the workforce were employed in agriculture, mining, construction and manufacturing; that figure is now 14%, of which manufacturing counts for 10%. The only hope of the President fulfilling his promise to the rust belt communities is to crank up the infrastructure plans; build roads rather than dig coal, which looks a more antiquated fuel as each day passes.

Shell Chief Executive Ben van Beurden said at this week’s second quarter earnings announcement that the company had a mind-set that oil prices would remain “lower for ever”. With more supply coming on tap, and demand reducing, it looks a sensible comment. Estimates suggest that wholesale conversion to electric vehicles would reduce demand by 20%, and that prices could end up between $15 and $25 a barrel, compared to $50 now. Which makes the case for hanging on to your petrol driven car.

Here in the UK, the usual summer news vacuum has been filled by the Brexit debate, and with the Prime Minister absent, those in favour of the soft version have been trying to get consensus for an elongated implementation period, perhaps lasting three years after March 2019. I suspect that it will be a fragmented deal, with those industries requiring imminent clarity such as airlines, car manufacture and finance reaching a conclusion quite soon, whilst others move further down the queue.

Some may recall that not long after the referendum, the government reached agreement with Nissan to continue producing cars in Sunderland, including the Leaf, an electric vehicle that they have invested $5bn in bringing to market. No details of the deal have ever been released, with the government insisting that no real money changed hands, bar a bit of regional incentive grant, which the area needs anyway. However, if we are all to drive electric vehicles by 2040, (2025 in Norway), maybe this change in the rules is the payback; just a thought.

The machine itself is clearly work in progress. Apparently, it has a range of 140 miles, but after a couple of years, this drops to 70 miles, as the battery weakens. Much the same as a mobile phone. It obviously has appeal in a place like London, where journey lengths are quite short, but elsewhere, it is only going to be bought by diehards.

Still on the subject of cars, spare a thought for Bob Mackenzie who started the week as Chairman and Chief Executive of AA, a roadside assistance company, who was paid £1.36 mn for his spanner waving heroics last year. All this came to a swift end when he was sacked on Tuesday for lashing out at an unnamed colleague in an equally anonymous bar, the grounds being gross misconduct.

His son claims that he had been diagnosed with an acute mental illness, and had resigned, but on this hangs the award of management value participation shares worth some £100mn, which are forfeited if he is ruled a “bad leaver”. Queue very awkward conversation with the wife, and early Christmas for the lawyers. If only he had resigned before going to the pub; could be the most expensive round, ever.

–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.