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The Financial Ironmonger Blog No 46/2017

The Financial Ironmonger Blog No 46/2017

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 46/2017–

One could point to the change of management in Zimbabwe and Venezuela defaulting on its loans as events from which lessons ought to be learnt, but the answers were there for all to see a long time ago. Once the rule of law has been subverted by the politicians, free speech is the next victim, followed by economic chaos, rampant inflation, and the destruction of the currency. You could learn all this from any child’s basic economic primer. In theory, it is not that difficult to resolve, both countries being blessed with an abundance of natural resources, but the elite are well served by the existing “order”, so change will be painful, and protracted.

Much the same could be said of Brexit, where the UK government is attempting to negotiate an elegant exit from the EU, despite being hopelessly split on the subject for more than a generation. Unable to give a running commentary, goaded by strong voices on both sides of the debate, it looks as though the ship of state is hopelessly adrift in a filthy storm. I would wager that this impression is likely to be reinforced next Wednesday when the Chancellor delivers his budget on which there are many more competing demands than money available.

There are also strong hints that the EU will say that not enough progress has been made in the original negotiations to proceed to trade talks, and yet these are the very foundation, without which substantive progress cannot be made. As far as I am aware, no one has demanded to see the books on which any liabilities, and offsetting assets, should be used to calculate the end sum. But then, they have not been signed off for eighteen years, so might not be much of a guide.

The truth is that the whole construct is only a going concern if people either believe it to be so, or as reluctant members of the central currency have found out, they are forced to do so.

The immediate problem is a 10 billion hole in the budget for 2019, and 2020, which the UK has offered to pay, irrespective. Thereafter, there is an unfunded pension deficit, thought to be some 75 billion euros, and a curious thing called the RAL, the Reste a Liquider, which is thought to be some 250 billion euros. These are long term commitments towards building motorways, train lines etc, where the money has been promised, but not drawn down. Hence the desire of the EU to extract as much money as possible, in order to keep the wheel spinning.

Should we walk away with no deal, there are three things that they could do, none of which is going to happen, given the rise in the anti EU vote across Europe. Firstly, they could get the participants to pay in more, principally Germany, which, (had you forgotten), remains without a government. Secondly, they could cut the payouts to the poorer countries, unlikely to be a vote winner.

Finally, given the upcoming season of goodwill to all, they could cut the bloated bureaucracy where one in five are paid more than the UK PM. No, thought not.

But, stranger things have happened. Somebody, this week has paid $450mn for a painting which may, or may not be the work of Leonardo da Vinci, more than twice the previous record. Art works are the ultimate currency, which can be passed around without trace, and away from the eyes of the taxman. Money laundering rules clearly do not apply to the ultra rich.

–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.