Commenting on the latest Brexit development, Deutsche Bank’s Jim Reid puts it best: “Watching the House of Commons over the last 48 hours has been a good appetiser for the final series of Game of Thrones out this April. Well we haven’t had dragons…….. yet!”
UBS’ Paul Donovan was just as laconic, commenting overnight that “the UK government survived a vote of confidence 52% to 48%. Everyone is saying things that they probably do not mean. The main opposition party leadership has not decided whether or not to back a second referendum. If anyone is still paying attention, it is probably best to stay cynical and avoid attempting to trade unforecastable events.”
And since by now it is indeed safe to say that many humans, and certainly most algos, aren’t paying attention, we present the the following rant from Bill Blain who, with regrets, has dedicated his latest “Blain’s Morning Porridge” note to lay out his thoughts on what happened this week, and what he expects will happen next.
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Blain’s Morning Porridge – 17th January 2019
“They say the Camel is a horse designed by a committee…”
Let me start with a heartfelt apology to all international investors holding UK stock, Gilts, property or sterling. We are terribly sorry
for all the confusion, noise and bluster. Brexit is a wonderful illustration of democracy in action – the worst possible form of government except for any of the alternatives. BUT! There is actually little to worry about… its process. Its just got a bit.. well.. a bit more difficult than we expected.. You are probably a little concerned about your Investments in UK Plc, (note Plc rather than Inc). You are wondering the UK, which you always assumed to be the ultimately politically stable safe-haven investment – is so divided. You may be wondering why the Mother of all Parliaments having what looks to be an emotional breakdown, and wondering why the UK seems hell-bent on self immolation.
Relax. Periodically we Brits fall out.. Wars of the Roses, Wars of Scottish, Irish and Welsh Independence, English Civil Wars, Jacobite Rebellions, Rules of Rugby vs Football, LBW Rule, Miner’s Strikes etc, but we always eventually solve it over a nice cup of tea
It wasn’t meant to be like this. It just got, well, messy. We were going to be very British about this. Shaking our heads regretfully and telling Europe: “Its not you, its us.” We assumed we’d agree the details like gentlefolk, shake hands, walk out the door and remain friends forever… and continue with our fondness for French cheese, German Cars, Spanish Holidays and whatever it is the Italians are meant to do.. while being free to enjoy Kangaroo Steaks, American Burgers and South American wines.
Not quite happening that way, but still very resolvable… ish.
The current mess is just a minor variation on our very British way of doing things. We will fudge it sooner or later. We always do. After all, that’s our defining national characteristic – muddling through till we find a solution. And, we have the advantage of being British – as Lewis Carrol said we are more than able to “believe six impossible things before breakfast..” We will “keep buggering on” Winston-style as long as it takes.. So keep buying Gilts, UK stocks, and hey, London property is looking well affordable these days (if you are a Russian oligarch..)
Be not concerned that on Tuesday you watched in shocked bewilderment as 2/3rds of our legislators screamed down our Prime Minister’s proposals to exit the Europe Union, and on Wednesday the same MP’s affirmed their confidence in her government.
Confused? Then you are in good company. These things have a way of correcting themselves. Labour party leader Jeremy Corbyn called his confidence vote too early and has united the Conservatives. Yay. Even the SNP sounded vaguely conciliatory. The Liberal chap was, is, and will remain irrelevant.
I won’t try to hide that the next few weeks are going to be difficult. Theresa May still has the near-impossible task of cobbling together a deal from the conflicting and mutually exclusive factions across parliament – not just her own fatally divided party.
As it stands, UK politics looks to be gridlocked. There is no clear majority for any of the multiple Brexit choices. At either end of the spectrum are the noisy No-Deal Brexiteers and the Looney Peoples Vote Second Referendum. In the middle we have soft-medium-hard agreed Brexit choices. (There is the added complication that once we agree what we want, we still have to get Europe to agree they want it to…, but lets ignore that for now..)
I’m fairly positive on the likely outcomes.
- It’s clear a Hard No-Deal Brexit is effectively off the table. Why? Because it’s abundantly clear the bulk of parliament will oppose it and remove it as the default option for the March 29th exit date. Whatever Jacob Rees-Mogg (the minister for the 17th Century) thinks, they are increasingly politically irrelevant – the numbers are against them.
- The same is probably true for the second referendum Peoples Vote – although politicians know it would be short-term politically popular, it would be long-term divisive, and how long before calls for a third plebiscite come in?
Like empty vessels, No Deal Brexiteers and Remoaners will make an awful lot of noise. Cromwell would have known how to deal with them….
What are the chances of a compromise? May knows she can probably muster 210 non Hard Brexit Tory MPs (let’s agree there are 120 Tory Hard Brexiteers and Ardent Remainers). That means she has to attract at least 115 MPs from other parties. Whether she can find that number (over half the parliamentary Labour Party) is open to question. Enough Labour MPs despise Corbyn to make it happen – but will they risk deselection? Perhaps Corbyn can still be brought on side – although it would probably mean the Conservative party splitting. (What’s not to like about that?)
May has to craft an acceptable Parsons Egg of soft-to-medium Brexit from the middle ground. It’s not binary – she needs a convention type approach (which her non-listening personality will struggle to handle) – to achieve a workable compromise. It will be a soft-medium Brexit that will all can agree on – which will inevitably lead to something like a Norway style customs union and single market membership.
But, that’s just my view.. So much that can go wrong and I’m probably as misguided as anyone else.. But, the bottom line is a No-Deal won’t happen – and that’s why UK markets were a screaming buy!
I must try to focus back on markets tomorrow, this political tosh is just too difficult.
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