Report on Q3 2017

Report on Q3 2017

3 Oct 2017

In the Q2 report I said that the stock market had been amazingly calm. The amazement intensified in Q3. Political and economic commentators are so certain of impending collapse that they can hardly get the words out quickly enough. The politicians themselves are cringing in response, like the invertebrates that most of them sadly appear to be.

You can be sure that if the fear gets to investors they will panic but, rightly or wrongly, they are not doing so. It has usually been a sound investment policy to say that if it’s reached the front page of the news, it’s probably in the price. In other words, the perceived risks have been accounted for.  Obviously perceived risk is a moving target and securities will continue to trade accordingly.

To take a singular example, the Labour party wants to nationalise Royal Mail, probably at its issue price of 330p. The shares are down 17% this year to 385p, just a further 14% above Labour’s assumed confiscation price. The company just raised the dividend again and they yield 6%. That looks to me as if the price is discounting the risk quite efficiently. (Given that the competitors to Royal Mail are “gig economy” delivery companies I cannot imagine why Labour hates it so much).

Labour’s wider threat is that it proposes to confiscate privately owned assets (starting with anything that has ever been state-owned which is pretty much everything that existed before the internet). This is potentially catastrophic (defined by Dr Johnson as “A final event; a conclusion generally unhappy”). The wing of the Labour party that hates capitalism would be delighted because capital would flee to the land of Anywhere Else.

The stock market tells us that, specific victims like Royal Mail aside, it thinks that Corbyn’s electioneering pledges are hot air on which he would never be able to deliver. But the closer he comes the more frightening he will get. So watch that space.       

In the quarter, the FTSE 100 was +0.9%, the All Share + 1.3% and the 250 + 2.8%. 10 year gilt yields rose from 1.26% to 1.33%. A big yawn, even if it was a nervous one.

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