Chaos

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  By Guest Blogger Doug Rowat

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Former UK Prime Minister Boris Johnson’s a piece of work.

There were many scandals, of course, that accumulated to finally bring him down this year, but here were the two biggies.

First, he broke his own government’s pandemic lockdown rules and held a “bring your own booze” birthday party for himself in 2020. As it turns out, this was one of many Downing Street parties, which ultimately resulted in the issuing of some 100 plus fines by London police. Some of these parties Johnson himself attended, but subsequently lied to Parliament about attending.

Secondly, and the straw that broke the camel’s back, was Conservative Party whip, Chris Pincher, who got drunk at a private London club and was later accused of groping two men. Bad enough. But it turns out that Boris Johnson knew about the complaints against Pincher but appointed him whip anyways.

Enter new Prime Minister Liz Truss who inherits a UK economy on the brink of recession (if not already mired in one) with inflation (9.9%) running even hotter than in North America and with consumers crippled by energy bills almost three times higher than they were just one year ago.

Truss is the UK’s fourth PM in only six years with the previous three all resigning. Truss herself couldn’t even escape controversy in her first two days in office as the Queen’s death reminded everyone that Truss had in the past called the monarchy a “disgraceful” institution.

So with all the economic and political chaos in the UK this year, surely its equity market is massively underperforming other global markets?

Far from it. To review:

The FTSA 100: a huge outperformer this year

Source: Bloomberg; As of September 13, 2022

Why is the FTSE 100 Index outperforming so strongly? First, the outperforming sectors of consumer staples, energy and health care make up a combined 44% of the Index. Second, the two heaviest-weighted individual stocks in the Index—Shell Plc (#1) and AstraZeneca Plc (#2)—are up 37% and 22%, respectively, year to date. And finally, the information technology sector, a sector that’s been taken to the woodshed this year, has less than a 1% weight in the Index.

The investment lessons here are twofold: 1) always maintain a diversified GLOBAL portfolio and 2) never, ever conflate economic weakness or political chaos with equity-market performance.

Want more proof of the second point? Look no further than hero of the comment section, former President Donald Trump. During his presidency he fired an FBI director, a Secretary of State, an Attorney General, a Defense Secretary, several White House chiefs of staff, several national-security advisors and went through a truckload of press secretaries (anyone remember the less-than-two-week stint of Anthony Scaramucci?).

He also forced a lengthy government shutdown to fund a border wall, was impeached twice, publicly went to war with both the Federal Reserve chairman (who he appointed) and the infectious disease institute director (during a global pandemic no less) and, ultimately, inspired (many would say actively led) an invasion of the US Capitol.

Yet how did the market respond to all this chaos? As I pointed out in a previous blog post —with a remarkable 14.3% annualized return during his four years in office.

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Finally, Apple recently launched its new iPhone 14. The reviews have been mixed with perhaps the best criticism coming from Steve Jobs’ daughter, Eve Jobs, who posted the following meme:

Eve Jobs: unimpressed by the new iPhone 14

Source: MacRumors

Whether the iPhone 14’s the smart phone for you is a personal decision, of course, and may largely depend on the age or brand of the model that you currently own, but when making such decisions avoid what author Nassim Taleb (of “Black Swan” fame) calls neomania, which is the obsession with all things shiny and new. Consumers tend to value the modern simply for its own sake and often don’t take the time to determine if ‘the new’ actually holds value. Further, neomania tends to be strongest when it comes to gadgets.

Apple iPhone launches are always thirst traps. But resist. And do your research.

Doug Rowat, FCSI® is Portfolio Manager with Turner Investments and Senior Investment Advisor, Private Client Group, Raymond James Ltd.