Stranger In A Strange Land

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Many will simply shake their head while muttering, 'the world has gone mad.' I know I did. We are where we are though. Westminster is trying to figure out how to make a seized up situation work while the rest of the country is going about its business with an air of, 'well that showed them.' The chickens though, whole squadrons of them, will at some point in the future be coming home to roost. In the piece that follows, my friend Tim Price of PriceValue Partners offers his take on events, past, present and future.

“If you have been voting for politicians who promise to give you goodies at someone else’s expense, then you have no right to complain when they take your money and give it to someone else, including themselves.” - Thomas Sowell.

It is difficult to know where to begin. That 262 British parliamentary seats fell to a party led by a self-confessed Socialist is bad enough. That said leader lacks the support of 172 of his own MPs is troubling. But that someone who has publicly supported the IRA, Hizbollah and Hamas could attract 12.9 million votes while the United Kingdom is under attack by terrorists simply beggars belief. Sir Richard Dearlove, the former head of MI6, the British Secret Intelligence Service, points out that Jeremy Corbyn – who seeks the office of Prime Minister – would not be cleared to join either his former agency, or GCHQ, or MI5; and indeed would, 2 in the past, have been actively investigated by the latter. It is said that you get the politicians you deserve. So what on earth did we do to deserve this ?

Letter to the Financial Times, 8 June 2017, the day of the UK General Election.

Letter to the Financial Times, 8 June 2017, the day of the UK General Election.

Nor are we making a narrow party political point. As Clive Crook points out for Bloomberg, while Jeremy Corbyn offered the UK electorate the sort of swivel-eyed Trotskyism that ought to have died out in the 1970s along with flares and safari jackets, Theresa May was making her own lurch towards the left:

..instead of championing a solidly pro-market centrism, May adopted a semi-skimmed leftism heavy on industrial-policy meddling and other piecemeal dirigisme.

So a plague on both your houses.

Many investors today were forged in the crucible of the Global Financial Crisis. This was, no two ways about it, a crisis originating in debt. The plain numbers are stark. Simon Mikhailovich of Tocqueville Bullion Reserve reminds us of those numbers with a sobering tweet:

A bit of math. With the global debt / GDP ratio at 320% and the cost of average debt service at 2%, it takes 6.4% growth per annum just to service the debt. Not happening.

Our politics have gone mad, and our markets have gone mad with them. As Ronni Stoeferle and Mark Valek point out in their latest, magisterial study of the yellow metal, In Gold We Trust,

We live in an age of advanced monetary surrealism. In Q1 2017 alone, the largest central banks created the equivalent of almost $1,000 billion worth of central bank money ex nihilo. Naturally the fresh currency was not used to fund philanthropic projects but to purchase financial securities*. Although this ongoing liquidity supernova has temporarily created an uneasy calm in financial markets, we are strongly convinced that the real costs of this monetary madness will reveal themselves down the line.

*With that amount of money, one could purchase 20 Big Macs for every person on the planet. Notably in Switzerland – according to the Big Mac Index – the most expensive jurisdiction worldwide. Alternatively, one could also buy one 1/10th oz. gold coin for every person on the planet. We would recommend the latter.

Faced with universally expensive bonds and predominantly expensive stocks, there seems to be little point in low cost index tracking – at present, at least. This is an investment ‘strategy’ that Jim Mellon describes as “pass the parcel for investment morons”. The only sensible and credible responses to the investment challenge of our times can be to diversify broadly, and then invest selectively, and defensively. (Longstanding readers, along with our clients, will know that we put particular emphasis on Benjamin Graham-style value stocks, systematic trend-following funds, and gold.)

This is also a crisis of education. How, aside from craven bribery, could so many young Britons flock to the sirens of socialism ? How did so many millions manage to avoid any grasp of history (or choose to ignore it) ? Eamonn Butler of the Adam Smith Institute, however, is not defeatist. He quotes from the master, Hayek: 

We must make the building of a free society once more an intellectual adventure, a deed of courage. What we lack is.. a truly liberal radicalism which does not spare the susceptibilities of the mighty.. and which does not confine itself to what appears today as politically possible. We need intellectual leaders who are willing to work for an ideal.. They must be.. willing to stick to principles and to fight for their full realisation, however remote.

There is otherwise the very real likelihood of nasty intergenerational conflict. The Baby Boomers already ate most of the pies. The millennials and Generation Z are right to be angry. But last week this anger manifested itself in the form of some Corbyn supporters burning newspapers. To anyone with a sense of history, the UK today feels like a very strange, and disturbing, place.

