2019: Mamma Mia! The year ahead in 10 songs

May you live in interesting times (as the Chinese curse goes)! Brexit will be just one worry next year amongst many. Victor Hill foretells the year ahead inspired by the incomparable songs of the legendary Abba….

Money, money, money…

QE RIP. The priestly caste of central bankers almost did the money managers out of a job. They just pumped digital money into the economy for years and watched the markets rise while the money men took all the credit.

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But now that game is played out…This week Signor Draghi confirmed that the European Central Bank (ECB) will join the US and the UK and end its own bond-buying programme at the end of this year despite miserable growth prospects in the eurozone. This week it emerged that global growth is falling to near zero in the wake of falling Chinese demand – and the French economy, which recorded a growth rate of just 0.2 percent in Q3, is likely to contract in Q4.

Meanwhile US manufacturing remained static in November, and October’s expansion was revised downwards to just 0.1 percent from the original estimate of 0.3 percent. Axa Investment Management is forecasting global growth of 3.6 percent this year, 3.6 percent next year and 3.5 percent in 2020. But Chinese GDP growth will slip from 6.6 percent this year to 6.1 percent in 2020. Interest rates are likely to rise next year – especially in the US – which will buoy up the US dollar further.

The really sobering thing is that the European markets have started to fall beforethe money taps have been finally turned off. 2018 was a game of two halves. The first half-year was pleasing with markets recording comfortable gains; the second half was a marked by spluttering then gradual decline. As I have pointed out before, the FTSE-100 index is now trading around where it was 20 years ago. The high for the year was 7,910 – and it seemed in late May that the 8,000 mark might be exceeded. The low was 6,675.

According to Hargreaves Lansdown, UK investor confidence is now lower than it was even in the depths of the financial crisis – a time when the entire global financial system was on the verge of implosion. The ten-year average for the index is 94; the lowest point hit during the crisis was 61; today it is on 52. This is almost certainly Brexit blues exacerbated by fears about the prospects for the world economy next year.


And yet fund managers Oldfield Partners, global equity investors with a bottom-up value approach, is now “significantly overweight the UK” because it perceives that the UK is oversold. They prefer stocks that are properly exposed to the UK domestic economy such as BT (LON:BT.A), Britvic (LON:BVIC) and Tesco (LON:TSCO) rather than the globalist oil and mining behemoths whose market caps rise when the pound falls, such as BP (LON:BP.), Royal Dutch Shell (LON:RDS) or Rio Tinto (LON:RIO).

What’s more, when you buy the UK market currently you get a yield of 4.9 percent. That is not only the highest level of my lifetime but well above inflation – and much more than other developed markets. So a pivot away from Europe towards the London market may make sense in 2019 as both a defensive and a value proposition – despite the uncertainty of Brexit.

Dancing Queen

Mr Rees-Mogg has described Mrs May as eminently dutiful. In other circumstances she might have made a splendid prime minister: hard-working, indefatigable, principled, upstanding, of sound values, resilient, articulate (no Churchill though).

But her leadership skills are questionable; she has little knowledge of history (she read geography at Oxford) and she is stubborn (sometimes a good quality but not always – successful people change tack). She was unsuited for the task for which she advanced herself. I doubt if she can speak French – let alone German or Italian – and has no privileged insight into how the European elite works. She doesn’t know how to work a room as other European politicians do. (Look how far Herr Juncker got just by extravagant (even inappropriate?) displays of affection.)

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It’s going to be a no-deal Brexit: even Mrs May knows that now. On Tuesday (18 December) the cabinet met to discuss what would happen if the UK left the EU at the end of March without a Withdrawal Agreement – in other words in the event of no-deal. Transport Secretary Chris Grayling had already published a plan whereby planes will continue to fly after 29 March (drones permitting) – so people can book their business trips and holidays with confidence.

The mayor of Calais has made efforts to handle additional customs checks required without undue delay. He has an incentive for this. Calais is aware of the competitive threat from Antwerp and Rotterdam. Moreover, the Irish are keen that Calais stays open because most Irish exports to the continental EU travel Dublin-Holyhead and then Dover-Calais. French exporters to the UK also have a strong interest in keeping Calais moving. A large proportion of Champagne’s celebrated output goes to the UK – at a time when Australian and even English fizz is winning prizes at affordable prices.

One of my readers wrote to me last week, concerned about continued supplies of insulin for her diabetic son. The NHS will continue to import pharmaceuticals from the EU under existing contracts. These drugs are all licenced and approved, and already need to come to the UK with rigorous evidence of origin, test results and statements of conformity with established standards. There should be no need for additional stockpiles if the Secretary of State for Health, Matt Hancock MP, has done his job properly. As far as I am aware, no big supermarket chain has warned of food shortages come April.

