Boris’ Historic Election – Thank You EU

Congratulations to Boris! Now perhaps we can go back to having too much food, too much drink and too much indulgence over the Christmas break, without having politics upsetting us all?

Johnson this morning – photo from BBC

This huge victory will set the direction of politics for the next 10 years. Yes, we predict another term for BoJo starting in 2024. I am indebted to my older contact who has already pointed out that by December 2024, Labour will have only had one election-winning leader in 50 years. FIFTY YEARS!!! Step forward Tony Blair. You achieved the success that eluded Jim Callaghan, Michael Foot, Neil Kinnock, Gordon Brown, Ed Milliband and now Jeremy Corbyn. Oh, and John Smith too…… Did I miss any?

Jim Callaghan – never won
Michael Foot – never won
John Smith – never won (though to be fair he never tried)
Neil Kinnock – never won
Gordon Brown – never won
Ed Milliband – never won
Mr Corbyn – he didn’t win either (twice)
Tony Blair – the only one to win in 50 years – and yet they hate him!

And to what can we allocate this massive swing in the vote for the Tory Party? Why, the EU!! What a change for the European project to be assisting the blues! It was the disdainful response of Frau Merkel to David Cameron’s pleas for moderating change that set the ball rolling towards a leave vote. This was compounded by the EU inaction during the referendum campaign. Where were Messrs Junckers and Tusk during the lead up to the vote? They were not in UK sharing the vision and love were they? Their next mistake was to play hardball too much with Mrs May, forcing her on to the defensive at home. One has to surmise that they thought a Remainer-Parliament was their best hope of keeping the UK on board. But they overplayed their hand, sending Theresa back with too much of a surrender bill. This off-hand treatment was compounded by the humiliation and shunning that Mrs May received from the other EU leaders at Salzburg. So the scene was set for Parliament to respond to the lack of co-operation… which led to Boris becoming leader…. which led to the election. One has to hope that they will work with Boris as an equal!

Boris to Win 43 Seat Majority Says Meta-Poll

You’ve heard of meta-analyses, where academics who can’t be bothered to do their own research just nick everyone else’s hard work, crunch the numbers a bit, and come out with a super-accurate result? Well here is our META-POLL. After much reading of the papers, surfing the net, and even talking to people, we have concluded that the Tory party will win. (Bet you saw that coming eh?)

Why do we think that?

  1. Farage folded, as predicted here recently, avoided splitting the leave vote, and crowned the Tories as winners

  2. The Labour manifesto was written to appeal to hard-line left wingers – who would have voted for Jeremy anyway. Only the naïve or those too young to remember the 1970s could think that nationalisation is the answer. (See our earlier report on rail user numbers pre- and post – nationalisation). The “free” broadband idea went down well, but the practicalities are horrible. By the time it is built, at five times the original cost, technology will have made it obsolete. And the big beneficiaries will be the farmers and isolated rural communities – who will not be voting Labour under any circumstances. Meanwhile, their fence-sitting on Brexit feels a bit like “Follow Me….. I don’t know where we are going, but Follow Me!”

  3. The Liberal Democrats have shown themselves to be neither liberal nor democratic. Their reverse Article 50 campaign can only appeal to the most die-hard europhiles. Meanwhile, Jo Swinson has not done well. Her claims to be PM in waiting invite the retort that she’ll be waiting a very long time.

  4. The Tories have avoided a May-style manifesto-suicide-note. Divisive figures such as Rees-Mogg have been kept out of the limelight. Boris himself has picked his battles carefully, with more to lose than win.

So what happens now?

There are still considerable risks for Mr Johnson. Will the left-leaning students be too busy recovering from their end-of-term parties to vote?

Students preparing to oversleep and miss voting

Just how many people were too embarrassed to tell pollsters that they would vote Tory (but will anyway)? Will tactical voting have any impact? Will Mr Trump try to intervene? He is not great at keeping his thoughts to himself is he? That could hurt Boris. In this last week, we expect the Tories to try to refocus on Brexit as the major issue – and Labour to try to talk about virtually anything else!

What does it all mean for Asset Prices?

The market had a lost year in 2019, with too much uncertainty. A Tory win is about 70% baked into the market, so we expect a moderate bounce on 13 December. This will be most pronounced for the likes of BT and other nationalisation victims. Despite longer term trading arrangements still being in the air, we feel that 2020 will turn into a log bull run for equities and commercial property, as investors get back to the serious business of making money.

