TEARS OF A CLOWN
An eventful week, the triumph of Trump and the debasement of Starmer, both heralding fiscal expansion based on higher borrowing; the market likes one, not so hot on the other. And how does all this extra spending emerge in the UK retail sector?
Reeves could have been crying about anything, but the optics looked terrible, in the familiar role of a Chancellor undermined by her own leader, for doing the right thing.
Even the IMF have noticed that policymaking via the OBR is bad news.
Like the previous Tory newbies, the big one term mass of Labour MPs has little party or national loyalty: theirs is a purely extractive stance, of what they and their constituents can loot from the Treasury.
Starmer was greeted as order after chaos, but is just a continuation of the mess. He is the clown, as the aptly named Miracles sang with Smokey Robinson just before 1968, his stance is âonly there trying to fool the public.â
Fool me onceâŠ..
DO MARKETS CARE?
What do either mean for markets? Well equity markets like growth, real or artificial. To them whether wealth is being created, or borrowings are allowing the acceleration of consumption, matters little. So, both in the UK and US, that borrowings are rising far too fast, matters little for equities.
Bond markets are far less happy, but they are also still enjoying unusually high interest rates, at least by recent standards.
The whole package is being offset against a multi-year interest rate decline, as the COVID inflation peak slides further into history.
I have also always found a cheap currency is a nice extra cushion for any investor. Is the dollar cheap? Does it get cheaper? Possibly âyesâ to both. But why, is the more worrying question.
Although perhaps less puzzling, sterling strength is also odd. However, against the Euro it is looking sickly once again. It never recovered from Gordon Brownâs folly, although the Tory party was rebuilding it nicely up to BrexitâŠ.
IS ALL LOST?
As for Reeves, all this fiscal laxity, sheâs been splashing the cash for a year now, has to turn up in consumption and growth at some point, despite the high (but falling) savings rate.
âHousehold Saving Rate in the United Kingdom decreased to 10.90 percent in the first quarter of 2025 from 12 percent in the fourth quarter of 2024. Personal Savings in the United Kingdom averaged 7.77 percent from 1955 until 2025, reaching an all time high of 27.50 percent in the second quarter of 2020. source: Office for National Statisticsâ
Image and summary above in italics were clipped from this website
There is extra growth to be found there. I also sense the private sector, at least, is running pretty well now, adapting to change, cutting labour, de-gearing, putting the transient ill-effects of COVID well behind it.
So, the disaster is on the tax front, and the damage caused by out-of-control welfare spend.
The worry is that like the Tories before them, they are not remotely in control of those forces.
Will Reeves last? It is a heck of a sell signal if she does not. Will Starmer last? Not if he ditches her.
JUST WHEN YOU FELT SAFE
So, all is fine? No, not really, as those pesky tariffs are still largely unresolved and I sense in several cases, both sides still want a fight. Trump probably will take something, if he can sell it to the Rust Belt voter. But the assumption that he is always weak and seeking to cave, seems a tad dangerous.
I expect more chaos.
But a largely indifferent US market response.
GROUNDED
What is happening in the UK retail world?
I have been wading through some annual accounts. The big trends are the post COVID boom and the implications for space and shopping patterns. The race to online has not fully played out, but it certainly has slowed dramatically. Both M&S and J. Sainsbury claim to have done well in that time, the former seeing sales rise 50% overall, including a 75% jump in non-food, which looked to be in terminal decline at one point.
Although it still remains half the size of the stagnant Sainsbury.
Focused professional management has come in, driven from the top. A lot of the ânice toâ stuff has gone, old-style full-service retailing is for the birds now.
Supply chains that felt knitted together randomly, are now boldly strategic, with far more automation. While store locations and numbers plunged, the estates were reconfigured. Balance sheets now look solid, dividends recommenced or stabilised.
The lease side has changed, the REITs for a long time had the whip hand, no longer. I have been looking at both British Land and NewRiver accounts. While some REITs just had their retail estates slaughtered by creditors, others like British Land, while moving away from the mega centres (even Meadowhall has gone) have doubled down on retail parks. Why? Yield it seems, dividends are stretched, NAV in offices just fades away and donât ask about development profits.
