Fair warning: Very long, but getting less ranty.
While the EU Referendum result has provoked the greatest constitutional crisis for several generations, life goes on.
For investors, markets, and Monevator, that means taking stock of where we’re at and what’s next.
Unfortunately, it’s still impossible to cleanly delineate between the politics of Brexit and the possible investing consequences.
That’s because everything was thrown up in the air by the result.
The Prime Minister has resigned, the Leader of the Opposition has been rejected by his own MPs, and the notional winner of the Leave campaign, Boris Johnson, looked on the morning after like a man who has realized he had the beer goggles on the night before.
Only Nigel Farage seems truly pleased. Frightening.
Debate has ranged across social media, and some people have told me they will never read Monevator again on account of my own responses. The British psyche is frazzled.
Pandemonium was also evident in the immediate reaction of the financial market, which did what your head would do if you shot yourself in the foot.
It screamed.
Was the fastest ever collapse in the pound and the $2 trillion plunge in the value of global markets on Friday proportionate to the resolution of an always close-looking vote?
Don’t know.
Will it last?
Don’t know.
Could it get worse?
Don’t know.
We never really know, of course, and we must be especially humble over the short-term as investors. When I began writing this lengthy post on Monday evening, the floor had come out of the market. As I move to publish, shares have been rallying.
The whipsaw potential of equities, the capacity to dumbfound and turn out a dime – more reason why passive investing works better than market timing for almost everyone.
We’re all uncertain now
The situation in the UK now is uncertainty on steroids. Squared.
Not only have we never been here before – we don’t even know where we are, never mind where we’re going.
“Exaggeration,” you say. “This or that will happen.”
Maybe. But the next person behind you thinks different. And the next different again.
All kinds of outcomes are plausible, and it’s difficult to pick between them. That is one definition of uncertainty.
It’s also a memorable definition of risk:
“Risk means more things can happen than will happen.”
– Elroy Dimson, London Business School
Risk has a price, and the way UK-related shares such as banks and homebuilders were thrown overboard after the vote reflected that.
Much money will be made and lost from these big moves and probably more to come as every development is amplified in a febrile, fact-starved environment. But only hindsight will know what strategy was truly correct.
The immediate declines in markets after the vote tell us is the result was not expected, and that traders and investors took a dim view of the nature of the surprise.
But the falls were not certain proof that a Brexit will be bad for Britain.
And by the same token, the rally that followed is not proof investors are already getting over the likely consequences of Brexit.
The rally could reflect a growing belief that Brexit will not ever actually happen given the delay in triggering its initiation, or that we’ll only half exit, or that interest rate rises are off the table and more QE is coming.
Remember too, we’ll never see the counterfactuals: the alternative universes where a different politician took a crucial phone call from Angela Merkel, or a particular trader decided to resume selling Sterling, so altering the course of history.
A slender 2% majority in an inglorious Referendum that a large proportion of voters seemingly didn’t understand has set the iron dice rolling.
Time will tell where they’ll land.
Whose Brexit is it, anyway?
What the market is always trying to do is discount far-out income streams in an unknown future back to a present value today.
What should we pay for a company today for the earnings it will (hopefully) make in 2025?
That’s one reason uncertainty leads to volatility. Even small changes in the notional numbers theoretically plugged into such calculations alter today’s valuation.
Uncertainty also leads to volatility because – as anyone buying a blind lot at an auction knows – when you don’t know exactly what you’re getting, it’s best to have a margin of safety. A discount.
Of course there’s always uncertainty, and things are always changing.
But now we potentially face big changes. A bunch of things that have been taken for granted for decades could be headed to the history books.
Or are they?
You see, a huge difficulty the markets have in assessing the short and long-term impact of the Brexit on national economies and asset classes is that members of the winning Leave coalition have policy agendas that – like Leave voters – are clearly at odds with one another.
If we’d been given a clear explanation beforehand of what agreed steps would occur in the event of a Leave vote – what exactly would change – then the market could now begin to discount the consequences.
But we weren’t, and so today seemingly anything looks possible.
Some are calling for a second referendum, or saying this one wasn’t even binding. Never serve Article 50, they say.
Referendum-swinging Boris Johnson immediately started making statements that actually, free movement, free trade – it’s all going to carry on as before.
Yet that’s in utter contrast to what much of the country just voted for.
Leave campaign claims are being rolled back faster than you can say: It’s almost as if they were saying anything they thought would get them a vote.
If you point out these sorts of contradictions, some Leave voters protest they didn’t vote for this, they voted for that, and that was the most important thing.
And others will say the opposite.
I understand. Each feels their position is misunderstood or over-simplified.
But the reality is that Leave voters are a motley crew, and you can’t often talk of one faction without inflaming another.
This is difficult enough to deal with if you’re a Remain voter – or a blogger.
But it’s going to be especially tough for EU negotiators.
What exactly is this Leave bloc going to ask for?
The best expert guess: Brexit is bad news
Ex-Prime Minister Gordon Brown has written one of the best post-Brexit pieces I’ve read.
Brown writes:
Already we see the divide between Remain and Leave becoming the centrepiece of the narrative about the British economy.
Remainers feel they have to be pessimists to prove that Brexit cannot be managed without catastrophe, while Leavers present themselves as the optimists, claiming the economic risks are exaggerated.
A referendum that started off as an attempt to paper over divisions in the Tory party has now divided the whole country to its very core, and left us more isolated from our international partners than at any time since the humiliation of Suez.
A diverse country such as ours cannot afford years of the Leave campaign’s inward-looking, anti-immigration rhetoric.
But nor can we make progress through the Remain camp’s tactic of brushing aside the country’s key concerns.
In my opinion, the extent to which the market pain deepens – and translates into real world pain – depends on how far the Brexiteers go in implementing whatever mandate the Referendum gave them.
Particularly when it comes to the free movement of people. Trade is straightforward by comparison (and it’s really not straightforward).
Bodies such as the IFS, the IMF, and the World Trade Organisation all released forecasts ahead of the vote, much derided by the Leave campaign, that warned of a varying long-term hit to our economy from a Brexit.
Forecasts are hostages to fortune of course, but the point is that away from the commendably honestly named “Economists for Brexit” and a few pundits, such dark views were pretty much universal.
The Institute for Fiscal Studies report Brexit and the UK’s Public Finances is a most useful (if sobering) read, since it summarizes research from various other bodies in an attempt to see what it will mean for the UK State. It also studies what other non-EU members that operate within the EU single market pay for the privilege.
You’ll thus get quite a good overview by reading through it.
The following table from page 18 summarizes eight major studies on the potential lasting impact of Brexit:
Sorry! I know it’s an acronym soup, but it would take a report to define them all.
Source: IFS
Of the eight studies the IFS looked at, six forecast a negative economic impact of Brexit as their central estimate.
In fact none of these saw any positive impact scenario.
The remaining two studies, by Open Europe and Economists for Brexit, did highlight a potential positive impact. Only Economists for Brexit offered a positive figure as their central estimate.
I suppose it will be interesting to see if any of these bodies produce milder forecasts anytime soon now the Referendum is done and there’s no point exaggerating, as some Leave campaigners alleged was happening. As you’d expect I’m not holding my breath.
A more credible retort is that most forecasts turn out to be wrong, and these will be no different.
True, things may go better. Then again they may turn out to be worse.
Listen, the UK won’t be reduced to rubble – nobody is saying that.
Myriad forces such as AI, robotics, migration, and genetics are pitted against social and environmental challenges that are reshaping societies everywhere.
If we were just talking about feeling a post-Brexit hit in six month’s time, that would be one thing.
But it will very be hard to stand in a British market town in 15 years’ time and envisage what it would have been like with, say, 7.3% higher GDP because we hadn’t Brexit-ed.
I imagine it will seem like we survived fine. We just may not have the higher living standards, superior services, and stronger economy that we’d have had if we’d chosen to Remain.
Or maybe we will. Conceivably it could be better – it’s such an upset that nothing can be entirely discounted.
But the best that economists can offer is their best estimates. Those best estimates are currently very negative.
Penny wise, pound foolish
Not surprisingly given the weight of opinion about the likely negative consequences of the journey we’ve voted for then, confidence took an immediate hit in the financial markets in the wake of the result.
Safe-haven assets (gold, bonds) rose and riskier assets fell, although this impact was masked if you’re a well-diversified UK investor looking at your wealth in pounds on a broker’s screen.
Stuffed with dollar assets, your global trackers increased in value.
However you’re poorer relative to most of the other seven billion people in the world than you were last Thursday, thanks to that same falling pound.
The average Briton has been more than 10% impoverished compared to a similar North American or European, for example.
What about the real world? To what degree will all this political and market uncertainty translate into falling consumer confidence and lower spending?
That’s a critical question, since consumer spending accounts for nearly two-thirds of UK GDP.
And to what extent will real nuts-and-bolts businesses pull in their horns, cut back on hiring, and postpone or look overseas for growth?
Right now, nobody has a Scooby.
I don’t believe a significant proportion of CEOs walked into work on Monday rubbing their hands and thinking: “At last we’re free. Time to start investing to make Britain great again.”
So there will undoubtedly be a short-term hit from the loss of animal spirits, offset for some firms by the currency collapse making their products more competitive.
In time though business will adapt and make new plans. Life goes on.
What will the longer-term consequences be?
What really matters for our economy
I’m not going to specifically run through the various models being kicked around as to how the UK may interact with Europe in the future – the Norway model, the Swiss model and so on – after any Brexit.
You can read good explanations elsewhere.
For one thing, we don’t know which model the Leavers collectively want, we don’t know which model will be permitted, and unless we get a General Election or second Referendum, we’re not going to have any say on it.
So I think this is a time to get to grips with the big potential levers of change.
One day we will have a better idea of exactly what we’re getting ourselves into – whether we can retain easy access to the single market, and on what terms.
But for now I suggest we try to think about the main drivers of UK and European economic growth and returns over the next few years, and how they may be impacted by each option as we’re presented with them.
For me, those main drivers will be: the flows of goods, the flows of services, the movement of people, shifts in global capital and foreign investment, and what barriers or incentives are put in the way of any of that (say via trade deals, policy decisions, tax incentives, and other legislation).
They’re the things I’ll be thinking about personally as I attempt to assess the various options being kicked about by politicians, pundits, and others.
Going back to where they came from
As I said, it’s shifts in the movement of people that I think could have the profoundest short, medium and long-term impact on the UK economy.
If – contrary to that faction of Leavers who now deny it’s the plan – we do indeed pull up the drawbridge, reduce inward migration to tens of thousands, and sooner or later say goodbye to hundreds of thousands of EU migrants who may no longer feel welcome in the UK (and who are even less inclined to stick around in a likely upcoming UK recession) then I believe we’ll face a deeper economic shock, similar to the early 1980s.
This would be a seriously bad outcome.
Now you might protest that nothing has yet changed for EU citizens working here.
But remember we’re dealing with people with hopes and fears, not with robots, let alone with boxes of Spanish tomatoes.
So let me share with you what one of my European friends in London texted to me when asked her feelings on the Friday after the Referendum result.
My friend works in a competitive sector, she’s well-paid, and she is a star in her high-pressure job precisely because she is a stable person who can handle a lot.
She wrote:
It’s a sad day, was without words this morning but after the initial shock I’m prepared to give it a go and see how it goes.
I don’t feel angry, deeply disappointed would be more accurate.
Like someone has pulled the rug from under us, and we are falling.
Am also curious about what crazy development comes next.
You know when you think back in history and go “I can’t believe that happened?”
That’s where we are right now.
I’m in survivor mode right now.
Hard for me to read, but at least she is willing to hope.
I’ve heard much worse from other European friends. More than one has cited Weimar Germany in the early 1930s. That sounds over the top, even to me, but my view doesn’t discount their feelings. And my view won’t stop them acting on their feelings and leaving.
That same super-capable friend emailed me again on Monday:
You know when you asked how I feel with the Brexit?
Well, on Saturday evening it really hit me, I was sitting in a hot bath and burst out in tears over the mess we are in now.
Not just for me, but for all the young people that will suffer under this.
Do these European workers still feel as welcome as before the Referendum result?
Not so much, according to the ones I’ve spoken to.
Remember my European friends are the very capable EU citizens of the sort that even most Leavers want to attract.
