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The Financial Ironmonger Blog No 37/2017

The Financial Ironmonger Blog No 37/2017

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 37/2017–

It is not often that a number leaps out of a screen, or paper, unless you were unfortunate enough to have been invested in some of this summer’s real howlers, which have destroyed a lot of value. Mostly, these are company specific events, which others in the same industry easily dodge. One such case was Bovis Homes, which was in such a rush to beat year end targets that it delivered poorly finished new houses to buyers, damaging its reputation. New management, and swift remedial action has solved the problem, albeit at a price. Other housebuilders were not affected.

For investors, a diversified portfolio reduces the risks of these one off black swan events, although they can never be entirely eliminated. Much more dangerous are trends, some of which are unseen, or which move too slowly to have a meaningful daily impact. Think of this as climate change in a financial sense; lots of chatter, reasoned debate, and then Hurricane Irma turns up, the largest storm most have seen.

The figure that took my eye was a study by Ipsos Retail showing that High Street footfall has fallen by 22.2% in the last ten years. In August, it fell by 1.2%, which can easily be explained by holidays, weather patterns etc., the standard excuse for any underperforming retailer. Much the same is happening in the States with deserted malls. To some extent, empty shops are replaced by bars, restaurants and coffee outlets, but with consumer spending under pressure, and the supply of cheap immigrant labour drying up, it is a patch rather than a fix.

The guilty party is, of course, the internet, expanding relentlessly now that the left hand knows what the right is doing, in the form of home delivery. No point in going to your favourite restaurant when they will deliver your chosen meal to your house, at a time you want. It has seriously damaged some cushy business models, think Uber, although I doubt that it has destroyed the water taxi monopoly in Venice just yet, but I will report back.

How businesses react to this threat is what defines them, and their future; many have stumbled, and fallen. Increasing inflation, and subdued wages have, to some extent, been countered by the deflationary cost of basic items, but that now seems to have passed, at least in the UK. Public sector workers, in particular, are likely to flex their muscles this winter, making life very difficult for a government with a concocted majority, battling Brexit negotiations.

How those are progressing remains a matter of opinion, probably not changed since the referendum, although “remainers” are, perhaps, more trenchant in their views. A speech on Wednesday by the president of the European Union, Jean-Claude Juncker, shows the direction of travel for the circus, minus the UK.

One should expect no less from a life-long EU integrationist; all countries forced in to the common currency, an army, a banking authority, and much else besides, all to be run by an unelected Commission, by 2019. It has been called the United States of Europe, but it is nothing of the sort. America runs on a federal system, dispersing resources where needed, (at least in theory), whereas this is unitary. No better than communism.

Maybe, twenty years ago, they could have pulled this off. The politicians knew, (because they were so highly educated), what was best for you, the idiot punter. The internet has brought global coverage of everything, and completely reversed any information advantage. A recent survey has showed that two thirds of Europeans are dissatisfied with the direction of the EU, with a mere 28% of Germans, and 17% of Italians supportive.

President Macron of France, elected on that old mantra of hope, and change, now has popularity ratings lower than the Donald.

It would therefore be reasonable to think that this integrationist stuff is going nowhere, but the threats from the centre are very real. If you do not join the euro, you will have no vote, no payments from the budget, and your currency will crash. Any external debt is likely to be in euros, or locked to it, leaving you little choice.

For me, this has always been the main factor in the choice that we were presented with. It is, of course, a much bigger subject than that, going back to the end of WW2, and then signing up in 1973, but finally Juncker has shown his true motive. Leaving is likely to be disruptive, but that has to be better than caving in, permanently, to unelected officials in a far off place who care little for us.

Meanwhile, our efforts to help our friends in the Caribbean have run in to problems; HMS Ocean, the relief ship, has limped in to Gibraltar with engine problems, and probably won’t get to the islands until the end of next week. It has also emerged that OECD rules prohibit us spending any of our hopelessly bloated overseas aid budget because these countries are deemed to be too wealthy.

95% of Barbuda has been wiped out, and maybe it once was wealthy, but certainly not now. As with so much of the news now, you couldn’t make it up.

–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.