HAMISH MCRAE: Too many people voice their opinions on what should happen and don’t try enough to figure out what will happen
Looking to the future: Prime Minister Boris Johnson
Uncertainties are increasing. But right now, too many people are giving their opinion on what should be done and not trying enough to figure out what is going to happen. What’s important to most of us is the latter, so let’s try to correct that imbalance. First the uncertainties, and then what the outcomes could mean for all of us.
There are three specific areas of confusion: what happens to the Brexit trade deal; how the new partial lockdowns will affect the economy; and whether the policy of a new US president would change the global economic outlook.
As for the Brexit negotiations, this seems like a weekend of drama. That drama will continue for a few more weeks. But while we can’t see the details of the denouement, we can rest assured that what will happen will be somewhere between a nominal deal that still slows down trade with Europe, and no formal deal, but lots of little side agreements that affect or more. moving.
Side deals? Look, I think the Netherlands will find a way to sell its tomatoes to the UK – did you know they are the largest tomato exporters in the world? And when we fly again, Ryanair will want to fly its planes to the UK, the second largest market after Italy. It will get messier, but a way will be found.
Partial lockdowns are happening all over Europe and as a result the whole region will see a pause in the recovery. Real-time data – things like restaurant reservations and traffic congestion – shows that the recovery was already leveling off before these new restrictions.
Now that pause will be longer, with the result that there will be a lot of bad company news in the last quarter of the year and, I fear, a lot of layoffs too. Assuming the new restrictions are effective, growth should resume by December. Our experience with spring shows that when you take things down, they bounce back, so it would be reasonable to expect a decent rebound. America?
Politics may be confusing, but the economics is simple. Both fiscal and monetary policies will remain extremely expansionary no matter what happens on November 3rd. The world’s largest economy will continue to flood the world with dollars, support economic growth, and also support asset prices everywhere.
If you accept all of this, look at the consequences now.
Brexit will keep UK assets out of fashion with global investors for some time to come. If there’s a trade deal, the rhetoric will be it’s a bad one for the UK, doesn’t include services, doesn’t do anything for the city, and so on. If there is no formal deal it will be the same story, just a little bit louder. Those of us who believe that both UK and UK assets are undervalued will have to accept that it can stay that way for a while.
Fashion changes. Remember how just before the financial crash how fashionable the pound was in the markets? On September 14, 2007, the day queues outside Northern Rock offices forced the country to go to the Bank of England for emergency relief, the pound traded at $ 2.03. At the end of 2008, it had fallen to $ 1.43.
Now the pound is still outdated – which gives me an intuitive contrarian confidence in the future. It will take some time for global confidence in the UK to return. Meanwhile, for those with patience, some income and cash, this may not be a bad time to build stakes in UK companies, especially as dividends are now rebuilding.
The lockdown break in the coming weeks means we will still be holding bad headlines. We got some from the IMF last week, which predicted that every major economy except China would have only a partial recovery next year.
But in practice it will be important to us whether our income is secure. Now is a good time for anyone with a steady job to sort out family finances. The spring freeze shot the UK savings rate, usually around 7 to 10 percent, to more than 29 percent. This was – and is – a once-in-a-lifetime opportunity to pay off those credit cards for those lucky enough to have a steady income. For others, this will be another blow.
And the US economic policy? It’s a point made here before, but worth making again. The stream of dollars has to go somewhere. The Fed is laying a floor under asset prices, initially in the US, but in practice also elsewhere in the world. Whatever people think about American politics, in the short term we should be grateful for its financial strength.