“We all know what to do,” Jean-Claude Juncker, the former president of the European Commission, once said, “but we don’t know how to get re-elected once we have done it.” The events of last year showed that he and many of the world economic pundits were wrong. Javier Milei was elected president of Argentina in 2023 on a radical free-market platform to resolve his country’s disastrous economic and monetary record. There followed a blizzard of measures of reform, deregulation and spending cuts, which, surprisingly quickly, yielded dramatic results: a collapse in the rate of inflation, a budget surplus, an economic boom and a sharp fall in poverty. But would he be rewarded politically?
Against the expectations of the international media and pundits worldwide, his party won a decisive victory in the October congressional elections and he looks well set to be re-elected in 2027. Not only can tough medicine yield results remarkably quickly, but the political backlash Juncker despaired of turns out to be a myth.
Donald Trump was inaugurated as US president in January and there followed another blizzard of measures that the establishment confidently predicted would be economically, socially and legally disastrous. Yet a year later the economy is growing strongly, inflation is moderate and interest rates are coming down. There are strong signs that the public-sector debt, far from being on a path of explosive growth, is coming under control, with the fiscal deficit falling fast, despite seemingly reckless tax cuts early in the year.
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The lesson for market-friendly new governments is, in the words of Carl von Clausewitz, “no leader has ever become great without audacity”; or, as Franklin Roosevelt said, “I don’t have a recipe for success, but I do have one for failure: try to please everybody”. Britain’s opposition parties appear to have taken on board the need for speed and decisiveness in government, and to be prepared to ride roughshod over the establishment.
Pundits are obsessed with the “magnificent seven” – bet on the “impressive 493” instead
However, those expecting a gilt-market crisis to force change may be disappointed. Yields on US Treasury and European government bonds have remained subdued. If the US fiscal deficit continues to drop, US bond yields could even fall. Bond investors would probably see a jump in yields in the UK as a long-term buying opportunity.
The need to take dire forecasts with a large pinch of salt has rarely been as clear as in 2025. Gloom-laden warnings from eminent pundits about “bubbles” and “impending crashes” have been a regular feature of 2025’s bull market, but reports of the death of the boom may have been exaggerated. Instead, global equity markets returned 13.2% in sterling in 2025, although the 9.5% fall in the dollar meant that the US (+9.8%) significantly underperformed the rest of the world, notably the UK (+24%). What explains the pessimism? Bad news and views have always been more popular with Britain’s media than good news.
While British pundits are still obsessed with the S&P 500’s “magnificent seven”, which have led the US and thereby world markets higher in recent years, Ed Yardeni, who first coined the term, expects the market to rotate towards the “impressive 493”. That is already happening; only Alphabet made it into the top-40 performers in the S&P 500. In 2026, investors might do better to listen to optimists such as Yardeni rather than the doom-mongers.
UK interest rates were slashed four times in 2025 and twice in the second half of 2024, yet the cuts had no economic impact. Only 30% of UK households now have a mortgage and the large majority of those are fixed-rate. Those fixed rates are set by financial markets rather than the Bank of England, and the response of bond markets to interest-rate cuts has become perverse. Cuts therefore have little effect on demand for house-buying or housebuilding, and the 2008 financial crisis destroyed consumers’ and businesses’ appetite for credit.
The media, the politicians and financial commentators still pay lip-service to the “importance” of the Bank of England, its independence from political influence and the interest rates it sets, but 2025 showed its economic irrelevance. The biggest risk is that it resorts to printing money to fund the government’s fiscal deficit; we must hope that it learned its lesson from the inflation it caused in, and subsequent to, the pandemic.
Forget puntids – listen to your better half
The best lesson for 2026 comes from my wife, Judith. On a trawl through the antique shops in Barnard Castle three or four years ago, her eyes alighted on a pair of solid silver Mappin & Webb Edwardian candlesticks. I warned her that nobody was interested in buying silverware any longer and that the price of silver had been flat for decades, but she was only interested in the aesthetic appeal and how they would fit into our house. She negotiated the price down to £500 for the pair.
I eventually weighed them on Christmas Eve; 1kg each! At $70 an ounce, that represents a sevenfold return. The lesson is that the best investment is something you buy for its intrinsic appeal, not for what it might be worth in the future.
Investing in shares and bonds is a means to an end, not an end in itself. Don’t forget to spend your gains.
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