Farage Must Fold

Gosh, there are so many pics out there of Mr Farage with a pint!

Much as we admire Nigel Farage’s consistency in supporting his cause, his present political positioning is just madness.

Clearly, he could never have thought that Boris would tear up his deal just because it is not No Deal – which seems to be Farage’s target, So what does Nigel want? Most Brexiteers can live with Boris’ deal – and many remainers can live with the withdrawal, as it least it isn’t a crash, and it moves the topic on. The Brexit Party have no chance of power, and in many close marginals, they risk drawing just enough voters away from the Tories to gift the seat to Labour or the Liberals.

Just as in Peterborough and Brecon by-elections, they could well split the leave vote, and let one of the other parties to win, with many fewer than half of the votes cast. Does Nigel really want to be the man who let Jeremy Corbyn into Number 10? We think not. So the only conclusion is that he thinks there may be a peerage in it for him if he backs down. There can be no other logical motivation for Mr Farage to take such an extreme position.

Our Forecast

The Brexit Party will withdraw from all seats except those where the Tories have no chance anyway – ie Northern Labour-held seats. Nigel will magnanimously agree to back Boris’s deal as being better than any of the plausible alternatives. In due time, Mr Farage will enter the House of Lords.

Lord Farage of England! You heard it here first.

FTSE Forecast; Brexit Supports, World Economy Undermines

It is that time of the month when we ritually kick ourselves for making what turned out to be a stupid forecast six months ago – and then, without learning from our mistakes – we go on to make a crazy forecast for where FTSE will be in another half year.

Will go up, will go down, but not necessarily in that order

BUT this time, we weren’t so far wrong. Back on 15 April, we had failed to leave the EU on the second deadline, and a new exit-date of 31 October had been decreed. Wisely, or perhaps by luck, we guessed that on 15 October, Brexit might not be established, or the future might be rather worrying. Quote “So we will work on the basis that Brexit is still on-going by October.

Our forecast for 15 October was 7600, quite a reduction from the 8150 we had been predicting for September. Thus, we got the direction right, and a close of 7212 is pretty accurate by our standards.

The Next Six Months

Now for the next six months. British politics are somewhat unpredictable. We think that Boris might just pull it off and squeeze Brexit through tomorrow. The country (or at least 52%) will rejoice….. so there is no way the opposition will allow an election if Brexit goes ahead. Thus our central forecast is that Brexit happens, but then the minority government struggles on for several months until the demand for an election is overwhelming. This could easily be around our forecast date of 15 April 2020. However, a Brexit Deal will create an optimism and gentle release of pent up demand to support the UK economy over the next six months.  Lack of Government interference with new laws will also help!

However, no country is an island. Okay, well some countries are islands. Malta comes to mind. But economically, the future of UK based businesses, with our new, outward looking trade policy, cannot be but affected by the world economy. We foresaw the potential of a recession by year end, and the data published since then has done nothing to change that view. The global economy, from US to China to EU (in that order) is definitely looking soft.

Where does that leave us?

The UK domestic economy should have a surge, this will be countered by weak global growth.

Re-rating

The UK stockmarket, is at rather low multiples of income, given the interest rate environment. This morning, www.dividenddata.co.uk quotes the FTSE100 yield at 4.53%. If / When Brexit is settled, we see scope for yield compression – and hence price rises – justified by the reduced uncertainty and risk.

In summary, we think UK growth will be supportive, global economics will undermine, but an extra boost will be given by removal of the Brexit factor. From a close yesterday of 7182, we see FTSE100 at 7600 on 15 April. This is an increase from the 7200 we expected for Jan – Mar next year.

What is Boris’s Plan for Brexit?

We are three weeks away from Brexit Day, and yet there is no clarity. This is starting to look eerily familiar!

Boris; buffoon or battler?

We have a PM who is trapped in office, but with no majority he is completely powerless. Meanwhile, the opposition is scared of an election, and is rather enjoying the discomfort of Boris.

It seems that the key date will be 19 October, a week on Saturday, the day when Boris is legally ordered by Parliament to write the letter asking for an extension.

Leo Varadker, Irish Taoiseach

Will he do it? We think not. Since the Benn Act (aka the Surrender Act) was rushed through, Boris has been at pains not to retreat from his ‘do or die’ message about 31 October. We can see why he would do that as background to his negotiations. If EU actually thought he could push through No Deal, then they would be much more keen to negotiate. This has to be true of Leo Varadker, Irish Taoiseach, who has most to lose from a No Deal. Clearly, they have not bought into that idea though.

