How will the UK election impact on your investments?

Goldman Sachs would have you believe that the UK election result, and a possible hung parliament with no single party in control, is already discounted by financial markets. This is horrendous complacency.

Yes, markets accurately reflect all available information. But General Elections distort all available information, and most cruelly so to deceive the electorate. Can we imagine for a moment that the British public is being informed about the apocalyptic depth of the economic crisis facing the country?

Brown’s deception

Gordon Brown is the biggest deceiver. His clever argument is that the recovery is too fragile to even think about spending cuts. The other two parties dare not frighten the electorate too much so they largely keep mum. They cannot present the reality either.

It is left to fringe commentators to suggest that an early recourse to the IMF might be advisable or that interest rates might surge dramatically as soon as next month. Certainly whoever is elected, or forms a government is going to have to disappoint the electorate very soon and in a fashion not likely to enhance the standing of democracy or politicians.

Given that the media is largely complicit in this gross deception then the fall-out from the election this time is going to be unusually unpleasant for investors.

Home buyers will soon face much higher mortgage payments. Low interest rates have been the only thing sustaining high UK house prices. They will therefore have another substantial fall. That is bad for the banking sector, already largely in public ownership from the last financial collapse.

Stock market crash

Share prices will also fall. Again low interest rates are the only thing sustaining relatively high valuation levels. How otherwise would UK share prices be back to pre-crisis levels with almost no recovery in GDP?

And what about UK treasury bonds? Again it is only the artificial, and known to be unsustainable, low levels of interest rates that keep bond prices high, ergo they must fall too. Commentators say they do not understand the UK’s triple-A rating.

So it is impossible to conclude anything other than that the UK election night will be like the boy taking his finger out of the dyke and allowing the flood waters to open. How bad it will get, and how low it will go will be the subject of subsequent articles for many months, possibly years.