The New Normal

Well it looks like it’s happening then. Boris Johnson has finally gotten his way and the UK will be heading to the polls for the third time in five years in what could prove to be a vain attempt to break the current political deadlock around Brexit (and almost everything else) and deliver a majority government capable of advancing a legislative agenda.

It seems this will push the Brexit date back to at least 31st January 2020. Although in theory it is possible for the UK to leave the EU before this date if the UK ratified the Brexit deal, the chances of this happening seem very slim.

Parliament will be suspended for election campaigning next week and it seems as if new MPs will be sworn in on 16th December, before parliament breaks for Christmas on the 19th December (I do sometimes wonder when parliament actually does any work!).

As such, for the moment, I would consider 31st January the new de-facto Brexit date, unless…

Unless many things really.

  1. Unless we end up with another hung parliament unable to pass the Brexit deal ahead of the deadline
  2. Unless we vote in a remain leaning government (or coalition of remain leaning parties) and we end up with another referendum.
  3. Unless we vote in a majority Lib Dem government (never say never in politics anymore) who revoke article 50.

and many many more potential permutations that are beyond me at the moment.

As such, it would seem that the current spell of uncertainty will run on for some months yet. And this really is my point. Can we really call it a ‘period of uncertainty’ anymore?

We have been doing this now for well over 3 years – it could be over 5 or 6 years before we are fully removed from the EU (if we even leave at all) and beyond that, it seems a 2nd run of the Scottish independence referendum is gathering pace as well.

As such, I have come to accept that so called ‘periods of uncertainty’ are becoming the norm. In our increasingly fractured and politically divided times, these periods are actually not really periods at all – they are just life.

This has strengthened my resolve, now more than ever, to keep calm and carry on and to advise clients to do the same. We must not use these media proclaimed ‘periods of uncertainty’ as an excuse not to take action on matters which are important to us. Otherwise we would never get anything done.

I think the time has come for individuals, businesses and, dare I say it, governments to accept that we live in volatile times and this is likely to remain the case. As such, let’s just get on with the job at hand. We do after all, live in normal times. The new normal.

The Only Constant Is Change

If you are anything like me, you will have been fascinated by the seemingly never-ending political surprises over the past few days, not least Boris Johnson’s decision to prorogue parliament.
All of this would make for fantastic watching if it were a political TV drama, but unfortunately it is real life.
In some people’s minds, Mr Johnson’s actions have made a general election more likely and by extension the prospect of a labour government more likely as well.
Many will use these potential changes on the horizon as an excuse not to take action on something. Not to invest. Not to get that updated will drawn up. No to [insert any other thing you might want to do here].
Although potential changes are always unsettling, it is important not to use them as an excuse for inaction. Because, the thing is, once one change has happened, there will always be another one on the horizon.
If we have a general election this year, who’s to say that there wont be one next year? (and in the current political climate, I wouldn’t bet against it). Once we have had this years budget, there will be the Spring statement and then next years budget.
There will always be changes on the horizon, but at some point we must act if we want to achieve anything.
I always say to clients that we must plan based on what we know today and then adapt and change the plan in the future when the inevitable changes happen!

The Great Wealth Divide

After clicking on the title of this post, you are probably expecting me to be talking about the gaping chasm between the rich and poor in our society or across the world.

Perhaps I might mention the huge wealth inequality between young and old or the huge differences in wealth levels across different parts of the world.

Well, I am sorry to disappoint you, but I write to you today with a much more balanced and well-informed world view.

You see, I have been reading a book called ‘Factfulness’ by Hans Rosling, a man who dedicated his life to correcting the fundamental misconceptions that human beings have about the world.

I must point out that I am only 1 chapter in, but already the book has changed the shape of my world view about wealth.

In this first chapter, the author points out that the media very much likes to characterise things as two opposite ends of a spectrum. The media also likes to portray the idea of conflict between two groups. Think rich vs poor, good vs evil, small business vs huge corporations, the man on the street vs the government. You get the idea.

The reason the media do this (according to years of academic research by the author) is twofold; 1. Because characterising things using two extremes portrays a sense of drama and excitement, things which get us to consume media and 2. Because human beings love things to be simple and having just 2 options makes things easy to understand.

However, when it comes to wealth and living standards (which is largely the topic of chapter 1), things are not so simple. Hans Rosling advocates that we think of wealth across the world and within countries in terms of 4 different levels and not just two extremes.

For example, at wealth level 1, you are living on around $2 a day and have little in the way of basic human needs. You are unlikely to have shoes and will only eat what you can manage to grow. You then progress through wealth level 2 ($8 a day), level 3 (up to $16 a day) and then level 4 (over $32 a day).

The data shows that the vast majority of people across the world live in level 2 and 3. So while the media characterises this ‘gap’ of wealth and inequality across the world, in fact there is simply a range of different options with most people sitting in the middle, exactly where the media tells us the ‘gap’ is supposed to be.

The same can be said in most individual countries as well. In the UK, the vast majority of people will live in group 4 and some in group 3, but yet our media still tells us of this ‘battle’ between the rich and poor, suggesting that there is a huge chasm between them.  However, in truth, there is no chasm, simply a range of people, most of whom are somewhere in the middle.

If you pick the most extreme examples from a set of data, there is always likely to be outliers and extreme examples, but these represent only a minute percentage of the total sample. What you will find in the vast majority of cases is that there is no gap, no chasm – most people are in the middle.

This manipulation of data is one of the ever-growing list of reasons why the media is not a good source of reliable information about the world (and by extension investments or the health of our economy).

My other gripe with the media is that they like to peddle a largely negative world view. They like to tell us that things are getting worse. However, the data shows that by almost any meaningful measure of human progress, health, living standards and prosperity, the world is getting better. Exponentially, dramatically better.

I have probably not done this excellent book (or the first chapter anyway) justice with my waffle today so I strongly recommend that you read this book.

In the space of 30 pages or so, it is quickly changing my world view and I’m sure it will continue to do so.

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.