 

How can these facts co-exist;-

  1. Boris claims we will leave on 31 October, deal or no deal,

  2. The Benn Act says he must ask for an extension in the event of no deal

  3. The Conservatives have stated that they will not break the law

  4. A deal looks extremely unlikely

  5. The EU will agree to any extension request

  6. Parliament will not let BoJo call a quick election?

It seems Boris must believe that there is a mechanism to spring free from the trap. Here is what we think could happen (yep, “could” implies our low level of confidence in our prediction).

The Queen’s Speech next week will essentially be the Conservative manifesto for an autumn election. It will get voted down, but still the opposition will not allow an election.

The big day will be 19 October, in the special Saturday Parliamentary session called by the Government. We see the following votes;-

  1. A vote to lift the Benn Act and allow a No Deal to happen. This will be designed and phrased in terms of progressing or overturning the referendum result, to try to make the opposition look like it is ignoring the plebiscite. Narrowly, we think this will be voted down.

  2. A vote to call a General Election. This will be designed to make the opposition look like it is scared of facing the electorate, especially given that they have earlier voted to “ignore the referendum”.

  3. This is when Boris Johnson resigns as Prime Minister, and where he states that he will not do the usual caretaking role until a new one is appointed. We feel that BoJo has too much political capital tied up to write that letter. It would be interesting if Parliament voted to make him personally write a letter in which he does not  believe. If he does not resign, I see him taking a jail sentence as less politically damaging than writing a letter.

  4. If we have no Prime Minister – and hence no Government – then there will inevitably be a court case as to who can write the letter.

  5. Then there is 14 days for a new Government to be formed. We do not think Mr Corbyn could attract enough support, as the LibDems will see little advantage of positioning themselves as Labour’s poodle.

  6. A government of “National Unity”, which even the media have Christened “National Remainers” also seems unlikely, given how the various factions of the remainers struggle to agree on anything.

  7. Another Conservative would be the natural choice, as they have the largest party…. could that be dragged out for the remaining 12 days?

  8. So we drift towards 31 October……. no Prime Minister, no Government, political chaos.

  9. Away from Westminster, the negative respect for the political classes plumbs new depths.

When the referendum result was declared, the best outcome would have been a clear, firm date three years (or even five years) ahead, for which everyone could plan and prepare, leading to the most seamless transition possible. Instead of which the political classes in London, Brussels and Dublin have screwed it up right royally. By their constant bickering and game-playing, we are now in the worst possible situation. It is no wonder that the general public is coming to despise politicians.

 

Oh, and as for the details of Boris’s Plan, we don’t know.  We’re not even sure that he knows……

Scottish Parliament is Rubbish

For once we don’t mean the politicians in Scotland – though as an aside, why is Scottish Nationalism tied up with left-wing policies, when nationalists in other countries are more to the extreme right: eg National Front in France, or EDL in England?

However, this time we are reviewing the building completed in 2004 to house the  Scottish Parliament.

The Parliamentary buildings were ten times over budget. Not ten percent, but a multiple of ten! That is the outcome of public management of projects, spending Government money. To all those thinking that Mr Corbyn has it right in letting the Government run anything to do with construction or businesses, there can be no finer example of why it is such a bad idea.

The build budget was £30mio – £40mio. The final outcome £414million. That is just a mind-boggling variance. Could part of the reason behind the vast overspend be that the builders were Scottish, but they knew it would be the English tax-payers picking up the bill? There may be one or two people in Scotland to whom that would appeal.

Ugly Frontage to the Royal Mile

And so to the design. This must be one of the best locations in Edinburgh, on the Royal Mile, opposite Holyroodhouse Palace, and backing on to the rugged mountainous Arthur’s Seat. Like most architectural observers, we do not advocate a pastiche of earlier designs. A modern design is more honest. But we do believe in respecting materials and blocking forms.

Google Earth of Scottish Parliament

The exhibition inside explained that the buildings in the complex were designed to represent the human body, or groups of people standing around in a form of government discussion. Who bought into these ideas? Even seen from a helicopter (okay, let’s be truthful, even seen from Google Earth), it is hard to make any simile from the mish-mash of weird shapes. Observed from the Royal Mile, the concrete wall with convex and concave horizontal curves – pictured above -just looks a mess, and totally out of place. What an eyesore on the most important street in Scotland. Instead of render or attractive stone, we see bare concrete, enlivened by rusty steel poles.

