Ian Cowie really is plumbing the depths here. I should not read such stuff on so much caffeine.  Imagine a starving Jack Russell being electroprodded by a toddler and you are nowhere near the level of irritation.   Here is Cowie’s thinking, to put it kindly:

The last time a British election failed to produce a decisive result, in February, 1974, the FTSE All Share Index – a broad measure of the stock market – fell nearly 15pc in a month and ended the year more than 50pc below where it began.

then he notices

Of course, the past is not necessarily a guide to the future and many problems present 36 years ago are absent today. For example, there are few strikes, no oil crisis and electricity supplies are uninterrupted. More than two thirds of earnings reported by companies listed in London are generated overseas today, compared with less than 10pc in 1974.

In which case, perhaps the right reaction is “I should stop writing this column now”.   I believe we may have had divided Parliaments the 1660s too.  Shall we look up the stock market from then as well?  But, no, Cowie ploughs on:

But human nature and market psychology have changed little. Ted Scott, director of UK strategy at F&C Investments, which runs some of Britain’s biggest investment trusts, said: “The initial reaction of both the equity and gilt markets to a hung parliament would probably be sharply negative.

What is soaring inflation, cratering profits, a rampant labour sector, a chronically inflexible and structurally unsound manufacturing sector, a government newly arrived to the difficulties of floating currency management, all of these things compared to Mighty Human Sentiment?  In the 1970s, some companies fell to a Price Earnings ratio of about THREE. If the stock market ‘crashed’ 15% now, it would still be about 40% above the lows of March 2009.

He goes on to repeat a bunch of outofdate nonsense about ‘defending the pound’ (why?  We want exports.  Osborne wants exports! That’s why you Telegraph types hate the Euro!) and mortgage rates soaring (again, why?  With long term inflation expectations at 3%  or so, why?   The article gets even worse when he wheels out Ros Altmann to do her usual pro-savers pitch: you know, how we might have been better off if interest rates had been 5% instead of 1% (imagine what the static money supply would have been in that case.  Down 10% perhaps?  Why do people always use the Telegraph to post their entries for the Worst Economic Advice of the Year competition?)

It looks like Hamish McRae is more sensible here: “The election will not ultimately determine the route of Britain’s recovery”

we tend to overstate the significance of politics in determining economic outcomes. Of course the election matters; it just does not matter as much as it might seem . . . ome things have become clearer over the past couple of weeks. The most important is that the global recovery is broadening. The data is still uneven but then it is always uneven at this stage of the cycle. Corporate confidence in both the US and Europe seems more secure and I find that particularly comforting because many people in the business community were really quite frightened by the collapse of demand they found themselves confronting..

His column remains fixed on the World Economy.

Come back to the implications for financial markets. We can be reasonably sure of the recovery. We know that the world’s big companies have made big advances to their performance and efficiency. We have seen this confidence reflected in share prices.

How very very different from the 1970s.  Pity for the Telegraph, who seem to spend an inordinate amount of their time fantasizing about us being back there.

UPDATE: A friend and FTE reader sends me a link to David Marquand, which puts it plainly:

There was a hung Parliament in 1974, but the circumstances then were so different from ours that it has no useful lessons for today.

Instead we get the 1924 precedents for hung parliaments.  How did it go?

Baldwin made it clear that he would have no truck with any anti-Labour deal. Asquith did the same. As the leader of the largest party, Baldwin rightly stayed on as Prime Minister until the new Parliament met in January 1924. His Government drew up a King’s Speech. TheLabour and Liberal parties joined forces to vote it down. Baldwin then resigned, and the King, George V, sent for MacDonald, who formed a minority Government – the first Labour Government in British history. It turned out to be spectacularly successful abroad and boringly competent at home, an ideal combination for a party whose chief task was to prove that the country and the constitution were safe in its hands.

Read the whole fascinating article, unless you are Labour and queasy about the future.


10 thoughts on “The Telegraph tries to find worse and worse ways to scare us about a Hung Parliament

  1. What I find so surprising is that George Osborne argued until quite recently that the only reason that interest rates on government debt had not rocketed was due to the expectation of a Tory victory. Now that there is some doubt as to the election outcome with bond markets unmoved, we are being asked to believe that markets have lost their ability to adjust to expectations and will only crash in the day after the election. Can’t quite believe they are not being pulled up on this nonsense.

    1. What a very good point. Markets are forward thinking when such an interpretation suits me; when not, I predict sudden sharp movements, be warned ….

      It is the same with the “When QE ends we will see gilts really suffer” story. I am staggered at how optional is the belief in the Efficient Markets Hypothesis.

      By the way, I am not as phlegmatic as McRae – what sort of a political economist would I be if I thought the politics would have no impact? A really blinkered cutting process, against a poor European backdrop, might be murder. So too would it be if the Labour party refused to cut, even as the world economy grew – that WOULD be 1976ish.

      1. Why?

        I don’t understand where you expect spending growth to come from, Giles, if not the government.

      2. That is a miserable position for us to be in, if you are right. Coz the govt is rather indebted.

        personally, I think households can get going again to some degree. Their net wealth is still very high. The export sector, eventually. Residential construction if we can sort out the planning system. And business investment, if it gets the right signals about the future. Infrastructure investment, perhaps

      3. The government should be in debt. It’s a much better and more sustainable position than relying on household debt to drive growth, which is what we had for the last ten years. The precise quantity of govt debt should be determined by the propensity of the private sector to accumulate wealth.

  2. “More than two thirds of earnings reported by companies listed in London are generated overseas today, compared with less than 10pc in 1974.”

    Fascinating nugget showing how much the world has changed in only 40 years.

  3. With the exception of Edmund Conway the Telegraph business section is beyond parody. Liam Halligan and his emotive drivel on a Sunday is always good for a laugh.

    Tim, some of that is due to globalisation but you also have big earning oil and miners who are listed in London but most and in some cases all of their operations are abroad. Moreover, the likes of BP would not have been listed 1974.

    1. I so enjoyed quoting Halligan in my Qe piece – his Weimar Zimbabwe nonsense (though Vince has been guilty of that).

  4. “Tim, some of that is due to globalisation but you also have big earning oil and miners who are listed in London but most and in some cases all of their operations are abroad.”

    Oh, I know why…..partly it’s the globalisation of British business but more than that there’s the globalisation of The City. Sure, British companies are earning more overseas. But many opverseas companies with little or no connection to the UK are listing here. As they also do their swaps here, exchange currencies here, get banking advice here and so on.

    Which is why this wibble about the finance sector being “too large” so gets my goat. We’re just seeing the international division and specialisation of labour just as Smith and Ricardo pointed out we would/should.

    The City is no more too large than the jet engine industry is in the UK (Rolls Royce provides 30% of all such used globally.)

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