In the end, do I believe in this surprising renaissance?
Not really, although some of the basket cases are now online, ASOS and Ocado, one-time market darlings, now have graphs that pay tribute to Disneyland, with fantastic towers, toppling to empty moats.
Retail is deserving of a lowly rating and still vulnerable, like all property, to an avaricious state.
MOVING ON
A final note, after five years in active fund management, I have moved on, disheartened by the terrible rigidity of the UK regulatorsâ rules, designed to rip off and confuse UK investors, which have so effectively destroyed the UK equity markets.
And it has to be said, rather attracted by the lure of momentum trading, less work, higher returns.
Running both together has been an excellent test bed.
Black Headed Bunting
Flags should be flying, the COVID cycle is over (says Lagarde) rates are falling, currency wars are afoot.
Ignore the noise, watch the graphs.
But somehow gloom pervades.
Truly a black topped bunting.
MIXED MARKETS
Markets are designed to confuse and a lot of that is happening, with the worst of recent gloom a way back now. In developed markets it was April, after which the value rally got going, very much with falling rates. And they are falling - seven cuts (or was it Trumpâs nine?) in Europe. Less than a year ago rates were at 3.75% and are now almost halved to 2%. Thereâs a rising currency, giving an urgency to cut fast enough to stop the damage from competitive devaluations.
India also did a surprise double cut (so 0.5%) this week.
LatAm is behaving oddly, it has been a top market, year to date, but largely because it hit a low at the turn of the year; year on year it is not up. Brazil is almost in lockdown with rising rates (14.75%), and no surprise, a year-on-year market fall. Mexico is well into rate cutting, at 8.5% from a post COVID high of 11.25%. That market is up 17% this year.
Another year-on-year top performer is the Hang Seng, up 28%. Why is that?
Aubrey Capital kindly hosted an Emerging Markets conference in the City this week. A speaker noted that as China and Russia now avoid the USD, many traders are ending up with, or need access to, a non-convertible currency.
The PRC therefore apparently facilitates global gold exchanges, as a substitute, in three new offshore hubs (as well as Shanghai). This is perhaps helping to ramp the gold price.
But that has physical limitations. However, China also has a convertible currency, in the Hong Kong Dollar.
If that gets used more, demand for it also rises.
The actual twelve-month top performer is the DAX in Germany, up 29%. But just across the Rhine, the CAC 40 has fallen over a year. If nothing else, easy terms like Emerging Markets, Developed Far East, LatAm and even Europe, are hiding some very mixed performances.
MISTS CLEARING
But the common theme does look like rate cuts, and thatâs a cause for optimism. The UK now needs to be very careful that Labourâs fiscal ineptitude is not forcing rates to stay materially higher than in Europe, (still at 4.25%). Â As a result, sterling is strong and in danger of getting stronger, helping inflation, but hurting growth. UK exporters are getting kicked enough already.
It hurts housebuilders too.
Compiled from the ECBâs recent publications
The UK market rally feels a lot about beaten up, high yielding stock, sensing some relief is inevitable, regardless of the Bank of Englandâs posture on inflation.
The strength in UK banks (a big part of that outperformance) is partly their attractive yields (as rates fall) but partly the belief that as rates stay high and weak demand persists, surplus capital allows them to buy back shares and reduce deposit rates, both of which the sector has been quite aggressive about. Thatâs nice, for banks, but it is a Goldilocks position, either rates now fall, or bad debts rise.
For all those caveats the Europe, Value and Emerging Markets rallies are real. And if rate cuts go on, we expect these to persist. Along with this, at some point, a currency reversal when the Federal Reserve finally moves.
Our work still does not suggest an outflow of funds from the US, just as it does not suggest a recession or pull back. None of which makes much sense, given the weaker dollar this year. Although it may simply show a reduced inflow rate into the US.
So, is something moving, that we canât see? Â Rising long rates are giving the same signal, of assets unexpectedly moving, out of fixed interest.
While I expect political chaos under Trump, amplified by an obsessed UK media, I do wish for some days of calm; could he not play more golf?
