Friday, 20 July 2018

On Dave, TINA and the confessions of an outspoken Thatcherite

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Crisis? What crisis? If markets ever decided that the whole crisis malarkey was nothing more than a storm in a tea cup and a figment of the imagination of a dying breed of bears, then this week must have been that time when that decision became common currency.

Anthony Peters, SwissInvest Strategist

The United States may have fallen off the Fiscal Cliff and a struggling Italy may have elected itself a parliament full of jokers but markets have taken a Panglossian approach and, although I do so hate that “risk on/risk off” thingy, it clearly is “risk on” time.

The Dow has made new all time highs, the Nikkei has rallied near on 6% in a week (yes, in a week!), China reports February trade figures which blew the estimates away and leveraged loan spreads are now lower than they were in the height of the credit boom.

In plain English, markets are on fire. And yet… three of the key central banks met this week and did nothing on rates. The didn’t ease of course, although there’s not really that much room anyhow and they most certainly didn’t show any signs of wanting to begin tightening again but whatever rally we are seeing in financial asset prices, without the big fat sugar daddies pumping near-free cash into the system, all this would not be happening. Methadone, by the way, is not a cure for heroin addiction any more than cheap central bank cash is a cure for over-indebtedness caused by rampant interbank lending and potentially bad loans on life-support.

Dave and the Iron Lady

Then, up steps Prime Minister David “call me Dave” Cameron. I have spent enough time in the past year or so beating up on him but I listened to a speech he gave yesterday in Keighley and I cannot fault him on that. West Yorkshire is not where you’d expect a politician to become a statesman but that he did. This was not about people pleasing. It was not about joys of working in coalition. He spoke very clearly about the economic and fiscal principles – not policies – of this government and he could not have done it better.

I am not a child of the Thatcher era. I was already a grown up when she was elected and I worked hard in my own little way to lift her into Number 10. I loved her when she was elected, worshipped her when she put the Great back into Great Britain but was equally pleased when she, having given her best, was finally toppled. Thatcher was broadly hated by people who couldn’t and wouldn’t see that the trees she was cutting down were dead or diseased and refused to accept that the ones she had planted in their stead would take time to grow. Instant satisfaction is most often fleeting.

Cameron, like all leading Tories, frequently stands accused of being a closet Thatcherite, the great rallying cry of the opposition. I’m not a closet Thatcherite. I’m an outspoken one – and proud of it. Yesterday, Dave threw off the shackles and invoked the memory of a predecessor who transformed this country, who lifted it out of the gloom of its post-colonial guilt complex where decline was the price which was deemed to have to be paid for its previous sins. Instead of playing around with Plan A and Plan B and with Vince Cable’s “Plan A+”, he dipped into Baroness Thatcher’s vocabulary with “TINA” – There Is No Alternative.

Being likened to Margaret Thatcher should not be an insult but a badge of honour and the firm way in which he delivered his message yesterday did make me think of her.

He firmly struck back at the moral opposition (both Liberals and Labour) by declaring that lots of jolly deficit spending in order to create growth is a zero sum game and one which he doubts works. Myself, I can only look at Japan where heavens knows how many senseless infrastructure projects have been completed over the past twenty years to no overall effect at all. Roosevelt’s New Deal worked because the Federal Government was not mired in debt when he set out on it and many may argue that it was the outbreak of WW II which ultimately put the US economy back on track and not the New Deal. I shall desist form opining on that one.

Invoking the Iron Lady, Cameron said, “Margaret Thatcher understood that a tax cut paid for by borrowed money is no tax cut at all…” and “Getting taxes down to help hard-working people can only be done by taking tough decisions on spending.” I could quote much of what he said with approbation, amongst other “The path ahead is tough, but be in no doubt the decisions we make now will set the course of our economic future for years to come.”

In this case, being likened to Margaret Thatcher should not be an insult but a badge of honour and the firm way in which he delivered his message yesterday did make me think of her. Visions are not implemented by consensus and compromise. Whoever tries to do that clearly has no vision.

Evidently, markets didn’t give a toss as they are on their mission to the moon. Fiscal realities have been forgotten and the belief that we can grow our way out of government debt and deficits while only tinkering with expenditure abounds again. What I see is private sector and household debt, having been taken onto the public sector balance sheet during the crisis, now being privatised again and with that the next crisis being pre-programmed.

I might be right and the outlook might be dodgy but I would still not stand in the way of the stampeding bulls and would be long the market.


Alas, it is that time of the week again. All that remains is for me to wish you and yours a happy and peaceful week-end. May all the good intentions to get out into the garden, which you developed during the beautiful and warm spring weather of the first half of the week, not find themselves dashed by the cold and wet we are now facing.

Didn’t that old headmaster use to call it “character building” or something along those lines?

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