The reason why Mrs May has allowed the risk of a no-deal outcome to become the subject of hysterical speculation is, of course, political. If Mrs May were to promote the idea that no-deal would be perfectly manageable – then why would any recalcitrant Tory opponent of her Withdrawal Agreement be coaxed round to support it on 16 January? Mrs May, backed up by Mr Hammond, has to keep up the pretence that no-deal will be a catastrophe until such point as she realises that her deal resembles nothing more than the bones of a Christmas turkey…


And then she will pretend that she never really supported it anyway. Just as she quietly dropped the Lancaster House agenda without ever admitting a change of policy – and just as she asphyxiated the so-called Chequers Plan without even consulting the cabinet which had been summoned so ignobly to Chequers to endorse it.

Our last summer

Most of us will remember 2018 for its gorgeous summer weather. Throughout June and July radiant, cloudless summer days succeeded one another. The British, who rarely eat al fresco, were eating three meals a day outdoors. August was wetter but with many hot days, and September was unusually balmy. Package tour operators such as Thomas Cook Group (LON:TCG) lost out as the punters decided to enjoy the summer at home rather than fly south.

We are told that the long hot summer is further evidence of global warming. In fact 2018 was by no means the hottest summer of my lifetime. Temperatures were exceeded in 2003 and 1976 was much drier – there was no hose-pipe ban this summer as there has been in previous years. Overall, however, average temperatures have risen since recent winters have been much milder than the long-term averages.

If climate change were to be addressed on a country-by-country basis then China would be under more pressure to reduce its CO₂emissions. China emits much more than anyone else. In fact, Chinese emissions overtook those of the USA in 2005 and now account for as much as the USA and the EU combined[i]. The USA, despite Mr Trump’s sceptical stance on global warming, has succeeded in reducing emissions – and Britain has reduced emissions by nearly 40 percent in the past decade. But Chinese emissions are still increasing.

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However, the Paris Climate accord of December 2015 and the follow-up conference which concluded in Katowice, Poland last Saturday (15 December) have chosen to give China an easy ride. Why? Because of the prevailing theory that Western nations are more responsible for climate change than developing ones because they have been emitting CO₂ for historically much longer. The first industrial revolution began in the UK in the late 18^th century while China only began industrialise on a national scale in the last quarter of the 20^th century – so the argument goes.

I am very sceptical of this argument. I doubt that it is possible to estimate historic CO₂ emissions without all kind of assumptions which are highly questionable. It is based on the reverse extrapolation of current emissions over the last 200 years. To simplify, I can just think of the last three generations of my own family.

My paternal grandfather, Albert (1883-1972), with whom I spent much time in my boyhood, lived out his entire nine decades in South London where, for three of those, he worked as a tram conductor. He never owned a fridge or a domestic appliance; still less a car. He never travelled in an aeroplane. He probably owned a handful of good quality tailored three piece suits over his entire life which he would wear day-in, day-out. He was frugal. I doubt that he even purchased anything wrapped in plastic. I suspect that his entire lifetime carbon footprint would not have been much more than that of a Maasai tribesman living over the same 90 years. (These days – I spent January in Kenya – the Maasai all carry mobile phones and frequently get around in four-by-fours.)

My own parents didn’t go on a package tour until the 1970s and, while they would have bought cars in their 30s, and had central heating installed in their 40s, they would buy half a tank of petrol to last the week and turn the heating off if there were no visitors…I’m not saying they were particularly virtuous – that is just how people were…

Chinese peasants who lived co-terminus lives with those of my parents probably did not emit much less CO₂. It is now a commonplace that a wood fire emits much more CO₂ than an equivalent coal or oil boiler – and many times more than a modern gas boiler.

Mass or popular consumerism was launched in its modern profligate form in the USA in about 1955 (the first MacDonald’s) though it did not arrive in the UK until about 1968 (the year the Ford Capri was launched). China started to industrialise precisely by exploiting the West’s insatiable demand for consumer goods about a decade later.


I am not a climate change sceptic. There is absolutely a correlation between the level of CO₂in the atmosphere and average temperatures – though, over the 100,000 years or so since homo sapiens emerged, the ambient temperature has fluctuated by much more than the one degree by which it has risen since 1800 – and through perfectly natural causes. And yes, the recent increase in CO₂ levels in the atmosphere is partially anthropogenic: that is, it is caused by humans burning fossil fuels – though there are other important natural causes, such as volcanism.

But the idea that you can map precise temperature increases to particular volumes of CO₂ in the atmosphere is highly arguable. More than that, the idea that you can blame some countries more than others for climate change is not scientific at all – it is political. It feeds into the modern liberal self-hating mindset in Europe and North America – and has been exploited mercilessly by the Chinese.

Sadly or otherwise, I suspect, the Paris-Katowice framework will not survive 2019.