They’re not the ones trying to scratch a living in more deprived corners of the UK, where the locals might (perhaps understandably) be less empathetic than me or my London peers.
Thankfully, as far they’ve told me they’re also not facing the upsurge in post-Referendum racism.
So are their fears and emotions just a short-term over-reaction?
Will the hundreds of thousands of talented people who have come to London over the past 20 years and helped transform it into perhaps the world’s most dynamic city – to the benefit of the whole UK – get over it?
Perhaps.
Alternatively, they might decide that London isn’t for them any more, or that they don’t want to jump through the hoops of a points-based system, or that they’d rather put down roots somewhere in the EU that isn’t now locked into years of bitter and sometimes xenophobic-sounding negotiations.
Not all of them – but enough that it hits our economy.
This is a certain risk that the Referendum result has delivered.
Imagine the average IQ of the UK drifting down as smarter-than-average people take their tax-generating capabilities overseas. GDP could suffer the consequences for years.
What about the lower-skilled EU workers? Those young – and in the London service industry almost unfailingly pleasant and hard-working – European men and women who pretty much run the South East’s coffee shops and pubs, and who put millions into our economy by spending their time, energy, resources and money here instead of in their native lands?
What happens if a few hundred thousand self-selected motivated young people of gumption decide, even in dribs and drabs, to seek their fortune elsewhere?
Any mass exodus of migrant money, effort, and talent or sheer numbers will have consequences for UK employment, UK-focused investments, house prices, and the country’s future wealth.
Not good consequences, for the slow ones at the back.
And regrettably, I wouldn’t hold my breath on the native under-employed population rushing in to fill the gap they’d leave.
It’d be nice, but it’s wishful thinking.
Boris’ Britain
On the other hand, perhaps the Boris-backed side of the Leave campaign was just one big wheeze to make him Prime Minister. In that case maybe none of the free movement restrictions that many Leavers voted for will ever actually come to pass.
Seven out of ten MPs supported us staying in the EU, so Parliament might be up for a fudge.
And already some Leavers are suffering from “Bregret”.
Could we just call the whole thing off?
Possibly. But in that case a sizeable chunk of the many millions who voted Leave will feel angry and let down in addition to the foreign workers who already feel angry and let down.
Not a great result for social harmony or confidence in the UK.
Still, statements from some of the more articulate Leavers imply their vote wasn’t actually intended to produce much change.
They want us to remain in the European economic area, trading freely, moving freely, but having regained some crucial (if vaguely stated) legal rights and constitutional prerogatives, as I understand it.
In that case it’s possible that after a minor economic shock that it’s too late to avoid now, things could bounce back fairly quickly.
Interest rates are still at rock bottom lows. Great Britain PLC isn’t a pushover.
However we’ve just knocked ourselves on the head with a sledgehammer, so there will be some reverberations whatever happens.
Things can always get worse
If a stronger Brexit stance is taken – or is forced upon us by the EU – then the worst fears could come true.
Big hits such as the loss of easy access to European markets (i.e. passporting) for UK financial firms, the loss of Euro-clearing in the City, the 100,000 financial sector job losses alone that some estimated would go in a Brexit, higher prices in the shops for all of us due to the weaker pound, and net migration reversing as hundreds of thousands of people go home, sucking the life force out of the economy…
In that scenario I think we can kiss the next decade goodbye when it comes to growth from domestic focused companies.
We could also kiss goodbye to a huge chunk of the taxes derived from the City and other firms with London-dependent business. Unemployment would rise, too. The result would be more austerity, less investment, and so on – even if a new Government decided to abandon tackling the deficit in the emergency, to try to keep the ball in the air.
Things would get worse still if global investors started to doubt the sustainability of the UK state, causing foreign money to draw back from investing here.
Already we’ve lost our last AAA credit rating, following the Leave win.
Thankfully though, gilt yields have not yet reacted with any signs of fear. Owning our own money printing press may save us once again.
Remember the UK depends on overseas capital to cover our current account deficit. A buyers’ strike could see further weakening of the pound, higher inflation, and perhaps the Bank of England operating on a tighter leash.
Interest rates could then conceivably rise to attract capital or curb inflation, just when we would rather be cutting rates or implementing more QE – or even concentrating on delivering a fiscal spending boost.
You want worse still?
If Brexit triggers a speedy disintegration of the European Union (very unlikely I’d say in the near-term) then we’re looking at another global recession, yet more political and economic uncertainty, and a structural long-term hit to global trade and growth.
Maybe also other long-term ramifications, such as the world (and the US) pivoting even faster towards China and South East Asia, too.
A brighter Brexit
Poppycock, you say. You have your own view about what will happen.
Of course. I do, too.
I’m not saying the worst will happen. I’m just discussing the range of tolerable-to-terrible likely outcomes as I see them, and thinking about how the market might discount them and how my investments might respond.
The next person in the queue has a different view to both of us, too.
Again: Uncertainty!
So yes, it’s not inconceivable that from a long-term perspective the UK might benefit economically if we become an even-freer economy, a more neo-Liberal Singapore-style economy, say – albeit at a social cost, and even after the loss of much energy and talent from EU citizens, a drag from costlier trading with Europe, and from potentially paying to access the single market and so on.
We’ll need to look 10 years ahead to the fruits of that though, and I doubt it will compensate for the damage. As we saw earlier, only the Economists for Brexit group predict anything like that. (Ironically, in this scenario the oldest constituents who tended to vote Leave may not be around to be vindicated.)
Still, the majority of economists and City pundits might be wrong. Nobody knows.
In any event I don’t think a positive-Brexit will make much difference to the returns from UK shares, whatever it does for the economy.
Big British firms already operate globally yet operate within a fabulously open and relatively sensitively regulated and lightly-taxed regime, so we’d be talking marginal gains at the company level.
Finally, although it’s beyond my understanding, I’ll note some Leave voters apparently thought a Brexit would take us back to the 1960s, with well-paid employment for millions of adult men in manufacturing, more money pumped into the regions, a diminished London that encourages more UK entrepreneurs and politicians to turn to Hull and Hartlepool, a higher minimum wage, and a stronger social security net. Something like that.
Sounds nice? I’d bet my bottom dollar it is the least likely outcome from Brexit.
The price of sovereignty
I’m trying to focus on the economic issues, but a quick comment on the democratic motives of some Leave voters in the light of the potential costs.
If you truly believe the European project is a bust and that Britain had to get out – whatever the cost – or that we weren’t sufficiently in control of our own laws and practices within Europe, then almost any economic price may be worth paying to Brexit in your mind.
I’m not disputing that. Everyone will see the situation their own way, and put their own price on such concerns.
Money isn’t everything. If I believed the EU was the force for tyranny that some Leavers clearly do, I’d take a recession and even permanently lower growth to get out of it.
(I don’t, but we’ve had that discussion…)
What troubles me is the fantasy that we can have it all – even when that’s been disputed by the vast bulk of credible sources.
We might eventually get most of it, but even there the odds seem against us.
It bothered me in the Referendum campaign, but it really bothers me now, as I’ve learned more about some voters’ motivations. It’s Alice in Wonderland.
If you voted on principle on sovereignty, I can respect that.
But please own the likely consequences.
Investing!
Was the stock market’s immediate response to the Brexit result rational?
I think so. Certainly it’s understandable.
For whatever reason, traders were not correctly positioned for the Leave side winning.
Given that the weight of expert assessment is that a Brexit will be economically bad news, the market was then forced to work through that disconnect as it tried to factor in the downside from the result.
Markets will keep readjusting until investors hold a portion of UK assets that fits the newly-minted and riskier reality – and at valuations that make sense in that reality, too.
The collapse of the pound, major UK banks falling 30-40% in two days with trading halted, other UK-exposed firms (such as homebuilders) seeing their share prices halved – it was all starting to feel sufficiently pessimistic by Monday evening.
Possibly even overdone. And the sizeable rally since in some very hard hit names may have confirmed that was the case.
Or it could be a dead cat bounce. Or it could be traders betting we won’t Brexit.
Who knows?
I’m feeling this is harder to read than say the Greek crisis or even the financial crisis – and we’re barely four trading days in, so to some extent it’s all noise. Markets will continue to move on speculation.
One way though in which you can see rationality at work is in the post-Brexit performance of the very international FTSE 100 (which makes a lot of money in dollars and other currencies) compared to the more UK-exposed FTSE 250 (in red):
Overseas earnings will buffer the fortunes of FTSE 100 companies to a greater extent than those in the FTSE 250 because the pound has fallen so far, greatly boosting the FTSE 100’s more international earnings for so long as it lasts.
About 75% of the FTSE 100’s earnings are derived overseas. Since many big blue chip businesses also have operations on the ground in other countries that haven’t (so far) committed self-harm, investors can also buy into operational insulation from a UK recession through multinational UK shares.
But British economy-focused companies have nowhere to hide.
Their share prices melted in the aftermath of the vote. Estate agents, niche retailers, homebuilders and UK banks all lost 30% or more value in the subsequent two days of trading – even though nothing had actually changed on the ground.
That’s the uncertainty and the potential for some truly dire long tail outcomes being discounted (or over-discounted) into valuations. And also some shorter-term traders being caught wildly off-side.
In contrast, those big multinationals rose 8-10% or more, bolstering the FTSE 100.
Of course, the FTSE has still fallen on a global currency basis. The pound has plunged, remember?
If you’re a US owner of Diageo, say, you were not cheering. Your shares were up less than the pound was down versus the dollar. So your holding was worth less than it was pre-vote when converted back into dollars, even after the sterling rout.
But I appreciate few private investors think this way, day-to-day.
Overseas markets and index funds
Most of you rightly aren’t active investors, but passive investors in index funds.
If you’ve been following the advice of my co-blogger The Accumulator or Monevator contributor Lars Kroijer then you had plenty of global equity exposure, whether through regional funds or a global tracker.
These funds have held up well in pound terms.
Indeed, some readers who (often sensibly) do not tend to look below the surface have commented that there was little reaction to Brexit, as far as they could see from their broker’s tally.
But in reality, many smaller UK shares were hit, while most overseas markets floundered similarly to the UK in aftermath of the vote, too.
As of Monday’s close, for example, the FTSE 100 and the US S&P 500 had both taken a 3-4% hit. That was the worst two days for US stocks since last August.
European markets were hit twice as badly.
Again, because the pound fell so precipitously versus most other currencies1 the value of overseas assets soared in Sterling terms, hiding the pain from UK owners.
We’ve written often about the benefits of overseas exposure as a diversifier, not least from a currency perspective. Here it is in action.
Of course if you’re an everyday sort of lower-income Leave voter whose wealth is tied up in cash savings and maybe a house, then you haven’t benefited from this. You’re just poorer.
Still, it’s early days.
Euro vision
The prospects vary for the different developed markets, depending on which of the various scenarios we go down.
With the exception of its financial sector, the US is probably the most insulated from Brexit risk. It’s the most self-sufficient economy of the major countries.
But the US won’t be totally immune to bad scenarios, especially if the dollar strengthens too much as a safe asset, hurting US exporters.
Europe is the most exposed, after the UK.
Britain only makes up 4-5% of the global economy. Whatever the jingoistic claims of certain Leavers, the UK doesn’t swing many dials on the global stage.
But any contagion from Brexit on the Eurozone is a different matter. That would be significant for everyone.
The initial impact in Europe of an upcoming Brexit has been just the same as here – a political impact, and the emboldening (like it or not) of right wing and/or isolationist parties.
But support for concentrating even more power in Brussels is not polling much better across Europe than it did here2 so there could be a Brexit-inspired backlash among EU citizens.
Cue more uncertainty.
Germany, France, and the Netherlands are also due national elections in the next 12 months. If Brexit talks drag on for as long as they surely must, then these elections will give us still more unknowns to think about.
Business uncertainty will have risen in Europe too, with a similar impact for its markets and likely in its boardrooms. Investment postponed, caution elevated.
How will the EU itself get on without Britain? As some Remain campaigners argued, one possibility is that once it’s shed of perfidious Albion’s influence, the EU may become more protectionist, which would have an impact on our own and wider global trade.
The chances of such a Europe cutting a particularly jolly trade deal would obviously seem remote.
Bonds kept their promise
Away from equities, government bonds again showed their mettle, rising during the rout.
