Here We Go Again! (Again!)

I have written many times before about the seemingly never ending Brexit process and all of the political firsts that have occurred as a result.

The last time I used the headline of this article, I was speaking of the second General Election we had experienced in just 18 months when Theresa May decided it was a good idea to try and strengthen her majority (we all know how that worked out!).

After more than 2 years of negotiation and pontification, we now arrive at yet another delay to the Brexit process – this time until 31st October 2019 – Halloween – as if the media needed any more martial to work with when coming up with headlines about the shambolic handling of the Brexit process.

Strangely, the politicians are arguing over which of the ‘middle’ options should be chosen with Theresa May’s deal looking too hard for some and too soft for others. When you speak to the general public however, they tend to prefer one of the two extremes – leave without a deal or don’t leave at all.

How this political and societal divide will resolve itself will no doubt make for some fascinating reading and watching over the coming months. It feels as if BBC News is like an episode of House of Cards or The West Wing. While it is mighty entertaining – I just wish it wasn’t the fate of our country being dramatised.

Questions will now turn to what impact this will have on markets and the economy. Given the mute response this week when the delay was announced, it seems that markets had largely priced in the continuation of the current ‘stalemate’ position for some time to come.

What is starting to be felt though is the impact of uncertainty and there is a palpable feeling of frustration when you talk to business owners. While we all knew that the Brexit process would take some time, now that we seem to be in a never ending cycle of delay, the uncertainty seems to be taking its toll on the decision making ability of businesses and with good reason.

At this point almost all of the options remain on the table. A no-deal Brexit, a second referendum, no Brexit at all, a general election – it would take a very brave man indeed to rule any of these options out. In fact, I think we have a bigger range of outcomes now than we did before the referendum and that is not good for business or the economy.

At this stage, I do hope that a solution can be found quickly (as I’m sure the rest of the voting public do too). It seems reasonable to assume that Theresa May will have to go at some point in the near future and rumours abound that this moment could come shortly after the Easter break.

The big question is whether the resulting leadership contest will also then trigger a new General Election which really would make for fascinating watching. On the other hand, perhaps the Conservatives now know better than to try and secure a mandate for a new leader!

However things pan out – rest assured – we will be watching developments closely, keeping you informed of our views (and those of the markets) along the way. You better get comfy – I feel we have a way to go on this ride yet!

 

Reflecting On Brexit

The past few weeks have certainly been interesting not just from an investment perspective, but also politically as well.

As I pen this note, the Brexit deal would seem to be getting ever closer to a conclusion, however, Theresa May still has one almighty hurdle to jump in the form of getting the deal agreed by parliament back in the UK.

Ironically, this could well be the toughest part of the whole process for our embattled Prime Minister. Regardless of your opinions on Theresa May in general, I think we can all agree that her job at the moment is near impossible. I certainly don’t envy her!

As I have spoken about before, I believe that the next few years could be punctuated by things which are good news in the long term causing short term market volatility.

If this does come to pass, it will be the opposite of the rather strange environment we have found ourselves in over the past couple of years since the Brexit vote, where things that have been perceived as ‘bad news’ have been very positive for the markets.

The Brexit vote itself is one such example.

Of course, before the event, there were prophecies of doom and destruction in the event of a leave vote and indeed we did get some serious market sell offs … for all of 2 days.

After this, something unexpected happened. The de-valuation of sterling actually turned out to be positive for markets and indeed, this factor has probably been the biggest contributor to UK market performance over the past few years.

This is one example of bad news being good news for markets. The election of Trump could well be another.

As we move into 2019, I expect this trend to reverse.

If we do (ever) agree a Brexit deal, I would imagine that we might see sterling strengthen somewhat. This is good news in general for UK PLC, but could be bad for UK markets in the short term.

In a similar vein, increasing interest rates and the unwinding of quantitative easing (both good things in the long term – signalling that we are finally getting back to ‘normal’ economic health), could drag on markets in the short term.

These things, despite the short term pain they might cause, are totally necessary for the economy to build a solid foundation on which to grow into the future.

The past decade of growth has been partially fuelled by artificial stimulus and this process has to come to an end at some point.

The ending of the artificial stimulus programmes around the world could well be the best thing to happen to markets in a long time, creating a solid and stable base for the next period of growth which will inevitably be to follow.

While unsettling, the volatility we have seen over the past few weeks does not concern the Buckingham Gate Investment Committee greatly. This type of market ‘wobble’ is fairly usual as we start to approach the end of the market cycle.

That’s not to say that the cycle is over at this point, but we should be prepared for a slightly more volatile ride ahead.

The main predictor of a significant market correction or a ‘bear market‘ is a recession and although global economic indicators (job numbers, GDP growth etc) are not the best we have ever seen, they are not bad either.

