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15th August 2018- The Markets and Economy
was entertaining when that intellectual colossus, David Davis, tossed his
dollies from the crib in a fit of pique. A report by the Financial Times
established that the former head of our team had spent four whole hours in
meetings with Michel Barnier so far in 2018. Four out of four thousand, five
hundred and thirty six does not seem like very much for our brave musketeer by
anyone’s standards. Of course, most negotiations happen at lower levels, but it
is hard to understand how so little contact might have produced any meaningful
progress at all – perhaps that is one reason why there has been none.
time rushing headlong past the nation, Mrs May is to be congratulated for
having wrought a Brexit proposal that pleased almost none of her cabinet but
which did attract their support. Few would have thought it plausible given the
polar opposites adopted by the two wings of her Party. Thankfully, a starting
point has been settled upon for negotiations with the other 27 countries and the
nation ought to be thankful that Mrs May has taken charge of the negotiations
herself, because she clearly has the ability to negotiate the seemingly
matter who starts fighting our corner for what, there are only four possible financial
outcomes for Brexit as far as investment markets are concerned:
to stay apolitical here, if St Theresa decides against “the will of the people”
and also keeps her job a) talk of miracles will be commonplace and b) the
markets will be jubilant. A decision to remain that subsequently led to her
losing office and a general election that would probably see Gezza in charge is
an anathema to markets, but the further down that list of bullet-points the
outcome sits, then the more negative the reaction from investment markets in
astounding achievement of Mrs May at the start of the month stacks the odds in
favour of a Soft Brexit. Our Brexiteers are not so stupid as to resign en-masse
and make an assault on the PM’s job just yet. That would court disaster for the
government because an uncompromising stance on Brexit is opposed by half of
their own party and most of the Opposition, so a lost election would be
imminent for their putsch.
lurks at every turn for our courageous PM. Her latest agreement should embolden
her to press for a Soft Brexit even though the negotiated settlement must go
back to Parliament for ratification. Her Eurosceptic colleagues may yet vote
against her deal, gifting Labour the opportunity to vote it down, despite their
preference for that Soft outcome, to win a vote of no-confidence and the
resultant general election. As the mighty fashion guru, Gareth Southgate, might
say – it would be wrong to underestimate the lust for power.
and change management have been rich sources of income to “Management
Consultants” for decades, because change is frequently feared. The Commie
President, as Trump surely must become known, seems to be lusting for the days
when America was great. Having extended loans to much of the world to wage the
World Wars of the last century and predominantly watched from the bleachers as
Europe and the Middle East was destroyed, the world immediately afterwards was
their omelette Rodney. Yankee businesses bought up competitors or established
businesses in new lands on subsidised terms, creating an unassailable financial
strength for several generations.
went down a different but similar path, aggregating countries into its empire
for more effective central control.
the years though change has eroded those comfortable oligopolies, to the point
where the leaders of neither country are content to let things carry on as they
America provided the bulk of global manufacturing in the 1950s it was quite
happy to allow other countries an equal voice and vote through NATO or the UN,
but the current President does not like being the object of criticism by those
organs. The US of A is also finding it harder to maintain the generosity it
previously showered upon other nations in terms of their financial commitment
to the planet; subsidising everyone else in the name of “the free world”.
a Russian perspective, it is one thing to allow satellite countries or regions
their independence but quite another when the result is them cosying-up to
nations that Russia has long considered to be their foes.
inescapable truth is that the world order is changing by virtue of the return
of China to economic strength with many emerging nations flourishing in that
Chinese wake. Both of the established super-powers are keen to divide and rule
(hence The Donald’s nonsense about supporting Boris for PM and a Hard Brexit
after suing the EU) because it would allow the current order to linger for
longer, but it would only delay the inevitable.
experienced diplomats across the planet are simply watching the US make a fool
of itself, waiting to capitalise on their misadventures. New alliances will be forged
with the next nations of influence – in the same way that the Commonwealth did
when they were abandoned by Blighty in favour of the EU experiment – while the
old guard struggle to come to terms with the new realities of economic life.