We’ve fielded so many comments over the years asking why we include boring old bonds in our Slow and Steady model portfolio, or others pointing out that this or that stock market index has done better without them.
Or in rare cases just calling us no-nothing idiots leading investing lambs to the slaughter. (None of those people ever come back with a mea culpa, incidentally. Do remember that the next time you’re reading such sentiments.)
At various times, being less diversified looks clever. Over very long periods it may even prove superior – because equities do tend to deliver the best long-term returns – but you have to deal with a lot of ups and downs along the way.
Being diversified means always putting up with owning some things that are out-of-favour, knowing that when the storms come you’ll remember why you owned them, and feel grateful as your portfolio lurches but you hold your stomach.
Well, the storm came the day after the vote, and globally diversified multi-asset portfolios proved their worth.
I’m not going to speculate on which way gilts or what have you will go next. Surely we’ve all learned our lesson there.
Rather, I’d just say it’s a good reminder that nearly everyone should think of government bonds (and/or cash) as portfolio stabilizers rather than sources of return these days, and set their exposures accordingly.
Should you put more into shares?
Is this the time to be greedy when others are fearful when it comes to shares?
Yes, probably. But for the first time in a long time I’m really not confident about doing so.
As those who saw the opinion polls edge towards Remain in the final hours of campaigning and who piled in for a short-term pop soon enough found out, saying there’s a 25% probability of an event happening doesn’t mean it won’t happen.
It means it could happen a quarter of the time.
And on that note I see a very wide fan of potential outcomes from our current predicament.
I could boldly claim this or that will happen, but I don’t feel confident.
Again, you’ll read sure-sounding strangers say why this is a great opportunity to buy Blighty, or on the other hand that it’s a last chance to ditch anything you have in Britain to move your money offshore.
They sound convincing. They don’t know either.
I’m not decrying them for sharing their opinion or acting upon it. Each to their own, and it’s exactly what I do with my own active investing.
As I said on Saturday, I do think that over the long-term, the chances are we’ll muddle through over the next year or five – maybe sooner, possibly longer – so I don’t share some Remainers sense of outright economic panic, especially not from a global investing perspective.
If that’s true, then this could prove a great time to have put money to work, provided you avoid the potential UK-related punchbags (or you pay a sweet price for them).
But to be honest, I’m so gloomy about the almost Kafkaesque situation we find ourselves in, I’m not going to call it.
I certainly wouldn’t stop your regular investments or anything like that. Most of you will be pleasantly pleased by how well your portfolios are holding up. No reason to change anything.
Remember it is precisely because you just keep on keeping on through good times and bad that regularly saving into passive products and then leaving them to compound your wealth works so well.
Two steps forward, three steps back
As a history fan, the recanting of the leading Brexiteers over the weekend about what kind of deal they’ll actually look to achieve reminded me of many clashes in feudal times, or earlier barnies with the Roman Empire.
Very confidently, a smaller state or a client monarch would occasionally march on the major power and demand a better deal.
Else, war!
Not wanting to waste time and resources on a mutually destructive battle, the feudal king or the Romans would often make a small concession to try to keep things amicable.
(In this analogy I’m not just referring to David Cameron’s last-minute jockeying. I’m thinking of our more durable hard-won advantages in the EU, such as our opt-outs and retaining the pound).
Often the deals worked and everyone was happy, or at least equally miffed.
But sometimes they had to go through the rigmarole of a bloody big bust-up – especially if a new rebel leader was trying to prove himself to his people.
Naturally, the big boys usually won.
Chastened, the beaten rebels then returned to the fold, accepted the facts on the ground, and were eventually forced to agree to worse terms than they’d already had before the whole thing started.
When I hear about the UK aping this or that position enjoyed by some other country to trade with the EU, to me history echoes down the ages.
The grass always looks greener. But it rarely is.
Understand the world is a financially riskier place than it was the day before the Referendum result, especially if you live, work, and invest in the UK. Arguably also if you do so in Europe.
Let’s all hope for the best but be prepared for the worst.
Ideally we might try to focus comments below on investing thoughts, choices, and strategies, and to keep Brexit-related politics to Saturday’s thread. I accept I’ve mixed them a bit here though – and perhaps there’s no alternative right now, for the reasons I’ve mentioned. But where possible we’ll probably all benefit from trying.
- It’s now 10% down against a basket of global currencies since the Referendum day, according to Bloomberg figures. [↩]
- The fact that Eurocrats don’t seem to care about this weight of opinion was the most credible argument of the Leave campaign to my mind, although not by anything like enough to get me voting for them. [↩]
Comments on this entry are closed.
I’m looking at rebalancing in the next few days, and am faced with the prospect of buying quite a bit more IUKP. I’m trying to be a brave passive investor and take my medicine, despite the horrible taste.
I think it is still a good time to move out of more assets denominated in £ into other currencies
This is a localised crisis in the UK with a wide variety of outcomes many of which look worse than has been anticipated already
As UK citizens we are all too exposed to these outcomes, even if we moved our entire investment portfolios into overseas assets, as we pay taxes, earn our incomes or profits in the UK economy and own houses here
Its also worth remembering that countries running into big problems often start capital controls and fixed exchange rates to prevent capital flight
Before anyone accuses me of being alarmist I ran my eyes over the page in the Economist summarising current account trade and budget deficit balances, the country that looked most like the UK’s picture was South Africa…
Well I’m grateful for the harping on about diversifying globally, because I had just about finished by the Referendum. A hat tip to you sir 😉
BTW I am Barry Blimp’s age, but I don’t share his views – and I haven’t come across any other 50 somethign with that – they all have long faces.
Some of the younger pups, though, are Brexiters 😉
Thank you so much for highlighting your thoughts on the subject. I really appreciate an analysis of the situation from someone who is experiencing Brexit, rather than someone who analyzes it from the US.
Sorry for my slightly grumpy comments on your previous article – I just took one of your sentences rather personally! Continuing with this article’s themes, my index tracker portfolio has held up *extremely* well indeed, largely thanks to the advice and book recommendations on this excellent blog, so I’d like to say thank you for that! My rebalancing rules have now been tripped, so I just executed a trade to switch some of my gold profits into UK smaller companies. I appreciate what you’re saying about future chaos in the UK, but as you’ve said in a previous blog post, we put these portfolio rules in for a reason! And to start ignoring them now defeats the object of a passive portfolio.
I had money put aside in case we had a bit of a crash, but I’m just not seeing it. I thought the world markets before the vote were high-ish, except for the FTSE100 which was middling.
Apart from the FTSE250, everything’s there-or-thereabouts, so I’m not diving in. Even the FTSE250s only back to its 2014 level and well under 10% off its all-time high.
I don’t buy individual shares, so don’t need to go looking for bargains there.
So I’ll just continue my passive monthly drip-feed into the usual UK and world trackers. Hasn’t that always been the advice for us passive types?
Is there an accepted multiplier between GDP and the value of a company that only operates in one country? Equity value is integrated future dividends, but I’m uncertain that if GDP is 10% lower after 10 years, how the integral of dividends is affected. If I knew I could assess whether a FTSE 250 fall of 13% made it better or worse value than before.
Great article – thanks for your continued effort.
I’m relieved to have followed the guidance from Monevator articles and the general readings and books recommended to set up my own portfolio along the lines of a diversified global portfolio, broadly like an average risk mixture of index funds and bonds that Lars Kroijer and Tim Hale advance in their books.
And from the Monevator bond series and elsewhere I learned that bonds are the least understood investment vehicle by common or ‘garden’ investors like me – so I have read these articles a few times, but it is true, and I’m not really the wiser. The difference in response to the recent events of my different bond funds baffles me, and I wonder if you could comment.
The UK 1-5 year gilt funds have more or less kept on as they were, 1% up from 6 months ago. However, my index linked gilt fund started accellerating upwards about two weeks ago and is now 11% up on six months back. Why are these two bonds fund responding so differently, and why is the index linked fund increase so large (when I expected slow gain and low volatility in both funds)?
Nice to get back to orninary techy details I hope.
US investor chiming in here. Got plenty of folks around here looking nervous, considering what Brexit means for a potential Trump candidacy. I lean pro-open-policies (so would have been a Remainer had I been voting in the UK) and thus would prefer a Clinton presidency. Pragmatism colors my politics as much as it does my finances.
Time of course will tell, for you and for me. Eight years out from my own FI so far. I’m due to rebalance my international (mainly UK-heavy) holdings in November. That should be time enough to set the general tone for life going forward. I’ll hide much of my international exposure in very-large-cap US multinationals with heavy “overseas” contributions to net profit.
IanH, mine is far from an informed answer, but I’d assumed it was the expected uptick in inflation due to sterling devaluation that was being priced in, in advance of official figures.
IanH, I think the reason for the high volatility in your indexed linked gilt fund is likely due to the very long duration of the gilts held which is probably about 20 years. In a rising interest rate environment this would also drop in value significantly faster than your short dated fund!
We–readers from the US–have been gripped with the Brexit fallout and appreciated your recent posts (yes, even the lengthy/ranty ones) about your thoughts. Since you did say that you will likely delete most pro-Brexit comments from readers, it’s not clear to us what others kinds of responses you might have been receiving.
In this post, you write: “Debate has ranged across social media, and some people have told me they will never read Monevator again on account of my own responses.”
Are some Leave readers (in possibly deleted comments?) disgruntled because you ultimately favored Remain, or are the disappointed Remain voters upset because you offer a nuanced and somewhat sympathetic reflection of the Leave voters?
Thanks for both your perspectives.
The volatility so far doesn’t worry me. The total equities I hold have stayed broadly in the same range they have been in over the last 30 months (-4% to +7%), albeit they moved from +3% to -4% when the market opened on Friday. Interestingly the 12 month low points for my international and large FTSE 100 value/recovery fund holdings were mostly on 24 August, 21 January, 11-12 February, whereas UK smaller FTSE 100, mid cap, small cap quality/growth fund holdings were lowest on 24 June and 28 June. This shows the benefit of diversifying with not everything hitting a low at the same time. These are early days but it doesn’t yet feel like 2001-2002 or 2008 from an investment point of view.
I was also interested to read that “markets are clearly shocked by the decision but, in our view, it is not as negative a development as the market’s initial reaction appears to imply.”
https://woodfordfunds.com/blog/brexit-initial-thoughts/
A lot of hysteria about in investorland since Thursday, you’d think we’d been hit by an asteroid.
Evidently, not too many people here in the UK are in accord with Mr Bogle’s sage advice of “Don’t just do something, stand there”.
Anyway, all my equity’s in VWRL, which is up by c. 5 or 6%, although the £ has taken a bit of a pasting. It seems to me nothing very terrible has occurred, unless of course your portfolio is a big punt on UK stocks.
Like @Matt, my portfolio appears to be diversified enough to have weathered the initial Brexit storm and is up, largely due to what I’ve learned from this blog and your book recommendations – thanks!
[I am going to answer this query/topic on this thread, but please let’s not pile on repeating the last debate, or debating my comment moderation (even if you agree with me, please). I feel my proactive stance is vindicated by Monevator comment threads holding up so well versus newspaper threads etc. Others may disagree. Either way, I think most readers would rather discuss investing here.]
@Julie and Will — When I wrote I was going to delete pro-Brexit comments, I was pretty worked up. Only human. 🙂 On Monevator, many comments from new posters or comments with links are held in moderation and need to explicitly be approved by me.
In the event I immediately approved — or left standing where no approval was needed — nearly all pro-Brexit comments. (I think the use of “approved” confused one or two people — I didn’t mean morally, I meant mechanically I published them to the site.)
Of course many pro-Brexiteers surely decided not to risk wasting their time commenting, given I’d said I’d possibly delete them. Completely understandable. Some perhaps moderated their contribution.
What I really didn’t want was a particular cohort of investor/Brexiteers who I am all too familiar with from other sites holding the stage. Perhaps due to my tyrannical threats they didn’t, and we had a good two-way debate.
If you read through the 200-odd comments you’ll see many Leave views expressed. I think deleting half a dozen out of 200 comments isn’t too heavy-handed.
