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Politicians habitually look backwards, offering policies designed for the past. Strangely enough, investors are prone to the same practice, buying past performance figures rather than thinking about future probabilities and possibilities.
Exactly ten years ago, when people were seriously considering the prospect of a Labour Government, we published Newsletter 27 "Labour's Lost loves", debunking the widely held view that Labour would create inflation. Of course, we were right and the standard investment advice of "buy index-linked Gilts" proved to be utterly inappropriate. We said then that you would see countless new Gilts sold at higher prices as interest rates were forced down, which is pretty much what happened.
The next election will either see Blair the prisoner of his left wingers, with a small majority in Parliament, or perhaps leading the largest party in a hung parliament. Other outcomes are possible but much less likely. Either of the likely outcomes will create uncertainty. Yet there are deeper issues. Britain is facing a consumer led recession, as people cut back under the pressure of debt service costs. Britain also faces the inevitable tax rises as the true cost of a bloated public sector emerges.
Now this may surprise you, but it does not matter much to markets who is elected. The global economy is turning down, Britain has its own pressures to face, and the easy answer of "have some more credit" is fast running out of steam. Deflation will be back in the business pages in a matter of months, irrespective of the outcome of Britain's General Election.
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