businesses have no interest in nationalism. They simply seek the best return
for the capital of their owners from whatever circumstances they perceive, and
that will continue to be good news for all investors. What seems most likely is
an enduring alliance between Europe and Asia, leaving Americans to pay more for
their duty-laden imports.
that Europe is Trump’s only target: he has the UN and NATO in his crossed-hairs
too because they allow smaller countries to criticise American behaviour. Trump
and his supporters don’t like that one little bit – no sirree.
the other side of the frozen wasteland though, Comrade Vladimir is exercised
too because the European experiment has stretched its tentacles as far as the
Ukraine. It is not hard to understand why Putin might see this as a threat. The
more that Trump broadsides the world with his disconnected tariffs then the
greater the likelihood of the rest of the world looking to the east for a
stable economic partner.
dominance in technology will be less likely to come from Silicon Valley than
from Bangalore, Shenzhen or Bangkok. Few people drive Yankee metal nowadays but
the Chinese seem certain to emulate and then trump the Japanese and Korean car
manufacturers in the next twenty years. Neither Trump nor Putin will like it,
but the global economy is changing in favour of something that is more exciting
and dynamic; it may even be a jolly good thing too for those Nations seeking to
cosy-up to others in a frantic search for replacement trading relationships……
science and technology has been transformational in the mining sector,
replacing inspired guesswork with near certainty in most cases. This is hardly
surprising, because it simply confirms what has already happened and what is
there but beyond the limits of our eyesight. Until Elon Musk or some acne-faced
youth from the East cracks the space-time continuum and builds a Tardis though,
the future is not ours to see and so financial markets remain beyond the
immediate threat from automation.
- Soft Brexit,
- Hard Brexit, or
- You’re on your own sunshine.
3rd July 2018 - The Markets and Economy
Equity markets in general have a narrow mind-set that is
dominated by a herd mentality and an arrogance that can be staggering. It is
therefore important to understand this mind-set, to which the Brexit vote was
such a shock. Remaining in was in the interests of the City and so many there
believed that it was the only possible outcome of the referendum, which is why
the possibility of a vote to leave went into the ‘does not compute’ box.
Dissent is not welcome, which is why Neil Woodford and Jupiter
Strategic Bond both get pilloried for daring to say that they think 180 degrees
differently to everyone else at the moment: expecting a huge correction
everywhere except in the UK domestic market. The City, Wall Street, Tokyo
and Frankfurt all believe that Central Banks are doing a brilliant job today,
with no-one saying that the Fed is leading us into oblivion again through
unduly hasty Qualitative Tightening. This coterie is especially cosy: growth is
all around, inflation is benign and everyone is as happy as can be. Markets
were doing very nicely thank you, so don’t upset the apple cart.
It is this City mindset that must change if “sustainability”
is ever to become a world-changing ethos rather than a soundbite. Something
more complex, engaging and rewarding than money is needed to motivate the
entire business leadership team and their stockbrokers. Plausible
solutions on a postcard would be gratefully received and faithfully applied.
Until then, there is no incentive to invest “for the world” when shareholders
will approve a five-year earnings-based package to dole out wealth that even
Croesus would have been embarrassed about. It could be a long wait.
The Fed continued its programme of Quantitative Tightening
(by accepting the cash from maturing Treasury Bills to reduce national
borrowings rather than buying replacement debt) and raised the cost of
borrowing in America as expected in June. On the other side of the pond, the
European Central Bank said that it will stop buying bonds at the end of this
year. No surprises there, but liquidity is the essential requirement for the
world economy and it is being removed. To use an engineering analogy, if there
is no lubricant then the machinery is likely to seize-up, so this is a
high-risk tightrope walk.
It began with $10bn per month in the last quarter of 2017 in
America, then $20bn in Q1 of 2018, $30bn in Q2, $40bn in Q3 and from Q4 $50bn
until all of the QE injected in the first place ($4,110bn) has been removed.
That will take another ten years at this pace - a programme that simply
cannot be sustained if there is any faltering in US growth.
By way of explanation it is worth noting that an abundance
of liquidity in the US Dollar is associated with strong global growth, a weak
US Dollar, higher prices for commodities and buoyant equity markets. The
converse is equally commonplace.
