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The Financial Ironmonger Blog No 11/2017

The Financial Ironmonger Blog No 11/2017

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.


I started the blog last week commenting on the state of the oil market, including the ramp up in activity by the frackers, who had 308 rigs deployed at that stage. This week, it has risen to 516; much of this kit is a Mom and Pop operation, just parked up in the back yard, awaiting deployment. The oil price has fallen 8% this week, not least because it is clear that the OPEC collar on production is not holding with Saudi Arabia actually increasing production in February. This is looking like a race to the bottom.

Certainly, any further decline will make North Sea oil virtually worthless, due to the very high cost of extraction, not that such a technicality bothered the First Minister, Nicola Sturgeon, who called for a new referendum on independence, on Monday. She seems to think that she can detach from the rest of the UK, but remain within the EU, which is not an option on offer. As an independent country, it would have a budget deficit of 10% of GDP, whereas the maximum is 3%; last time the rules were twisted, Greece was the outcome, and even they are now running a primary surplus.

The polls would indicate that there is no appetite for leaving the UK, or for having a referendum, whilst in Europe, nothing will be done that encourages the idea of nationalism, or indeed separation. Her ratings are tanking as the populace see the declining standards in both healthcare, and education, so she probably calculated that the background will only deteriorate from here, so better get on with it.

I suspect that this is a cynical miscalculation. The rest of the UK seems to spend more subsidizing Scotland, £15bn, than it does on the EU, £10bn, although getting the precise figures is very difficult. The oil revenues were going to balance the books, fat chance. More than 60% of trade is within the UK, less than 20% in the EU, so to fall out with both, and of both, would seem an act of gross folly.

The best way of achieving her life-long ambition would be to insist that the rest of the UK get a vote on this, as well. After all, there are plenty of Scottish origin living elsewhere who have been denied a say, and there are plenty of others who would like one. End result; loss of subsidy, out of the EU, and no currency. Hmm. Either the First Minister, or the Prime Minister will be out of office on the back of this, but if the former had the interests of her country at heart, she would not have played this card.

Excluding North Sea activity, GDP growth in Scotland last year was 0.7% compared with 1.8% across the UK, and however this pans out, no early vote is likely. Under these circumstances, business investment is likely to dry up, at best, or relocate, causing further impairment. It is quite possible that the UK government will link the 2021 Scottish elections to a new referendum, long enough after Brexit, to judge the way forward, and long enough after peak SNP, which is why the trump card was played.

Talking of which; no, I am having a week off. Apart from the fake news about the snow storm, which was nowhere near as bad as predicted, but having made the forecast of up to two feet of snow, (a “twelve to 24” event), they did not withdraw it for fear of causing confusion. And if you only get one foot of snow, coupled with a wind chill factor of minus 17, it is still a serious outcome. They just happen to be rather better at dealing with this than us.

On Wednesday, the Federal Reserve raised interest rates by 0.25%, as expected, and hinted that there may be two further increases this year, citing falling unemployment, and rising inflation. They have increased their growth forecast to 2.1% this year, up from 1.9% in 2016, somewhat less ambitious than the Donald, who is targeting 4%. At the time of writing, his budget is awaited. Interest, and growth, rates going up has been well received by markets, although equity valuations need some support from earnings to justify these levels.

Not all rate increases are received quite so well, as the UK chancellor, Philip Hammond, discovered this week. His attempt, in the Budget, to raise National Insurance contributions from the self-employed backfired spectacularly, leading to a major row with the Prime Minister, from which there was only ever going to be one winner.

Thus he joins the Bank of England Governor in the departure lounge, the exact date being at her whim. But far more importantly, it demonstrates that, with a bit of pressure from backbenchers, policy can be altered, a message well understood by them, and watched closely by many others across Europe.

A snap election would solve a lot of her short, and medium term, problems.


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.