Some of us take no notice, of course.
OFFENSIVE FUNDING
Back in the UK, the defence review - a helpful two-page summary is available here; sounds like something for everyone. (If the Tory party had the intellectual depth to suggest this, both the profligacy and militarism would have raised Cain). But it is all (as ever) fabrication, there are no available funds, even though the serious work of building inventory, finally starts.
We are promised six new energetics factories, which sounds like a modish protein bar, but just means lethal explosives. It is the logical move, but only accountants can deliver it. Year to year accounting means we must accept (and hope) that 80% of the energetic output will be made, stored, and then destroyed, at a vast annual cost. This stuff does not keep well.
I have yet to find a minister that can allow that annual profligacy. Creative accounting is needed.
I also canât see how this hybrid Truss/Reeves can borrow (and tax) another 3% of GDP for defence. She has already rewritten the rules to add billions of spend, loaded the tax burden on companies, and now like Trump, wants to spend her way out of debt.
It simply wonât work.
KURD YOUR ENTHUSIASM
We noted last week (along with a speculation on tariffs, a mugâs game, I realise) how Turkey is surviving unconventional economics. It does sit in the Emerging Markets universe, and is owned in emerging EMEA funds.
Notably, while for some of those countries, the holdings are dominated by banks, for Turkey, it is all real manufacturing, distributing and retailing outfits that attract investment. The odd impact of high inflation.
Although much more tourism will put out more buntings, including those gracing the ruins at Kars.
WOLF IN SHEEPS CLOTHING - FRIEND OR FOE?
MORE ALL-TIME HIGHS
We have two types of bull market running, possibly both are fakes. But one is a belief in faster rate cuts to avoid a recession, the other is faster earnings to avoid rate cuts.
They are very different. Meanwhile Reeves is talking hard, but doing nothing, Kemi is doing a lot but keeping quiet. History tells us that the latter wins.
While markets near all-time highs make investors nervous. 
Basic Schematic of a way to look at markets â © Charles Gillams
In the US the release of animal spirits, the destruction of red tape, cutting of government jobs, firing of obstructive regulators, plus reasonable earnings, are juicing the indices. And independent growth forecasts are shifting up nicely from the Biden days. But that keeps interest rates punitively high. As do tariff tantrums.
But in the UK (and arguably in Europe) it is a relief rally in the face of slumping or stagnant growth. The resulting rapidly falling interest rates, caused the UK market to shoot up mid-week, on the dual promise of more rate cuts and a falling currency (making dollar earnings more valuable), as estimates of economic growth collapsed.
KEMI THE SILENT
What of Kemi? There are still plenty in the Tory Party who either resent her, or fail to see any future for her. At a London conference last weekend, the problem of too many politicians chasing too little work and money was very clear, but no one was accepting the blame for their diminished position.
They have lived too long on the coat tails of Westminster to understand how long the path to redemption is. For that group, the resurgence of Reform is especially bitter. There had been a sudden burst of hope last year, as the victorious Labour hordes were found to have feet of clay. That hope is dissipating.
However, there was some great information on London polling, high quality, in depth, but the stage was so full of defeated (and ill disciplined) politicians, the real data got half shown, ignored  and shunted into the rush for lunch.
WHO CARES ABOUT BIG BAD NIGEL?
As Kemi knows well, she wonât be fighting anyone for four years, and when she fights, the ground campaign matters. She was in no rush to select candidates, noting no need for social gadflies, if when free school meals needed cutting, they wimped out.
Cleverley was sounding realistic too, in London the ground game needs to be there, to attract a good general. Just asking good generals (like him), if they wanted to run, with no money raised, was getting the process back to front.
And what a shambles London Tory politics is. The London Assembly is a joke, the last two Mayoral candidates came from its ranks, indeed were on stage, but were bafflingly poor. If the LA has a purpose, it is holding the Mayor, to account, but as he is directly elected, they have no weapons, (much as they seek more, see this report). They just fill endless posts and talk in an echo chamber. The power remains in the London Boroughs and the political associations that match them, who pick the MPs.
