WE ARE NOT NOW THAT STRENGTH

Markets are confused, as are Central Banks, and while generally indifferent to small wars, we know that’s how large wars start. And we have another month till November 5^th and the US election. In the UK the Chancellor says it is all terrible, but is splashing cash around with abandon, but then cancelling dozens of projects, and claiming she is pro-growth, while taxing investment ever harder and encouraging so much capital flight even the OBR has noticed.

The colossal COVID debt burden still hovers over everything, a burden that can only be shed by growth or inflation, one an investor’s friend, the other their mortal foe.

Market confusion is more about politics than economics, no US rate cut in July, then a double cut in September, now a November (post-election) cut looks uncertain. The stated reason for a double cut was weak employment, but the real reason was political. Powell even said in his press conference that the Governors voted for the jumbo cut “in the best interests of the American people” so not economics, and I suspect those archetypal insiders will believe keeping Trump out is exactly that.

So, we get a “value” rally, as collapsing labour markets would lead to multiple rate cuts, and market interest rates, surprised at the severity,  then overshoot on the downside.

Except there is little evidence of anything wrong in US labour markets, as Friday showed, they are fine, and wages, along with rigid labour markets are driving inflation. Weird. But then good labour markets, plus buoyant earnings, plus falling rates sounds pretty good for equities?

Plus, something most odd in China, which from nowhere became one of the top markets in the last year, outperforming the major UK averages. Yet no one is clear why, on fundamentals. Yes, there was a stimulus package, possibly one focused on equities, possibly bigger than expected, but no one thinks it solves anything.

So, it (and ripples into luxury and metals) seems an almighty short squeeze. China had become so unloved, even its proudest fans had bailed out. The rush back in left other emerging markets, like India, struggling.

[Culled from two pages on Yahoo finance – read more here and here]

MANNERS, CLIMATES, COUNCILS, GOVERNMENTS.

Meanwhile, the Tory Conference was oddly upbeat, with some real choices, and a fair bit of optimism. The Tory party is in theoretical retreat, but greatly energised by a real debate, with members involved, about the new leader and a new direction. The disastrous election result had focused minds nicely, and yet was still discounted. Starmer had won fewer votes than Corbyn, and his popularity was already below Sunak’s. The loss was about “three tens”; voters switching to Reform, to the Lib Dems and the Sofa, sitting it out.

None of that was the love of another party, all of it was hatred of those Tories, divided and incompetent and now gone. In so far as the rump of the party now had stars, they were all standing for leader, no big guns were left after the disaster.

It was generally agreed that it must be the fault of Central Office and candidate selection, not the Party. The conference was also largely devoid of the usual big brother manipulation, fake applause, dire autocue speeches approved by a SPAD and ministers just too busy to care.

Tugendhat was bouncy, had the youth vote and the best video, but not convincing. Cleverly had worked hard, was fun and avuncular, relaxing and the obvious unity candidate. Jenrick gave some very strong speeches, plenty of thought, but seemed off-form and weary at the closing main event. Badenoch is an enigma, slightly thrown by adding “2030” to her pitch, when everyone was suddenly thinking “2029” again. Yet she is the one who wants to reform, draw a line below the stale “what did we do last time” and start afresh.  She had the best merch too.

It is still a split party, for all that. A good chunk of the younger party is very keen on Net Zero, and they were extremely visible, indeed Net Zero before all else. However the MPs know that was a Cameron fantasy, so I am not sure how that plays out.

But also, a clear understanding that talking right, governing left is finally over, and that border security is high priority, and defence is too, but not with quite the gung-ho optimism of before.

In many ways Starmer’s inability to know what sleaze and greed looks like, even if it is all innocent (a big even) bodes ill for his time; “they are all the same” is a deep-seated rallying cry of pain.

THE SCEPTRE AND THE ISLE

I am enjoying “The Sale of the Late King’s Goods”, a slightly wonkish account of Charles I’s lost trophies, but an excellent canter through the lead up to the English Civil War. It is striking how state policy was all so plausible and desirable, except for a massive inconsistency on faith, finance and Europe.

The King was desperate to be trendy, to think common decency only applied to others, had no real conviction, in restlessly appeasing various European Courts, seeking favours that never came. While funding was all about just getting to the next OBR review with enough cash to pay off friends. (Well OK, not the OBR back then, but a truly sovereign Parliament).

After finding so many conflicting aims inevitably failed to work, he then tried to drag Scotland into a standard set of beliefs and rules, and hoped blindly that the Irish would do us a favour. The desire to be liked, to look good, to look to Europe for answers, to throw money at white elephants and foreign wars, and the absurd doctrinal battles, all felt far too familiar.

If we don’t know where we are going, just buying expensive tickets won’t complete our journey. To strive, to seek.

The title of this piece comes from Ulysses, a poem by Alfred, Lord Tennyson

https://poets.org/poem/ulysses

Andrew Hunt’s piece this month, which looks at the solidity of underlying data and China may be of interest to serious investors.

by Charles Gillams