Super Trouper

On Tuesday (18 December), after the no-deal cabinet meeting, we were told that 3,700 troops would be made available in the no-deal emergency. Then on Wednesday the Europeans blinked.

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They made public their own plans for a no-deal Brexit. There will be no limit on truck entries from the UK into Europe for the duration of 2019. Thereafter, truckers will have to apply for permits. Flights will continue to operate from the UK to EU destinations without hindrance. But UK airlines will not be able to fly from one EU destination to another. That is, of course, precisely why easyJet (LON:EZJ) decided, operationally, to break itself into two companies last year: a mother company based in the UK and a subsidiary based in Austria. You will not perceive any dislocation whatsoever when you next book an easyJet flight.

There will be no immediate disruption to financial services. The swaps and derivatives markets will be unaffected. (If not, the European banking system might have been plunged into systemic failure.) UK citizens will continue to be considered legal residents of the EU countries where they reside – despite Monsieur Macron’s threat earlier this year that British citizens in France would be treated as aliens.

But I have just broken the news to a pair of Jack Russell bitches that pet passports will no longer be recognised – so no more summers in the Languedoc for them. (They were unimpressed.)

Gimme, Gimme, Gimme…!

Debt is cultural. By that I mean that there are forceful cultural norms around how much debt (if any) is socially/economically/ spiritually acceptable. The Gospels contain many allusions to people in debt (also to tax collectors). The Holy Qur’an abhors usury – as did Catholic popes before the Medici. (The latter were a dynasty of globalist financiers who took over the Church and then placed their progeny on European thrones…a bit like the Davos crew today.) In 2019 I shall develop my theme that there is good debt (for investment purposes) and bad debt (to finance consumption). Most government debt is now consumption-related e.g. to finance generous welfare programmes.

Global debt is now three times the level it was 20 years ago according to Citi Research. Total debt – that’s government plus household plus corporate debt – as a proportion of GDP is highest in Canada, Hong Kong, Japan, Lebanon, the Nordic countries, Italy, Greece, Singapore and South Korea. Governments of many advanced economies and numerous developing markets carry unsustainable levels of debt. According to Bloomberg Sovereign Debt Metrics the probability of default (PD) in 2019 for the most vulnerable eurozone countries is as follows: Greece – 17.6 percent; Italy – 4.0 percent; Portugal – 1.8 percent. In the emerging markets Pakistan has a PD of 5.8 percent and Ukraine of 17.6 percent.


The Fed raised its key interest rate by 0.25 percent to a target range of 2.25-2.5 percent on Wednesday (19 December) despite Mr Trump’s imprecations against such a move. With rates rising rapidly in the US the risk of some kind of global debt crisis is palpable. The combination of rising rates with slower growth means that at least one major sovereign default is highly likely in 2019 – with attendant shocks through the global financial system and a real risk of a systemic banking crisis.

Voulez-vous?

Will Monsieur Macron’s presidency ever recover its poise after the indignities inflicted by the gilets jaunes?

After five consecutive Saturdays of rioting in Paris, the President was forced to address the nation on live TV on 10 December and to announce a package of palliative measures which will cost the Trésor an estimated €10 billion. These handouts will blow a hole in the 2019 budget causing the fiscal deficit to rise to as high as 3.4 percent of GDP. That’s much more than the deficit that the Italians have been trying to get past Brussels. But don’t expect Herr Juncker to give the French a hard time, though – he recently explained that France is special – in other words it is not expected to obey the EU’s rules (and never was).

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Monsieur Macron’s first year was impressive. He drove through reforms of the labour market while making France a more attractive investment destination by, among other things, abolishing wealth taxes. Last year France attracted a record amount of new investment. His second year has proved more challenging.

In the summer I wrote a piece comparing Emmanuel Macron to Vladimir Putin. I did not foresee how apt that parallel was.

Mr Putin has lost popularity amongst ordinary Russians this year by reforming the country’s pension system. Russia does not have much of a welfare state but Russian women since early Soviet times have looked forward to a state pension at 55 and Russian men to one at 60. Now Russian men have to wait until they are 65 to claim their pension – in a country where male life expectancy is only 63! Mr Putin rowed back on reform of women’s pensions in response to a wave of protest – just as Monsieur Macron was forced to abandon his ecology taxes which fell mostly on diesel van-driving tradespeople. The finances of both Russia and France are proving more difficult to reform than expected.

I foresee that in 2019 Monsieur Macron will attempt to pass himself off as a humbler and more caring President than the Jupiterian elitist of hitherto. If France goes into recession next year that will make the task of reforming France’s national finances all the more difficult.

As for Mr Putin, he is already trying to recover lost popular support by roughing up Ukraine. We can expect the Ukrainians to stand up to Russia. There are bound to be further incidents in 2019.