Commentators hope that this gradual resumption of what
passes for normal will not cause investment markets to go “cold turkey”: a view
bolstered by the repatriation of more than $400bn through Trump’s amnesty for
corporate overseas cash hoards and the financial strength of US banks. So
things still look OK for America, but the growing strength of the US Dollar is
making life very difficult for those countries who had to borrow in greenbacks
because no-one trusts their domestic currency / economy. This increases the
cost of natural resources and forces weaker economies into huge interest rate
hikes to lure depositors into buying their currency rather than yet more US Dollars.
Whilst American banks can lend money if they want to,
essentially stepping into the role that the Fed had been playing, this is not
the case in mainland Europe, Japan or China. Banks in Italy and Spain have not
made the progress with balance-sheet strengthening that the UK has seen and so
their economies are very vulnerable, as witnessed in the rapid fall in the
momentum of their investment markets.
Equity market volatility is picking up everywhere. Daily
movements of 1% or more are becoming more common. Whether the latest
explanation is based upon Trump’s trade wars, the MPC’s quest to raise interest
rates or something else, the outcome is the same. Falls and rebounds are
getting larger: this frequently means ‘something’ is about to happen.
Well; what a waste of a month. Everything was going
swimmingly until The Donald decided that he could climb any mountain and ford
any stream in pursuit of his dream. At the current rate of progress, his only
friends might well appear to be his lawyers.
Corporate tax cuts and bribes / threats about repatriating
overseas cash piles to the US can be claimed a BIG success, but not in the way
that Captain Weetabix had hoped. Instead of stimulating corporate investment as
a prelude to his plan for economic growth, the money fed straight back into the
pockets of the senior managers of those businesses through share buy-backs that
drove up the share price to qualify that same management for enormous
“performance related pay” bonuses. Hopefully, a loose grasp of The Law of
Unintended Consequences will come quickly to Mr Trump, because the Trade Wars
he has embarked upon are likely to cause a more insular – and therefore less
efficient – global economy. The targeted responses by the developed world
are hitting those regions and local economies that voted DT in to the Oval
Office and pushing up the cost of living in the US. With a Budget in a
parlous state and mid-term elections on the horizon, Trump cannot afford to
keep this nonsense up for very long.
6th February 2018 - The Markets and Economy
February has provided lots to
write about! The month began with US employment data confirming that jobs are
being created, the unemployment rate is very low and the resultant skills’
shortages are causing some wages to go up. Quelle surprise! It is fair
to say that this could not have been the trigger for the American slide.
Minutes after the release of
the payrolls data last Friday, US Treasury bond yields rose a little and it was
after that that the Dow Jones fell. That 2.5% drop gave birth to copycat falls
across the globe and worse was to come on the Monday for America, which is
still up almost a quarter in the last twelve months.
By way of comparison, the
S&P 500 saw fifteen straight monthly rises up to the end of January – a
feat it had never achieved before. Chartists (who only ever look at things
backwards) note that the S&P was a staggering 13% above its 200-day moving
average, with a Relative Strength Indicator of almost 87 (50 is average and the
closer it gets to 100 the more Bullish everything appears to be). Although
these are both technical terms that you may not have been familiar with, each
of the measures were extreme and made this the most technically ‘over-bought’
American stock market for 30 years. This is hardly a surprise when you discover
that an extra $100bn went into the US Equity market in January 2018
Whilst many believe that
American equities had been ripe for a fall, it can be no coincidence that the
market rattled its sabre on the last working day before Janet Yellen was succeeded
at the Fed by “the President’s man”: Jerome Powell. Rising Treasury yields and
simultaneously rising wages are traditional signals for pushing up interest
rates more quickly – something that equity markets loathe, because it harms
dividends, growth and consequently share prices. Janet had already told the
world that another increase of 0.25% is coming in March – with two more along
the same lines later in the year - and the equity traders seem to have been
reminding JP that it could all turn to dust if he does anything precipitous.
