The uncertainty myth
Boris Johnson's vote and what it means for business
Hello everyone, hope you enjoyed the weekend. Let me start today with some quick thoughts about the Boris Johnson no-confidence vote, what it means for business and markets, and some lessons from history…
There is a lot of chat, including from Boris Johnson’s supporters, about how this vote creates uncertainty and is bad for business, markets and the economy, which need stability. This is mostly rubbish. Uncertainty being bad for business is a myth. Any business or investor making a decision based on the internal machinations of the Conservative Party is not thinking long-term, so alarm bells should be flashing. Uncertainty is often positive for the best businesses and investors because they can stick to their plan while others flounder. Every business would be better off if its base-case for the world was uncertainty and chaos. Just look at this quote from Warren Buffett: “The future is never clear. You pay a very high price in the stock market for a cheery consensus. Uncertainty actually is the friend of the buyer of long-term values.” The best business leaders and investors would agree with this.
If the Conservative party does want to get rid of any uncertainty then history suggests they would be better off voting to remove Boris Johnson as prime minister. Past internal votes on Margaret Thatcher, John Major and Theresa May have been followed by their departure soon after even when they won…(Thatcher and Major faced leadership challenges rather than no-confidence votes).
For the reason given above, I would class the outcome of today’s vote as noise rather than signal, as the path is set on Boris Johnson not being prime minister after the general election either way, it’s just a question of how we get there…
Markets in general don’t have a clue about politics. The Brexit vote and Donald Trump’s election show you that. Nonetheless, I thought it was worth pointing out that the pound strengthened this morning after Sir Graham Brady announced that enough letters had been submitted and there would be a vote on Boris Johnson’s position. This is the pound against the dollar today. You can see a spike at about 7am when journalists started reporting there would be a vote and then again at around 8am when it was confirmed….
I should also add that the FTSE 100 is currently up 1.3 per cent and the FTSE 250 1.1 per cent…
Whatever happens to Boris Johnson, levelling-up is here to stay at the top of the political agenda. The targets for levelling-up are being put into law, as previously covered by Off to Lunch, which is important. Furthermore, Labour cannot hope to win back Red Wall seats by campaigning against that agenda, nor is a successor to Boris Johnson likely to campaign on that platform either.
A chart that helps you understand the world
New car sales in May fell 20.6 per cent compared to the same month last year according to data from the Society of Motor Manufacturers and Traders. The 124,394 new cars registered in May was the second weakest performance for the month since 1992 (the worst being the pandemic-hit 2020). The market for commercial vehicles was similar. The drop in sales has been caused by a shortage of new cars due to supply chain issues (ie Covid in China, Ukraine-Russia) and weak consumer confidence. It goes without saying, but this isn’t a great sign for the health of the UK economy.
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A new book on former General Electric boss Jack Welch argues he broke capitalism and sparked worsening inequality with his ruthless focus on putting shareholders first and cutting costs. The author of that book, New York Times reporter David Gelles, has given an interview about his work in which he claims that business journalism is also broken because it has fawned over chief executives rather than holding them to account for their failings. I think the comments apply to the US more than the UK, but it’s an interesting read. (The Ink)
Amazon is launching an invitation-only ordering service where shoppers can register their interest in buying products that are out-of-stock and then be contacted about buying them when they are available. The service will initially focus on the PlayStation 5 and Xbox Series X game consoles, which have been hit with supply issues (Tech Crunch)
Equity markets were riddled with lawlessness, fraud and scams in the 1800s and early 1900s before coming under tighter regulation. Crypto markets may now be going through the same process, according to this piece by Investor Amnesia, which looks at financial lessons from history. A market that seems like the “wild west” right now could eventually be a stable, regulated place to invest – it’s not necessarily a signal of the legitimacy of the asset. (Investor Amnesia)
Two companies that floated in London with backing from David Beckham have more than halved in value since, but the footballer will still make millions of pounds (The Times, paywall)
Sales of low-alcohol and no-alcohol beers have nearly doubled from $240 million in 2016 to $454 million in 2021 in the UK, although this is still just 3.1 per cent of the country’s beer market, according to new research (Financial Times, paywall)
Trials of a four-day working week in the UK are being expanded (The Guardian)
Apple could be about to reveal its latest product - augmented reality glasses (The Guardian)
In case you missed it, Off to Lunch’s round-up of what caught our eye in the Sunday press is here.
And finally…
I was due to be at Knebworth to see Liam Gallagher on Saturday night but had to pull out due to illness (it wasn’t Covid and all is fine). This, to put it mildly, was disappointing. As someone who grew up in the north-west in the 1990s, Oasis basically provided the soundtrack to growing up. I managed to get three Oasis songs played at our wedding (my wife vetoed more) and I have sat listening to Live Forever with my two-year-old son numerous times explaining the brilliance of that song. Sad, I know. Anyway, the critics seem to have given the gig mixed reviews but people I know who were there say it was brilliant (travel issues apart). Being nostalgic and evoking days gone by often gets a bad rap, but to me this sounds a great way to spend the Saturday night of a Jubilee bank holiday weekend…
Thanks for reading. Off to Lunch will be back on Wednesday. If you want to contribute to the work of Off to Lunch, then please sign up for a paid subscription below. Alternatively, please just spread the word!
Graham