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Quotidian Investments Monthly Commentary – September 2018

October 11, 2018

More often that not the final quarter of the year tends to be the most productive and profitable from an equity investment viewpoint.  Perversely, September has a relatively poor historical record of stock market performance. Of course, these comments are generalisations based on bygone records and I can find no cogent or logical reasons to explain this phenomenon.  The best I can come up with is that the markets pause for breath in September in order to prepare themselves for the anticipated final quarter uplift.

Having said that, with the exception of the US markets global equities have largely been under a cloud for 2018 thus far.  In particular, the UK stockmarket has been hobbled by the ongoing grind of Brexit negotiations.

In his pretentiously entitled  ‘State of the Nation’ speech this month (and with no hint of irony) Jean-Claude Juncker declared that over the next ten years the Euro will become the global currency of choice.  With a sense of bravado bordering on idiocy he seriously asserted that a currency unlikely to still exist in 10 years’ time will usurp the US dollar as the world’s predominant reserve currency.  Group-think bubble or blowing bubbles?

If nothing else, it casts a ray of illumination onto the inner workings of the EU and the delusions of grandeur that permeate its upper echelons of power.  The Euro was hastily cobbled together and prematurely introduced towards the end of 1995. Using the EU’s own data, in 1999 it accounted for 20% of global currency reserves.  By 2004 it was close to 25% of the world’s reserves but by 2017 it had fallen back to 19.90% again. 

Indeed, since 2009 it has fallen 3% and continues to fall as a percentage of global reserves; but why let the EU’s habitual and typically inelegant variation of the facts interfere with hubris.  Hubris, of course, is often rapidly followed by nemesis; there is more chance of the Monopoly money issued by the Reserve Bank of Toytown ever becoming the world’s reserve currency.

Juncker was shown on television earlier this month literally staggering and stumbling from one meeting to the next (needing a man on either side to hold him upright).  Following that remarkable episode the EU felt the need to issue a statement explaining that J-CJ apparently suffers from bouts of sciatica.  Unkind commentators have suggested that these bouts occur in direct proportion to his consumption of champagne.

Whilst Brexit continues its weary path towards March 2019 the UK equity market will remain in thrall to Juncker and his merry men.

On 3oth September 2018 the FTSE100 index closed the month at 7432.42, a rise of +1.33% in August and it now stands at -2.03% for the 2018 calendar year to date.  By comparison the Quotidian Fund’s valuation at the same date shows a rise of+1.08% for the month of August and the Fund is now up +10.88% for the 2018 year to date.

Since 1972 there have been 48 referendums on the EU by a variety of its member states.  It is an interesting and revealing fact that every one of those that went against the EU was re-run “until the electorate gave the right answer”.

With that as the background, the EU’s strategy in relation to Brexit has been simply to try to force a second referendum.  It’s tactics in that aim have been to deliberately obstruct and frustrate progress towards an equitable settlement, to create and focus on synthetic  ‘problems’ in order to divert attention away from real issues and generally to waste time as a means of arriving at an artificial cliff edge.  All this has been accompanied by over-emotional jargon designed simply to engender fear as opposed to using more pragmatic language to better explain and clarify the pros and cons of the UK’s decision to leave the EU project.

Simultaneously and with increasing vigour, the EU and its gang of ‘useful idiots’ (viz. the Governor of the Bank of England, the head of the IMF, committed high net worth remainers and swathes of the visual, aural and written media) has choreographed a constant drip of negative propaganda liberally laced with disinformation and threats.  These seeds of doubt are intended to sap our will to continue by creating the impression that escape from the EU would be too difficult, too expensive and not worth the effort.   Exactly the same tactics were used in the past to overurn the democratic anti-EU referendums referred to earlier in this piece (particularly those in Denmark, in Ireland and in France);  they worked then and the EU believes that they will work now.

In another sphere, but equally important from an economic viewpoint, on 25thSeptember the EU proposed a new payments system (a European Monetary Fund) designed purely and simply as a device to circumvent and attempt to wreck the sanctions that the US has imposed upon Iran.  It is generally accepted that Iran is the leading sponsor of terrorism in the Middle East and further afield.  Towards the end of his tenure, Obama’s removal of sanctions on Iran in return for a worthless promise to de-nuclearise was one of his ‘signature’ deals.  Iran was given renewed access to £100bn which was promptly used to develop its nuclear strength.  At best Obama was naïve and at worst he was reckless and made the world a more dangerous place.

The EU’s new payment system and its dubious intent sends a very clear message that Europe will plumb any depths in order to save its trading relationships with Iran regardless of the wider risks.  In so doing it illustrates clearly that the EU sees financial protectionism as more important than the cost in human lives.

Despite the EU’s typical back-stabbing and underhandedness (and in spite of the sniping and negative comment that he attracts from those areas of the media that would prefer to see him fail) Trump’s economic successes continue to accumulate.  Having terminated the North America Free Trade Agreement earlier this year (an unbalanced trade agreement involving Mexico, Canada and the USA which was created by his economically myopic predecessor), a new and fairer (to both sides)  trade deal was agreed between the US and Mexico. Negotiations are continuing with Canada to include it in the new pact and I have little doubt that Canada too will join this fresh and equitable trade pact later this year.

Shortly after taking office, Trump also withdrew from the Trans-Pacific trade treaty (TPT)  set up by the previous US regime.  It was announced on 27th September that Japan and the USA will now open negotiations on a bilateral trade agreement between the world’s first- and third-largest economies.  This represents a significant change of attitude by Japan (a change which may have some marginal connection with Trump’s threat to impose punitive tariffs on Japan’s motor car exports to the US.  The world is now entirely familiar with Trump’s tactics and (given the huge importance of the American consumer to world trade) there is no doubt that they work.  A realistic new trade deal will now be struck and one could reasonably conclude that the positive end justifies the means.

This month also witnessed news that South Korea and North Korea are preparing to enter into a trade agreement (unthinkable until very recently and a rapprochement that was instigated by President Trump).

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