I deleted a couple of comments (and received a couple more direct messages/emails to me) that were abusive, one or two that were anti-semitic or otherwise accused shadowy organizations of pulling the strings in the EU etc, and a couple that just annoyed me with too much of what I’d call a neo-jingoistic attitude. (And yes, obviously I also have my own attitude!)
I deleted/didn’t approve a couple of Remain comments for similar reasons.
Sometimes I will delete a comment if it’s going to set us off in an inflammatory direction, even if it’s not abusive or is funny etc. I’ve already done that once on this thread from a reader whose comments I typically enjoy. (I smiled at this one, too, but feel we need to get back on track.)
Regarding why they are angry with me — and I’m sure many more were than actually told me so, as you’ll know the Internet is like an iceberg when it comes to this sort of thing — various reasons I guess. Some don’t like generalizations, which I addressed here. Others obviously they think their view is right, like we all do. Some may feel let down because most UK personal investing websites and comment threads were full of pro-Brexit opinion before the vote (not so much the articles/editors, more the readers).
Also, as a writer/editor, you may read 200 comments/views, say, and a commentator may read yours, 1-2 others, and their own. So they often don’t appreciate the amplification effect, how things snowball, or sheer repetition.
The EU Referendum has been divisive in the UK, and while the Leavers rankle at generalisations, the broad divisions are clear. I only know of one certain Leaver in my 20-30 closest friends, for instance. A few more among people I work with. Yet half the country voted Leave.
Most Leavers probably move in similarly-minded circles, and hear the same reinforcement from fellow Leavers that I hear from Remainers. I think this “echo chamber” affect is a big concern of our time; we’re seeing it in US politics, too.
Be that as it may, let’s please not debate it further on this thread. You’re not going to change my views on moderating posts, and I’m sure only a very small percentage of Monevator readers consider it worth discussing! 🙂
If I am reading that table right, as a whole the predictions are for about 4% lower GDP, eleven or twelve years after exit. I make that about a 0.35% per year hit on GDP, compounded. Not ideal if it turns out that way, but hardly the apocalypse either.
@ DW @ HumblePie
Thanks for your observations. Yes I think it must be the marked difference in duration that is the relevant factor. The index linked fund VUKIFLA has a mean duration of 21.2 years, the other one (GLTS) I couldn’t spot the duration value in the documentation so far – but presumably near 3 years, given the maximum maturity held is 5 years.
I’ll do my homework on duration, maturity and the rest, and how they respond to inflation – again… sigh
A neutral comment which may be relevant for future events: it seems like the pollsters redeemed themselves after GE2015. Yes there was some momentum in the final days but if you allow for a few % margin of error, they called it. It was the bookmakers and betfair punters who chose to ignore polling and along with an assumed bias to the status quo opted by a large margin for remain. Will be interesting to see if there is such a discrepancy at the next election.
Bookmakers don’t make money predicting the future, they are market makers and just set the odds to cover the bets placed. If lots of English fans bet on their team winning Euro2016, they will just make the odds shorter, so they are balanced by the bets from other fans.
Punters bet for many reasons, mostly emotional, as they know they won’t win long term in a non zero-sum game.
Its a pastime, not a savings plan.
Interesting perspective on circle of friends, mine are split roughly 50/50 on Brexit so fortunate in not being in an insulated bubble of either side.
I sold the 50% of my equity funds that were UK centric a couple of weeks back and sat on the cash, with the balance in world/USD denominated ETFs, bonds and gold. It actually went up on Friday. Since Monday I have topped up VWRL and early today bought a little of a UK fund – dividend aristocrats ETF. It’s all looking very healthy in £ terms at least, well up on last Thursday.
Still have a little in cash within my SIPP but close to fully invested in the most diversified and resiliant portfolio I’ve ever had – international equity, bonds, cash and gold. And hoping to stick to my current sleep-at-night asset allocation long term.
I won’t go back to the high UK bias I had before, but still hankering to add a FTSE100 tracker back again at some point. However it still seems too stubbornly high to buy.
On Friday I thought it would be at 5300 by today, or by the end of this week. The whole thing is like a bizarre phoney war at the moment. Early days I guess.
The Investor,
Whilst it is true that the UK is leaving the EU and this is causing some market volatility, my advice to you is don’t panic! Just stay the course and keep a balanced portfolio. Rebalance once a year.
Don’t try to speculate about where you think markets will go, and certainly don’t act on such speculation.
Been sat on a lot of cash awaiting a house purchase so couldn’t risk it being in the market if Brexit came about. That’s the good news. The bad news is our buyers have pulled out following the vote (they think the housing market is about to tank) and our purchase has just fallen through after a terrible survey. So now I have circa £150k looking for a good home. I think, like you, I may leave it as cash for now. I certainly don’t see a big upside from here.
@Branoc @Jon — Don’t get me wrong, I’ve still got plenty of money in equities. When I hesitate in the article to “call” it, I mean firstly predicting whether Brexit fears are a speed bump or the start of a protracted medium-term period of poor returns for equities especially if it spirals, secondly, whether that’s true for UK equities even if it’s not for global equities (much likelier IMHO; I am currently focused on shares listed overseas, particularly the US, and with UK companies that make most of their money overseas; the question I am mulling is whether to, say, buy more Lloyds, which was still down c.25% post-Brexit when I published, when it’s a direct play on a UK economy I strongly suspect will suffer), and thirdly whether to increase my savings rate into equities / move more of my cash reserves in on further ‘dips’.
I wouldn’t want to give the impression I’m sitting in cash. The majority of my wealth is in shares.
As to such speculation and the wisdom of it, I agree I shouldn’t engage but I do. That’s the contradiction at the heart of this site. 🙂
Thank goodness for my on-message co-blogger The Accumulator (who has has been keeping his head down throughout the Brexit debate, hopefully working on our book!)
@SemiPassive — Why would you expect the FTSE 100 to fall? In chapter 3 of his article (just joking The Investor!) he points out the FTSE 100 earns 75% of earnings overseas.
With the 10% £ depreciation, that 75% of overseas earnings will rise to a commensurate degree when banked by UK HQ and converted into £ in the company accounts.
All things equal, the FTSE 100 should be strongly up. (All things are not quite equal. The 25% share not earned overseas will suffer from the Brexit in the UK, overseas economies may too if only from fears, and has already been said, uncertainty and coincident volatility has risen. This will work against the £ gains in revaluing the FTSE 100. But you get the idea).
Politically, whether the moderate Leavers want to accept it, populism is on the march. As mildly as I can put it to avoid The Investor’s wrath, this is a populist vote, rallied by conservative/right-wing politicians. Ignorance is rising.
Today we have Donald Trump proclaiming that overseas trade agreements are a deliberate policy to enrich other country’s at the expense of the United States. It’s wrong but it will be voted for.
The Investor, you may soon feel like Galileo arguing that the Earth is really round in such an atmosphere.
The Investor,
Has anyone ever told you that you overthink investing? As John Bogle says, the secret to investing is there is no secret. When you own the entire stock market through a broad stock index fund with an appropriate allocation to an all bond-market index fund, you have the optimal investment strategy.
So, if John Bogle and The Accumulator aren’t getting all worked up by speculating, why should you? Still, I suppose it gives you something to write about.
Like seemingly everyone else on here, I have about as many increasingly worthless pounds as I did before. One strategy that worked particularly well was my low-leverage, low-vol, high rental yield REIT portfolio (unch-ed). I’ve never understood why people buy the REIT ETFs, you wouldn’t buy an ETF of other trusts. Just british land and land secs would be about the same and save you the expense ratio.
I enjoy reading pro brexit posts. Once I’ve mentally corrected the spelling etc I often have a good chuckle.
No change here either. Feel I am diversified enough and have a long time horizon. The only thing I am considering is using excess cash to pay down the mortgage, just in case axes start to fall……
I did feel a bit of sadness when I saw our empty desk at the EU summit, drinks and all. I am feeling more positive again now, but it doesn’t help reading ‘the world is ending’ articles everywhere. Has a danger of coming true just because we believe it should come true. Read a few positive articles to try and get the spirits up again!
Dear Investor,
I feel, subliminally at least, you may be working throughout the stages of grief to positive effect. I saw a heading in this blog “Euro Vision”. If you compress those two words together, maybe – just maybe – we won’t need to participate in that wretched contest anymore!
On another note, my own SIPP held up well purely due to currency, although some Yen would have been nice as it was a 12% delta to the pound. However I am in deep doo doo with my wife. I had kept her Balfour Beatty position thinking it would be defensive due to infrastructure spend on Boris’ new island airport if we were to Brexit. Gee that was bad then I stupidly fessed up.
I know we’ve all get to get on with this but I am not through the grieving period either.
@David Simms — If we take that average 4% figure, then that’s equivalent to two early 1990s-sized recessions over the next 14 years or two-thirds of a Great Recession of 08/09. Self-inflicted.
That might seem tolerable — recessions happen, eh — but remember this is “compared to where GDP would otherwise be”. i.e. It’s the economists best estimate of the GDP-impact of Brexit.
In other words, any other recessions we’ll be “due” we’ll be getting too. Arguably the world is already overdue one; this has been a long expansion already, albeit on the back of a climbing out of a very deep hole.
Personally I think in a “full-on Brexit” scenario we’ll spend most of the next decade dipping in and out of recession. That could be bad for companies that make their money in the UK or own UK assets (e.g. estate agents, property companies) and probably very bad for those focused on London.
@Jon — Because I enjoy it and I achieve higher returns because of it. 🙂
p.s. Sorry, should have said my recession estimates (early 1990s and Great Recessions) are from memory, and rough approximations.
The Investor,
John Bogle also says of market timing, “After nearly 50 years in this business, I do not know of anybody who has done it successfully and consistently. I don’t even know of anybody who knows anybody who has done it successfully and consistently.”
Based on your response to Jon, are you the one exception? If so, are you a billionaire yet?
For the avoidance of doubt I voted remain.
Yes, the pound has fallen against the Dollar and the Euro, but the Euro level is pretty much where it was when I holidayed in Finland a couple of years ago so its not like the sky has fallen in. Add to that the current Italian banking crisis and I’m not so sure that the Euro won’t tank again soon.
@TI, there is no point banging on about the Brexit. The referendum is over, we are all going to have to deal with it. You can only play with the hand you are dealt. As for forecasts, as you said yourself, they are invariably wrong. Put 3 economists in a room and you will get 4 opinions. We will never know which outcome was best as we can only go down one route so we won’t be able to compare it to any other option.
Whilst I understand that this blog is yours, to do with what you will, would it be too much to ask that you get back to the main purpose of this, previously excellent, blog?
Forgot to add, if the US votes for The Donald, then the Dollar may not be such a shiny currency to hold either.
@Burgmeister — Request noted. Brexit as a topic will naturally quieten down, though I’m certain to write about it specifically again in the months and years ahead, for example in the light of a decision on how we’re going to proceed (e.g. modified Norway model etc). And it’s going to be tangentially mentioned here and everywhere else, often, for years.
I appreciate my position and posts have not been everyone’s cup of tea, but I’ve also had dozens of positive responses, including from some Leavers, so the country is bifurcated in more ways than one! 😉
Actually, in post-event analyses one usually finds only a small proportion of investors, particularly individual, indulged in making trades during the event. It doesn’t take a large proportion of the market to trade to affect large changes.
I appreciate the point made about rising equity values in non sterling currencies due to the fall in value of the pound. I’d sort of been thinking about that, but the various additional commentators cemented it in my mind.
It is reassuring to see a global portfolio in action effectively providing some protection against a falling pound. Updating spreadsheet today i’m seeing +5% which is quite a large upswing for me in a month (thought not the largest I have on record, the record stands at 8%, oct 2011 – can anyone remember what happened that month? no neither can I)
I noticed that a few commentators including SHMD took out a bunch of cash prior to the vote. Am I right in thinking that was quite a costly mistake based on the movements in the last week? crystallised losses and all that?
Obviously who knows what happens going forward, but today compared to this time last week, enlarging your cash position pre-vote was a bad move?
Just elaborating slightly, obviously it depends what was sold to get the cash, but just say for example it was TAs slow and steady portfolio
Doing anything during a crisis seems unwise as a small investor, you don’t have access to the information sources, or the speedy trading systems, of the big boys. At least ETFs are spot priced, but funds with daily pricing are hopeless. And you are likely to be reacting emotionally too, and we know that private investors tend to underperform the market as they buy high and sell low.