That worry seems likely to
persist until Wednesday night, but by Thursday the keen-eyed will already be
picking up what they see as bargains and the merry-go-round is expected to
resume its happy tune. The Bull run still appears to have a lot of life left in
it and pauses like this after stellar growth are not unusual, so your
confidence in the fund managers chosen for you remains well founded.
3rd October 2017 - The Markets and Economy
You cannot have missed the direct impact that Mark Carney's sabre-rattling had upon the FTSE. His overt goal has always been to keep inflation within outdated parameters and he has consistently failed to do so. This is a greater criticism of the goals than it is of Mr Carney, but his secondary objective is to look after Sterling.
The pound has been on a steady decline for several years and the decision to paddle our own economic canoe accelerated the process. Initially of the view that this was a temporary market over-reaction, the MPC decided to sit back and watch. Faced with the reality that international investors do not share their peachy view of the economic future for Britain he decided to go nuclear.
Reinstating the post-Brexit quarter point cut and raising bank rate to 0.5% really should be neither here nor there but it provided sufficient excitement for international investors to ignore the facts and gamble on the hope that his will be the first of many rises in quite quick succession. With the currency buoyed by that increased demand the FTSE naturally fell, for the identical reasons that investors had so recently profited through the weakness of Sterling.
Oscar Wilde famously wrote that ‘the only way to get rid of temptation is to yield to it' in what was supposed to be a waspish aside. The last ten years though has seen the world tying to cure its addiction to debt by yielding to the temptation of taking on even more, whether through QE or any other means. Rising interest rates must be worrying.
On the one hand, the BoE has to raise interest rates to give it some options other than QE to manage its affairs because there is virtually nowhere for them to go at the moment. Conversely, even a small rise in the interest rate cycle might tip this palpably fragile economy back into recession.
Closer study of the latest MPC Minutes revealed that they believe a lack of business confidence has led to underinvestment in capacity in the economy, with the result that even the low growth of late is rapidly taking up the available spare. This is a legitimate view but it is hard to see how raising interest rates will deal with both the expected inflation and perceived underinvestment. The economic brains on the MPC are amongst the best in the country but it does seem more likely that their voiced solution is only going to make everything worse. With any luck it will prove to be nothing but a bluff.
The Governor had hitherto been at pains to stress that the unwarranted weakness of Sterling was the sole cause of above target inflation. With the currency now at a post-Brexit high and approaching pre-referendum levels against the US dollar, that argument starts to run out of steam. A more probably bogeyman is less tangible and therefore much scarier: the output gap or, more accurately, the lack of one. Only political intervention from an astute Chancellor could address this and his Autumn Budget should have that topic as its focus. On a positive note, Hammond does not have the distraction suffered by the rest of the government: those all-consuming and angst-ridden but fruitless Brexit talks.
To the surprise of almost no-one Angela Merkel secured election for a fourth time and that political continuity is a very positive thing for our brave Brexiteers. Some common sense and deal making might now prevail, but it might prove a disaster from Germany's point of view that they did not find a replacement. Evidence from the UK suggests that the repetitive election of a Premier tends to be a bad thing for anyone, whether that was Thatcher, Blair or anyone else. The Founding Fathers deduced this more than 250 years ago and even the Russians adopted a constraining policy to prevent it - until Putin rewrote the rules.
Super Mario faces a diametrically opposite problem and it will come to a head this week at the meeting of the European Central Bank. In their case the temptation will be to hint that it is time to reduce the extent of QE and stop buying quite so many bonds. Last month's Eurozone Flash PMI data saw manufacturers' confidence hit a dizzying 56.7%, but the euro is floating ever-higher on the expectation of just that step. With the Euro currently buying just under $1.20 or £0.90, the most since early 2015, he will be damned either way.
The shabby behaviour of Ryanair and demise of Monarch Airlines in the budget flight world were nasty surprises but of little consequence for investors. Footage from Spain though brought another dimension entirely. What sort of democracy is it where you get a sound thrashing from the police for voting within the EU? While stock markets have shrugged the episode off it is hard to see how the Catalan situation is going to end well.
