I’m depressed by the Brexit result and even more so by how it came about. Feel free to skip to the week’s good reads.
Some 25 years ago, I set off from the provinces for university in London.
My family waved me goodbye as the train began its journey through beautiful countryside that turned flatter, plainer, and more urban as I approached the South East.
Within hours I was in London – that vast city so near yet so faraway, which I had only visited two or three times in my lifetime and only then for a few brief hours.
I spent the first night walking around West London, astonished that seemingly every other person spoke a different language. Saw buildings from history books. Was amazed to find fabulously expensive cars that I’d only seen in TV adverts just parked out on the streets. Was bamboozled by one-bedroom flats in the estate agents’ windows at prices that now seem a bargain but back then – as I not-so-tactfully I informed my parents from a phone box a few days later – could have bought their semi ten-times over.
Give or take, I never left.
When Monday rolled around, it was time to become the first person in my family to go to university.
I learned two important things on that first day.
One was that they didn’t take a register of attendance, which I knew meant I would only be showing up when I felt like it.
The other I realized when I went to my first big lecture, alongside 150 or so other freshers on my course.
I entered the lecture hall and walked up the stairs towards the back, instinctively finding my level.
I kept going.
I sat down in the back row.
For the product of a 2,000-strong comprehensive school, the message of this seemingly trivial detail was clear.
I was the “hard kids” now. Nobody here was going to beat me up. Never again would I be fearful about the cast of violent, ill-tempered and stupid bullies that made each day at school a lottery as to whether you’d get a punch on the arm or worse – that forced anyone with a brain into unspoken alliances with robust friends, that made you laugh at the jokes of borderline psychopaths or accept the logic of a moron just because they were bigger than you.
I was free. Screw them all, I thought, as I remembered the yobs I’d left behind.
A design for life
Friday’s vote to leave the EU – and the sorts of places where most of those votes came from – was a punch in the guts that reminded me that you’re never really safe from the mob.
Of course, over the years my views towards the worst of my schoolmates softened.
As I began the typical thoughtful student’s grasping towards a political consciousness, I came to understand that to some extent it wasn’t their fault.
Most of even the dumb ones weren’t bad people. There were only a few monsters in each year group. They had almost certainly had terrible upbringings that I’d been lucky enough to avoid, and even if they hadn’t then perhaps they drew bad genes.
I also learned more about how economic changes had really hit hard the land where I grew up, and how even in the good times most of the profits had been siphoned off by owners who lived elsewhere.
I argued with girlfriends from the Home Counties who had no reason to know that not everyone grew up living next door to lawyers, newspaper editors, investment bankers, and directors at major pharmaceutical companies. That not every school was a safe place for learning. That not everyone was encouraged to be the best version of themselves.
Even after I cut my hair, gave up on true socialism, saw the reality of the workplace, and became the capitalist you know and tolerate today, I still tended to vote for Labour (though not exclusively).
In reality though, I’d become part of the metropolitan consensus that had everything to gain from global trade, open borders, and free markets, and saw very little to lose from the way the economy was headed.
I felt sorry for the marginalized, but I didn’t think their problems were my problems.
The second derivative
Perhaps this contrast between my past and my present was why I found a way to disagree with nearly everybody I spoke to in the run up to the Referendum – as I had for many years before that on some of the core issues that came to the fore.
Particularly on free movement.
As a Londoner who loves its polyglot diversity and all the cultural and economic benefits that accrue from it, I was all for it.
But I understand very clearly that not everybody feels the same way.
Some are flat out racists, and always will be.
But some are people who I can accept as wanting to preserve and be surrounded by a cultural identity they feel they belong to – John Major’s rosy vision of pasty-hued men playing cricket on the village green while their wives discuss kitchen extensions in the pavilion.
As I tried to explain to one of my innumerable London friends who cannot understand why not everyone wants to live surrounded by change and difference and colour, some people just find a universally frightening life more comfortable when they live near a pub where everyone they knew grew up with Fawlty Towers and The Spice Girls.
Are these people racist? I don’t think that’s the right word for it.
They have a cultural preference, just like me and my friends in London. I believe most of them would be happy enough in a workplace with (a minority of) colleagues from other cultures or races, although a good chunk probably wouldn’t ideally want their daughters to marry outside their ethnic roots. But even then, I think most are good enough people who would come to appreciate their new sons or daughters-in-law, given time to get to know them.
Rate of change is everything, always. Increase the UK population by three million in a decade and you’re going to have problems. I argued this again and again and we’ve just seen the results.
The same increase over 20 years? Not so much.
Then there are the security concerns. It is a tragedy – if not a coincidence, given that similar ideologues are involved in the backstory – that the refugee crisis on Europe’s borders has coincided with an existential battle against a new terrorist threat.
I don’t pretend to know exactly how Europe should have responded to the prospect of many millions of refugees arriving at the very same time when a large chunk of the population has rarely been so fearful of difference, but it’s abundantly clear – if only from all the subsequent backtracking, even by the Germans – that their first response was wrong.
Sometimes the perfect is the enemy of the good.