Oopsie!

The croft in the Highlands scenario just became a viable option

The croft in the Highlands scenario just became a viable option

The REME vehicle mechanics had been working on the engine pack throughout the night. As dawn rose through the mist on the North German Plain Bombardier Clark turned to me and said, ‘Well Sir, I reckon the things properly fxcking fxcked.’ Bombardier Clark had a way with words which I find difficult to better this morning as I survey the train wreck that is the election result. 

Tory passengers noticed before the driver did that something was awry

Tory passengers noticed before the driver did that something was awry

Despite all the opposition parties swaggering around the studios like winners there aren’t any really. Except for Jeremy Corbyn personally, house prices in Scotland and Ruth Davidson. The parliamentary Labour Party have just been handed their worst nightmare. New Labour is history and New Old Labour is here to stay given that Corbyn’s position is unassailable. Theresa May is on political life-support and will in all likelihood be gone by mid morning or will give notice to leave, (although the BBC are now signalling she intends to stay). I expect you could then say that Boris is a potential winner but he, or whoever the Tories elect, will be handed a chalice laced with political arsenic. One of the things I got right, and there weren’t many, was that Ruth Davidson would shine and she has with a genuinely robust set of wins in Scotland which has nobbled IndyRef 2. The SNP though will have more influence at Westminster than before. The Lib Dems went nowhere and UKIP did every bit as badly as we expected.  The Europeans meanwhile are not happy. They wanted a strong and unified set of negotiators on the other side of the table.

As an act of national collective madness this will take some beating. I look at the fact that so many misguided half-wits voted for a man who supported terrorists uninterrupted for 30 years with bewildering incredulity. The not so nice part of me thinks, ‘Stuff it. I hope you get your grand coalition. Your loans might go down but there will be no jobs for you at the end of it.’ The Conservatives have however, only themselves to blame as I explained in a previous post. They might have been hearing but they weren’t listening. That under 30’s, of all previous political hues and family backgrounds, lurched to Labour is an unforgivable dereliction of responsibility by the Tories. 

One thing is for sure and for certain; we will have another election this year. We’re turning into bloody Italy. This morning, the croft plan doesn't seem so silly. The only, and I do mean the only mitigation in staying up all night was Emily Maitlis in that red dress. I think Bombardier Clark would concur.

Are We There Yet?

"Election Warms Up". Good coverage of the  General Election (in 1964)

One day to go until the Election and most of the parties will be wishing they could wind the clock back and start again. Led by the Conservatives, with the worst campaign in memory and about as interesting as toothache, most of the parties set low standards, failed to achieve them and have been in defensive mode from the get-go. The Liberals seemed to wandering around in a baffled daze wondering where the buses went. They were left behind at the start line when they put all their eggs in the basket marked, ‘cross about Brexit,’ without it having dawned on them that most of the ’48%,’ had moved on. (Tim Farron incidentally is rumoured to be vulnerable tomorrow). UKIP’s engines blew up when they turned the key while the SNP charged off at 100 miles an hour but in the wrong direction, having made the same miscalculation as the Liberals and subsequently went back to start again focusing on public services while under unremitting pressure for Ruth Davidson. The clear campaigning winner is Comrade Corbyn who has successfully rewritten the narrative of his personal support of terrorist groups over 30 years and presented a platform of reasonable unreasonableness by promising lots of free stuff to anyone with a hand out whether they need free stuff or not. As one member of a Question Time audience described it, ‘your manifesto reads like a letter to Santa Claus.’ It is easily the most mendacious, devious and manipulative campaign by Labour that I can recall. But clever nonetheless. So, May will win tomorrow but hasn’t really earned it. But why has CC done so well and May so badly?

The Conservative campaign has been described as ‘presidential.’ My view is that the Prime Minister initially set out to attempt to be anything but presidential. I believe her aim was to restore some gravitas and dignity to the office and to do so by avoiding electioneering stunts with hi-vis jackets and hard hats or rolled up sleeves with a pint in hand being a ‘man of the people,' as every PM since Mrs T has at some point attempted and mostly failed to do. The approach has failed though. She has come across more as something between a sub post office mistress and a doctors receptionist. Worse, until this week those ministers with a strong intellectual belief and understanding of their departments and policies, and a charm with which to communicate them, have been hidden from view. The manifesto was, I thought, much better than the press it received suggested. Despite being more 6 null Left wing than I would like I think I understand what the intended broad thrust was. In fact, it was woefully undersold and there were plenty of points which have resonance with the electorate that deserved some flesh on the bones such as the aspirations to build out the digital infrastructure so that every home has access to hi speed broadband by 2020. 