October is the month when the Federal Reserve switches from Quantitative Easing to Quantitative Tightening. Despite this certainty, markets appear not to care one iota. The message seems to be that they do not believe that the Fed will see it through when the economy slows again and QE resumes. The recent years of easy, risk-free money is an unsustainable fantasy which essentially discourages risk-taking and so something has to change.
9th June 2017 - UK Election 2017
It has taken a mere twenty eight years for there to be a
less predictable outcome than when Sutton United took on Coventry City FC on 7th
January 1989 and they emerged victors 2:1. Nineteen months after winning the FA Cup, Coventry were still riding
high in the Premiere League when the non-League amateurs beat them “at their
own game”. Now that was embarrassing
and in this context the Conservative victory
is OK really.
Irrespective of the quality of the debate or campaigns the
reality is that there is a hung Parliament in Britain and that shock brings
more volatility to investment markets in the short term. Sterling always loses international value in
such conditions and while that means your overseas holidays become more
expensive, it is good for the FTSE 100 because more than three-quarters of FTSE 100
profits are made overseas. When those
overseas profits get converted back into Sterling the dividend is higher and
that pushes the share price up too.
Several positives have emerged from the result though:
A softer, less combative stance towards the EU is likely to help Sterling and reduce market uncertainty,
The nation voted overwhelmingly for the two parties that accept the “Leave” vote and so there won’t be another vote on whether the deal negotiated is wanted or not – GB is leaving the EU,
Our fellow citizens in Scotland do not want another referendum about possible independence from Britain any time soon, and
British businesses are even more attractive to overseas investors and so the pace of takeovers and mergers is likely to accelerate.
Political necessity will shape what happens next and so no
changes should be made to your portfolio just now. Whether Mrs May soldiers on with or without
the DUP or is politically despatched in favour of another Leader, a
Conservative led government seems certain. Back in 2010 very similar things happened and over the ensuing year the
short-term volatility had made no material impact upon investment markets. There are no grounds to expect a different
outcome on this occasion.
The UK already uses World Trade Organisation terms to great
effect with much of the world and progress has already been made in expanding
those relationships. In the
twenty-months or so left to conclude the terms of the GB departure from the EU any improvement beyond the WTO standard
– which simply cannot be denied – constitutes a win for Britain.
House prices and supercars are likely to get pushed higher
still with the influx of foreign cash into the “bargain basement” of Britain if
the Sterling weakness endures, but the message for Fixed Interest Securities is
that there is even less likelihood of a Bank of England rate rise soon. The summary position is that rates will “stay
lower for longer” and so the possibility of falls in those asset values has
Please remember that your investment strategy has not
changed overnight. Brief storms do not
determine the valuation of buildings, currencies or companies but rather the
fundamentals of management. The
short-term noise is nothing more than a distraction and the best managers –
each of whom have been hand-picked for your portfolios – will exploit the
temporary distortions in market prices to your long-term advantage.
8th March 2017 Spring Statement from Philip Hammond
The last in the current series of Spring Budgets was no
sombre affair, with our Chancellor displaying unexpected comedic talents.
Coming so swiftly after his first Budget, last Autumn, little had changed and
so the content was necessarily limited to some light pruning as his focus
shifted from one part of the economy to another.
All politicians colour their messages to their own liking
and this was no exception. The Office for Budgetary Responsibility (OBR)
revised its forecasts of changes in the nation's Gross Domestic Product (what
the country "earns") to show annual increases of 2% in 2018, 1.6% in 2019, 1.7%
in 2020, 1.9% in 2021 and 2% again in 2022. Sadly the same august organ
also forecasts increases in the Retail Prices Index of 3% this year, 2.3% in
2018 and 2% in 2018 i.e. the nation is going backwards rather than growing, but
this was portrayed as being a success story.
Hopes of balancing the budget during this Parliament also
faded away, but at least the OBR confirmed its hope that the national debt will
"only" rise from 86.6% of GDP this year to 88.8% in 2018 before falling
progressively to 79.8% by the end of 2022. Just forty more years of
austerity to go then and the public sector debt will have been paid off.