They’re not like us
UK politicians, European Union architects, and all the chattering classes should have been more pragmatic about the free movement of people long ago.
Clearly it’s core to the long-term project, but if there had been an honest appraisal of the fears it would provoke, then it might have been structured more sensitively.
Perhaps there should have been greater restrictions on the poorer Eastern European countries that joined the EU, or longer-lasting restrictions. Maybe there should have been a transitional process for new entrants that lasted 20 years or more, during which time Europe intervened to bring them up to speed. Clearly what curbs there were have not been enough to dampen the rate of change here.
I don’t know the solution, obviously. I don’t think anyone has good answers yet. But pretending it wasn’t a problem was never a solution.
Please understand that – as I’m forced to explain to friends who I have spent a decade warning about this bubbling resentment that was there to see for anyone who looked at it plainly – I myself am happy with the free movement rules of EU citizens as things stand, and even the consequent escalation of the UK population.
I can see the cultural benefits, the economic benefits, and the wider benefits for Europe of EU citizens going wherever they like.
And to return to a point raised in the previous section – I’ve fallen for women of all backgrounds over the years. (Sadly it hasn’t always been reciprocated!)
But I am not everybody. And you have to compromise.
There’s no point in me doing an amateurish rehash of all the arguments about this – you’ve heard it for weeks from better sources, and you can read more in the links below.
The bottom line is if you detoxify the perceived threat of immigration then you drain Leave of its pulling power.
Telling everybody that only racists fear migration isn’t detoxification.
The poor reason to vote Brexit
One reason it has been so hard to argue for free movement – and for the EU project in general – is because it is fundamentally a capitalist project.
Remove borders, remove tariffs, allow capital and labour and goods to move freely, and eventually most people across the Eurozone will be lifted up by the resultant greater prosperity.
Exactly. Belief in capitalism has rarely been at a lower ebb.
You almost can’t blame the provinces for voting Leave, given that a chunk of them have seen their economic circumstances slide for generations.
And as an ardent believer in the good wrought by market systems, I’ve been warning for years that as a matter of self-preservation capitalists should be addressing income inequality as a top priority.
That really hasn’t happened, and Brexit is the first sign that there will be consequences for all of us, rich and poor.
I also blame my often lamented (if much-loved) left-wing friends and their Facebook posturing.
For years they’ve ranted that unemployment would soar to three million (employment is now at a record high) and that the NHS had been all but privatised and ruined (it hasn’t been and won’t be).
Rarely have they let the facts get in the way of their soundbites.
Well, now we see what happens when the other side picks up that particular ball and runs with it.
To Brussels without love
So the poor provincials get some of the blame. The rich elites also for their arrogance and indifference.
And the lefties played a part too, with their years of socially mediated scaremongering, and for telling the British people the country was corrupt and ruined for long enough that much of its population eventually believed it must be true.
Obviously the Eurocrats. Jeremy Corbyn (who deserves a massive dollup of blame on a tactical level) famously said he was 70% for Remain. The well-argued gripes about Brussels put me at a similar level of conviction.
I never said Remain was an overwhelmingly slam dunk decision. Just that it was the right one.
To be sure, lots of the complaints about Eurozone bureaucracy are ridiculous. (It takes a massive organization and a big budget to administer to 340 million people in a dozen languages? Go figure.)
But the charges of aloofness and an anti-democratic impulse do ring true to me.
Again, I’m not smart enough to know how to address this, but surely we could have done more than we did.
In any event I don’t think the EU is sufficiently aloof, anti-democratic, and powerful enough to warrant pulling the pin. It has delivered economic gains for Europe as a whole, helped the rich get richer, and targeted money at the poor in places. It’s saved at least as much paperwork as it created.
And I’m happy to say it – it’s made violent conflict between or with Europe far, far less likely for decades. Not solely, but it played a role.
Seriously: How did we go from entering a partnership with the Germans just a couple of decades after they’d fought our relatives, murdered helpless millions and bombed our cities to smithereens to thinking the fact that they insisted fire alarms be fitted in all workplaces or that everyone should get a few paid days off a year1 was the source of whatever ails us?
The wartime generation really was wiser than us – once they’d lived through the evil education of the war.
Whatever the EU’s problems, it didn’t make our problems worse.
And we still had the pound, and our special opt-outs!
We had the best of both worlds and we might well have thrown it away.
The final group of people I blame is what I have called before the Grumpy Old Men brigade.
Well-educated, prosperous, ageing, and feeling themselves to be the owners of Pensieves recalling happier, better-educated, and even more prosperous times, I come across these people regularly in their guise as private investors.
In fact some of you fit right into this bracket.
Sure, we all have some wrong-headed views. However these guys are so pompous even as they’re so often wrong it’s not funny. Peak oil, the value of a manufacturing industry, the impact of women in the workplace, they get most things wrong and now they are on the wrong (albeit winning) side of the Referendum.
They are the supposedly financial savvy people who believe the poppycock money we pay into the European Union is an outrage, because they don’t understand it’s a force multiplier that delivers far greater economic returns.
At least the racists are right about one thing: Being in the EU surely means more foreigners in the UK.
