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The Financial Ironmonger Blog No 2/2019

The Financial Ironmonger Blog No 2/2019

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 2/2019–

There are few things certain in life, at the moment, particularly on the Brexit front, which is why this blog will get published before the ink has dried, later on. What we do know is that there will be a vote on the Withdrawal Bill next Tuesday evening, when the Government is likely to be defeated by a margin of up to 200 votes, which is truly unprecedented. Secondly, absent some major change, the UK will leave the EU on Friday March 29th, 11 weeks from now, when I shall be typing Blog No. 13, for those of a superstitious nature.

Let’s take these one by one. The loss of such a major piece of legislation, central to the government’s core agenda, is simply unknown; it has never happened before, by this kind of margin. It therefore follows that the government is completely out of control, but the ruling party cannot have a leadership election until the end of the year, under its own rules, so if Mrs May does not resign, they cannot make her. And I doubt she will.

Which leaves the good ship UK steaming towards the minefield of “no deal “whilst the officers have a massive punch up on the bridge. There are 650 people on this ship, (MPs), of which 100 are in government, and will follow the line that the Withdrawal Bill is the minesweeper we must follow to keep safe, cost £39bn, with unknown reparations to follow once we reach the safety of the harbour. There are up to 100 people on board who do not believe there is a minefield at all, and we can make it to safety, and keep our riches.

Sorry if this is starting to read like a kid’s bedtime book, but more fun writing it than the very dry stuff of procedure etc. So, that leaves the 450, and what has changed since Christmas is that they are becoming united, across party lines, in saying that they are not prepared to enter the minefield, under any circumstances, and that we must change course for either Norway, or Canada, the alternative being to shut down the engines altogether.

This they can do by revoking Article 50, which set the leaving date of March 29th in stone, but only with permission of the captain of the minesweeper, (EU), who will want the £39bn paid on the spot. And that seems to be where we are at.

When the vote fails, it seems likely that the Opposition parties will call a vote of no confidence in the government, but even if they won, it would not give them the two thirds of all MPs who must agree to an election under the Fixed Term Bill, which does not allow another until May 2022. Here it all gets very murky; there is a possibility that a coalition government could be formed, with the sole purpose of postponing Article 50, and then call an election, since they will be unable to agree on anything else. Any self-respecting political wordsmith will  have, long ago, bought a RIB to head across the Channel, lest they be asked to write a manifesto, for any of the parties.

Where this leaves the political affiliations of the 17.4mn people who voted to leave is anyone’s guess, UKIP having rendered itself totally unelectable. Maybe that is a topic for another blog, but the discourse is hardening on all sides, with unpredictable, and I suspect, quite ugly outcomes. The elected representatives are totally out of touch with the people.

Back in the real world, this is clearly having an impact, although you could argue the other way, and say that it is the obvious reaction to what people see going on around them. Christmas sales were flat in the UK, despite record levels of employment, higher wages, and falling inflation. The fashion store, Next, reported a 9.5% decline in sales in its stores, but overall the take was up, given that more than 50% of sales were online. Those who have not responded to this massive change quick enough got slaughtered, predictably.

JLR, makers of mid, and premium priced cars, cut 4,500 jobs, with the BBC reporting that sales in China has halved in the last few months, before quickly removing that number from their website. Given that 90% of their output is diesel vehicles, you can see why they might have a problem, but they cannot be unique.

The German car makers rely so much on the same market, so not surprisingly, the economy is now flirting with recession, the blue-chip DAX index having lost almost 20% of its value in 2018. And if Germany is in the cactus, what hope the rest of Europe?

I have no idea how this is going to play out, but I remain optimistic. We have very deep, and long-standing trading relationships across the globe, and I do not see that people will want to disrupt them, for ideological reasons. The deputy mayor of Calais, Jean-Mark Puissesseau has insisted that they have spent a year updating its systems and will not be asking for any more checks, over and above what are already in place. Queues of lorries should, therefore, be avoided.

The vast majority of people want to carry on, as is, whether or not we are inside some technical trading block; those in the Westminster bubble need to wake 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.