Enjoying the Fireworks?
Dear David,
If a week is a long time in politics then these past few days have been explosive. We try and avoid writing about politics in our Blog but events like these can change the investment climate so should not pass without comment.
In the Halloween Budget Rachel Reeves has made some strategic shifts in UK government policy; from private to public, from older to younger and from fossil fuels to clean energy. Inevitably there are winners and losers in all this so we can expect argument and protest to follow. British politicians on both sides agree that productivity and economic growth is vital, but everyone disagrees on the means to achieve it. Commenting this week, the Office for Budget Responsibility talks of a sugar rush effect from debt-fuelled spending and public service cash injections from taxation. Her plan is that performance improves in the short-term but whether it all generates the desired growth is far from certain.
Our partners at Peregrine & Black have written a good summary of the Budget (click here) for the benefit of private clients Interestingly (with the exception of my farming contacts) most people have told me that the budget was not as bad as they feared. So either their expectations were low or they haven’t fully digested the contents yet.
The fireworks began on the 5th November, before Guy Fawkes night even started, as we all awoke to the news from America that the Republicans achieved a clean sweep claiming a majority on Capitol Hill as well as the White House. Once again the pollsters were completely wrong. Now we are all wondering what President Trump 2.0 will mean for investors next year. The victory is of a magnitude that markets were relieved that the outcome would be uncontested and duly rallied.
Our underlying managers made some interesting observations when we spoke this week. “The dominant narrative in markets for most of this year has been the expectation of waning inflationary pressure that will allow central banks on both sides of the Atlantic to continue cutting interest rates” but Waverton believe the Trump victory may call that into question and “watching the inflation markets will be critical in coming weeks.”
Trump may wish to slim the size of the federal government but neither party offered solutions to the ballooning national debt, which now stands at $35,987,000,000,000 or $35.9 trillion. We can expect to see Government expenditure reigned-in in favour of corporate enterprise and that would have an impact on Bond markets. There is a lot of talk about tariffs and I expect that is a topic we shall return to.
Our friends at Canaccord are taking Trump at his word and “America First” means that economic activity and corporate profits will get a boost and benefit the US but be a drag on the rest of the world; especially China. Tony Conway at Fiske reminded me that Trump is an inveterate deal-maker and believes President Trump will want to do a deal with China. “Talking tough and dealing smart is his chosen modus operandi.” Other winners will be Big Tech and Oil & Gas. It will be interesting to see whether Elon Musk will succeed in getting his new best friend out of his gas guzzling Limousine into a Tesla car ?
I hope you enjoyed the fireworks because they are likely to continue for many weeks to come.
Best wishes
Max
P.S: if you thought the size of the US national debt was eye-watering then spare a thought for Google who have just received a fine of $20 decillion this week. Fortunately this penalty comes from a Russian court so is unlikely to ever be paid in whole or part. For the record that is $20 billion trillion trillion, a sum greater than the entire market capitalisation of the whole planet !