It a system almost designed to be vacuous and needs a rethink, as does the structure of opposition to it.
CCHQ staff numbers have collapsed, 75% have gone, the money spent on a lost election will cripple the party for years. Donors are heading for the hills, after watching Sunak burn their cheques. While associations are being told to merge, sell their drinking clubs, agree confederations, to allow a few paid staff, a recipe that was singularly unappealing in the hall.
ANY STRATEGY?
The big issues for 2029 look to be Net Zero and the Euro. Which matter little to most people, but they are the fault lines. Reform is clear on both. Nothing concerns younger Tory members as much as Net Zero, nothing concerns older ones as much as the EU.
Rather than worry about âuniting the rightâ it may be far more important strategically to split the left. Already half of Labour is happy to send us back to the Stone Age if Net Zero requires it, half can already see it creates inflation and destroys union jobs. In both major parties, there is a love of Brussels, as a gentle, civilised place, but in both a visceral hatred of the Euro.
So yet again, attack the fault, are Remainers serious about the Euro? If not, they are like the Scots Nats at the Independence Referendum, when challenged on keeping sterling â they had no answer, no credibility.
As for Reform, it is upset over deferred County elections, but should not be. A strong showing would generate funds, keep momentum building, but that was not on offer. They have no ground game, candidates have been parachuted in, associations cobbled together; far better to wait. They will have time, will (if real) pick up by-election seats and likely do better next year.
Importantly, every seat in the new unitary authorities will lack a true incumbent: in local elections incumbency counts. The old parties will be split by the bitter infighting between too many councillors for too few seats. And while they may not care, two tier councils are as bad as two tier policing, and should go.
If Kemi needs to care about Reform, it can wait. Insurgent parties frequently split and media attacks will follow. Rather than be fearful of the noise they create, she can wait to see if any of it has substance.
She can rely on getting her votes out, cutting defections, having clear policies, on message candidates, and rebuilt coffers. If that is achieved, she clears the stay at home âsofa votersâ and has a fighting chance.
Everyone knows that another leadership change before the next election will likely be fatal.
And if in London, do catch the Kingâs Gallery show of Renaissance Drawings, till 9th March, as others have noted, only the Uffizi can rival this collection. Casually shown, little publicised, but full of gems.
OFF BALANCE
Trumpâs win with a clean sweep was a surprise, and one that recalibrates the investing world. Most UK media, right or left expects we want to hear ongoing condemnation of Trump and by extension Republican policies; not me, I think those policies pull the world back from the brink.
Why was I surprised? The market and polls (at least the serious ones), had him winning, but not the media. On election night CNN, which was otherwise brilliantly forensic, seemed upset at the New York Times calling it for the Republicans, quite late on in the process; facing reality had somehow become betrayal. Only ITV, to my mild surprise, was in the real world, giving us the facts, like old style journalism, first.
Just history? Not quite, because the investment media is still making the same mistake. Affluent Harris supporters are lining up, not to deny the result, but to concoct fantastic negatives. The resulting general doom is leaking into markets, blaming unenacted Trump policies (and indeed they are un-enactable for two more months) for rates hardening and a change of future Federal Reserve policies!
Nonsense, I would have said. Â The Federal Reserve will keep behaving as it has, all along - data dependent, rear view mirror stuff.
BRAVE NEW WORLD
So, what does change? Fundamentally it breaks the pack, the investable world was largely of one, foolish mind, that COVID, Ukraine, Climate Change and De-globalisation could all be funded, free, by simply raising debt and tax. There was an assumption of no impact on growth or competitiveness or consumption.
At last, we have the dominant global market saying otherwise. Now the ESG fanatics, armchair war mongers and de-globalisation crowd, must think again; they must pick their fights.
The world has long grown weary of American wars, fought on non-American soil. The idea given everything else, of the mighty EU military (yes, that one), stepping in, is risible.
Maybe we get no immediate peace, but the noise volume (and casualty toll) will drop sharply. A small mercy.
TRADING BLOWS
That Trump is full on for de-globalisation, is remarkably stupid. Â And so is China believing it can swamp the world in subsidised over-production for ever. Since it is unlikely that despite various efforts the WTO can be fixed anytime soon, this will continue to be a sporadic issue.
