“Of course the trouble with infrastructure spending is it takes years to have any impact because of the amount of planning that is involved,” he continued.
“The Cross Rail in London is one of Europe’s biggest construction projects. It has been years in the making and so far, it has only added 0.2% to the GDP.”
Still, Buxton remains adamant that “the secret policy now is to get some inflation” because “we all know we are never going to pay the debt back in real terms.”
Following the shift away from monetary policy toward fiscal stimulus in the UK, Buxton contends unloved stocks like domestically focused financials will start to look more attractive relative to consumer staple stocks that were particularly popular after the EU referendum.
“During the financial crisis, British American Tobacco (BAT) performed stronger than Barclays, but the difference in valuation is even more extreme now despite eight years of rebuilding capital, deleveraging and improving returns,” said Buxton.
“Yet the market would still rather own BAT. The relative valuation is very skewed. Clearly BAT is a big dollar earner but Barclays is trading at half book value so I think you are going to make more money over the next three years from the latter.
“These great consumer staple bond proxy names are not delivering vast rates of growth. They are valued where they are because of the certainty and confidence investors have got in even modest levels of growth.
“When you get steeper yield curves, I can’t see that those valuations are going to be maintained,” he added.