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A Brexit New World
By Will Myers
"Every part is a moving part, including the non-moving parts, which have now started to move."
I had originally intended for this to be a blog about the ramifications of a hard or soft Brexit, with a pseudo innuendo about which Theresa May would prefer. It’s still an interesting topic (the former, not the latter), but the problem is (which works as an allegory for the Brexit issue as a whole) that every part is a moving part, including the non-moving parts, which have now started to move.
For instance an initial argument was that Europe is only 12% of our (the UK that is) trading GDP (this is discounting our Commonwealth Trade exclusivity) and therefore we had the rest of the world to develop, everything was going to be glorious; we’ve always hated the French anyway and not only does Angela Merkel have a terrible haircut, but she can’t even pronounce her own name. Didn’t Tony Blair leave us a special relationship with those American types? And the Chinese are nice, didn’t we borrow Hong Kong for a bit? The sub-continent love us too-we gave them cricket. It’s all going to be fine. Nice and simple, some stability, and ceaseless, golden trade forever. In short, the foundation of all the pro-Brexit economic rhetoric was that we can cut the EU red tape and stride out, Miranda-esque, blinking into this brave new world.
Then Trump. (Stephano, to carry the metaphor). To run a broad and entirely generalising sweep across his foreign policy outlook, his dreadful red cap says it all. Make America Great Again. That doesn’t bode well for the UK economy (a predominantly service industry) being able to increase their trade when the most lucrative potential pre-Brexit allies are looking internally, AND for that matter creating increasingly frosty relations with our other saviours, the Chinese. To slightly go on a tangent, I genuinely feel sorry for May. She has to cosy up to the marmalade maniac as we are light on the ground with foreign allies as we speak, but being the first foreign minister to visit, the awkward holding of his tiny hand down some steps and the fact that he has been granted a state visit likely to be some 850 and 1,030 days before his two predecessors means we are (at least perceived to be) American bed fellows. Fetch the plastic sheets.
This becomes a massive relevance when we look at the difference between a “hard” and a “soft” Brexit. For the pro-Brexiteers, a hard Brexit means as fast as possible, renegotiate all of our contract deals, make more money, get better deals, laugh whilst Europe implodes. Basically trying to date Europe’s best friend as soon as we can and generally getting out there. A soft Brexit means a sort of middle ground, a bit more of a sort of loving breakup, still popping round to Brussels to watch Love Actually and eat Ice Cream over Christmas and go our separate ways when we both feel ready for it. We’ll never stop loving the EU (and their trading sanctions/way they sip their tea), but there isn’t a future.
As alluded to before, the problem with a Hard Brexit in particular is that we are in the very opposite of a position of strength. It’s 2am, we’ve had 17 too many tequilas and we are tugging on the sleeve of a big blonde disinterested New York City girl, who has spent most of the evening looking in a compact reapplying fake tan and lipstick. Terribly. And all of our mates are there to see it.
Not even the most ardent Brexiteer thought that this process would be easy, and I would even go so far as to say would represent short term gain. Putting aside the jingoism and Daily Mail rhetoric (this is supposed to be a finance blog after all) the pro-argument was that it would work out better for the UK in the medium/long term from an economic perspective and we would retain our own financial sovereignty. There was very little in the way of solid facts; by the very nature of making such tumultuous change to the status quo, but the principles are sound, any downturn would be ephemeral, and most importantly it would come good in the end. No one can predict the future, but at least we are in control of it now.
Personally and professionally I take umbrage with this. All markets are uncertain, and there are a great number of “anomalies” that can be cited that support the point, but most of the time most things follow a correlated path. Mostly. It’s the same argument that we at Cadence use with our clients when it comes to the passive vs active management argument. If a passive fund (one that takes the market) beats an active fund 86% of the time (source), then let’s take as much as we can to predict and work productively with that. You can’t just shut your eyes and hope something is going to come good, there has to be some responsibility taken for making that happen and working with the raw material that is there. It’s like pushing a crawling infant out of the back door and expecting him/her to come back as a lawyer to fund your retirement*.
Pre-Brexit we also knew, that we would have to renegotiate all of our European and Global trade agreements. It doesn’t take a genius to point out that of course the deal we negotiate with the EU cannot be as good-many leaders have used the analogy of being in or out of the club-not least because of the knock on effects that would have with other trading nations and their own agreements, but also because of the fact we have reneged on (arguably) the most favourable deal within the EU, certainly for a non-founding member. And so we return to moving parts and global perception, who are we close with, and fundamentally who would not like to see the UK squirm a little. Of the big trading nations, the ones we now need on our side after the EU breakup, not many.
I’m aware this has been something of a meander through a number of different topics, but for me, they are inextricably linked. If Brexit was the constant, and we accept that was going to, and has happened, then the reasonable certainty at the time was that Hillary would be less terrible at storing emails and a Democrat with a global view would be in power. Even if Trump were to come to power, there is no way he could manifest some of his more internalising and/or extreme policies. The increasingly dystopian reality that we find ourselves in is a moving part that even the most deleterious cynics would not have predicted, and who is to say what February is going to bring, let alone the rest of 2017.
So, let’s take unpredictability as our constant, and accept that, if we were to choose a time to negotiate trade deals, it’s probably not one where a President is furiously tweeting at millions of personal protesters round the world, the Chinese aren’t hinting at mobilisation for war and the Muslim world aren’t generally outraged. However this is the time that we are at. Hard Brexit means decisive action and responsibility, and perhaps that stark contrast is the answer to moving the UK forward and making the financial best out of the world we find ourselves in.
*To be fair the Spartans used to do this, and whilst, were really bloody good at war (as you’d expect to be if you were descended from a line of super babies) they weren’t exactly an economic powerhouse.
The views of this article do not reflect Cadence Wealth as a whole.