David Laws has been lost as the UK’s Chief Secretary of the Treasury.  And verily there was much gnashing and wailing of teeth.  According to George Osborne, the Chancellor of the Exchequer, this was the job that David Laws was “put on earth to do”.

So what does this mean for the markets, particularly for CFD traders and hedge betters?  In the short and long term not a lot, but it could be quite significant in the medium term.

In the long term the government is either intent on cutting the budget deficit and keeping the UK government credit worthy, or it is not.  The last Labour government did have signs that it was prepared to throw away Britain’s credit rating in order to get the next election, but this was temporary.  The British government may very well inflate away a lot of the debt, but it will not formally default.  The bond markets will keep the government straight.

In the short term the markets know this.  David Laws is to this extent simply interchangeable with whoever else is there.  The markets in the short term will look at the long term, and be happy.

It is the medium term that matters.  In the medium term we are putting someone in as Chief Secretary of the Treasury who has not done anything remotely financial since he studied economics as a minor subject at university.

Unlike Laws Danny Alexander is a political animal.  He will have to make a lot of financial decisions.  It is a good idea to bet that he will get a lot of the decisions wrong in the short term as he makes the political decision first.

After all if the bond markets are going to keep the British government straight then they will need to administer some punishments as they do it.

So when there’s a difficult decision coming up then it may be a good idea to bet that they will take the wrong decision at first.  There will be plenty of opportunities to short gilts and sterling in the next few years.

Last Updated: June 3rd, 2010