Suspect that as a nation we will come together again somehow;
That full Brexit will not occur, and that as always all nationalities will continue be welcome in this country, if rather less in numbers so that we can then cope and treat them well.
Investment-wise, am of the school that focuses on today (and rebalancing) rather than peering into an unclear future and guessing where things might be heading.
So this week as sterling fell, saw surging and resulatant rebalancing reductions to :-
VWRL (Global Tracker)
SOI (Asia/Pacific Income)
AAIF (ditto)
JRS (Russia)
3IN (Infrastructure) – have no idea why that surged!
Rebalance additions on weakness to :-
HSL (UK Smaller Companies) as mid 250 took a pasting!
BRCI (Commodities Income) – what on earth was going on there?
This was the busiest week can remember for several years!
Could now do with for some calm.
The ‘Constant Value Investment Formula Plan’ for individual positions seemed to have worked quite well, flagging up the rebalancing opportuities as they arose.
Also of great help was the International diversification so often recommended here by The Investor.
Let’s hope all the political hoo-ha and aggro subside and rationality and reconciliation return once more to this land.
Good Luck to us All
Didn’t buy. Didn’t sell. Didn’t panic. Portfolio-wise, quite an uneventful week all told – up 2%.
@ADR so lets see if i’ve got this right, if £ is down 10% against most countries we import from and your portfolio is up 2%, in very rough broad-brush terms, you’ve actually lost 8% if you were to think of it in terms of your purchasing power, maybe losses are a bit less if some of what you’re buying is produced domestically?
..and you’ll notice that as the fall in the £ trickles through in coming months as inflation?
@Rhino – I take a broader view. Sterling fell from c$1.70 to c$1.50 in the last year or so (from memory) before the recent dip. That, generally, passed without comment. I don’t think I’ve become – in any meaningful way – 10%+ “poorer” in that year. The fall from c$1.50 to c$1.35 currently (but rising) seems to have captured people’s imagination.
Inflation might rise a little (although there are downward pressures). But isn’t inflation “too low” at the moment? One of the BoE’s jobs is to keep it around 2%. Not all inflation is bad – it makes debts go away.
You seem to assume that there’s a “right” level of $ to £ and currently it’s below this range. I accept we’re a little below the recent average, but I don’t conclude that such a position is “bad”. Anyway I suspect it’ll go back up to it’s long-term trend, anyway.
There are many other factors that affect prices – domestic vs foreign. Price of oil. Sentiment and events. Consumer reaction – buy more Stilton, less Roquefort, shop at Lidl not Waitrose. Change electricity / insurance supplier.
If your thesis is that we’re all 8% poorer as of today, then I would disagree.
Most of my posts on here have been “it’s rarely as bad as you initially think it will be” and “there are no certainties”. I stand by that.
Imagine if there had been an internet blackout in the last 7 days. If only now we had to post our feeling about “what just happened”. I think there’d be a lot more “meh” and a lot less “The lights are going out all over Europe”.
The £ has been bobbing around a 31-year low against the dollar in the aftermath of the Leave win.
As for the long-term, in the 1930s £1 bought you over $5 from memory, and even in the late 70s/early 80s it was still over £1:$2.
@ADR good stuff – i’m not assuming anything and have no hypothesis. I am in ‘sponge mode’ trying to soak up some new ideas. I’ve never specifically considered currency exchange rates in tandem with the value of my portfolio before when thinking about my net worth. This week seems like an obvious point at which to do that, and other people have commented on it, so trying to get a handle on it. Thanks for the additional info/ideas.
@TI – genuine question (as I’m no economist) – was it “better” for the UK when £1 bought over $2?
@Rhino – thank you. While I’m sure £:$ is important (even if I don’t really know how in the overall “wealth” picture) I think most people would judge wealth by the price of a pint of milk (going down) or petrol (down) or their mortgage rate (down). And bank interest rates (down, in a bad way).
The media seem to be making a fuss, not because the pound is down 10% (that’s happened often enough and recently as I noted), but because we’re at the bottom of the recent range. I’m just trying to understand why that is, of itself, important and whether – if it is – it’s good or bad. Like most things the answer is probably a mixed bag.
@ADR — Yes, it is a mixed bag of pros and cons. When the £ was very strong (especially pre-WW1) it was a reflection of our status / position as a reserve currency. The long term £ decline versus the $ is as much a reflection of the rise of the US in the 20th Century, especially post-WW2, as it is a decline in the UK (with obvious exception points). Plus shocks like the end of the gold standard and the discovery of North Sea oil loom large, too.
A weaker pound is good for exporters, but 2/3 of our economy is consumer driven. Inflation will rise, people will be able to buy less stuff, fuel prices will rise etc. We’re a trading island nation, and we’re poorer.
We are also in a situation where people who know more than me say there’s a strong chance that financial services, a huge generator of overseas wealth for the UK (and taxes) will take a hit post-Brexit. We will see, but it’s not a bet I’d have wanted to lay.
Your right about the £ moving often over time. It’s the speed of the decline, and the obvious correlation with the Leave result, that is what’s most worth making a fuss about. In the years ahead we will see how much of the uncertainty baked in was warranted, in the end. As I said in one of my novels this week (ha ha @HumbleDuck!) if Brexit damages the EU then eventually the £ may rise as a relatively safe haven.
A longer-out concern, not massive until (if) it happens at which point it’s all that matters, is if gilts start selling off on worries that the UK economy has been permanently impaired by Brexit, particularly with respect to our still barely tackled debts and deficits.
Devaluing a currency has benefits but when that devaluation becomes driven by outside capital / opinion of the market compared to internal decisions, it’s potentially a Very Bad Thing, depending on how much you rely on overseas capital.
To give very extreme examples to make the point, think solid safe haven Swiss Franc versus the Argentinian Peso or the Russian Rouble in recent years (let alone Zimbabwe). Generally a very weak currency is not associated with robust economic health, whatever individual benefits one may be able to see.
We’re certainly not there yet, and as said in the piece UK government bonds are holding up fine. Let’s hope we stabilize here.
Surely the whole idea of holding a diversified, passive portfolio of funds is that it allows you to look at something like the EU Referendum through something other than an economic lens, safe in the knowledge that you can sit tight and weather the storm. Otherwise, what’s the bloody
point? I don’t really know whether Brexit is a good thing or not, but recent evidence suggests that dogmatism is an incurable disease.
@BrainUnwashed — Agreed. I said in the piece I would not suggest changing anything if you are a well diversified passive investor. We need to coax The Accumulator on here — the passive faithful are suffering under my voluminous ramblings this week.
That said the site does aspire to be about broader personal financial matters then just investing portfolios, although I concede that is more in intention than in implementation.
As is obvious and I won’t belabour again, I think any hard Brexit could well impact our general household finances in the years ahead.
haha TA has very sensibly been keeping his head down – the theresa may of monevator he’ll burst out and take over any moment..
@TI, If you look back to the “70s and 80s” as you mentioned then you will see that February 1985 marked the nadir of the £v$ when it reached $1.05, so your memory is not quite what it used to be.
Damn! Can’t edit my own post. I now see you said late 70s/Early 80s rather than just 70s/80s. I apologise. Still, $1.05 was pretty poor and I remember the state of panic everyone was in about it claiming parity was just moments away. But it didn’t come and the economy moved on.
@Burmeister — That is lower than I remember, fair comment. Of course all the headlines are currently saying “31-year low” for the pound versus the dollar, which (shockingly and somewhat depressingly! 🙂 ) does take us back towards that date.
Off topic but still…
An Englishman, an Irishman and a Scotsman walk into a bar. They leave because the Englishman wants to.
FTSE100 at 6,500 – a Boris bounce? We really do live in unpredictable times…
@Marked (29) “….. we won’t need to participate in that wretched contest anymore!”
Nor any more Euro 2016s? Would that be the Iceland model?
I think the shenanigans in both political parties this week shows how childish and embarrassing British politics has become. There was a brilliant quote from one politician – it’s the house of cards does teletubbies!
Anyway I listened to all of Carney’ s speech today. Very good. Of course the brexiteers want his head thus going back to my original sentence.
HumbleMcDuck, I realise the FTSE100 gets a large % of earnings in USD but markets tendency to overreact had me extrapolating at least a week of losses before it bounced back, not just two days. It just goes to show how pointless it is trying to second guess things.
Today’s markets have been incredible, every single asset of mine has gone up in £ terms, from stocks to gilts to gold, as Carney talks of dropping interest rates. It does make you wonder how they can ever raise rates given the opposite impact on every asset class simultaneously. Can everything be in a bubble at once? Then how does inverse correlation protect your portfolio if it stops working?
Maybe the FTSE100 will top 7000 when Carney does actually cut the base rate, in complete contradiction to the Remain party line of rising interest rates. 10 year gilts will soon yield 0.5%. Then the housing boom will restart.
What’s not to like? 😉
It has without question been a heady rip up across most assets (though I can still sell you a few Bovis shares cheap if you want ’em! !)
I would put the celebration on pause though (and I appreciate that you were being semi-tongue-in-cheek) as all recent developments are coincident with recession (low interest rates, falling gilt yields, falling pound, depressed earnings of domestic cyclical plays such as banks and homebuilders…)
Attention: “The Investor”. Rereading my first post, I meant “moderate LEAVER”. If you could amend it It’d be grateful.
Leaving aside the politics and focusing just on the investment side, I have been pleasantly surprised this last week. Most of Friday I avoided my investment platform but since then I have been checking in every day. Not with the intention of tinkering, but rather to observe and also to choose where my monthly payment will go. I’ve seen the biggest % numbers since I started investing. Some positions had 5% losses in a day, but much to my relief others were up by about the same amount (especially my bond fund). Monday & Tuesday I was looking at overall loss of about 1% and today I’m sitting on a 3% gain since this started.
So I’m actually feeling confident, and possibly a little bit pleased with myself, that all that advice from sites like this must have soaked in somewhere well enough for me to build a good diverse investment strategy.
Now, what’s that saying about pride before a fall…..
Do you envisage any brexit-related impact for a UK investor holding Irish-domiciled investments? Many of the Vanguard funds for example are domiciled in Ireland.
@all – Meant to say earlier, we really appreciate all the comments from people who attribute to Monevator some of what they’ve learned about diversification (assets and geographies), and hence the benefits they’re seeing in their portfolios this week. It’s heartening to hear — the best news I’ve had this week! 🙂 (On a related note, my co-blogger The Accumulator is writing his latest Slow & Steady Passive Portfolio update this weekend, so we will all be able to see how that’s faring).
@charlie – I’ve been asked that very good question before this week and I’m afraid I don’t know the answer. Not sure my co-blogger knows (he’s far more a fund intricacies/legals kind of guy) but will check. I suspect it’s going to come down to the question of how British financial services firms / citizens are able to access EU markets — and vice-versa. To that end, it’s an example of the sort of uncertainty that will plague swathes of business and legislation for the next few years.
From our point of view as customers I’d expect Vanguard, iShares (/Blackrock) and others to sort out any required transition though.
@SemiPassive — I wouldn’t say there was unanimity that interest rates would rise. Also both the weak pound and the prospects of Bank Rate falling are for “bad” reasons. (i.e. Uncertainty and prospects of economic downturn). The BOE may well decide to let “imported” inflation from a weak pound run higher for a bit if the economy is weak, as others have said, but there are circumstances where he may not have the choice.
Someone noted some inflation may be good for eroding debt, which is true, but remember that from the point of view of an overseas investor in UK government debt (who has already seen their investment likely fall in their own currency terms), high inflation eroding UK obligations might not be such an attractive prospect! (Which takes me back to the point about the UK relying on overseas investors…)
Time will tell, hopefully we can muddle through without too much self-inflicted suffering. And a lower pound, provided it’s not relentlessly lower, will help here.
@all — Here’s an excellent article explaining the currency / current account / financial account risks/issues I’ve been referring to all week.
Extract:
https://www.poundsterlinglive.com/gbp-live-today/5118-gbp-to-eur-and-current-account
A pot that I haven’t added to for many years is now at an all time high, even beating the giddy days of May 2105. However, while my holdings are diversified globally, I’m seeing the value in post-Brexit pounds, which lack the buying power of pre-Brexit pounds in a big way. Meanwhile the LTA is dropping, so further drops in the value of sterling could pitch me into 55% tax on my pension. Nice.