Slipping through my fingers…

Labour’s opposition to both Mrs May’s deal and to no-deal without articulating any alternative proposition is about to be exposed for the sham it is. In the summer I warned investors to prepare for a Corbyn government. And it is true that many in Momentum foresee a no-deal Brexit as an opportunity to stir up social discontent that they think will favour Labour electorally.

But I now think that Mr Corbyn’s star is on the wane. There will not be a second referendum – which he probably does not support anyway (he equivocates on this as on much else) even though Labour Remainers think that might save them.

That is because a second referendum could only be held if Article 50 were rescinded. If that were to occur then the UK would be obliged to hold elections for the European Parliament scheduled for 23 May 2019. Not to hold the elections would breach the rights of UK citizens to be represented. Mr Corbyn does not wish those elections to take place because they would showcase the deep rift between Leave and Remain within the Labour Party. What’s more the entire political class knows that to subject the British people to a European election would be like sticking two fingers in the face of the 52 percent and blowing a large raspberry.


A no-deal Brexit – especially given that the Europeans have effectively delayed the restrictions on freight transport to 2020 – may actually give the Tories a spike in the polls – a kind of Dunkirk moment. It would also give Labour nowhere to go in terms of their European policy. So long as the economy holds up there is every reason to suppose that support for Mr Corbyn will continue to flat-line in the polls. A change of Prime Minister in late 2019 also could wrong-foot Labour.

In 2019 it will become clearer that the Corbyn threat has passed its peak. But, this being Christmas, let’s not forget to thank Labour: without them Mrs May might have imposed her wretched deal on us.

The winner takes it all

The UK first-past-the-post electoral system has often been characterised as winner-takes-all. But even the Swiss, who use them a lot, recognise that referendums are winner-takes-all events. The French voted in favour of the Treaty of Maastricht by a tiny majority in September 1992. The vote was 50.8 percent in favour and 49.2 percent against. On that basis the entire European federalist project was sustained. If less than 200,000 French citizens had voted the other way, the eurozone would not have come into existence. Proponents of a second referendum in the UK should reflect on that.

When all is said and done

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I don’t think any future historian will be able to understand what happened in Britain between 2016 and about 2022 unless they view these events through the prism of the Reformation.

Remainers are true believers in the doctrine that ever closer union between the nations of Europe is a good in and of itself. They pander to a clerical elite in Brussels which has enormous powers of patronage, not to mention a morally-ordained sense of entitlement. Anyone who disrespects the EU and all its works is guilty of heresy.

Leavers, by contrast, believe that the EU is a human construction – the efficacy of which is in decline. It is undemocratic, insensitive to public opinion, unaccountable – and often corrupt. It does not even assure rising living standards as once it did.

Mr Carney can massage his spreadsheets as much as he likes but this is not really about growth forecasts at all: it is about freedom, independence, and sovereignty – whatever you want to call it. It is about whether elected representatives should be lawmakers or whether they should outsource their law-making powers to supranational bureaucracies. It is about whether it is worth voting in elections of any kind at all if the ruling elite have so much contempt for the foibles of the people that they disregard the outcome of referendums they themselves have instigated.

Take a chance on me

As I said last week, I’m pretty sure that Mrs May will leave the stage in the second half of 2019. I promised to reveal who will be the next PM: so here goes.

The next leader of the Tory Party will be a relatively little-known minister from outside the current cabinet. The Tory Party will abjure a Javid or a Hunt – let alone a Johnson – and skip a generation.

He is a unifier who has made the journey from Remain to Pragmatic Leave. He is a social liberal with an admiration for military discipline. He is a brilliant writer and linguist who is unimpressed by luvvies. He will give the Tory Party a post-Brexit sense of purpose. He is the Prisons Minister, Rory Stewart, MP for Penrith and the Borders.


I spent a day walking with Rory in a remote part of Scotland some years ago, just before he was elected an MP. I had already read most of his brilliant The Places In Between about his walk across Afghanistan in winter.

When you hike with someone, especially in wilderness, you get a privileged insight into your companion’s mind. Rory is much more instinctively left-wing than I am – the product, I suppose, of noblesse oblige: he is, after all, a Scottish toff. He is both a traditionalist and a social reformer. A landowner with the common touch. An intellectual who empathises with people in all their diversity. And a natural leader. But his real unique selling point is that he doesn’t seem like a politician at all.

I formed the impression that he is something that I have never encountered close-up before: a man of destiny – and, of course, he knows he is. His time will come before long.

***

Mamma Mia – here I go again. Thanks to all my readers for your company during 2018. I have hugely appreciated your feedback – even when it was harsh! I wish you and your loved ones a happy festive season. Stay canny – and prosperous – in the dangerous year ahead. See you in 2019. Cheers!

[i]See: https://www.forbes.com/sites/rrapier/2018/07/01/china-emits-more-carbon-dioxide-than-the-u-s-and-eu-combined/#690ec35d628c