Comment and opinion for retail investors in the UK
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What! I hear that reaction as the UK weather simmers away at heat wave levels.
I am referring to the comment I posted on social media in the very early hours of the day when the Brexit referendum vote result was known – “The turkeys have voted for Christmas”.
In religious calendar terms, we are now in Advent and the first window on your calendar reveals the resignation of the entire Brexit department ministry.
What I meant by my comment was that the people who had the strongest grievance with the EU (for example, over open borders and immigration or the Common Agricultural Policy or social rights legislation), are not in fact the editor or owner of the Daily Mail nor Tory MPs who went to Eton, but actually ordinary working people who can’t get to see the doctor in East Anglia, or farmers in Wales or Dorset who don’t understand why the EU “dictates’ how they ought to farm, or Labour party members seeing wages suppressed by the employment of Eastern European workers. These people would be worse off because of the certain economic consequences of breaking up the Single Market and also in my judgement at risk of being worse off because of the substitution of US style capitalism for the more socially balanced European version.
I think the fact that the ‘turkey farmers’, the big international employers, are now telling bluntly how difficult it will be to operate out of the UK without a customs union is some evidence that my assessment was correct. There are other proofs that are beyond the scope of this post.
As I have written before, the long term interests of the UK (or at least England) might just be best served by Brexit (although I would not bet on it). As J M Keynes said – in the long run we are all dead.
To be clear (I could not resist using Mrs May’s word whisker), I do NOT believe that the EU does not need substantial reform, as do most of the members of the European parliament (except curiously the right wing parties who one assumes are all expecting it to disintegrate completely!). The Commission is far too powerful, agricultural policy is at times bonkers and the bureaucracy needs trimming. Unlimited immigration has undesirable social consequences: that is self evident (ask any Italian if you want another viewpoint). But equally the idea of the EU has huge merit in economic, social and peace keeping terms. So I would personally have preferred a more Maggie Thatcher approach – use British clout to get genuine reform from within.
Since I posted my highly pessimistic reaction to the vote, things have got worse. Many billions have been withdrawn from UK investment funds. The Conservative party looks to be heading towards the disintegration that John Major staved off with difficulty (ultimately assisted by one A Blair!) and which David Cameron naively tried to fix with the referendum proposal. Instead of UKIP, we now have the UKIP wing of the Tory party.
This represents political risk at the highest level for investors because this time the consequences of the politics are hard wired to the economics and the business effects. Boris may want to abuse business, but big business runs the capitalist world – not him. His ignoring business suggests to me he may be descended from King Knut.
I am not entirely pessimistic for investments in the UK in that what I am expecting is disruption, some specific negative consequences but then a rebalancing of the flows of business capital. Jobs will leave the UK for Eastern Europe (I can already see that from where I sit now) and that will reduce immigration from the more developed places like Poland, Czech Republic, Hungary and the Baltic States as the better educated citizens of those countries get jobs at home. Possibly some deals will be done with the US that might not have been done before, but I would expect that to be a matter of the UK buying more stuff from the US, not better jobs for UK workers – anyone who has worked on employee benefits for US owned businesses knows well that they screw every ounce of value from their employees.
Very close attention needs to be paid to portfolio composition and stock selection. Places like Japan and India that have large internal markets and are not hugely impacted by UK and US politics might be safer investment havens than would commonly be the case!
I will no doubt return to this subject over the coming weeks.
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