Unnecessarily complex and expensive details

The Scottish Parliament Building could have been attractive, eye-catching and uplifting. Instead it is jarring and rude. Shame.

Judges In The Dock

Doesn’t the legal profession look decidedly dodgy? A Scottish High Court decides one thing, an English High Court decides the opposite, and the Supreme Court has to jump one way or the other. Having had their verdict so completely reversed, shouldn’t these foolish English High Court judges be called upon to resign? After all, the next level up found them to be completely wrong!

Though for the record, we think that the English decision was the correct one; proroguing Parliament is a political decision, and not a suitable arena for a court to intervene.

Also, more clarity is required from Lady Hale. Click here for the summary judgement. All of the press has quoted her conclusion, that “The decision to prorogue Parliament was unlawful.” So which law exactly did Boris break? He is said to have misled the Queen, but in what way? The process is totally ceremonial. When a Prime Minister asks for Parliament to be prorogued, the Queen doesn’t think a little, scratch her chin and say yes or no, depending on what advice she has heard. She is going to agree. Proroguing Parliament was always in the gift of the PM, and so it remains. To state that he can only choose a time with no political impact is worse than naïve.

Lady Hale has suggested that there is too much going on for Parliament to be stopped – but in reality, Parliament has already prevented No-Deal – and any putative Deal will only come back from the EU summit on 17 October, when Parliament would have already reconvened in time to reconsider it. So what exactly does Lady Hale think could have happened in the meantime, apart from the usual shouting and point-scoring?

To us, this judgement has;-

a) Highlighted that different judges make completely diametrically opposite decisions based on the same facts.

b) The senior judiciary seem to have entered the political fray, supporting the anti-Brexit, elite, establishment side of the argument.

Both of these facts diminish the judiciary.

Additionally, the judges seem to have decided that a PM can only prorogue Parliament when “things are quiet”, and for a less time than 6 days of sitting. There is no precedent for these views, and so the Judges, rather than applying the democratically determined law, seem desperate to make up their own version of what seems sensible. This highlights their unaccountability.

Like Parliament voting against every Brexit alternative, the Judges have not outlined what would have been acceptable practice, merely striking down what they see as unacceptable. How can this be? Since there is no accepted precedent on how long or under what circumstances proroguing can take place, the judges have effectively made up the law. This is unacceptable, and illustrates what a dangerous step the Supreme Court has taken. To avoid highlighting the fact that the judiciary now thinks it can make up the law, they have not clarified when or under what circumstances Parliament can be prorogued, and for how long. Would BoJo have been okay if he had made it for 4 weeks and 6 days rather than 5 weeks? Or if he had prorogued it for the whole summer when they were all on recess anyway? Brexit has been going on for three years now. When would it have been acceptable to have a new Parliament? If the Supreme Court had made these clarifications, it would have made them look as if they saw themselves above Parliament, but without such explanations, they look to be just making a political statement.

Going forward, a wise government will codify these precedents, and start to work on a written constitution, to include who can prorogue Parliament, for how long and under what circumstances. This would at least have the benefit of preventing judges making random interpretations of  what is or is not acceptable. At that time, all sorts of anomalies will need to be addressed, such as our unelected upper chamber and the West Lothian question.  What a can of worms! Woohoo! Politics is going to be fun for years to come!

FTSE 100 Forecast Flat Until March 2020

It is that time for us to kid ourselves that we have some insight of where FTSE is heading over the next six months. “Hurrah,” I hear you cry, “we’ve been waiting for a laugh.”

FTSE over 6 months

But first let’s have some humiliation by looking at what we foresaw back in March 2019. Back on 18 March, we confidently thought that Brexit would be resolved on 29 March. Oh how naïve we were. We thought that either a deal would be done, or no deal would be all sorted by September. Either way, we thought that resolution of Brexit would be supportive for FTSE, and so, with FTSE at 7228, we forecast 8150. The article was entitled “UK Equities About to Soar.” Wow, how confident we were. Sadly, our central assumption over Brexit was wrong, and so the out-turn of 7345 on 16 September was much lower. As we noted before, forecasting is particularly difficult when it involves the future (Ed; and as I remarked at the time, what other kind of forecasting is there? Now get on with it).

Market Screen

Looking forward to Monday 16 March 2020, what do we see? As noted last month, we see some risk of a global slow-down. And we have said this before, but surely by March, Brexit will be settled? The potential outcomes are;-

a) Deal on 31 October

b) No deal on 31 October

c) Extension to January, then Deal or No Deal

d) Revoke Article 50

Thus we feel that Brexit may well be off the scene. To some extent it will be hedged anyway, as a bad Brexit might lead to a lower GBP, which tends to support FTSE through the foreign earnings route.