Previous tax announcements were repeated but there was a
sting in the tail as far as the self-employed and dividend recipients are
concerned. Over the next two years the self-employed will pay 22% more
National Insurance Contributions on the same profits as the rate rises from 9%
to 11% and the tax-exemption on dividend income was cut by 60% from £5,000 per
year to £2,000 instead. The change to NICs has fuelled a great deal of
adverse comment from the government back benches, let alone other sources, but
the logic of the argument put forward by the Chancellor is hard to argue with
even if it does fly in the face of their last Manifesto.
One very positive tax hike was the imposition of a 25% levy
on all pension funds being moved into any non-EU QROP - an offshore type of
pension that has become popular amongst those "advisers" involved in illegal
pension liberation scams.
Most of the window-dressing was quite ephemeral, with £113m
going to Midlands and "the North" of England to be spent on road "pinch-points"
(even though the potholes cost many times more than that to fix every year) and
£216m over the next three years to repair existing school buildings in England:
a sum that would barely cover the outstanding work for Warwickshire let alone
the country as a whole.
With the nation desperately short of GPs it was also good to
discover that £110m of capital has been earmarked for the next six months to employ
more GPs in triage units at the A&E departments of hospitals. No
mention was made of where they might be coming from, but immigration seems the
only possible solution.
A welcome announcement though was that the April NS&I
bond will pay 2.2% interest on balances up to £3,000: a highly competitive rate
that should become part of everyone's cash resources.
24th November 2016
Autumn Statement 2016 from Philip Hammond
A budget by any other name, the November speech delivered both bitter and sweet news for the nation. Much of the content was eminently sensible and to be applauded whilst other elements appear at odds with his stated aims of addressing the:
- Poor productivity record that Britain has become famous for,
- Gap between demand and supply of housing, and
- Growing imbalance in prosperity from one region to another.
Bringing the annual Budget forward to the Autumn from 2017 is welcome news, giving everyone time to consider how best to organise their affairs before the tax system changes the following April. Responding each March to the Budget feedback generated by the Office for Budgetary Responsibility is also a good idea, keeping the financial plans all within the same tax-year; so full marks for originality of thought.
Much of the content simply repeated previous annoucements although his confirmation that the current tax road-map for business would remain in place for the remainder of this Parliament bring the stability and reassurance that all businesses need.
Several spending initiatives were created or enhanced, including:-
- A £23bn budget over the next five years for the National Productivity Investment Fund, which is partly earmarked for -
- Research, Development and Innovation using £2bn to grow our brightest ideas into valuable businesses rather than allow them to be snapped-up by overseas investors,
- An extra £0.9bn for the existing Homebuilders' Fund to acclerate the construction of 100,000 homes in areas of highest demand (that is just £9,000 per property and so seems likely to allow developers to make an extra £9,000 profit,
- Another £1.4bn into the Homebuilders' Fund to get 40,000 more affordable homes built (£35,000 apiece in this instance, so the assumption is that these units will be flats),
- Unspecified extra funds to encourage tenants to exercise their Right to Buy from Housing Associations,
- Unspecified support for the Help To Buy mortgage loan schemes and also the Help tp Buy ISA for first time buyers,
- £220m to address traffic pinch-points in England,
- £450m for digital railway signals and £80m for smart ticketing in England,
- £390m to encourage the purchase and use of low-emission vehicles in England, renewaable fuels and Connected & Autonomous Vehicles (CAVs).
His wish to make the UK the "5G world-leader" is a aludable one, but Japan and many other developed countries already have 5G-specification fibre optic connections into their homes and wirelessly across their entire territory: not just 4G to a box somewhere nearby, as is the case for over 85% of the UK. Many had hoped for a vast increase in the capital devoted to improved Internet speeds and capacity, but the £500m (if matched by the same amount of private capital) committed over the next five years falls far short of those dreams.
Our Chancellor highlighted the huge disparity in wealth between the South and the North of our Kingdom - he said it was the most extreme divergance in any developed country - before stating his intention to address it. Whilst the Northern Powerhouse continues to be a topic for discussion, hopes for a Midlands Engine strategy were announced just after confirming funding of £27m and the go-ahead for the Oxford to Milton Keynes to Cambridge Expressway. Presumably the wealth imbalance can wait a little longer.