The Conservative manifesto also suggests a policy of student debt forgiveness for student nurses but is limited in its scope. The Conservatives should listen to Crumble, expand it and make a noise about it. I have long argued against the current loan regime, (how can a compound rate of 6.5% be justified in the current low rate environment? It is usury, plain and simple. A £42k student debt with compound interest at 6.5% will be £80k in ten years time). At a minimum, HMG should be offering students electing to do courses which have a direct benefit to the country, (computer science, medical, social work, teaching etc) and where there is need, discounts which increase with length of service. This should be extended to those who subsequently go into a government job where they make a career sacrifice to do so. Further, young people who engage in voluntary work on either a charitable or local government basis, join initiatives such as Teach First, or serve in the Reserves should also benefit from a discount. Given most loans will anyway remain unpaid HMG may as well attempt to derive some benefit from them for the national good. In committing to this the Conservatives would lay the foundation for some sort of vision for the under 30’s which has been the biggest miss of the entire campaign. In fact, the Tories have been watching a completely different movie and have left the young with little incentive to vote for them. Usually, when people start talking about ‘the vision,’ it is time to switch off and walk away but in this instance, a better articulated view of how the UK is going to come to terms with accelerating developments in computer power, automation, robotics and biotech against a backdrop of rapidly changing demographics would have been a good thing. A simple statement such as ‘All primary school children will be taught elementary coding by part time students and graduates who will enjoy a level of student debt relief commensurate with commitments made,’ would at least put a marker down and be duly noted by the young vote. Oh and while I am on the subject of students it’s about time HMG shook down the universities and tackled head-on the weak value proposition that so many students are paying for in terms of poor and sporadic teaching on three year courses which, in many subjects, could easily be done in two.

The Dementia Tax episode was just woeful. Again, there is some good rationale to it which would leave most if not all better off than they would be today but the delivery was mistimed and misunderstood. The big, (and getting bigger), problem we have in the UK is that since Labour years ago weaponised the NHS the chances of having a rational discussion about it are round about zero. Back in 1978 my geography teacher, Mr MacKay told us that with the then rate of growth by 2027 we would all either be working for the NHS or be patients of the NHS. Mr McKay was a lot smarter than most of our politicians. Their selfish and infantile thinking precludes debate about potentially innovative and creative solutions to a growing problem and 6 null is contemptible. The other big problem for the NHS is that it has become the default dustbin for everyone in society with any kind of problem, medical or not. That, with a galloping sense of entitlement encouraged by idiot politicians from its users produces unsustainable and unreasonable demand. If citizens in Ireland pay for GP’s appointments what makes us so special that we shouldn’t do the same? The whole national approach to the NHS, and the expectations that we have of it are in heavy need of recalibration rather than the national state of denial which exists. A general election though, is not the time to do it.

Tory strategists clearly thought they were being clever by occupying the centre ground and edging slightly to the left, presumably with the intention of pushing Corbyn further out to the extremes of policy. Unfortunately for them, they were left looking flat-footed when Corbyn outflanked them and has had the bare faced cheek, as someone who has voted against all Anti Terrorisim Acts, to start selling himself as a friend of the police and security services and a bastion of law and order. I am left incredulous that some believe the outrageous nonsense he has been promulgating. Fortunately, the electorate are not as stupid as Corbyn needs them to be in order to win. Let’s though, just remind ourselves of some of the things that would disappear if Comrade Corbyn actually won, (I'll see you all in the hills then....)

The Monarchy

The SAS

Special Branch

The 'Five Eyes' Intelligence Sharing Agreement

Winning

Foreign Corporations

Low Interest rates

Synagogues

Gibraltar

High Net Worth Individuals

Scotland

Foreign Investment

All the Regimental Silver (to be returned to its original owners)

Tax Receipts

The Elgin Marbles (and everything else cluttering up the British Museum)

Public Schools, Grammar Schools, Academies

The Falklands

Trident

The House of Lords

Our International Reputation

Statues of famous statesmen

Northern Ireland

Premium of the pound over the Euro