Though we could have a Marxist/SNP/whatever coalition government too!

However Brexit is solved, we see it too soon to have a kick-start effect on the UK economy by March, and globally, we still see the risks on the downside. Therefore, we think the on-going global slowdown is bad for equities, but some kind of resolution of Brexit should help the UK market (dear God, any kind of closure, please, we implore you).

Thus for 16 March 2020, we forecast FTSE 100 at 7200. Yes, I know that is the same level we have forecast for December 2019, January 2020, and February 2020. At least we are consistent!

What an Eton Mess of Manners, Mr Cameron

Eton College

Eton School‘s reputation is for the best education money can buy. Indeed, they have supplied more British Prime Ministers than any other institution. But what happened to “Cameron Minor” when everyone else was being told not to speak ill of people?

My mother (grammar school, northern town) always instructs me that if one can’t say something nice about somebody, say nothing at all. And life has taught me that bad-mouthing people actually reflects worse on the speaker than the target. It is the ultimate in futile, self-harming spite.

And yet, David Cameron, with all those thousands of pounds of education, and numerous examples of how interfering ex-PM’s do not look good – see Edward Heath for how not to do it, Mrs Thatcher for a good example – has chosen to come out making sharp comments about his ex-schoolmate Boris Johnson, and his ex-friend Michael Gove.

Johnson and Cameron in happier times

Two days later, I can’t even remember what he wrote about his two ex-colleagues, but I do recall the fact that David Cameron lessened himself by hitting out. And what a contrast when Boris was knifed in the back by Michael Gove: Boris, also Eton-educated, never said a word in public, though one has to wonder what he said in private! So who has shown more statesmanship?

There is just one more thing though. David Cameron has a book to sell. And the timing is great – the party conference is coming, and Brexit remains somewhat topical. Could it be that this is not the real David Cameron, but manufactured bitchiness designed to sell autobiographies? In some ways, that is even worse!

Brexit! Where is the Cummings Plan, Baldrick?

Parliament has been prorogued! And the important news for word-puzzle fans is that this ‘new’ verb is indeed in the Collins Scrabble Dictionary.

But one has to ask, why did they do it? (I mean Boris, not Collins) And why in such a half-hearted manner? Conference season is coming up, so despite the headline “FIVE WEEK SUSPENSION”, in reality the proroguesion (Nope, that one isn’t a Scrabble word. Anyone got a number for Collins?) only made a few days difference to the actual sitting of Parliament. More importantly, the timing was such that Parliament had time to push through the no-deal bill that was always in prospect, and so the closing of Parliament had no real impact at all.

Boris; buffoon or battler?

To us, this high-profile political act was all about Team Boris tweaking Parliament’s tail, and continuing the theme of showing Parliament being against the referendum result and Boris battling manfully to enable what the people chose: Boris and the people versus Parliament if you like.

The two attempts by Boris to provoke a general election should be seen in the same light. The opposition parties saw a trick in that should an election have been called, selection of the date is in Boris’ gift, and hence he could choose a date after Brexit. However, forcing a second vote on the same issue gives the game away. The vote was for public consumption, designed to show the lengths to which Boris will go to deliver Brexit – even risk losing power – and the determination of the other parties to stop it. The subtlety of it being a no-deal Brexit that was stopped will be air-brushed over. This will be shown as Labour being determined to ignore the result of the referendum – and being frightened to face the electorate.

The third piece of evidence, m’lud, is Boris’s stated promise never to request an extension to Article 50, despite the eeyores of this world threatening him with prison. How much of a martyr would that make him? I note with surprise that ex-cons are allowed to stand as MP’s, so even if he was imprisoned, it would not prevent his comeback as a hero.

So, dear reader, you have a choice to make. Do you think that the current administration is ricocheting wildly from one crisis to another? This would not be out of alignment with the public image Boris has cultivated over many years.

Dominc Cummings – master strategist?

Or is this all a careful scheme, planned as the best option to cope with an unfavourable parliament? Boris is setting himself up as the people’s champion, fighting to the death (figuratively rather then literally we hope) to enact the referendum, and being frustrated at every turn by the self-important knuckle-heads in Parliament. Then when the inevitable election comes, Boris emerges with a very strong message. Dominic Cummings is a master at this kind of game…… we see a very Cummings plan Baldrick!