I think that Margaret Thatcher was good for Britain.
That probably doesn’t come as a great surprise to you. I suspect that a majority of Money Morning readers would agree.
And if you don’t, I’m not going to be able to convince you now, 23 years on from the end of her career as prime minister, that she’s not solely responsible for all that’s wrong with the world today.
We’ll be running through her legacy in MoneyWeek magazine this week, so I’m not going to do it here.
Instead – while it might sound a little odd – I want to look at one important lesson Thatcher’s career can tell us about investment trends…
How much did Maggie really matter?
Margaret Thatcher’s death has, of course, generated acres of press coverage.
There are the usual suspects, either calling for her beatification or queuing up to sling mud. And there’s the occasional more nuanced piece.
But to me, the most interesting question is: “How much of what happened under Thatcher would have happened anyway?”
On the one hand, you can see that some of Thatcher’s critics would like to rewrite history to diminish her role. The argument in this instance goes that Britain was at such a low ebb, change was inevitable. She just happened to be the one in charge when it came about.
On the other hand, it’s unquestionable that in 1979, Britain was indeed at a massive low point. As Allister Heath puts it in City AM, “she inherited a basket case of an economy, crippled by obsolete state-owned firms, a legacy of decades of poor policies.”
On the BBC, Dominic Sandbrook adds that, “over the course of the 1970s, two prime ministers, Edward Heath and James Callaghan, had been broken by the trade unions… Callaghan himself told his Labour colleagues: ‘If I were a young man, I would emigrate.’”
How do you marry up these two points of view? The obvious answer is that only Thatcher had the determination and the will power to achieve what she did. The Falklands War proved that.
But she only gained power in the first place because Britain had reached a point where voters were so desperate for change that – in far more sexist times – they’d even vote for a woman.
If something can’t go on, it won’t
What does this tell us about investment?
Many of the biggest opportunities in investment happen at extremes. If something can’t go on, then it won’t.
This applies to investment bubbles, from the 17th century Dutch tulip craze to the tech bubble and the property bubble. But it also applies to entire economies.
In 1979, the British people were sick of the direction of the economy. It couldn’t go on. So they voted for change. Change is what they got. One of the best ‘buy and hold’ investments to buy around about the time that Thatcher took power would have been UK gilts.
According to the Barclays Equity Gilts study, such a holding would have returned you just over 6% a year in real terms (ie, after inflation) if you’d bought and reinvested income since then.
Where are we seeing similar change today? Well, last year, the Japanese people finally voted for change, after decades of stagnation and deflation. Change is what they’re getting. So far, Japanese equities have been the big beneficiary of the new regime. We’d keep buying, because this change has a lot further to go.
Where else? Europe is the other big one. Europe’s voters haven’t yet decided that enough is enough, but they’re getting close. They know that they are fed up with the people leading them, but they haven’t yet grasped that the real problem is the euro.
At some point, the voters will either force the European Central Bank (ECB) to print money like the rest of the world’s big central banks. Or one of them will vote to leave the euro – possibly even Germany. So keep an eye out for the rise of anti-euro parties, particularly in the bigger eurozone nations. And in the meantime, stock up on cheaper eurozone stocks, because one way or the other, this will lead to currency weakness.
Elsewhere, this is another reason we’re sceptical on China. Democracy, capitalism and markets do not prevent economic and social situations from reaching extremes. But that’s not what they’re designed to do.
The real benefit of democracy and markets is that they allow change to happen relatively bloodlessly. The ballot box is a much more efficient way of getting rid of politicians than the guillotine.
Right now, supermarkets in the UK are putting limits on the amount of baby milk powder that people can buy, because so much is being sent to China. People there don’t trust the authorities because of food scandals over the years.
It’s hardly a burgeoning revolution. But if a growing middle class doesn’t feel it can trust its leaders to keep their children safe, they’re going to demand change. And eventually, change is what they’ll get. But it could be a lot more disruptive to affect than in the UK or even Europe.
Finally, what about Britain? We’ve been lulled into something of a false sense of security by the Bank of England’s ability to hold down interest rates. But given the sheer level of debt our economy has incurred (much of it in our banking sector, like Cyprus and Iceland), something has to change.
The question is, what will it take to wake us up? One thing’s for sure, I wouldn’t be touching UK gilts (conventional ones at least) with a ten-foot bargepole today.
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