Changes to the Barnet Formula see more money flowing to the local authorities responsible for the extremeties of our Kingdom: £250m to Northern Ireland, £400M to Wales and £800m to Scotland.
An additional £400m of Income Tax Relief for investors into Venture Capital Funds will translate into an extra £1bn of finance for new technology companies - an act aimed squarely at "patient capital" needs. This was accompanied by another £50m per year to help FinTech specialist businesses to aid growth and £13m per year for businesses who wish to train their Board and management "the Sir Charlie Mayfield way" to improve productivity. Hopefully great oaks my grow from these tiny financial acorns.
Largesse amounting to £542m will be spread amongst the Midlands Local Enterprise Partnerships to financially prime businesses with the potenential to generate growth, bringing access to extra capital where and when it is needed most. The South got a further £683m in the same way.
The austerity measures imposed upon most Government Departments is not being watered down, but those which succeed in finding the desired efficiences will be rewarded from a pot of £1bn for targeted areas of expenditure that were not announced. Excused from these financial exigencies is the Ministry of Justice, whose immediate goal is to cope with the burgeoning prison population in order to bring safely for both inmates and staff.
An existing commitment to preserve the "triple-lock" on the State Pension to April 2020 was ratified, as indeed was the plan to reduce Corporation Tax by anothr 1% to 17% by 2020. Other taxation announcements included:
- Discounts for business Rates,
- Harmonising the starting point for National Insurance Contributions at £157 per week: adding £8 per year per qualifying employee to the costs for every business,
- Insurance Premium Tax being increased by 20% from next June to 12% in all - please talk to your insurance adviser about the change Corrigans can offer you to reduce the growing impact this tax has upon your business,
- Salary Sacrifice confirmed as being approved for pension contributions and advice, childcare, cycle to work schemes and ulta-low emission vehicles but worthless for aggressive tax-avoidance schemes such as cars, accommodation, school fees, Private Medical Insurance or Life Assurance premiums and the like from next April or April 2018.
- Cutting the annual pension contributions allowed from £10,000 to just £4,000 for anyone using Flexi Access Drawdown Accounts (FADA). This does not apply if you have only taken "tax-free-cash" from your pension but please contact your adviser about your circumstances, and
- Increasing the ISA allowance next April from £15,240 to £20,000 per person.
Increases in Personal Allowances against Income Tax remain as currently planned: £11,500 each from next April and rising to £12,500 by April 2020, at which point the 40% threshold will be £50,000.
Next April sees the National Living Wage rise from £7.20 to £7.50 per hour and free childcare for working families doubles from 15 to 30 hours per week progressively in 2017. At the same time the rules on Universal Credit change to allow claimaints to keep 37% rather than the current 35% of their Benefits whilst working - a direct measure to financially incentivise work as a culture.
Savers were also rewarded with news of a new Bond to be issued by National Savings next April, offering 2.2% pa gross for a three-year deposit.
All in all it appears to be a very sensible Budget (sorry, Autumn Statement) but quite how it meets his stated aims of improving productivity, bridging the housing gap and reducing the diverence in prosperty from South to North is unclear.
9th November 2016
America has shown that it is not immune to reactionary politics in making their latest choice of President. Widespread disillusionment at the gulf between those who have done well out of the latest Banking Crisis and the vast majority has stoked the appetite for change in Britain, Germany and now in America too. The die seems to be cast for France, Spain and Italy as their Referenda and elections take place in the coming months.
For investors there will be the same knee-jerk reaction seen post-Brexit, with a sharp sell-off in Equity Markets and a weakening of the US Dollar. That shock will not last though because there are constraining measures to limit the ambitions of any President which have been in place since the first Independence Day.
Although there is likely to be a clean-sweep of Republicans from the Oval Office through to the Senate and House of Representatives, the views of the next President are not universally shared by his party. He will find progress frustratingly slow when compared against the outcomes he is accustomed to through the nimble team that helps him to run his business empire. With no experience of how the organs of government work there will be heavy reliance upon an extended chain of bureaucrats who, in a real-life parody of "Yes Minister", will accelerate or hinder policies according to their collective, unwritten but very-long-term, agenda. In short, little will change in practice.
