Friday, 22nd of February 2019
“The best lack all conviction, while the worst Are full of passionate intensity.”
― William Butler Yeats
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Markets continued their merry rise this week as confidence builds that Presidents Trump and Xi will reach a compromise in the current round of trade talks, and despite the release of some disappointing economic data and all the tumult in global politics. Equity indices remain below their September peaks, but the pace of the present rally has seen many technical indicators flashing ‘overbought’ – and some traders now expect a pullback. Nevertheless, rather than reading tea leaves or running complex energy guzzling machine learning algorithms to predict short-term market moves, we prefer to focus on discernible facts and figures that underpin the best long-term investment decisions. One crucial piece of information this week is that Central Banks around the world are ditching plans to tighten monetary policy this year, while some are in easing mode already. The Fed has signalled that its balance sheet reduction would end in the second half of 2019, despite normalisation being some way off; the People’s Bank of China is back to stimulus despite the mountain of corporate debt that has built up in recent years; and the ECB’s January minutes show policymakers openly discussing a possible extension of the TLRO (i.e., the asset purchase programme) to keep Europe afloat. Ironically, last week we also saw a paper published by the Dutch Ministry of Economic Affairs which rubbished the methods previously employed to assess the effectiveness of QE, concluding that there was as yet no evidence that QE has had any positive impact on the Eurozone economy. Ouch. Still, we invest in financial markets, not real economies and QE is a boon for risk assets by design. News of its return should help to support equities during a rough patch for growth. In the UK, all eyes are fixed on the formation of a new centrist Parliamentary grouping this week with defectors from both Labour and Conservative camps. Members of the so-called Independent Group are united by their shared aversion to Brexit and desire for a second referendum but have refused to join the Liberal Democrat Party which has made anti-Brexit politics its organising principle. More Tory MPs have threatened to join if ‘no deal’ becomes government policy, while an anti-Semitism scandal is quickly becoming the final straw for many Labour moderates. Whether this shake-up is the start of a broader realignment or just a flash in the pan induced by the stresses and strains of Brexit is unclear. There are big divisions within the Independent Group over economic policy in particular and they are yet to even register as a party. Crucially, the UK’s first-past-the-post electoral system also makes it tough for new parties to turn votes into seats, as the centrist SDP (which split from Labour in the 80s) found out when it faded into irrelevance soon after launch. This is the reason why none of the defectors have called a by-election to renew their mandate. Nevertheless, as Labour has moved to the hard Left under Jeremy Corbyn and Brexit has become Conservative policy, many Europhile urban liberals feel politically homeless. Given that they once dominated both parties, as well as academia, the media, the heights of big business and the civil service, this loss of privilege hurts. The problem is that while everyone from UKIP to the SNP calls themselves moderate, attitudinal surveys suggest that the so-called ‘centre ground’ is not actually very popular (as the Liberal Democrat’s failure can attest). The Independent Group’s chameleon slogan #ChangePolitics suggests that they know this and want to hoover up disaffected voters without proposing too many policies, for now at least. Whether in time their message resonates beyond liberal enclaves in London and they become a major electoral force is doubtful. It will be difficult to convince sceptical voters that their centrist policies are more than a hodgepodge of liberal slogans drawn from some cheerful fantasy land of the late nineties or early noughties, before the Iraq War fiasco, China’s accession to the WTO and the collapse of Lehman brothers; a world where military interventions work, globalisation is an unalloyed good, technocrats have abolished boom-and-bust and history has effectively come to an end. This is one that for better or worse most voters have left behind for good. And all we have to do is invest your money.
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