As former Chairman of Saxo Bank, Nick Beecroft has over 30 years’ experience working in treasury and foreign exchange markets. He has written a regular blog for the Huffington Post and made numerous TV and radio appearances on CNBC, BBC World News, Sky News and Radio 5 Live.
Although there are undoubtedly challenges ahead, there are also reasons to be hopeful, and scenarios that lead to beneficial outcomes. Recent tumultuous events – Brexit and Trump – are symptoms of a Zeitgeist and share common root causes:
- Pro-small government
- Anti-nanny state
- People feel forgotten, little, disadvantaged-certainly relatively-the ‘squeezed middle’ that hasn’t benefited from the recovery generally, or Quantitative Easing specifically.
Will Trump reverse Theodore Roosevelt’s dictum that one should ‘speak softly and carry a big stick’ and, having spoken extremely loudly during the campaign, actually employ a rather smaller stick in terms of policy execution? There is a benign Reagan-esque outcome in which he focuses on economic regeneration and de-regulation, but doesn’t pursue his more outrageous social policies or court foreign policy disaster.
The UK’s 3rd quarter GDP figures, at 0.5 per cent quarter on quarter, were much better than expected, and the UK still has unique advantages; political stability, geography in the middle of East/West trade routes and in terms of time-zones, and we lead the world in rule of law, certainty of property ownership, pool of talent in key areas, (finance, high tech engineering, some IT).
Monetary policy seems to running out of traction therefore new, even more unconventional, policies are possible, including ‘Helicopter Money’. Inflation is coming, but not too much! This argues for equities rather than bonds.
So is this the end of the great bond bull market? Possibly, although bonds still have a very useful part to play in a portfolio as an insurance policy against equity market downturns; so-called flight to quality protection.
Sterling is not a virility symbol – it’s a relief valve, which will solve our huge current account deficit problem, and foreigners will find UK investment even more attractive now.
The key message? Don’t panic!