Bath/Head Office:
London Office & Quoted Equity Team:
Edinburgh Office & European Quoted Equity Team:
The Financial Ironmonger Blog No 36/2017

The Financial Ironmonger Blog No 36/2017

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.


Next week, the European Central Bank is expected to announce that it will cut the bond purchasing program to 15bn Euros a month, before phasing it out at the end of the year. However, it is likely to remain expansionary, reinvesting the proceeds of maturing bonds, unlike the Americans, who are reducing the size of the nation’s balance sheet, and hiking interest rates at the same time.

All this might sound somewhat archaic, even academic, but it has real life implications, especially in Italy, which is labouring under a heavy debt load. The last resort buyer of this debt has been the ECB, since none of the locals will touch it. The numbers are big. Public-debt-to-GDP ratio is 132%, second only to Greece in the euro zone.

Furthermore, the Bank of Italy owes the ECB Target 2 fund 400bn Euros, which pumps that ratio up to 160%, the highest in 100 years, at which point, even the alarm bells are thinking of how to escape. Within the Italian banking system, more than 10% of the loans are non-performing, banker speak for gone bust. At some point, the system is going to need bailing out, because the economy is not going to recover in any meaningful way to give them a helping hand.

This grim backdrop, shared to a lesser extent by many other countries, has fuelled the rise in popularist politics, not only across Europe, but in America too. The forthcoming election in Sweden is likely to confirm the trend, but the main issue there is immigration, and the total lack of integration, which any half-functioning school kid could have predicted.

The Italians, meanwhile, have grown weary of a stagnant economy, and persistently high rates of unemployment, a self fulfilling doom-loop. Hence the election of a coalition of the hard left, and right, the sort of combination that only the Italians could conspire to create. Their first budget proposal, (which has to be cleared by the EU), advocated increased public spending to finance a minimum income program, and a reduction in tax rates, which is likely to produce a deficit of 6%, against a maximum of 3% permissible. And all of this heaped on top of the existing debt mountain.

Markets took fright, and bond yields have doubled since the start of the year, with investors reducing their exposure at a rate of 40bn Euros a month. By mid-week, the government seemed to have rowed back, saying these proposed changes will be gradual, political speak for not going to happen. Thus, for the moment, the problem has been set aside, but far from resolved.

The Donald has not had a good week; ahead of a book publication by Bob Woodward on September 11th, the New York Times ran an editorial detailing the chaos in the administration. Well the NYT hates him, so no surprise there, but Woodward is a highly respected journalist, who made his name exposing Watergate, which led to Nixon’s impeachment, for those with long memories. There are many over-excited people looking for a rerun.

The timing of these disclosures looks suspicious, with just a few weeks left before the mid-term elections on November 6th, with the polls predicting that the Democrats will gain control of the House, but not the Senate. On the other hand, it may just firm up his backing from loyal supporters, reinforcing his 2020 bid for re-election. Never a dull day with the Donald at the helm.

Before then, here in the uk, we will know whether a Brexit deal has been achieved. October 22nd, to be precise. Latest reports suggest that a Canada plus deal is on offer, which seems to tick most of the boxes, bar the non issue of the border in Northern Ireland. It will be down to who blinks first, but it is worth remembering that without the £40bn separation payment, the EU is in serious trouble. They probably are, anyway. Nationalist parties are in the ascent across the continent, and broadly speaking, they are not in favour of the status quo.

Whilst all these political matters dominate the news, and no doubt they are of importance, no one is really thinking what the likes of Amazon are doing to the underlying economies, decimating margins in any sector they turn their attention to, profitability not a concern in the ramp up phase. You would have to question whether Corporation Tax and Business Rates are a sustainable way of raising income going forward, since Amazon pay very little of either.


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.