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The Financial Ironmonger Blog No 35/2017

The Financial Ironmonger Blog No 35/2017

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 35/2017–

Anyone who has lived through a hurricane will attest to the awesome power of nature; Hurricane Harvey was the most powerful to hit the U.S. since Wilma in 2005, and the strongest to hit Texas since Carla in 1961.

Some chap suggested that this was karma, the result of Texas voting Republican; he got fired. Melting ice caps and thus warmer sea temperatures have played a part not only creating a perfect feedstock for the storm to dump rain from above but also surge flooding, which is what took out Lower Manhattan in 2012.

There have been suggestions that global warming is to blame, and that may be the case, but these storms have been rolling in to the southern states since records began, and certainly prior to the invention of the internal combustion engine. People ignored official warnings, and failed to evacuate in time; one consequence will be a need for better public information systems.

The repair bill is now $200bn, and climbing, which provides Trump with the perfect opportunity to attach a major infrastructure bill to the legislation required to provide emergency assistance. This will be one of the few bipartisan votes that this Congress takes, and it helps that Senator Ted Cruz, (Texas, Republican), is up for re-election in 2018. Previously an opponent of infrastructure spending, he will swing on side.

Thus by luck, rather than judgement, Trump might get one of his major policies through. I am indebted to Breitbart Connect for the following quote from Obama’s incoming chief of staff during the financial meltdown of 2008: “You never want a serious crisis to go to waste...Things that we had postponed for too long, that were long-term, are now immediate and must be dealt with. This crisis provides the opportunity for us to do things that you could not do before”.

Trump desperately needs a reset, having lost Bannon, who gave the campaign some kind of coherent ideology, and a strategy, although it is understood that they still speak daily. Obamacare reform has sunk in the swamp, (which he has failed to drain), and the Wall remains unbuilt. He is, effectively, a third-party president in a two party system.

The truth is that this presidency is a personality cult rather than a political programme, a replay of which did for May in the UK, and will probably sink Macron in France, now that the unions are gearing up for a fight. Next up are the German elections, but Merkel has always been careful to downplay her part; policy triumphs over personality.

Given that she is going to be the central arbiter in the UK Brexit negotiations, it is probably best to hope for her re-election, and ignore the briefings from both sides, this week. When the UK leaves the EU, it will create a £9bn hole in the annual budget, or £63bn in the budget cycle that starts in 2020, to run for seven years. After the Germans, we are the second largest contributors, so the obvious thing is to make cuts. But all those countries who are net recipients will vote against, so a trade deal has to happen.

Those exporting to the UK will be feeling the effects of the extraordinary strength of the euro verses the pound, and will not want further problems with tariffs, so the politicians will end up bending to the needs of the people. And, as we have seen elsewhere, the rise of the keyboard warrior can turn established thinking on its head, very quickly.

September sees the return of normal hostilities, both in markets, and politics. With apologies to the American readers, it seems that most of Europe is on standby in August, and I am told that in Holland, you can add July to the list. Spare a thought for those running newsrooms, when there isn’t any content.

Here in the UK, the Conservatives are determined to avoid an election, and to plug on until 2022. Having been trounced at the last one, they do not want a repeat, and it is unlikely that others will help Labour create one. The SNP, once all conquering in Scotland, is in full retreat mode, and knows that it would lose more seats, so that is not going to happen.

The Conservatives have two problems; Brexit dominates, and it is going to be messy; I have yet to see an amicable divorce, and compromises will have to be made. Secondly, the Prime Minister will remain so for as long as she is usefully tolerated by her party, sustained only because no one else wants the job before negotiations are concluded, and there is not much talent out there, anyway.

I am sure that it will be a fascinating Autumn.

–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.