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 “only there trying to fool the public.”

Fool me once…..

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 ‘yes’ 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 Brown’s folly, although the Tory party was rebuilding it nicely up to Brexit….

IS ALL LOST?

As for Reeves, all this fiscal laxity, she’s 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.

“Household 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 Statistics”

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 “nice to” 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 don’t 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 regulators’ 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.