The long run trend to price American workers out of global markets will continue, which given Americaâs other advantages, is a relief for the rest of the world. But I also doubt if much of what China has produced becomes truly uncompetitive, even with a 60% tariff.
We can look forward to more spats, tariffs on rye whisky and smoked salmon - that kind of thing. Locally damaging, but I doubt if in the end it does much.
Meanwhile the big Biden era protectionist schemes, his beloved IRA and the cute but pricey CHIPS Act, both loathed in Europe, will be sensibly reined in, taking a fair bit of the heat out of trade matters.
MORNING IN AMERICA
Nor despite the panic over RFK Jr., do I have unusual fears for the pharma industry, about the most regulated sector on the planet, already facing long term persistent attacks on high margins for new drugs. This certainly needs fixing. But I am somewhat doubtful that the Senate will confirm RFK Jr.
From an investor point of view, less anti-trust activity looks a win, assuming Khan goes. While I can see anti-monopoly action against the Tech giants rumbling on, Trump is not a fan of them in general, I now donât see break-ups as likely.
And some of the ridiculous barriers to the extractive industries will come down, that have encouraged Americans to source raw materials from far less regulated and more polluting places, which can only be positive.
LABOUR MARKETS
What of the labour market? Here too deregulation will release a lot of direct jobs, by allowing business to produce more efficiently, and can be expected to release excess regulators (is there another kind?) onto the market too.
I canât see real migrant deportations, outside those with criminal convictions, rising much, and there will always be Democrat States undermining the effort, even if attempted. The place to control illegal migration, is always at the border, or close by. Biden let migration soar to four million over his term, against Trumpâs one million.
If Trump can get back to that lower level, given the pressures, he will have done well.
Deregulation and AI will improve labour use, but labour shortfalls from lower migration will cut supply, so the outcome is not clear, either way. But the migrants are not generally taking skilled professional jobs on arrival, which is where current wage inflation is.
PAIN IN THE WALLET
What of taxation? Trump will be very keen to keep those tax cut promises. I think some cuts can be funded, and in the end, Congress will want those too, before the midterms.
But full on, deficit exploding? Not likely.
We still donât have Trumpâs main economic picks. The Fed Chair will retire, on schedule (not early), to great applause, despite the noise to the contrary. I doubt if his replacement comes from outside the current Federal Reserve Board. A left field choice could upset markets, which Trump has been reluctant to do.
In summary although there is still a bias against Trumpâs America, in fashionable media and on the investment sales teams, I think it is like their views on the election itself, largely reflected noise.
The world they would like, not the world that is. There is a lot of discussion on why this happened of course.
And whatever pose they strike for the media, fund managers, at the core, know low tax, with economic growth, is balanced. The opposite, high tax and no growth is not. Long term returns flow from that.
That will be good for the global economy too.
WE ARE NOT NOW THAT STRENGTH
Markets are confused, as are Central Banks, and while generally indifferent to small wars, we know thatâs how large wars start. And we have another month till November 5th 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 investorâs 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 âin the best interests of the American peopleâ so not economics, and I suspect those archetypal insiders will believe keeping Trump out is exactly that.
So, we get a âvalueâ rally, as collapsing labour markets would lead to multiple rate cuts, and market interest rates, surprised at the severity, Â 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 â 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 Sunakâs. The loss was about âthree tensâ; 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 â2030â to her pitch, when everyone was suddenly thinking â2029â again. Yet she is the one who wants to reform, draw a line below the stale âwhat did we do last timeâ and start afresh. Â 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 Starmerâs inability to know what sleaze and greed looks like, even if it is all innocent (a big even) bodes ill for his time; âthey are all the sameâ is a deep-seated rallying cry of pain.
THE SCEPTRE AND THE ISLE
I am enjoying âThe Sale of the Late Kingâs Goodsâ, a slightly wonkish account of Charles Iâs 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 donât know where we are going, just buying expensive tickets wonât 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 Huntâs piece this month, which looks at the solidity of underlying data and China may be of interest to serious investors.