Opinion: Liz Truss No – Why It Might Be Good For Your 401(k)

British Pound rose after news of Liz Truss price drop. (It is currently the best performing coin of the last month, if you can believe it).

UK government bond yields fell.

FTSE 250

Britain’s small and medium-sized companies index, a good support for the domestic economy, rose nearly 1%. FTSE 100
+ 0.37%

Large-cap indexes, which include many multinationals, rose 0.3%.

Last week I wrote that I think the current absurd chaos in London is a hot time for US investors to add some UK equity funds into their retirement portfolio.

Truss’ demise didn’t change my mind. Completely opposite.

If the best time to invest is when there’s a metaphorical “blood on the road,” as Nathan Rothschild put it, it’s there right now. And if the best time to buy is at “maximum pessimism”, then try to find a more pessimistic time for the UK than it is now.

We already know, thanks to the most recent message Survey of fund managers BofA Securitiesthat the people who run the world’s pension funds would rather suck on a lemon than own British stocks.

And FactSet reports that the UK stock market is now trading at nine times forecasts, with a dividend yield of 4.5%. Cheap by all means.

While the news headlines are focusing on today’s appalling chaos, the markets are doing what they usually do – looking ahead.

Truss has always been an absurd and impossible prime minister. Anyone can go to YouTube and watch clips of her public appearances. These include a completely goofy speech denouncing foreign cheese, a statement in the House of Commons that barking dogs “help deter drones” and painful and horrifying interviews like Sarah Palin’s infamous sit-down with Katie Couric. The 81,326 root members of Britain’s Conservatives voted for her as an indictment of them nonetheless. Truss was completely incapable of doing the job, and was promoted beyond her capabilities. This is cruel to her, as well as everyone else.

But now it’s over.

Whoever replaces her will be better. It could be the former Chancellor of the Exchequer Rishi Sunak or the smooth cabinet minister, if inexperienced, Penny Mordaunt. Or it could be, after a general election, the worthy if dull Labor Party leader, Sir Keir Starmer.

(Despite the news, it is certainly highly unlikely that it is Boris Johnson. The choice could be determined by Conservative MPs not the party establishment and they certainly have had enough of him. )

In other words: London has (almost certainly) weathered its peak of political turmoil. If the ruling Conservatives fail to stabilize the ship, calls for an immediate general election — and a Labor government — will be irresistible.

According to popular media reports, the crisis engulfed Britain over the past month and brought Truss to the ground, attributed to Britain’s poverty and fragile government finances.

Between the media and its favorite story is not as wise as between a Rottweiler and its favorite bone. However, this particular story is at best simple and at worst completely false.

For example, the International Monetary Fund reports that Britain has some of the better budgets in the G-7 group of large, wealthy and free economies. Its national debt is about 75% of gross domestic product: Much lower than that of France, Italy, Japan – or the US. And the country’s budget deficit is also the lowest: lower than Germany and half that of the US

Yes, Britain depends on foreign investors to help finance its deficits. However, the British government pays lower interest on its bonds than it does the US. (Only briefly, during the panic of a few weeks ago, that reversed.) If it were seen as a major financial risk, it would have paid a higher interest rate, not a lower one.

It’s hard to avoid concluding that the panic is more about the incompetence of Truss and her aggressive government – combined with the dangerous leverage of some UK-based pension funds.

London-listed stocks make up 15% of the benchmark stock market index used by many “international” ETFs and stock mutual funds, the MSCI EAFE (“Europe, Australia and Far East”) index. . They hold a staggering 21% of the shares in the iShares MSCI EAFE Value ETF
+ 1.84%
a fund that focuses on the cheapest international stocks. Money manager Rob Arnott has called UK stocks “trade of the decade”. (And then they were taller.)

Every time I visit the UK, the overall level of incompetence drives me crazy. I could see it as soon as I got off the plane at Heathrow. So I’m not naturally optimistic about the economy or the stock market.

The stocks, on the other hand, look pretty cheap – and many of them are likely to attract foreign buyers if they stay that way. Cheap is good.

None of this suggests that the London stock market is past its worst. That may not be true for London or anywhere else. The world is sure to enter a recession next year, and many Wall Street figures say the stock market is not yet priced in.

However, London share prices have been priced in much worse news than elsewhere, particularly in the US.


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