My company is fortunate in that 90% of our business is outside the EU, so we won’t be hit by either the (inevitable, let’s face it) UK recession or the difficulties of trading with the EU. But we’re already seeing EU nationals handing in their notice, applications drying up, and even some who’d accepted roles now telling us “no way!”. This means we’ll be forced to shrink our UK operations and expand in the EU (basically wherever the bright people are.)
Other businesses that are exposed to the UK will see all of these recruiting issues, lots of impacts due to UK economic situation, and much more.
It’s going to be a rough ride and TBH the impact will be felt the hardest by exactly those demographics who voted for Brexit.
Good.
I’m sorry that you feel that there are insufficient bright people in the UK. But can we please not go back to the invective of the previous – now closed – thread.
@GM sorry to hear that about your staff issues – that sucks, not a good sign at all
“as Carney talks of dropping interest rates. It does make you wonder how they can ever raise rates given the opposite impact on every asset class simultaneously” SemiPassive
Emphasis on the word “talks” rather than actually doing it!
Central Bankers love to “talk” the currencies and markets up and down, without being forced to put their words into action.
We have to see through this charade!
A more pertinent question might be :-
How long will the BofE hold off RAISING RATES when faced with the INFLATION caused by £Sterling’s depreciation/loss of purchasing power?
Here is another question for investors with more penetrating minds than this investor :-
The events of the past 6 days, and in particular the currency shift, have created the need to generally rebalance out of International Assets as their value rises when expressed in £Sterling.
But if our portfolio was valued in US$, suspect we might not be selling these positions?
Are we therefore correct to always value holdings in £Sterling?
Pressures on interest rates both ways. There seemed little pressure to raise interest rates when the £ fell over 10% (but slowly) in the last year.
Again it seems to be the speed of the recent £:$ fall that’s caused consternation. We weren’t asking these questions when the fall in £ was more slow. Good question to ask, though. Personally I’m not trying to be too sophisticated. I simply buy (in the main) the various vanilla Vanguard trackers that HL sell, and view my portfolio value (in £) without any further mental adjustments about what they might “really” be worth. I wouldn’t want to add currency speculation into what is, already, a difficult field.
@Gadgetmind – I think it is perfectly understandable for EU citizens to be retiscent regarding a move to a new post in the UK whilst things remain uncertain. However if, as you say, you are employing “bright” people that don’t exist in the UK then I would imagine that there would be very little in the way of barriers for them when this all shakes out. I don’t believe anyone (including Farage) has ever said there would be no immigration at all and that those that would benefit the UK economy (i.e. Bright people that don’t exist currently in the UK) would still be able to get in.
But, until anything is decided I can understand a certain hesitency.
The final flourish in @gadgetmind’s post is unfortunate, but the rest I consider absolutely on-point and value-adding.
For a week we Remainers and Leavers have been debating, but either on an abstract theoretical level or at best appealing to the expert opinion that one side of the debate for whatever reason chose to dismiss.
But here we see from one of our own long-time readers concrete real-world evidence of the impact of this decision, less than one week after the vote.
@gadgetmind has spoken many times about his business in various contexts when he had no axe to grind, and I see no reason not to take him at his word here.
I’m not celebrating this bit of confirmation bias. Rather mourning what we might be about to lose. 🙁 Let’s hope it’s not a story being repeated too widely up and down the country (wishful, I feel) or that it’s a short-term reaction of the sort I described when I discussed my friend in my long article above (that’s still possible, with luck).
Altering your investment portfolio in the light of Brexit is one thing, and for now we’re all agreed a passive investor probably shouldn’t go there at this point, even in the light of this likely major event. “First do no harm” seems appropriate.
Household finances and so forth are another matter.
If my worst fears (or even the sharp end of my central thesis) come true, it could be tough sledding in the UK for the next few years.
Personally I am going to batten down the hatches until I see evidence otherwise, and this blog will likely reflect that view.
@magneto
If you fix your targets for each asset class of your portfolio as a % of the value of the total portfolio (which is the standard Monevator approach to portfolio design), the currency that you use to value your portfolio should not affect your rebalancing…in principle.
I said in principle because for some people their appetite for risk (and thus the structure of their portfolio) might be somehow a function of the total value of their portfolio. As discussed in the last post before the Brexit deluge, the currency chosen to value the portfolio does affect the assessment of the portfolio’s performance.
Plenty of people seem very content with the recent performance of their portfolios. But focusing only on the value in GBP gives a very different picture than looking at a range of currencies (or a basket of currencies). I just did my three month update, and while the value of my portfolio has increased 6.1% when valued in GBP, decreased -1.7% when valued in USD, increased 0.8% when valued in EUR, and increased 1.6% when valued in Special Drawing Rights (SDR). The portfolio was at its highest value in SDR and EUR in June 2015, in USD in March 2016, and in GBP right now — so I feel that it hasn’t fully recovered yet from last summer’s turbulences.
Tracking portfolio value in multiple currencies is easy, but is it worth the “mental effort”? That probably depends on the objectives and characteristics of each investor.
I sit in a small west african field office with a multi-national mix of engineers on a variety of different residencies and employment schemes.
It’s been interesting to note the fallout from the previous week:
The happiest are the independent contractors, paid in dollars and resident in the UK
The most depressed are the Canadian/U.S residents paid in pounds
The UK residents paid in pounds are simply confused. Much like the politicians.
There may or may not be legal barriers, time will indeed tell. However there are other ways this vote will influence things, beyond the very real impact of current uncertainty and any future impact of barriers.
The sorts of people I am certain @gadgetmind is referring to are young, intelligent, educated, and cosmopolitan. Thanks basically to London and to a lesser degree peripheral towns (Oxford, Cambridge, some of the dormitories) the UK had a big pull on these people, for a variety of social, cultural, and economic reasons.
I don’t believe we can just leave the EU after a referendum widely seen throughout the world as a plebiscite on immigration — whatever the particular concerns of any specific voters — and not expect there to be some impact for at least a few years on the minds of those bright people we’d like to attract.
Throw a recession into the mix — where London goes from being the booming bright spot of Europe to a depopulating city in retreat, in my worst imaginings — and the attractions gets dourer.
My initial hunch, much of what I’m reading — and reinforced from speaking to friends and family in/from the area where I grew up — is that a big chunk of the Leave vote was basically sticking two fingers up to London and the modern, globalized economy.
These voters have their own motivations for that, but what they can’t expect to do is inflict some damage and not expect to feel some pain.
For a big chunk of Leave voters (*not* all, I’ve acknowledged many times I’ve some respect for the sovereignty voters of principle, and even the cultural/numerical concerns re: immigration, even if I share neither) sheer envy/jealousy seems to have been partly behind the vote.
They saw London (and they always say “London”, this isn’t me being London-centric) as a global city attracting so much of the world’s brightest and best. And they kicked out at it.
30 years ago when the provinces were still being de-industrialised and the Government was paying lip-service to supporting the regions — because idealogically they thought the markets would fill the gap — I can see a reason for saying the strength of London might have been a weakness for the provinces.
But those days are gone.
Nobody has given me a convincing explanation as to what — economically — striking the UK’s most successful region/economy will do positively for the rest. As far as I can see it will simply reduce taxes and perhaps some peripheral immigration that was a net tax generator anyway.
We have a democracy of representative MPs who were well aware of their constituents problems. We had 15+ years of a Labour government. The reason everything wasn’t fixed wasn’t because everybody was too busy toasting each other in Islington dinner parties, but because the problems are incredibly hard, and are being felt worldwide.
But at least we had one of the most popular and dynamic and economically-productive global cities in our hand of cards.
That’s at now imperiled.
I don’t know which of the EU key freedoms (free movement of goods, services, capital and people) we’ll be left with after the pieces stop bouncing, but businesses nor people can’t afford to just sit around and hope for the best. Both will judge when it’s best to derisk their UK exposure and their mental gears are already grinding.
Why invest time and money moving to the UK when the rest of the EU is at your feet? Why expand in the UK if you don’t know what tariffs and taxes you’ll be exposed to and whether you’ll be free to hire from within the EU?
We’ve already made the decision to expand our development office in Poland and I fully expect us to convert a sales office in one other EU region to be also a development office, and we’re likely to open at least two more.
By the time the negotiations are complete, most of it will be moot as changes will have been made that will take decades to reverse.
I can’t think of any UK businesses that Brexit will benefit other than pawn shops and Begbies Traynor.
BTW, I’m up in the grim North, but my city voted Remain. Mind you, we have a lot of immigration and are very multi-cultural, so no what we’re be losing.
Other places such as Hartlepool, that were 97.9% “White British” in the census, voted Leave with immigration cited as the most common reason.
Make some sense of that if you can!
Sorry for typos – trying to use iPad while in Spain. Yesterday I went scuba diving with people from Spain, Italy, Germany, Belgium, and Holland, and a very nice bunch they were too. It’s a very friendly club that we’ve decided to leave. Not perfect, but easier to fix from the inside. Ah well.
Ah, fair enough, I suppose I deserved to discover that @gadgetmind is based 100 miles away after adding yet more words of lament for London to this blog this week. 😉 I stand by the general thrust though, both economically where London has been booming (albeit with some issues such as housing) and culturally, where it’s a huge draw for many internationally, even if they end up working outside it.
Perhaps not up North by @gadgetmind’s Wall though. I concede that! 🙂
Interesting that my ETFs (both global and UK) have increased £10k in the last few days. They were moving sideways for over 6 months. Maybe we need another country to exit the EU. Just kidding. 🙂
The point about market towns is odd. The Internet will continue to shape the market town. EU membership is neither here or there.
Interesting that Paul Krugman, the Nobel Prize Economist, of a left persuasion and on balance supported Remain, has written two blog posts warning about dramatizing short term effects. His greater concern is political and long term economic effects.
http://krugman.blogs.nytimes.com
There are broadly two drivers of economic growth: working population and productivity. Successive UK governments have failed to improve the productivity figures, especially vs the G7 so they have given up.
Instead mass immigration has indeed increased GDP (but not per capita since the crash in 2008) but the pressure on services, social cohesion and quality of life has been a big price to pay.
The EU can’t fix the productivity problem. Only the UK can through better education, corporate investment, and better opportunities beyond the top 5%, all leading to social mobility. Even Paul Krugman would promote that.
@D — Hi!
I guess I wasn’t clear; this was partly my point. (Not the “EU is neither here nor there” part, clearly, but that large forces are at work that mean it will be hard to discern what might have been anyway).
Only time will tell whether we in the UK will be worse off economically because of Brexit. I doubt that I will win many friends by saying it but whatever happens I don’t think that the country will completely implode, and if the end result includes a reduction in our population growth or better still a reduction in our population, then I won’t be long-faced.
Less building on green space, less overcrowding on our trains and roads, no extra runways, smaller class sizes, et al, et al, yes please! We might be poorer but I for one would be happier.
How much worse off we’ll be depends on whether we do “Brexit lite” with the four freedoms intact or whether we go the for “Berlin wall” approach. Reduction in population would require restricting movement and telling existing residents who aren’t UK born to leave.
Do we really want to go there? Is this who we’ve become?
Already we’d seeing a massive rise in open, overt and objectionable racism on our streets. People I know who were born here are being called “Paki” for the first time in their adult lives, and those from the EU who’ve been here decades are having “We won, when are you leaving!” screamed at them.
I cry for the UK, I really do. I’d love to be optimistic about the future but all I can see are some very dark clouds.
As for investing, let’s all just remember when checking our portfolios that the pounds we’re looking at aren’t the same ones from before the referendum, and quite likely never will be again. Maybe look at the value of your shares (and house) compared to gold or dollars.
@TM haha but has any nation on earth figured out how to live in a growth free economy? growth is like heroin, once you’ve had a little taste you find its terribly moreish and you can’t do without it..
