Badger of Broad Street: “severe, potentially “hard hats” severe”

Here in Badger’s Holt, I’ve deliberately kept my head down during the UK election. I took the view that saying anything would probably get me shot for some form of disloyalty. Being slightly afraid of the potential results, we cautiously positioned to sell GBP and Gilts. While that might not look so smart on the cover – it was probably worth it and a small price to pay as we walk into the bright sunshine of another 5 years of Cameron’s head-boy style of politics. (How soon before he lets smart but geeky George have a go, or will that awful oiky blond mop-head bully his way in?)

Let joy be unconfined. Now the election is finally all over.. what does it all mean? In fact the UK election is just one of these things that really doesn’t amount to a whole hill of beans in this market driven world. But it’s still worth writing about. Essentially, the UK remains a good solid place to invest… and it would have been so under Miliband as well…

A thin Conservative majority is clearly an excellent outcome – except for the fact that it now raises significant Europe risk. In recent years, Tory MPs have shown regrettable signs of thinking for themselves and voting against the Government a dashed sight too many times – which gives the right-wing of the party a pretty good shout at forcing a damaging BREXIT referendum on us all. And that would bring Nigel Farage out of his coffin to command attention in a single issue battle – what a horrible prospect!

I do feel pangs of remorse for Ed Miliband. He became unelectable the moment the media took against him – it doesn’t matter how many kitchens you have, if the UK press paints you as a lefty disloyal sex-pest, then you are doomed. He isn’t the first Labour leader to have been beaten by his own personality. I do feel enormous pity for the other election losers, but if they are looking for sympathy they will find it in a dictionary between sh*t and syph*l*s. What a shame to see Ed Balls blub. What a terrible embarrassment for Farage who exits stage left with 12% of the votes but a single seat for his party. How unfair the Scots get 4.8% of the vote and 56 seats.

That’s what you get under a representative democracy – people vote according to interest. When a particular political interest is spread widely – like UKIP or the Liberals, it is diluted into insignificance. In contrast, if such interest can be focused and concentrated, it becomes unbeatable. In Scotland, it’s pretty clear the Tartan hordes are pretty miffed at broken English promises, but since they couldn’t blame Cameron, they chucked out Labour instead. Now there are more Pandas in Scotland than Labour MPs. And what will we do with all these new Scot Nats MPs in Westminster?

But the UK election is now over, so let’s focus on real stuff… and the most important thing you may have missed in recent weeks has been the European bond markets, where we’ve seen a massive bond sell-off and increase in government bond yields from effectively Zero to nearly 0.8%. Doesn’t sound a lot – but it is.

Rising growth across Europe (yes.. that’s what I said!), the end of deflationary fears as oil prices stabilise and rise, and expectations of rising inflation have cost bond holders trillions. European stock markets have suffered in the wake of the bond crisis. However… therein lies the opportunity. If we do see growth in Europe, then stocks look undervalued.

Many pundits believe we’re entering a new period of pain in bond markets – a long-term bear market. That certainly means smart investors will be looking elsewhere. While US and even UK stocks look pretty fairly valued, European names are cheap… especially if we see resurgent growth. Of course, growth is a vulnerable, delicate flower and anything could unwind it – a China slowdown, a black-swan in America or another European crisis maybe? 

Which brings me to the looming Greek crisis. Even as I write this our chief economist, (who sounds like Lawrence Olivier in some 1940s heroic war film) has just come over the speakers describing the situation as “severe, potentially “hard hats” severe”. If Greece doesn’t overturn Europe let’s just hope investors don’t cotton on to the fact that Europe remains essentially broken – especially in France and Italy, supposedly two of its more important elements!

Who knows what happens next? So I’ll stick to my hold dollars and wait… and remember the adage.. “Sell in May and stay away till St Leger Day!”