There is certainly nothing in the figures to indicate a recession at the moment, although things can and do change quickly.

As usual, we must insert that caveat that the past is no guide to the future and things can be unpredictable in the wonderful world of investments.

I shall keep the blog updated with my views. All eyes now are on the 11th December and the deciding vote.

Are We On The Verge Of The Next Industrial Revolution?

Ok, so perhaps in this day and age ‘industrial’ would be better replaced with ‘technological’, but the sentiment is the same.

The smartphone has defined the last decade in terms of technological advancements and has also spawned the potentially more valuable ‘app’ space which has seen several companies go from ‘start up’ to $1bn+ valuations almost overnight.

My own personal view (and it is just that), is that while these apps and other technologies are undoubtedly valuable, I’m not sure they have always made us more productive in business (think Facebook, twitter etc).

Please don’t get me wrong, new technology has undoubtedly driven greater efficiencies in business, however my feeling is that this will pale into insignificance compared to what is to come next.

My view is based on two interlinked new technologies, driverless cars/vehicles and artificial intelligence (AI).

A recent study in the USA suggested that we spend around 1 hour and 40 minutes driving each and every day. A disconcerting feature of my car is that it keeps a tally of all the time I have spent driving. The result – 41 days in the past 18 months – more than 1/18th of my entire life!

If we then factor in the volume of time spent by people driving for business (think taxi’s, HGV’s etc), then the numbers must be huge. Imagine the increase in company and personal productivity when all of this time can be used for something else!

If we also consider the potential for AI to begin to make a significant dent in our boring and laborious tasks, then the economic benefits could be huge.

While these technological changes will undoubtedly cause some people to have to look for new employment, we have been through several of these ‘revolutions’ in the past and history tells us these people can be redeployed in the economy with great new skills and insights. When all of this time spent driving and doing simple IT tasks can be replaced with other productive, or leisure activities, we will surely see a new era of economic growth.

 

The Worst Day in …. A Day??

I have been slightly amused recently by the apparent desperation of financial media outlets to run a ‘panic’ story. The problem the media outlets have is that ‘normal’ does not make a particularly good story.

‘FTSE rises steadily by 0.5% this month as usual’ does not have that much of a ring to it.

You see, we all seem to like bad news stories, ones filled with disaster and fear. Accordingly, this is what the media generally creates.

It is important to remember what the main objective of a media outlet is (that is any media outlet and not just financial ones) and that is, to get you to consume their content, visit their website, read their blogs and, most importantly, see the adverts that they place alongside that content (or pay for it up front). The main objective of a financial media outlet is not to provide you with impartial, balanced views that are likely to enhance your financial decision making. Of course, there are a range of financial media outlets out there that go from the sublime to the completely ridiculous and some do provide useful insight and analysis, however it’s important not to take one view too seriously.

Sidetrack over, back to my point. You see, over the past month or two I have been noticing a trend towards increasingly short term assessments of the markets to generate a ‘panic’ headline. ‘FTSE has its worst week in a month’ was one recent example.

Now, I’m sorry, but a month is not that long in investment terms. In fact a month generally contains 4(ish) weeks. If we assume that the markets are generally random when considered over such short periods of time, surely there is approximately a 1 in 4 chance of every week being ‘the worst week in a month’.

The past few days have been a prime example in my view. Given the recent slip in oil prices, markets have been reacting, sending the FTSE 100 below 6000. Of course, the financial media outlets reacted with horror.

The irony is, these blips tend to be (most of the time) just that, blips. Things recover soon enough and ‘normality’ ensues.

True to form, the headline yesterday: ‘FTSE has best day in over two months’!

Don’t (Not) Spend It All At Once!

One point I would like to pick up on following my discussion with Victoria Derbyshire earlier today on BBC Radio 5 Live, is the fact that although we have all been given the flexibility to withdraw our pension plans in one go, there is not any requirement to do so. In fact, for most individuals, this will do nothing more than land them with a large (and unnecessary) tax bill.

There is an argument to take the whole of a pension pot if you have a specific plan to spend the money, don’t have any other more tax efficient funds to spend, and have sufficient income to live off in retirement.

What is worrying however, is that some people seem to want to withdraw the whole pot, with no specific plan to spend it and then invest the money in a bank account or other investment. The problem here is that you will be removing money from a tax efficient environment (in the form of a pension), paying tax on the proceeds, and then investing the money in a potentially taxable home. This hardly seems like efficient tax planning.

Individuals should be aware that there is no obligation to take all of your pension fund in one go. In fact, you can simply withdraw what you need, and leave the remainder sitting in a nice tax efficient home, until such time as it is required. For many, this will be a far more sensible option than (not) spending it all at once.