Issue 27
Dear All,
Friday 23rd of September 2022 will go down as a day of reckoning. The worlds economist and ratings organisations cannot all be wrong. The Government have created financial instability which is affecting UK credit ratings. It is highly likely that we will now see a reversal of the proposal or indeed a complete withdrawal as called for by Labour today 29th (At the time of writing my prediction was correct, the withdrawal of the 45% relief cut) of course 2 weeks have passed since we started to write this. I would also predict further U-turns to come, watch this space.
Too much has been given away without any strategy of repayment or funding, the top rate tax being the most obvious elephant in the room. You simply have to balance the books that applies to small and large budgets alike and of course a countries budget is exceptionally large. I recently read a quote from the extremely successful chef Richard Corrigan, who runs numerous successful London restaurants, who said “I have built my business on the back of hard work and single mindedness. It does not matter how much you earn, if you have no regard for how you dispose of it, then you will always be poor.” I thought this was very true. Thus, the Government cannot just give away unlimited amounts of money.
The result of the statement has caused the pound to sink to new levels, almost to a one to one with the dollar. This has never happened previously and has sent markets into panic. It is a worrying sign of the worlds view to the future of the UK and its balance sheet.
There are wider global issues in existence, which includes the Chinese zero covid policy causing intermittent lock downs and disruption in supplies which is compounding the inflationary pressure on prices of goods and materials. The global labour market is another factor at play, it is not just the UK who have an ageing population and so the labour issue may remain for some time.
The world must adjust to higher inflation and a higher interest rate environment going forward. The past 10 years, possibly 15 years, is unlikely to be a template for the next ten years. Inflation may not remain at the current artificially high level it will almost certainly settle at a rate much higher than the last 10 years.
All these factors have put pressure on global share prices sending markets downwards since the start of new year. This applies to every sector and global area. We now also have the added problem of currency issues following the weakness of the pound against the dollar post the mini budget. This has also affected the price of UK gilts and corporate bonds where we have seen almost unprecedented falls in a sector which is deemed to be lower risk than equities. This has added to the woes of portfolios of all shapes and sizes. The only sectors this year to have really held up are commercial property and commodities.
In summary the world is going through a period of change, significant change in fact. This began with Covid which has subsequently escalated following supply chains breaking down, excess global demand and a labour shortage. The world and the financial system always adapt, always has always will, the question is how long it takes to return to normality. Unfortunately, we do not know the answer to this, if we did our office would be in the Cayman Islands haha. Hopefully by this time in 2023 things will look better and funds and shares will be in better shape. I have not mentioned the terrible Ukrainian invasion of course we must pray this does not escalate further and that an end may come unexpectedly or sooner than we think but this may be wishful thinking. There are no benefactors out of this indiscriminate, inconsequential, immoral war.
Best Wishes Mark & The Team at Padstone Financial Management Ltd
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We cannot be held responsible for the accuracy of the information contained herein. This newsletter is designed to provide information on topical events which have an impact on financial services. You should seek advice before taking any action relating to the content of this document. This letter is not a recommendation to invest.