@TI You appear to have picked up my comment about bright people and barriers. As I have said in a few of my posts I am/was a remainer, but that is in the past now as the die has been cast. MOST politicians are now saying that there should be a points-based immigration system and so areas of need would be supported by immigration. My previous post was saying that Gadgetmind was after bright people that aren’t available in the UK and, as such, they should be able to accumulate enough points for entry. But..my post did go on to say that until these things are agreed/written in law I can fully understand why someone from the remaining states of the EU would not want to upsticks and move here and thus I can see why this would be an immediate, short-term, problem for Gadgetmind. Hopefully, 2 years down the line, we should be able to actually have a reasonable discussion about what is going to happen because, with the sbest will in the world, nobody actually knows for sure. Hell, even the Brexiters don’t know what they actually want let alone what can they get the EU to agree to.
It may be prudent to adjust your investment style in fear of “what might happen” or it may be prudent to just get on with it.
@Gadgetmind “As for investing, let’s all just remember when checking our portfolios that the pounds we’re looking at aren’t the same ones from before the referendum, and quite likely never will be again.” Quite a piece of hyperbole there. Most of us who are over a certain age can recall the doom and gloom of the ERM, the £ falling to $1.05 and the sky falling in predictions that were abound. And yet, the world didn’t end. The £ soared (eventually) to well over $2 so to make the statement “quite likely never will be again” is incredibly short-sighted and narrow minded. Also, I consider myself forunate that some of my money was invested overseas for, whilst it may not be worth what it was at the beginnning of last week, at least there’s more of it, unlike my cash reserves which are still in £s and haven’t risen because of the currency fall.
@Burgmeister — Fair points. 🙂 I guess I’ve just heard too many Remainers say this week “The UK is a this or that country so everything will be fine” without seeming to realize or acknowledge that they’ve just potentially changed it into another sort of country! Especially in the short-term, and especially with respect to the most successful areas geographically and economically. They can’t rely on the status quo anymore. I was more taking an opportunity to address that sentiment.
@Topman — I don’t really share your views but I do appreciate the honesty. If more Leavers were voting with clear eyes to the potential downsides to pay for their upsides, I’d be less unhappy with the Referendum.
Maybe those so confident that the brightest and best EU immigrants can still stay via a points-based system are missing a very important aspect:-
As investors we are especially aware how emotionally people behave, particularly when deeply ingrained triggers are involved, like fear. Logic then becomes a word in a dictionary and people are much more likely to panic. EU citizens currently in the UK (2-3 million) have just had their lives kicked up into the air through no crime they committed, their natural reactions are deep unease.
Real people I have known very well for years tell me they now feel less safe in public, fear they have quietly become second class citizens with less rights and are being managed out. Whether it’s true or not doesn’t change how they feel and issues on the news detailing bigoted attacks don’t help when seen by all; even if the majority haven’t experienced it.
Those who are going to get in on a points-based system will have to be the best to qualify and it’s a fair assumption they will therefore be generally the highest educated/skilled, experienced and probably paid. Now ask yourself the question, if you were in their shoes and held the best cards, why would you jump through a series of demeaning little hoops to be in a country you feel is hostile to people exactly like you?
@TI No problem. I think, in the words of Doris Day, “What will be will be”. What I have learned in my many years on this planet is that things change – sometimes they’re up and sometimes they’re down. There are a couple of other things I’ve learned – we can talk ourselves into a recession (the self-fulfilling prophecy) and, finally, what I think makes absolutely no difference to the way the world will work itself out!
We, as a nation, just have to accept what has happened, whether we agree with it or not (and I don’t) and get on with making the change because the uncertainty is far more dangerous than whatever agreement they come up with.
One other point (sorry I meant this to be short). I can’t understand why the huge Italian banking crisis isn’t making more headlines. It is a massive problem for EU (and, presumably, the rest of the world). I also didn’t see much mention of the IMF’s recent comments about Deutche Bank being the biggest banking risk facing the world. I would have thought that the prominent Brexiters would have made more of this. When the smelly brown stuff hits the spinny thing I think the £ may look more desirable.
@ FI Warrior. I don’t disagree with your comments regarding people feeling safe. I have experienced bigotry first hand when I lived in Scotland for 10 years and was made to feel decidedly unwelcome. Some of my family were beaten up purely for being English, so I know how your friends may feel. All we can really do is hope that this doesn’t become too much of a problem and a successful economy is the best chance of that happening.
On your other point about needing to be the best to qualify, I don’t think that is necessarily the case. What they need to be is the best of those that apply. If the demand is great enough then the best applications will be accepted whether they are the best overall or not. Supply and demand.
I want to challenge a big assumption about the post-Brexit economy; the notion that a diminished supply of labour will necessarily be bad for the UK. There are obviously two major ways to boost the size of an economy – increase the number of people working in it or increase the productivity of the existing workers. The UK has used the first method of mass immigration. It is perfectly possible that the economic impact of falling immigration could be offset by new investment in education and technology to boost labour productivity.
A lot of investors have already made money from Brexit because we bought shares on the swoon and now watched the market go up. Brexit means we are probably in a lower for longer interest rate environment with new fiscal easing coming soon. This is a great time to be an investor in UK assets in my humble opinion. Contrary to a lot of the commentary on how the UK’s image abroad has been effected by the vote I’ve been reading more positive stuff about this country. The message is being heard internationally that Britain has the self confidence to strike out on it’s own path, to seek new trade relationships with the US and Asia that it couldn’t have whilst trapped in the EU. The UK is world renowned as a dynamic open economy and the message is getting out that post-Brexit UK wants a close trading relationships with the whole world including the EU. I am positive about the future for the UK. I think we will look back on Brexit as the UK making its great escape from a dysfunctional EU that is neither democratically legitimate or wealth creating.
Englishman, lived in Scotland over 30 years. Never once (not once) seen, or been subject to, any anti-English comments. I’ve found the Scots to be very welcoming and friendly. Ditto most of the British people I’ve met.
@Burgmeister. I’m sorry to hear of your personal experience of being a target, I put in some years as an expat and know the feeling of keeping a very low profile in places where your nationality has negative connotations through no fault of your own.
Actually the point I was making was that EU citizens currently in the UK are mostly here because they have more get-up-and-go than the average population. Making a new life in another country and/or culture is hard, so they will be smart, hard-working and courageous. It would be reasonable to assume they are highly regarded in their respective fields and therefore will have more options than the average. (supply and demand, like you said)
So if they can live and work that job/occupation in any EU country with full rights and feel safe, why would they stay in one that they feel is hostile to them in particular? I just wouldn’t do it for the insult alone.
@A Different Richard
Well, I am absolutely amazed by that. We lived near Aberdeen and experienced anti-English sentiment almost every single day. Not only was it in person, it was also in the media, so for you not to have experienced it is incredible. If it just happened to me, maybe I could put it down to my character or imagination, but it happened to my wife, mother-in law, father-in-law and it was my brother-in-law that was beaten up. Other English friend were also targeted.
Anyway, in the end they won and we moved back south. But I’m glad that my experiences aren’t being lived out by yourself.
@ FI Warrior “So if they can live and work that job/occupation in any EU country with full rights and feel safe, why would they stay in one that they feel is hostile to them in particular? I just wouldn’t do it for the insult alone.”
They wouldn’t, just as I didn’t.
By “not seen” I mean personally – I have read (a little) about anti-English sentiment – although that often seems to be anti-London/South East/Bankers/Braying Tories and the like rather than “the English” in general.
I once asked for lamb neck fillet in the butchers and he said, matter of factly, that they didn’t have it, as it was an English cut. I took that at face value – different regions cut meat differently and sell different cuts. His neck fillet probably went into mince (as I presume Scottish lambs have the same necks as English ones).
I also once asked in Tesco early one morning if they had a copy of the Daily Telegraph. I was told “the English papers haven’t arrived yet” (meaning the plane was late).
That’s my sum total, and I didn’t take either to be anti-English.
My personal experience of racism (to me or to anyone else) is almost zero. Perhaps it’s more prevalent in big cities – I’ve only ever lived in small towns and rural villages.
@TI (85)
Thanks TI. I don’t recall ever seeing a TV programme called “Escape to the City” :-). Devout remainer for the record.
I wouldn’t have taken either of those comments as anti-English either Richard. As I say, my experience was completely different. Probably, if my experience mirrored yours we would still be living in Aberdeenshire, but I don’t regret moving back to the South West.
I find it interesting that everyone seems to think that the UK is basically screwed, down the pan, leave fire Europe. Europe’s position isn’t exactly assured. Banks in Italy a teetering on the edge and there are plenty of nightmare scenario a that could hit them during the Brexit. Remember that are losing the 5th largest economy. Why do we think it is going to be a better place to do business? Surely the risks are as big, Maybe bigger than for the UK……
@gadgetmind (82) “Reduction in population would require restricting movement and telling existing residents who aren’t UK born to leave.”
Or, as I would wish it, straightforward voluntary emigration and not related in any way to nationality, colour or creed.
It’ll be very interesting guess work for when “bad” inflation arrives to these shores. The £ certainly isn’t what it was last week, but I’m wondering when we’ll see it in CPI.
I have a corporate job for an American company and do property development on the side as a hobby (and about to sign a contract to build 3 new houses which is a bit concerning). In the corporate world of international conglomerates I believe the £ would have been hedged, and it then becomes a question of when the hedge runs out. Most American companies financial year’s end at the same time as the calendar year. I’m not saying they hedge all hedge with the new financial year, but we do. In which case bad inflation may trickle.
Coming back to building houses, I have hand made bricks coming from Holland and 42 hardwood sash windows coming from Bosnia. Both companies are holding the £ price for me, even though sashes won’t be needed until Dec/Jan.
So again, more limited evidence that bad inflation may creep opposed to dollop heavily on our economy.
The bad one of course would be fuel. Priced in dollars and oil has started going up, so that’s a double whammy. However, price rises are dampened by the effect of that HUGE dollop of tax. That is to say oil was $26 a barrel 4 months or so ago, and now is $50. Let’s call it roughly doubling. However price has gone from roughly £0.99 to £1.13, or 14% up on a doubling of oil. So its effect won’t be the 20% change in currency to the dollar (since ref announced in Feb) due to the tax damper.
Circling back to my prices of foreign goods holding steady in sterling terms for building, of course I could have just been an insanely bad negotiator on price and they now feel sorry for me!
I rather suspect that the outcome will be more of the same, the unexpected happened and one can speculate endlessly but reading this article just a few days later…Boris is squeezed out, markets have rallied strongly, my passive global portfolio leaves me better off and people adjust to changes.
My medium term prediction : Pragmatism works , leave voters will be disappointed and those who voted remain will find the outcome not as frightening as they feared. The overall result will be much the same as if nothing had happened.
The truth of the statement about the possible things that didn’t happen include far worse scenarios…another event like 9/11 but biological or nuclear
The big worry I have is that Brexit encourages a similar event in mainland Europe. Who knows ?
Regular but so far silent reader of your excellent website here.
My globally diversified portfolio of index trackers has come through the initial Brexit shock with some gains. But one big laggard is the only managed fund, a UK small caps (in the mix because there wasn’t a UK small cap tracker). I also hold Vanguard global small cap tracker.
I should rebalance and buy more of the UK small cap, rigorously following the discipline to buy low to benefit when the cycle reverses and UK small caps forge ahead.
But this time I really do wonder if it would be better to move out of this UK focussed fund and hold only UK exposure that is inherent in all the other global trackers?
It is hard to see any scenario that doesn’t involve things getting worse for UK companies before they get better. But perhaps because it is hard to see how, is the very reason to keep the UK small caps.
Any thoughts welcomed!
@Topman – “straightforward voluntary emigration” so those in the UK are free to live and work wherever we please, but none of those nasty furriners Brexiters distrust and dislike so much can come to our septic [sic] isle?
Good luck negotiating that one.
Or maybe we just treat anyone not UK born (or with a skin colour we don’t like?) so badly that they leave?
There must be something I’m not getting so please explain.
Let’s keep it classy please guys.
@Will (101)
Welcome. The commenters here are rarely anything other than tolerant, thoughtful and courteous, and TI, TA and the “occasionals” contribute hugely useful articles. I would be floundering without Monevator but I flourish with it.
Your portfolio sounds well put together, and that suggests a “steady as she goes” approach in the current (no pun) white water. With the amount of change that we’ve had recently, make haste slowly would be my advice.
I’d like to thank Monevator for maintaining a very sanguine position over this past month; I’ve stayed the course, put reserve funds to work on Friday and, thanks to a well-diversified international portfolio, have seen my £ wealth – in my ISA – rise by around 5%. The combination of market volatility and foreign currency denominated funds has been a fine demonstration of why this sitr espouses what it does.
