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New UK PM Boris Johnson’s pledge to go the extra 1000 miles to secure a Brexit deal with the European Union has echoes of that famous song by the Proclaimers, “I’m going to be” from their 1988 album “Sunshine in Leith” with its signature line “I can walk 500 miles and I can walk 500 more.”

Songwriters Charlie and Craig Reid were reportedly big supporters of Scottish independence and presumably were cheering Scottish First Minister Nicola Sturgeon who in her first meeting with Boris Johnson yesterday reiterated her commitment to Indy2 (then maybe Indy3 or 4 if Indy2 doesn’t work).


Back in London the new PM has wasted no time in putting his stamp on government.  Larry the cat was one of the few spared the cull as Boris took the axe to the May cabinet to mould a new government in his image, taking to his task with gusto and sacking 17 former ministers and replacing them with Brexiteers in a “night of the blonde knives”,  as the UK red tops called it.

Make no mistake this was a man in a hurry with 99 days to leave the EU and with a black ink commitment to leave the EU with or without a deal.

Britain is going back to its roots and despite best efforts by Whitehall and much of the liberal opinion formers and “influencers” to keep us in the EU, in the end the conclusion that it’s a club run by the French and the Germans in which the Brits have very little say has won out and the 52/48 referendum vote by the English in favour of leaving the EU is being upheld.

As the third largest economy in the world by assets (Britain has a staggering $US11 trillion of overseas assets (Source: Office for National Statistics)) the fifth largest economy by GDP and with the fourth largest navy in the world, Britain has decided its future is best pledged towards a rest of the world growing at 3% a year rather than a European one not growing at all…

Many decry the risks of a hard-line Brexit government including the controversial Brexiteer adviser Dominic Cummings (played by Benedict Cumberbatch in the recent film) and the new UK PM’s distinct shift to heaping blame in the EU now makes this a nationalist agenda,  ie the UK versus Europe and there will be little room for compromise here with all the key cabinet posts going to the Brexiteers.

However once the interminable Brexit saga is over later this year the country will have to knuckle down and address the various challenges ahead.

BoJo economics appears to consist primarily of spending loads of the holding and folding on new policemen, doctors and nurses, roads and ships for the Navy with a Trumpian like disregard for fiscal rigour and associated huge budget deficit on the cards-still, if markets are so determined to allow the UK government to borrow for 10 years at less than 1% who’s complaining?

Markets more widely continue to be underpinned by central banks’ easy monetary policies -corporate bonds and US blue chip equities are having a ball with the Nasdaq, S&P and several other indices making new all-time highs.

However stress signals are mounting and the profit warning from railroad giant CSX (Source: MarketWatch) along with mixed results from bellwethers a degree of caution is warranted in our view.

We have become more guarded in our asset allocation for the following reasons:

  • Financial markets have had a strong run in 2019 and look overbought on a technical basis
  • Bond markets offer zero, or negative returns, for the first time in history and we see this as a sign of structural weakness, not strength
  • Equities have been buoyed by the bubble in bonds and the central bank ‘put’ option but the CAPE ratio (cyclically adjusted price/earnings) is at historic highs
  • A few global stock market indices are making new highs, such as the S&P 500 and Nasdaq but the majority of both developed and developing market indices are well off their peaks. We see this negative divergence as a cause for concern.

This has meant taking profits in the large private equity and corporate bond positions we hold particularly high yield bonds, the strongly performing utilities and China A shares as well as the equity income holdings in Asia that have down so well this year.

We have added to precious metals as they have dipped and we remain big fans of UK yield oversold as we believe it is. Vodafone’s 10% share price rally last week on news of it announcing it was to divest its telecom masts’ business was a good example of how sharply these high yielders have the potential to bounce back on any number of catalysts.
We continue to perform solidly in South River portfolios with absolute returns of between 1% and 3% for the Cautious (cash+) funds year to date and 8% for the Diversified and Dynamic multi asset funds.  Over three years Cautious funds are showing gains of between 1% and 4% and the Dynamic fund is up 20%.

Overall we continue to run a conservative and diversified investment strategy with an emphasis on sustainable yield in equities and bonds and an overweight in quality liquid high yielding shares and bonds and an emphasis on uncorrelated assets which we believe holds us in good stead in what may become a somewhat more volatile market background.

Research wise there was one interesting snippet this week, when we caught up with UK student accommodation leader UNITE plc.  The acquisition of rival LIBERTY LIVING for £2.2bn including debt makes them clear market leader…student accommodation is a growth market with student numbers at record high and supply crimped…

And finally, at such a stressful time for her majesty’s subjects, spare a thought for all those Brits who thought having paid a princely sum for a calm, peaceful cruise to see the Norwegian fjords and ended up in the middle of a mass brawl on P&O’s flagship cruise ship “Britannia”



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