Sometimes you surprise the goalkeeper….
“Sometimes you surprise the goalkeeper and sometimes the goalkeeper surprises you. In my career, I tried to do more of the first than the second”
Eric Cantona, former footballer
In light of the England football team failing to surprise many of the goalkeepers in the recent European Championships we thought the quote might be lost on some so we finally agreed on:
“I know enough of the world now to have almost lost the capacity of being much surprised by anything”
“David Copperfield” by Charles Dickens
“If you want something said, ask a man; if you want something done, ask a woman”
You will have often heard it said that markets do not like uncertainty and we can see how they have reacted badly to past events when the outcomes have been unknown. More recently, the “Credit Crunch” almost led to Greece exiting the EU and, although it was the Greek people who were bearing the brunt of the austerity measures imposed upon them, collectively global markets reacted badly to the possibility that if Greece exited the EU others might follow and the knock-on effects this could have on the Eurozone.
A similar impact is being felt as a result of “Brexit” but to add to the mix the UK is the 2nd largest economy in the EU (Greece ranks 15th) and one that is/was relatively stable and growing, there will be further pressure to hold a second Scottish Independence Referendum which could mean an end to the UK as we know it and this is all being played out to back drop of growing support for far right wing nationalist parties across the continent that present a further destabilising risk to the European Union.
We can now take some comfort from the fact that, like the Greeks who had the popular leadership of Alexis Tsipras to lead them through there own very trying times, we will have what appears to be the steadying hand of Theresa May to take the Prime Ministerial reigns sooner rather than later. However, while the Conservatives have managed to avoid a long running and no doubt divisive leadership contestant, it is not healthy for a democracy when there is real lack of effective opposition as the Labour Party are embroiled in their own internal but very public civil war over its leadership and future direction.
Commentators anticipate that it will take as much as two years to exit the EU and, in the short space of time since the EU Referendum, there has been little consensus on how the UK should proceed. At least the process of formulating a strategy can now begin in earnest as a new the new Prime Minister will be in place to lead us through what will surely be one of the most pivotal periods in recent history much sooner than September as had previously been the case.
Just prior to the EU vote closing we saw a frenzied rally on Sterling as traders speculated on a vote to remain in the EU and reached a record high against the US Dollar for 2016 of $1.50 before falling to 30 year lows following the result of the referendum. Similar volatility was also seen against other major currencies.
This is important as far as your portfolios are concerned because the markets are very probably going to be quite volatile throughout this period and that volatility will be reflected within your investments. In order to reduce that volatility we err towards larger, well capitalised, investments and ones that will benefit from political intervention in the meantime.
While the UK still has significant debt to manage and, if possible, reduce, it also needs to stimulate the economy and one way to achieve this is to improve infrastructure. It’s a difficult tightrope for the government to walk; on the one hand it must reduce debt while on the other it must spend to stimulate the economy. Other nations will also need to walk the same tight rope.
Gold is usually seen as a good investment in times of uncertainty and so it has proven this time around. Unfortunately, gold does not produce any interest or dividend for those seeking income from their investments However, for those not seeking income but growth instead, gold normally offers a safe haven in turbulent times.
Central Bank Policy
The Governor of the Bank of England, Mark Carney, has already told us in his speech after the referendum on 1st July 2016, that he will do what is necessary to maintain and revitalize the economy. He said that he will stimulate the economy with up to £250billion and has talked about “some monetary policy easing” in the next few months.
The yield on two short term gilts turned negative for the first time, joining a number of other countries whose bonds yield negative interest rates. Markets are now anticipating interest rates to fall, despite at already being at record lows.
The impact of this speech on markets was extremely positive for most investments as we saw the FTSE 100 rise to 6,624.30 and thereby marking its highest point since August 2015 while the FTSE All Share also reflected the positive news for asset backed investments.
We were already beginning to see inflation increase after the oil price falls of last year. These declining numbers will no longer feature in the maths for decreasing annual inflation. However, the falling value of Sterling will mean imports become even more expensive and thus pushing up inflation even quicker than it might have done. This means we can anticipate higher petrol, food and commodity prices.
For savers this is very bad news because with interest rates at zero (or near zero) and inflation rising this means that the actual value of savings will be almost guaranteed to reduce in real terms. For those who rely on their savings for income there will be even more reason to turn to ‘riskier’ assets such as shares, property and equities for income.
Mark Carney has also hinted at getting the banks to lend more, to encourage borrowing and consumer spending to help stimulate the economy. The banks are in a far better position than they were in 2008 at the time of the Credit Crunch. However, with business and people extending their credit at near record low rates it will become even more difficult to raise rates in the future for fear of pushing them over the edge. It now seems that we are in for an extended period of low interest rates, not too dissimilar to those seen in Japan which were cut to near zero in 1989!