Opinion: The downfall of Liz Truss — can it help your portfolio?

UK government bond rates fell.

The FTSE250

MCX

UK Small and Medium Business Index, a good beacon for the domestic economy, rose nearly 1%. The FTSE100

UKX

Index of large caps, including many multinational companies, rose 0.3%.

I wrote last week that I think the current absurd chaos in London is an enticing time for US investors to add some UK equity funds to their bond portfolios.

The demise of Truss doesn’t make me change my mind. On the contrary.

If the best time to invest is when there is metaphorically “blood in the streets,” as Nathan Rothschild allegedly said, then it is right now. And if the best time to buy is the “maximum pessimism” moment, try to find a more pessimistic moment for the UK than the moment.

Thanks to BofA Securities’ latest fund manager survey, we’ve already heard that the people running the world’s pension funds would rather suck on a lemon than own UK stocks.

And FactSet reports that the UK stock market is now trading at just nine times forward earnings, with a dividend yield of 4.5%. It’s cheap in every way.

As the headlines focus on today’s chaotic chaos, the markets are doing what they normally do – looking ahead.

Truss was always a ridiculous and impossible prime minister. Anyone could have gone to YouTube and watched footage of their past public performances. These have included an utterly goofy speech denouncing foreign cheese, a statement in the House of Commons that barking dogs “help deter drones” and interviews as painful and torturous as Sarah Palin’s infamous sit-down with Katie Couric. The fact that 81,326 base members of the British Conservative Party still voted for her is an indictment against her. Totally unable to do the job, Truss was promoted well beyond her abilities. This was cruel to her, as it was to everyone else.

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But now it’s over.

Whoever replaces them will be better. It could be former Chancellor of the Exchequer Rishi Sunak or the smooth if inexperienced Cabinet Secretary Penny Mordaunt. Or it could be the dignified if boring Labor leader Sir Keir Starmer after a general election.

(Despite the news, it’s certainly very unlikely to be Boris Johnson. This election is likely to be driven by Conservative MPs, not the party’s grassroots, and they’re certainly fed up with him.)

In other words, London is (almost certainly) past the peak of political chaos. Unless the ruling Conservative Party stabilizes the ship, calls for immediate general elections – and a Labor government – ​​will be irresistible.

According to the dominant media narrative, the crisis that swept through Britain last month and brought down Truss was allegedly due to Britain’s precarious and fragile public finances.

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Standing between the media and his favorite narrative is about as unwise as standing between a rottweiler and his favorite boner. Nonetheless, this particular story is simplistic at best and dead wrong at worst.

For example, the International Monetary Fund reports that the UK has some of the better budget figures in the G-7 group of large, rich and free economies. Its national debt is about 75% of gross domestic product: far less than that of France, Italy, Japan – or the USA. And its budget deficits are also among the lowest: even lower than Germany’s and half that of the United States

Yes, the UK relies on foreign investors to fund its deficits. Still, the UK government pays lower interest rates on its bonds than the US. (Only briefly, during the panic a few weeks ago, did that reverse.) If it were considered a major financial risk, it would have to pay higher interest rates, not lower ones.

It’s hard to avoid the conclusion that the panic was more due to the incompetence of Truss and her shoddy government – combined with the dangerous leverage of some UK-based pension funds.

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Stocks listed in London make up 15% of the standard stock market index used by many ‘international’ equity funds and ETFs, the MSCI EAFE (‘Europe, Australasia and Far East’) index. They make up a staggering 21% of the stocks in the iShares MSCI EAFE Value ETF

EFV

,
a fund focused on the cheapest international stocks. Wealth manager Rob Arnott has called UK equities “the trade of the decade”. (And they were higher then.)

Every time I visit the UK the general level of incompetence drives me nuts. I can see it as soon as I step off the plane at Heathrow. So I’m not inherently bullish on the economy or the stock market.

On the other hand, shares are looking pretty cheap — and many of them will likely attract foreign buyers if they stay that way. cheap is good

None of this suggests that the worst is behind the London stock market. That may not be true in London or anywhere else. The world is certainly heading for a recession next year, and many number-crunchers on Wall Street argue that stock markets still haven’t priced that in.

But stock prices in London have already priced in a lot more bad news than anywhere else, particularly in the US

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