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The Financial Ironmonger Blog No 3/2018

The Financial Ironmonger Blog No 3/2018

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.


At the end of the last blog, I promised to let you know what J P Morgan think about the outlook for markets over the next twelve months, and in summary, they think that the good times experienced over 2017 are broadly set to continue. There are always dangers to this, for instance the tax cuts in America might be adding additional fuel to an economy which is picking up speed at an impressive rate, and the resultant inflationary pressures might lead to interest rates rising more quickly than they otherwise would have done, thereby killing growth.

This mistake has been repeated so many times that you might think the authorities would be wise to it; maybe this time. The background is of synchronised global growth, economies finally recovering from the crisis of 2008. Commentators get very excited about markets hitting all-time highs, but the constituents of the indexes are very different to what they were, so it is comparing apples to oranges. The extraordinary growth in the use of technology over the last ten years demonstrates this; this week, the UK Office of National Statistics admitted that it had failed to capture the deflationary forces that such changes have unleashed, and thus had been overstating the inflation rate.

It probably means that their figures on productivity growth are hopelessly understated, but I have yet to find any academic evidence. Even if the inflation numbers are wrong, that is what the policy makers are going to use in determining interest rates, so watch those closely. Surveys such as the Purchasing Managers Index and Consumer Confidence help, along with house prices, new car registrations, and any other big ticket items, carpets, sofas, and funerals where there is a fierce price war occurring. Who knew? The market leader, Dignity, has cut prices by 25%, resulting in a fall in the share price of 50% on Friday.

There is no substitute for getting out, and kicking the tyres, to gauge what is going on. The parts of America that I visited before Christmas were clearly bullish, whilst a walk up any high street in the UK is pretty depressing. So, go with the gut since many of these surveys are plain wrong, not least house prices, which have retreated significantly.

Once you have worked out whether inflation is cyclical, structural, or endemic, the other thing to worry about is Geopolitics. And just before we leave the inflation topic, the policy makers, globally, have done a wonderful job avoiding deflation over the last ten years, (which is the road to hell), and remains a huge threat.

Saturday marks the first anniversary of the Trump presidency. I have almost finished reading the book, and I am not really sure what to make of it. Clearly, he is very thin-skinned, with the attention span of a frozen pea, and certainly not “clubbable”, in the sense that he has a good group of friends, bar his immediate family. Everything else is transaction driven, which is not how politics works, particularly in America.

For him to win, the other side must be seen to lose, hence the inevitability of the shutdown of the Government on Friday evening. This is not as rare as you might imagine, but it is still a curious way to run the show. The opinion polls will determine who has to back down, and right now the Republicans seem to be getting most of the blame. Next Friday, the President is due to make a speech at the World Economic Forum in Davos, which hopefully will be scripted. Given that it is a talking shop for the liberal elite, it is hard to imagine why he wants to go.

By the time you read this, the SPD party in Germany will have decided whether it wants to enter coalition talks with Angela Merkel, the alternatives being that she tries to govern as a minority, or hold fresh elections. For now, the largest economy, America, and the third largest, Germany, lack any functioning government, which may be why they are doing quite well. Just a thought.

Next up, on March 4th, is the Italian general election. If you believe the official figures, GDP is the same as it was in 2000, which is clearly not the case. However, as I have commented previously, youth unemployment is disastrously high, blamed by the populist parties on the European construct. The result matter because the banking system is shambolic, propped up only by the generosity of the ECB.

The black swan we are always looking for will emerge from a clear blue sky; if you have any ideas, e mail me.


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.