A New World Order
13/11/2020
A New World Order?
| A week is a long time in lockdown. Certainly, a long, long time in politics. I am, generally, politically agnostic: given that my job is to advise and mange client finances, the flag-colour of incumbents in their parliamentary citadels is largely irrelevant, especially as over the past twenty years most have had little, if any, influence on economic matters and stockmarket returns. Perhaps though this is all set to change. It has been the (independent) central banks that have, through monetary policy, been at the controls. This has manifested itself through ever lower interest rates which have supported both bond and equity valuations. However there is a floor that interest rates can drop to and that is precisely where we are now. The assumption has been, and many still think so, that interest rates must start to climb; however, the effects of funding the pandemic make it highly unlikely that rates will rise. After all, what better way to reduce the burden of government debt (which, as we all know, is huge) than by rolling it over at ultra-low rates. So, if interest-rate (monetary) policy is likely to be ineffective in the future, what’s next? Cue more government spending. This is precisely the ticket on which Biden became elected – a massive reflation programme. It seems clear to me that this shall be the way forward: spend to create inflation to reduce the real value of your debts. Back to the long week – the US is about to go down such a path, albeit narrower and shorter than planned due to the roadblock of Congress; at home expect a more conciliatory engagement with the EU now that the shape of No.10 has changed. It had to change because the election of Joe Biden changed the world order. Brexit shall happen, but in name only. The EU too, can ill-afford a pyrrhic victory over the UK. Both sides shall claim victory and walk away from the table, but little shall change. They can then proceed with their massive spending plans – I do expect the UK to join in. Given all, this new order, dare I say, should support equities, especially those that are listed in the UK. These have had a particularly torrid time of late. From the start of this year, the FTSE100 index has shed more than 25% by value. However, there are bright lights at the end of the tunnel: certainly, the news of potential vaccines is timely. This firm has attempted to assuage the effects of the poor domestic stockmarket. Portfolios are managed from a global perspective; those that rely on the UK as the epicentre of the dividend world were shored up. As I write these words portfolios are being reunited with the high-dividend ‘value’ equities in the UK and, indeed the US: there are good signs that the worst of the dividend drought is over. Andrew Longbon For, and on behalf of, Longbon & Company, |