Boris goes soft

Somewhere inside 10 Downing Street there’s a document with Boris Johnson’s entire strategy laid out on it.

It helped bring him to power. It’s designed to help him hold on to it. And it may well help consolidate it in a snap election.

It contains only three words:

SPEND, SPEND, SPEND.

Pretty simple strategy, no?

But from what we’ve seen so far, it’s likely to be effective. It’s also going to create a major opportunity for investors who position themselves properly. And a risk for those who don’t.

I’ll come back to how you can profit from it at the end of today’s letter. I’ll even give you some free advice.

But first, I know I’m being slightly facetious. But I’m not being particularly speculative. At least, I don’t think so. Every indication Boris has given so far suggests he’s about to go on a good old-fashioned pre-election spending spree.

Just consider his actions so far.

  • He fired “fiscal” Philip Hammond and replaced him with an ally in (former Deutsche Bank banker) Sajid David.
  • He’s planned an “emergency” budget in early October.
  • He’s promised £1bn to hire 20,000 new police.
  • He’s promised £5bn to reverse school spending cuts.
  • He’s promised tax cuts estimated to be worth £20bn per year.
  • He’s promised £3.6bn to build a new railway between Manchester and Leeds.
  • And he’s promised a £2bn “cash bomb” for the NHS.

And that’s all within a month of taking office.

Ambitious? Yes.

Prudent? Not a chance.

Before I go any further, a quick disclaimer. I’m not a Boris hater, or a Boris fan. I’m not making a party political point.

My view is he’s a politician. I dislike and distrust them all. People who chose to enter politics are signalling something important about themselves: they value power above all else. Remember that.

And besides: Boris has taken a leaf from the Jeremy Corbyn playbook. Corbyn’s Labour performed above expectations in the last election largely by promising a lot of people a lot of things with very little concern for the cost involved.

Ditto Boris.

It turns out promises are a great vote winner and prudence/responsibility isn’t. The secret is to promise more than your opponent. (Case in point: former US vice-president Joe Biden recently promised if elected he’d cure cancer. No one else will though. Only him.)

And why not? You can simply borrow the money (read: steal from our children, who can’t vote yet) to pay for it.

Or better yet: just create the money out of thin air. Why borrow, when you can print? Someone should translate that into Latin and turn it into the maxim of the low interest rate era.

There’s a reason this stuff works. Everyone wants more police or better schools or better healthcare. Just not enough to pay for it themselves. Therefore politicians making consequence-free promises win.

This, by the way, is hard coded into every “populist” politician in the world. They all want to spend a lot of money. Build a wall. Nationalise the railways. Create a universal basic income. It all comes from the same place.

Which will lead to the ugly spectacle in the next election of each party seeking to promise more than its rival. How long before Boris promises an extra bank holiday during which a resurrected Elvis Presley will perform privately for every citizen in Britain, while the Duke of Wellington serves ice cream. What a weekend that would be!

Back to serious matters. I’m treating this subject lightly, but only because if you don’t laugh you’ll cry and the sheer irresponsibility of it all. Effectively we’re witnessing the entire British political establishment abandoning any thought of sound money or financial prudence. Everything is soft now. Soft money. Soft pound. Soft Boris. Soft Jeremy. It’s no wonder the last refuge of the hard money believer – gold – is soaring.

As The Telegraph put it:

Mr Johnson will also need an ultra-dove in charge of the Bank of England, willing, at least temporarily, to abandon sound money orthodoxies and bend behind the immediate purpose of keeping the economy afloat.

This is more than just a Brexit related change. In Britain, many seem to have undergone a kind of Damascene conversion since the vote for Brexit; some of the fiercest one time fiscal hawks have been turned into magic money tree spendthrifts.

Yet their change of heart is very much part of a global movement. Brexit provides the excuse for conservatives to adopt a new form of economic populism which promises to sweep all before it.

Ah yes, the magical money tree. That old magical chestnut. The one you don’t have to pay for.

To decode the above for you somewhat: Johnson’s search for an “ultra dove” means he’s on the lookout for someone with a love of a printing press and an itchy trigger finger. Boris wants to spend. He’d rather not borrow the money. He’d rather not have to “pay” at all.

Of course, there’s always a price to pay. Sometimes it’s direct and explicit. Tax and spend.

Sometimes it’s indirect and implicit. Spend and inflate.

Either way there’s a price. A consequence. I happen to believe being open and honest about that is better than being dishonest. But politics doesn’t work like that. It’s easier to spend, cheat and swindle the electorate into believing there is no cost.

Meanwhile, inflation and the collapse of the currency do the hard work for you, robbing the middle class of the value of their savings in the process. Agree? Disagree? You can reach me on nick@southbankresearch.com.

By the way, this is an issue that exposes the political faultlines and bias in the media over spending. Left-leaning press, having celebrated Labour’s spending plans that were best characterised as a “drunk 18-year-old in Ibiza with daddy’s credit card” level of responsibility, will now criticise Boris for spending.

And the reverse is true. Right-leaning papers – having branded Labour irresponsible – will now celebrate Boris’ spending spree. Apparently the problem isn’t how much you spend, or what you spend it on. It’s who does the spending.

That’s nonsense of course. The laws of mathematics apply equally to everyone, whether you read The Guardian or The Telegraph.

Perhaps the media is half the problem. There has been so much interbreeding between politics and the media we get, well, inbred thinking.

You won’t get that here, of course. I’m not a journalist and don’t want to be. Same goes for politics. My only concern is helping you make better decisions with your money.

And it’s clear our new Captain Spendalot PM’s ideas are going to move the markets. We’ve seen the pound crater since he took office. And perhaps more importantly: gold has soared to a new all-time high, in sterling terms.

I expect that move to continue. I’m not alone. There’s a mounting pile of evidence that suggests gold is in the early stages of a major bull market.

My advice? Buy gold. Now.

Here’s everything you need to do that.

Best,

Nick O’Connor
Publisher, Exponential Investor

Category: Commodities

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