Investing Lessons Learned from the United Kingdom

If you are not yet aware, I am English and until the spring of 2020, I returned to the UK on a regular basis to stay in touch with family and friends there. Covid caused a hiatus, but last week I finally managed a visit. It was shorter than I would like, but I did spend time with a lot of different people, from many parts of the country, which makes me feel that I got a pretty good handle on things there right now. There are a few things I learned that are relevant to investors back here in the States.

First and foremost, it brought home to me that everyone blames local conditions for supply chain issues, labor shortages, and inflation, but that they are all essentially global concerns. In the United States, it is popular to blame either Joe Biden or Donald Trump, depending on your politics, or to lay the blame at the feet of the Fed. In the UK, the big divide is still along the lines of those pro- and anti-Brexit, with the antis blaming that move for everything. Those who supported Britain’s withdrawal from the EU, on the other hand, are more inclined to blame Europe for restricting supply, and the ECB for keeping rates too low.

All of that, though, is a search for a politically convenient scapegoat. The simple fact is that the global economy underwent a disruption in 2020 unlike any ever seen when the entire world switched off for a while, and that has produced unforeseeable long-term effects; a kind of economic long haul covid if you will. There is no doubt that Brexit didn’t help matters in the UK, or that fiscal and monetary stimulus that went on too long in the U.S. contributed to the 8%+ inflation here, but the basic problem was not in the control of politicians or central banks. It is systemic, not cyclical, or political.

That makes me realize that while there is no easy fix, there are a couple of things that have to change before a real recovery can start. Until China gets back to full production and some of the protectionist policies adopted here and elsewhere are completely abandoned, the problem will remain. That, in turn, means that the Fed, Bank of England and even, belatedly the European Central Bank, will be applying the brakes for some time, and maybe even more sharply than are currently priced into markets.

Another thing that struck me as I went about my daily business in the UK was that Covid itself is now seen as history there. There are no pandemic-related restrictions anywhere, and those that did exist are now seen as a bit silly, if nice in a community-building kind of way. People are getting back to flying and vacationing in a big way, inflation notwithstanding. The enthusiastic, whole-hearted return to leisure activities in Britain stood in contrast to a more hesitant attitude here in America, and that suggests that there is still a lot of growth to come for travel and leisure stocks such as hotel groups and airlines, as well as online booking sites.

It is obviously a tiny sample size, but my flights in both directions were packed, despite sky high ticket prices. If that is true elsewhere too, then the international airlines won’t be hit too hard by high fuel prices.

That doesn’t mean, however, that I will be piling into those stocks, or hotels, or anything else, any time soon. The big picture problem of inflation that necessitates a heavy-handed response from central banks is still the biggest influence on markets around the globe. Whether that proves to actually cause a recession or just the fear of one, it will, either way, keep prices under pressure for a while. When we do bounce back, travel and leisure stocks will lead the charge, but for now, I will keep sitting on my hands.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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