Americans meddling in foreign elections

I admire America, but it’s disheartening to see it interfere in other nations’ democratic processes. Take New Zealand’s Bird of the Century election - John Oliver, an Englishman posing as an American, is pushing for the Puteketeke to win. This is ridiculous. Clearly, the Kakapo should win - it’s an extraordinary, charismatic and endangered bird known for being the oldest and fattest parrot.

This is sheer fowl play, America.

Record voter turnout expected in 2024

The best political commentary these days seems to be satire or silence. But with 2024 approaching, attention is mandatory. Forty countries, representing 41% of the global population and 42% of its GDP, will hold elections (Bloomberg). The outcomes could have far-reaching impacts, especially in pivotal nations like Taiwan (will set the tone of Sino-US relations), Pakistan (think US-Middle East plans), Indonesia and Venezuela (resources) South Africa (resources and possibly ANC minority government), India, the UK, and of course the USA itself. Investors should take note: changes in these elections could significantly influence the markets, so it makes sense to better understand the likelihood of change, and market implications thereof.  Robert Armstrong has attempted to answer this for the US and I’ve had a crack at the UK in terms of Labour.

Tough week. TGIF (thank goodness it’s Friday).

Continuity or change?

Polls hint at government changes in both the US and UK. While Trump’s lead is slim and might not last, The UK opposition Labour Party’s lead looks enduring, with odds of a change of government here standing currently at well over +50% (Eurasia Group have it as over 90%). Markets typically dread uncertainty, yet the UK seems to lean towards a more predictable change. Labour’s cautious approach to policy change suggests more continuity than upheaval. But remember, post-election realities can differ – it’s politics, after all.

Inside Labour’s economic plans

Diving into Labour’s policies, I switched to The Guardian, bought Labour Shadow Chancellor Rachel Reeves’ book: The Women Who Made Modern Economics, engaged with various experts like Gavyn Davies, former Goldman Sach’s Chief Economist and Adviser to the Exchequer, canvassed my own colleagues and one poor lady on the 5:45pm train out of Paddington.

So, what were the takeaways, should Labour win?

I’m stuffed

If you have kids at private school, are a non-dom tax payer, a Private Equity baron, a pensioner or about to die with a heap of assets, look out, Labour are coming for your tax exemptions (full disclosure, I’m not retiring, expecting to die or sadly, a PE baron). But I’m not sure street protests or violins will come out against any of these issues, nor may the market care. Labour have no plans for major tax hikes, subtle increases are likely, possibly alongside higher spending. However, if framed as ‘productive investment’ the markets might respond favourably. I would brace for a wealth by stealth tax through council tax bands, a carbon border tax (see Europe), and the removal of certain inheritance tax exemptions (e.g. business/farming assets). But nothing crazy. And certainly nothing to make you want to sell, certainly not at these valuations. And so, in the absence of future event risk, I would still buy Britain before they buy themselves (see buybacks have reached a record level) or either the Canadians or PE do. If anything, there could be reason for very cautious optimism (my emphasis).

Ambitious goals

Labour’s first goal is ambitious: to secure the highest sustained growth in the G7. Its approach leans towards a more robust industrial policy, green investments, and possibly a National Wealth Fund, echoing some of France’s successful strategies that we’ve discussed before (and reproduced below). Rachel Reeves believes “Globalisation is dead” although the need to “friendshore”, especially when faced with a common adversary (climate/Russia etc), could see closer relations with the EU – a prospect which could close the valuation gap that opened after Brexit (only Poland, Austria and Italy are now cheaper than the FTSE). Her £28B Green Investment Fund, nearly 4x bigger than the Conservatives, is straight out of the Biden handbook. Combined with support for homebuilding and construction (via easing planning laws), full depreciation on capex (assuming this stays) and it seems Labour might be hoping to ignite a manufacturing and capex resurgence – areas of the economy that have laid dormant since Brexit. Sounds good. In theory. Whether it can survive initial contact with the enemy (i.e. reality) only time will tell.

Reviving an equity culture

I have heard Rachel Reeves talk on this topic, and she was supportive of current government attempts to improve domestic ownership of UK growth assets (albeit silent on the fact one of her would-be predecessors, Gordon Brown, was part of the problem when abolishing the dividend tax credit in 1999, which I would love to see restored). That aside, it seems she might be going a step further than the Conservatives by creating a National Wealth Fund: a funding vehicle that takes direct stakes in UK growth businesses allowing the public to share in any success with the private sector, while supporting investment, innovation. And jobs. The remit is for green investment only (clean steel, gigafactories, etc.) The plan is to raise £8B that will invest £1 for every £3 invested by the private sector and I suspect will leverage the access points already created by Innovate UK which focuses on similar end-markets and investment goals. Interestingly, this idea echoes what the French did a decade ago and what we suggested in an edition of The Weekender back in June. See below: French flair.

French flair

When faced with similar issues in 2012 (namely an over reliance of debt/debt-finance) and to promote an equity/risk taking culture, BPI France was set-up, staffed by successful business leaders and entrepreneurs and given the mandate to become a French Investment Bank for French assets, a one-stop-shop for entrepreneurs. Through direct investment and loans, education, subsidised consultancy, coaching and mentorship they’ve nurtured a thriving entrepreneurial risk culture in France. They get ‘first dibs’ on great ideas and so can provide critical access to an ecosystem of venture capital investors and other limited partners looking to co-invest (think fee revenue) and of course, they generate significant profits, more than €1bn in both 2020 and 2021. Could we not take the idea proposed by the previous Lord Mayor of a UK Future Growth Fund, perhaps combined with Innovate UK, inject it with public capital in the form of equity (avoiding fiduciary conflicts), ensure sufficient working capital to attract real talent (with a track record) and then go find the best Britain has to offer?

Musk, Sunak, and the future of AI

I finish this week with two predictions. The first is Elon Musk is about to release AI Robots that are so humanlike, so empathetic, so funny they revolutionize care for the elderly and address youth loneliness, two of the greatest challenges facing humankind. My second prediction: Prime Minister Rishi Sunak will help him do it.

Musk’s fascination with AI is possibly fueled by his admiration for the BBC series, “The Hitchhiker’s Guide to the Galaxy”. The eponymous Guide is a sort of electronic encyclopedia for interstellar travelers, known for its quirky often humorous entries, with advice on any number of things including to “Don’t Panic” and “42 is the answer to the ultimate question of life”. It appears Elon Musk was such a fan he’s modelled his AI chatbot Grok after it. And what’s interesting is Grok will also be quirky, humorous and maybe even a little sarcastic. Why? Because it is being trained on the largest repository of human emotions known to man: X.

This is smart.

It provides a glimpse into Musk’s original motivations when buying X (then known as Twitter). X is updated in real-time and provides the most fertile training for any AI to learn things that make us uniquely human: our emotions. And AI only needs to create the illusion of sentience, of empathy and of caring to become ‘our friend’. At least this is Musk’s belief which he alluded to during his conversation with Rishi Sunak last week. And as Grok learns to control its ‘emotions’, combined with a kill-switch, then this could pave the way for his humanoids to become, well, more human. And for Rishi to one day join the revolution and not just fix one of the UK’s biggest problems. But the world’s too.

You heard it here first.