Don’t mention it

If you wish to avoid embarrassing moments at dinner parties there are some rules you must follow.

• Don’t talk about politics.
• Don’t talk about religion.
• Don’t talk about sex.
• Don’t spill any red wine. (Sorry Stephen & Aileen)

Well because this isn’t a dinner party, I guess I’m free to talk about them all. In fact, although the first three rules should sound like 3 separate subjects, they are now all inextricably linked. What’s more, it’s becoming increasingly difficult to have a view on one without needing to have a corresponding tribal view on all three. What am I talking about? Thursday 4th July. Independence Day in the US, but a General Election here in the UK.

Expected effect on investment markets.

Yes the day has come where we will be asked to choose the party to form a government for the next 5 years. A time where the expectation is stock markets will be volatile. But wait a minute, it seems that the “Risk Index”, the VIX in the US and the Citi Macro Risk Index here in the UK is sitting at roundabout all time lows. Just look at the 20 year chart below. This suggests there are no nasty market surprises just around the corner.

Stock markets do not like un-certainty, therefore the fact there is a nailed-on likelihood of an incoming Labour government does not faze market participants in the slightest.

Q1: Will the UK Stockmarket fall precipitously if Labour sweep to power in the July General Election?

No

Moving on to tax implications

Although this change of government shouldn’t upset the UK stock market in the short term, it’s probably not a great outcome for us investors. But to be honest the previous administration was hardly good to those who tend to make up their core voters. It will not escape your attention that we all have been forced to pay increasingly more tax.

• Personal Income Tax allowances frozen for years.
• NI recently reduced, but only after being previously increased.
• Capital Gains Tax allowances reduced from £12,000 to £3,000.
• Inheritance Tax allowances frozen.
• Dividend tax allowances reduced from £5000 to £500 and the tax rate increased from 7.5% to 8.75% for basic rate tax-payers.
• Interest Income allowance reduced to just £500.
• Corporation Tax increased from 19% to 25% in one fell swoop.

What a hideous underhanded attack on businesses and everyday workers and savers. The policies of the Conservatives have moved so far left they should have re-christened themselves “Even Newer Labour”.

Q2: Despite already suffering the highest rate of tax payable since the war, could it be higher under a Labour government?

Hell yes!

Where are they going to find the extra £38 billion they want to spend? They have named a couple of taxes they won’t touch, but that does not mean they won’t find other ways to tax us further. They certainly cannot borrow anymore on top of the £1.7 trillion (£1.7 thousand billion!) the UK already owes and show no ambition to reduce it.

A Sterling Performance

We have positioned ourselves, like many investment managers, to expect currency depreciation under a Labour government. Why? Well it’s always happened before. The value erosion probably won’t be immediate, more of a wasting disease rather than a sudden amputation of relative value. The perception is Labour governments always promise too much and throw money (other peoples) at problems they believe they can fix. NHS is failing? Throw more money at it. Educational standards plummeting? Throw more money at it. I could go on but you get the gist. Debt rises and holding Sterling doesn’t look like such a safe bet anymore. Our debt is downgraded by the ratings agencies. Liquid capital moves to stronger, safer currencies, meaning there are more sellers than buyers and so the exchange rate falls.

It doesn’t just mean that we get less Dollars to the Pound when we want to visit Disneyland. Unfortunately we import most of our food, most of our fuel and most of our raw materials, which we need to pay for in a weakening currency. With the Pound not going as far as it did, the cost of imports will rise, which means prices must rise and the spectre of inflation will re-appear. And to think, we are only just getting over the last blow-up in inflation.

Q3. Will our currency exchange rate fall or rise against the major safer currencies of the world?

Fall.

You may have noticed the number of overseas equities we currently hold across our accounts. By buying US shares we have changed Sterling to Dollars. By buying Japanese shares we have changed Sterling to Yen. You get the picture. Reducing our Sterling exposure makes sense.

However we probably will see some of the major UK listed shares still go up in value. I have mentioned before that around 85% of income earned by the FTSE 100 companies is in Dollars. Generally as Sterling weakens Dollar earning companies strengthen.

Where is the Politics, Religion and Sex talk you promised?

Well the dividing line has been drawn between the major parties.

POLITICS: I’m sorry to break this to you but Spitting Image was right. Governments are just puppets controlled by what Gove calls the “Blob”. Governments come and go. The sitting civil servants don’t change, the consulting NGO’s (Non-Government Organisations) who peddle the ideas which make it to final legislation, Media (especially the BBC), Trade Unions, Academia etc. Together they maintain control. As the saying goes;

The man(government) is the head of the family, but the woman(blob) is the neck. The woman can turn the head wherever it pleases.

RELIGION: Now I’m not remotely religious. I also need to be really careful here in what I can say. However there are parties which accept blatant anti-semitism and others where anti-semitism is not tolerated. There is a party that believes there is too much ethnic minority immigration. Other parties who refuse to see the pressure that un-controlled legal and illegal immigration places on services. Also national productivity continues to fall as the percentage of non-workforce individuals rises. As a supposed secular nation, the collapse in Christianity and the rise of other ideologies and religions is undoubtedly leading to increased conflict, stirred up by some political parties and glossed over by others.

SEX: Sir Keir cannot be drawn on whether he believes a woman can still possess mens dangly bits. It must be difficult for any woman to accept this conclusion after fighting so long for equality for women. Remember the Suffragettes? Biological women no longer exist, certainly not in an SNP led Scotland.. Who would have thought it could become such a vote winner for any party who finally declares there is a difference between XX and XY? Women make up 51.5% of the population, or rather they used to.

So by accepting that women still exist, you must also accept that immigration should probably be controlled and increasing the debt of the nation is a bad thing.

If you accept there are a multitude of possible genders, then you are also asked to accept multiculturalism strengthens society and you can fix social problems by either borrowing more from increasingly wary strangers or taxing the populace to levels much higher than they are today.

Other options and combinations are available, but are probably un-necessary in an increasingly polarised UK.

Business as Usual

My job is not to offer opinions on politics, religion or sex. I’m tasked with two mandates;

• Preserve your savings and help make them grow by capturing a share of what the markets give.
• Help you to reduce your personal tax burden, whilst working, retired or deceased.

Of course I hold my own opinions, but they remain my own. I must remain balanced to ensure our returns are maximised through boom times, bust times, peace, wars, pandemics and political change. We believe we are currently well positioned to weather any outcome thrown at us over the next few weeks. Following the election we will be looking to review every clients circumstances as legislative changes inevitably start to bite.

Where am I going to put my X on the ballot paper? Well as a father of two daughters, at the moment I feel like spoiling my voting slip by scrawling either XX or XY.