Blain’s Morning Porridge – October 30th 2019
“Democracy is a pathetic belief in the collective wisdom of individual ignorance…”
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October 31st 2019
Finally.. The UK will get a general election. Boris may well be found dead in his proverbial ditch tomorrow, but its Halloween so he’ll be Zombie-resurrected Friday morning to fight for the keys to the UK on Dec 12th. It’s going to be “fun”. Forget the fact the Tories are apparently riding high in the polls. 6 weeks is an awful long time in politics. I confidently predict it’s going to be much more interesting than Brexzit.
What does it mean for markets?
Long-term this UK election matters – but not in terms of Brexzit, which will ultimately prove a historical rounding error. This election is important in terms of the UK, within or without Europe, and its place in the Fourth Industrial Revolution: AI, Virtual Reality, Robotics, Nanotech, 3D and Climate Cures. How well the UK succeeds in the new world will depend on the policies the country adopts now in terms of social infrastructure (particularly education) and the business environment (which includes rebuilding broken national transport (which is underway)), but also ensuring the UK’s place in the World in terms of trade and such.
If I were a gambling man, my long-term investment perspective would be to weigh the UK’s historical resilience against the opportunities the future presents, and buy on that basis. If nothing else most of the climate change models predict a drier Europe and wetter UK. The future will be about Water… and we’ll be getting lots of it. Boo-sucks to Yoorp if they don’t play nice. Water will be our new Russian Gas!
But… this election won’t be about the future. This election is going to be about Brexzit. The pollsters are calling it “asymmetric”. It certainly is. They will vote tactically. Markets are going to game the election on the short-term vol created on each successive poll and political soundbite. Get ready for a rollercoaster. Expect Boris to be targeted – the Liberal dirty-tricks division is primed and ready.
There are basically four likely outcomes:
- The Conservatives get a working majority – Brexit happens! That is the only positive outcome for Boris Johnston. Its all or nothing.
- The Conservatives fail to get a real majority, but remain in nervous alliance with the Norn Iron Taliban (the DUP) and their own Remoaners – Nothing will continue to happen frequently!
- Labour, SNP and Liberals collectively form a coalition government – the cost will be a second referendum on EU membership and a Scottish referendum on independence.
- Labour wins an outright majority – who knows what happens? Brexit or more likely a second referendum?
We will be able to work out probabilities on these scenarios over the next few days. My guess is I’ve got them roughly in order – the probabilities of 2 and 3 might be a close call. All but one of these scenarios opens a can of worms:
- Boris and Brexit lose in all but the first scenario. Their current 35% (ish) polling hides a whole series of crisis points. In a normal election it’s the 30% of voters who switch party allegiance that determine the result. This time its about Brexzit which screws that equation when voters act tactically.
- Nervous Tories think they can win by taking some 60 seats from Labour, but losing 10 seats to the NP and another 20 to the Liberals – but that will be frighteningly close to scenario 2. It will leave Boris beholden to the 10 conservative rebels he’s “whipped” back into the party.
- It’s not a straight fight between Labour and the Conservatives. Some pollsters see the Liberals holding the balance of power winning up to 70 possible seats – if that happens we are into scenario 3.
- Scenario 4 looks unlikely… but we been shocked before.
So how do the Tories win the election? I have never voted Tory. This time.. I’ll go with them solely on the basis we can then move on. That’s the Number One Electoral Priority – To get Brexzit done and move forward from the Brexzit Morass. How do they do that? I am not an electoral guru, but if its obvious to me… then who else sees it?
- Make sure the Country buys the Move On message – blame Labour and Liberals. The choice is to get out of Europe and build a new long-term relationship with the continent and the rest of world. If Lib-Lab win, then its 30 more years of continued squabbling and bickering here in the UK instead of building a strong future. Out means out. Remaining means constantly debating it.
- The Tories should grab Labour’s space – focus on Education. Go for the young vote – and admit charging students for university courses and students loans was a mistake (blame the liberals) and promise a focused education policy to prepare the UK for the future with great jobs and prospects in a new tech UK. Spend on benefits. (Clue – we can print money. We can afford it. I suspect the Tories will make very good socialists – just like Tony Blair was the best Tory since Thatcher.)
- Put the Alliance on the defensive. Labour don’t have policies. Liberals are too whiney. Get them to defend what they don’t have. Attack. Ask them where the money comes from, while promising to spend lots themselves and defending it as fiscal expansion (which most Labour politicians won’t be able to spell let alone explain.)
Let’s see how the polls develop.
Meanwhile.. back on Planet Earth.
We’ve got the Federal Reserve about the cut US interest rates which means diddley-squat. Its all about what they say they will do next. Lots to watch in terms of consumer and business sentiment and how the economy develops – its not as bad as they think and its needs to balanced against the demands of the President to juice his electoral prospects…
Speaking of the President, the Impeachment thingy is getting hot. I’ll be taking a closer look at how its possibly the most brilliant thing Donald Trump has done – distracted the Democrats into a smoke filled room, destabilising their leadership, and making them look disjointed. Roll on Nov 2020.
And Boeing – which I will write about later.. CEO finally admits mistakes about a year too late. This is a company in trouble.. Watch to see if it’s caught in a flat spin…
Five Things to Read Today
Bloomberg – The Unsettled Life of Boris Johnson Pal Jennifer Arcuri
FT – Can you believe your eyes? How deepfakes are coming for politics
FT – Why ECB’s resumption of quantitative easing could spur Eurozone outflows
WSJ – Parties Spar Over White House Aide in Combative Impeachment hearing
CNBC – Deutsche Bank Posts Euro 832 mm loss amid major restructuring plan
Out of time and back to the day job…
Bill Blain
Shard Capital