The common factors in each of these votes has been increasing isolationism and a desire for self-protection, neither of which might be considered positive factors for the UK as it seeks to renew its outward-looking business relationship with the rest of the world. Thankfully though the dead-hand of the civil service in each country will limit the progress that their political leaders can make towards these extreme policies. Business as usual beckons.
In America the stock-market was pushing towards the top end of its value-range in October and so the short-term sell-off represents an opportunity to buy the market. Much had been made in the campaign of the wish to redirect the US military budget back into America rather than protecting the rest of the world, on the basis that local problems should be resolved locally. Of all the countries that want to do business with America the UK is therefore in the best possible place, having played a full part in all the US fields of military battle.
Two months of negotiation now ensues as a new team is identified by Mr Trump to support him over the next four years. Their identity and credentials will be scrutinised closely by many, of course, but the growing military, computing and political confidence within Russia and China may take this signal as an opportunity to "grab territory" or renegotiate trade terms with weaker nations.
Interesting times such as these are best faced with a portfolio of investments that are actively managed and have the right asset allocation for you. The short-term turbulence that follows another unexpected political outcome is just a distraction in the long-term journey towards your goals, but please contact your adviser if you have specific concerns.
7th October 2016
After any period of sustained market rises there is an inevitable moment of the jitters and that is no bad thing. It often feels though that the fate of the financial world rests in the hands of a tiny clutch of politically appointed bureaucrats. The leaders of the central banks posess extraordinary powers to set the trajectory for the global economy and its stock markets. Not underlike the Democratic system at play in the UK, leaving important stuff to long-term and un-elected workers is probably better than entrusting such things to short-term but elected politicians of any hue.
Over the Summer there were several rumblings from the Mandarins that market volatility was lower than expected post-Brexit. The Conservative Government has got off to a marvellous start under Mrs May though and that has given investors greater confidence: uncertainty being the worst thing possible for investment markets. To make matters even better for British investors though the UK has achieved what every developed nation has yearned for since the most recent Banking Crisis - devaluation. A 13% drop in value relative to all major currencies since that surprise vote is no mean feat and that translates directly into higher share prices in the UK. This is because London and Switzerland are unusual stock markets. The rest are all "domestic", with the constituent businesses being local to that stock market and earning their profits in the same market. One benefit of our former Empire is that 85% or more of the profits made by UK listed companies arise overseas. When those foreign profits are brought back to the UK to be paid out as Dividends they are worth more in Sterling than they used to be because of that devaluation. Those higher Dividends lead directly to higher share prices without any smoke or mirrors.
Japan has stated that it is targetting zero "interest" on its borrowings for the next ten years: something they can achieve through Quantitative Easing, and this volume of purchases forces the price of all national debt higher with the terrible result that the "interest" paid on it gets lower and lower. Investors are therefore flocking into other assets because high-quality companies that pay 3.4% dividends year-in and year-out offer a more compelling solution to anyone looking for an income in life beyond work.
Meanwhile on the other side of the Atlantic a frightening game of bluff and counter-bluff is under way. One of the two least-loved Candidates in a long time will become President though and in the meantime Syria, rather than Rome, burns. It puts all this into perspective really.
14th April 2016
The economic situation in China continues to influence the UK Stock Market. China has thankfully lowered its GDP growth target range for the year to 6.5%-7%, but what does that mean? At the bottom of this range it would amount to an extra $706bn: the same amount as 9.4% growth would have created in 2012. It is also the equivalent to the annual GDP of Switzerland, or half that of Spain, or even a third of the GDP of Italy - the 8th largest economy in the world.
It is a massive sum and it screams confirmation that China is not imploding. The United States is growing nicely and deflation is currently an exclusive phenomenon of the geopolitics associated with the engergy industry. Negative bond yields are an abberation of seemingly misguided and outdated monetary policy with the result that the world is a much more normal place than is commonly portrayed.
Brent crude oil spent part of the month above $40 per barrel and other commodity prices rushed up in adoration.
Inflation is a-coming and markets are terriby happy again.
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