My own Brexit take is one of optimism. The only mandate delivered last week was to leave the EU. How that actually plays out is a matter for the next PM. I’d suggest the likeliest to be an EEA model with a considerable tally of FTAs bolted on the side – the interest in these from the US, India, Commonwealth and other states has already become clear. It certainly won’t please a large number of Leavers, but I think the symbolism of ‘we’ve left’ will salve many of those wounds and leave only a relatively small number of professional Leaver politicians kicking up a stink.
Rather off topic but I am wishing I had a Delorean and could go back 12 months and put an accumulator bet on –
1. Trump as Republican candidate for US President
2. Leicester winning Premier League
3. UK doing Brexit
4. Cameron resigning within 15 months of winning an election
5. BoJo doesn’t run as Tory leader
5. Wales getting to semi-finals of Euro 2016 !!!!!!!!
I could laugh in the teeth of Brexit then 😉
What next in these unlikely happenings, I wonder?
Trump as US President, Corbyn as Prime Minister, aliens arrive????
I am not even going to try to guess at who the next leader of the Tories will be……………
I have been reading this blog for years now and this is my first comment, so I think the first thing to say is thank you for all the effort to make all this information available.
The main reason why I came to this country is because in mine (Spain) the work situation was very unstable, difficult to find a job and difficult to keep it. Nowadays, for different reasons but I have the same feeling. I don’t know what would happen in 2 years time despite being in a good niche of work, I am an engineer, I wonder how younger people with a lower salary and working in service would feel. It’s like when you are falling down and you know that you are going to hit the floor but you don’t know yet how hard is going to be.
Anyway what makes me sad is that the main reason to vote to leave it has been the “immigration problem”. That makes me think that half the people at my work don’t want me there, and the same when I go into a pub, supermarket, etc. The funny thing though is that for every spanish living in UK There are four English living in Spain. I coul become an English citizen but I see now that this would not change the way people see me, I always would be a foreigner.
If you check now in google maps there is a pin in UK with a label that it says : If you are not English you are not Welcome. I think that after the outcome of the referendum your immigration problem has already been solved. People will think twice before coming here.
Jose – there are millions of people in the UK who do not think that way, who believe in a tolerant and open society that welcomes all regardless of background, creed, ethnicity, football team and whatever other category we can invent to divide ourselves.
That hasn’t changed because of a referendum vote. No doubt some voted leave on the immigration issue. Some because of sovereignty or alienation or just a misplaced desire to drop-kick the status quo in the janglies.
This is no time for us to give up in despair at what’s happened. It’s time to stand up for the kind of country we want to live in. And I think over time the majority will show we want to live in a country where everyone is given a chance to live a peaceful, prosperous life.
@ Charlie – re: Irish domiciled investments. Don’t see it being a problem. Given the size of the City and the UK’s balance-of-trade deficit, our prospects rely heavily on our financial services retaining an open door to the rest of the EU. Would be suicidal to shut off services we import from other territories given the amount we export. So… let’s just say some kamikaze pilot does grab the controls for a while, the obvious move would be for fund providers to create spin-off versions of the same products that are available in the UK. Just as those products are available in the US and Europe currently but edited for different regulatory environments.
I get the perception people might have on the immigration issue, which the media is not helping with. But remainers and even the EU believe in immigration restrictions. There is not an open door policy to the world. So I wouldn’t take the vote personally. People believe immigration is a problem for a complex web of reasons, much the same as every country around the world does (including the EU). There was plenty of opinion against allowing refugees into Europe and it was not just the UK raising concerns. Like many things, it is not a black and white issue (contrary to what many would like to believe)
@Jose – your words sum up what I know many who work for me are feeling, and many others across the UK. Finding work in Poland, Greece or Spain that did justice to their intelligence and hard-won skills was difficult, and we were glad to welcome them to the UK. We’ve worked together as an international team, and as friends, and I hope we can continue to do so, but I understand your unease and I wish I could say something that helped.
I don’t know what’s going to happen over the next two years, and it’s this doubt that’s going to damage the UK in ways that we really can’t imagine.
As @TA says, “It’s time to stand up for the kind of country we want to live in”, but we did that at the referendum and failed, and when we now complain about the lurch towards isolationism and xenophobia people post pictures of crying babies and tell us “Grow up, you lost.”
Nice.
As for investing, one side of what I do that I don’t discuss much is what they call “angel investing”, which is a combination of foundation funding, advice, and “sweat equity”. I contacted two nascent companies that I’m helping get off the ground to assure them I was still in but they said in effect “don’t bother, the other parties have pulled out given Brexit.”
I still might be able to make it work once I can arrange some conference calls next week, but there is a lot of fear out there on many levels.
@Gadegtmind – this is the issue I have. People equate immigration control with xenophobia and isolationism (i understand why – the media and the internet trolls don’t help). I do not believe it as simple as that. Even the EU has an immigration policy towards the rest of the world. Does that make it xenophobic and isolationist? Maybe it does, but it has one for good reason.
Much like trade agreements, when it comes to immigration each nation (or group of nations) will act in its best interest. Otherwise I assume we expect the EU to offer us an amazing trade agreement because otherwise they would be xenophobic and isolationist towards us. UK voters clearly have an issue with immigration and the status quo is not helping to solve that issue. They have voted for change as a result. The EU and The government should have worked to find a solution to this issue but did nothing. I don’t see it as xenophobic or isolationist. I see it as a very large group who feel their interests have been largely ignored by the elite and democracy ultimialty is driven by interests.
@ Charlie – comment from Vanguard:
Brexit will probably mean higher costs for European investors. The ability to ‘passport’ financial services has allowed UK-based asset managers such as Vanguard to distribute funds into the EU cheaply and efficiently. In the absence of these passporting arrangements, asset managers might need to set up additional offices in continental Europe, and it’s likely that the cost of doing this would be passed on to the end investor.
The alternative argument is that the cost of investing in the UK could fall due to a removal of regulatory costs imposed by the EU. Overall, the net effect is still probably to increase costs, but this is another area where the impact is not clear-cut.
Taking all these factors together, the pros and cons of Brexit for individual investors will be affected by a wide range of factors. As ever, the best approach is to be clear on your goals, to take a long-term view and ensure that your portfolio is well diversified.
https://www.vanguard.co.uk/uk/portal/articles/education-research/understanding-investments/brexit-whats-next.jsp
> Even the EU has an immigration policy towards the rest of the world. Does that make it xenophobic and isolationist? Maybe it does, but it has one for good reason.
It has one for a reason, but I’m not sure it’s a good one.
Free movement of people is a good thing, and used to have close to zero restrictions imposed upon it. Passports and borders are a modern invention, and one that has brought a great deal of misery. It’s good that we’re slowly moving back towards free movement, and becoming more accepting of people whose skin in a different colour, whose first language isn’t the same as ours, and whose customs are different. That we’d chose to move away from this rather than towards, and that we’d breed an environment where abusing anyone “not from round here” on the streets becomes normal and accepted, is deeply disturbing.
At least it is to me, but I’m in the Remain minority, so what do I know?
BTW Read the Migration Special in the 2016-04-09 edition of New Scientist for more information.
https://www.newscientist.com/article/mg23030680-700-the-truth-about-migration-how-it-will-reshape-our-world/
The Investor,
I’m not quite sure how old you are, but from the way that you write, I assume you are quite young and part of “Generation Rent”. Therefore, my suggestion to you is that, rather than fretting about whether your shares are going to go this way or that your bonds are going go that way, religiously handing over your hard earned pay to your greedy landlord, bite the bullet, sell some of those investments and try to find the money for a deposit on a flat. Once you have done so, pay off that mortgage as soon as you can.
Someone once said to me that, once you home is paid off, it doesn’t matter what sort of financial armageddon happens, you can live off the contents of your greenhouse. He was half joking, but you have to admit he has a point!
@Catherine — VERY long story. 😉
The Investor,
How about the abridged version then?
It has always fascinated me how you so concerned with creating wealth for yourself, yet you prefer to hand over rent to someone else than own you own your own home. It smacks of a contradiction to me, unless I’m missing something.
@Steve — UK houses are great investments so long as you don’t overpay. I misjudged what was “too much” in London 2004 — indeed I have said many times it was a hugely costly mistake to withdraw from a purchase then, that’s cost me multiple six-figures.
Furthermore when London prices were reasonable again for about 5 minutes after the credit crisis, I had no liquidity, and didn’t want to sell shares at the bottom.
I think London residential property remains very overvalued as best I can judge, according to my metrics — note this doesn’t mean that won’t be true for years more. Who knows, perhaps my whole life? If that happens it could still be “over-valued” and yet have been a rewarding investment, in that the price went up.
I understand many will cry foul at this sort of thinking, but I follow Buffett’s line of “price is what you pay, value is what you get”. I’d also point out that I’ve been very candid about my misjudgements and the cost to me so I don’t think I’m fooling myself (in contrast, home-owning friends of mine in London have only become realistic about their own good fortune versus any savvy investment skill in the past couple of years, when most have come to realize they have been lottery money lucky. Good for them, incidentally, especially those who bought entirely under their own steam without family handouts).
The “handing over rent” argument doesn’t move me much. I’m getting something for my money — somewhere to live.
These are a few more recent-ish articles of mine on the subject:
http://monevator.com/a-mortgage-is-money-rented-from-a-bank/
http://monevator.com/a-landlord-is-someone-who-borrows-money-on-your-behalf/
And this one, which should demonstrate I’m far from “anti-housing” in principle (indeed I have old friends who try to buy me a drink whenever I see them because I encouraged them to think about buying their own home in the late 1990s / early 2000s).
http://monevator.com/10-why-houses-are-a-better-investment-than-shares/
I hope this gives some more insights into my thinking. Any other housing related conversation is better on those threads than this one cheers. 🙂
The Investor,
You should really stop falling into the trap of making speculative investments. The best time to invest money is when you have it, not when you think it is the best time to invest, because then it is already TOO LATE.
Houses are only ever expensive on the day you buy them. If you don’t believe me, ask your parents.
Good luck in getting on the housing ladder someday.
@Al — Well, live by the sword and die by the sword. 🙂 Also, I am always largely invested (as I said in the comment above), just not necessarily in property. What’s hurt me most with houses – and helped make long-time homebuyers so wealthy – is the ability to gear up with debt. When prices rise for decades, like they have, even Warren Buffett’s returns can’t match them.
Of course that doesn’t negate your main point (although it’s often been hard for me to get a decent mortgage due to my varying employment status and disinclination to commit fraud back in the days of “liar loans”) but it also increases the risks if, like me, you think property is fundamentally over-valued. 🙂
hi
I have an fixed cash isa coming to an end and due to very poor Isa rates at present feel its time to perhaps invest. I would like a low risk and have looked at Fidelity Multi Asset Allocator Defensive and would value your thoughts for a newbie.
Also could find the TER for this fund
thanks for any advice
Betting against the pollsters?
Excellent website… just wondering whether your “passive investing” strategy shouldn’t include ideas about preparing for “something like the Brexit vote”? Of course “things like the Brexit vote” don’t occur often, but for example I did a lot of things before the vote, like switching to US and Euro funds and converting funds to cash. I was far from passive. I reinvested everything during the fortnight after the event…
One thing I noticed on the night of the 23rd, about 8 pm, was that you could bookie’s odds for Brexit of 11-2! I considered betting £2k, although a bet of £20k would have been more rational if the assumption was that the £ would slump post-Brexit (as it did): because I knew that the value of my house would slump (against a basket of currencies) by a lot more than £20k.
As it was I bet nothing, for a very laughable reason: I did not want to tempt fate. I smiled at my motivation on the evening of the 23rd, and laughed about it on the morning of the 24th.
But don’t you think there may be rational reasons to bet against widely assumed outcomes of things like general elections as part of your defensive, passive investment strategy?
A key part of passive is “strategic ignorance”. Yes, you can bet, and hedge, and trade, and duck and weave, but you’ll often duck when you should have weaved.
I’m glad I wasn’t uninvested and sitting in sterling when it lost 20% in value. Maybe it could have gone the other way, but sitting in “real” assets took away the guesswork.