The Grumpy Old Man brigade doesn’t even have that going for them. There is no economic argument for exiting the European Union. None.
Honestly, I almost wish London could enact the newly set-up petition to declare itself a City State just to leave these numbskulls to their dreams of returning ship-building to the Tyne and British-made bombers patrolling high above the channel.
I’d love to see how they got on without London’s smarts, its 21st Century business model, and its tax revenues.
Lies, damn lies, and the Leave campaign
Of course these grumpy men know better than the experts who have almost to a man and woman warned that Britain would be poorer in the event of a Brexit.
I certainly think we will be.
Perhaps not crippled, maybe we’ll even do quite well. But we would have been better off within – that’s been the case for the past 40 years, and it’s been abundantly so for the past 10 years. There was no reason why it wouldn’t have continued.
Britain has been, with Germany, the biggest winner in recent times from the project. London has boomed as hundreds of thousands of smart Europeans flocked to where the recovery was fastest and the prospects of getting a good job or setting up a new business was greatest.
London’s outward looking and increasingly digital economy thrived in a way that the regions should have striven to copy, not attempted to vote out of existence.
Everybody who knew anything said so – but who cares what the experts think?
This is surely the most worrying development, and many have already upgraded Donald Trump’s chances in the US on the same logic.
Politics has always been about exaggeration, and it’s true the Remain camp stretched some truths and forecasts to the limit.
But the Leave case was largely built upon fabrications and lies – not least evidenced by the fact that 24 hours after the win they’re recanting.
Boris Johnson – who was booed by the betrayed Londoners who made his political fortune as he headed off to deliver his victory speech on Friday – has already delivered a bewildering maiden speech, in which he explained immigration is a boon and that it will be business as usual under Brexit.
Let’s hope so, but that’s not what Leave said, nor what many of those who voted for Leave thought, Johnson.
H.L. Mencken famously quipped, “No one ever went broke underestimating the intelligence of the American public.”
But many smart investors just lost a fortune by over-estimating the British people.
As skilled political animals, the likes of Johnson and Michael Gove have adroitly channeled the self-destructive mood of a huge swathe of the population to propel themselves within sight of the leadership role of a now-divided nation.
But for their part, global markets couldn’t believe we Brits would so dumbly vote against our own self-interest.
The resultant dislocations in the market on Friday morning were truly breathtaking.
Long-term readers will be aware of my active trading style that sits completely at odds with what this site in general and my co-blogger in particular strongly suggests you do. (In short, you should probably be a passive investor in index funds).
And the Referendum has been the most confounding event I’ve faced as an active investor.
I felt confident enough through the various Greek issues, the US fiscal cliff, the tumult earlier this year. Even the financial crisis felt logical, if sometimes terrifying.
But trying to figure out the best collection of assets to own in advance of and through the referendum was a mind-bender, and I changed my exposure many times.
While I tried to stay fairly balanced throughout, for weeks I was tilted more towards a Brexit. I sold out of much of my UK exposure, and at one point I had a pretty large wodge of gold.
A savvy friend in the finance industry didn’t see the need for this caution – like most in the City he thought the chances of Brexit were very low. Perhaps 8-10%, he estimated.
I was nothing like so confident, as I emailed back: “The danger is this is the mother of all protest votes.”
But with the horrible and pointless murder of MP Jo Cox, you could feel the market turn. (My first thought before I saw the news but felt the impact in prices was that Johnson had resigned from Leave, perhaps in disgust at Farage’s misleading migrant poster.)
As this shift continued, my current style meant I sought to reflect it in my positioning, and I sold the gold and upped exposure to some small cap UK cyclicals.
However I just couldn’t bring myself to the same sanguine position that everyone else evidently felt. And so my portfolio shed value daily as the anti-Brexit positions I held (mainly US stocks) wilted in sterling terms and the pound climbed.
All that changed on Friday night, as reality homed in. Before the markets opened, my portfolio notionally soared as the pound tanked. Stocks hadn’t yet had the chance to respond.
They got their chance at 8am.
My plan was basically to dump the less obvious positions I owned in UK exposed companies inside tax-sheltered ISAs and SIPPs, hopefully while the major funds and algorithms were concentrating on offloading the big blatant stuff like UK banks and major housebuilders.
I’d then reverse direction, buying certain blue chips they were throwing overboard in the panic, and hopefully the net result would be I’d get through the day fairly unscathed.
(Again, don’t try this at home!)
It half worked. I was able to get rid of a few UK positions, some in decent size, but for many I couldn’t get any sort of live quote.
I wasn’t prepared to buy “At Best” in a market in freefall, so my attempt to raise liquidity before the price rout took its full toll was only part-completed.
More surprising though was that I couldn’t even get a firm quote for the big companies I wanted to buy.
I was looking at huge banks down more than 30% and certain construction firms down over 75% in the early minutes of trade, and I just couldn’t buy them, at least not with any firm price guide.
The brokers at least stayed up-and-running – in the financial crisis you couldn’t log in at the worst times.
But they blundered, too, for example routing one of my orders into purgatory where it was neither executed nor could it be cancelled. (My fellow blogger Ermine saw his portfolio disappear for a while!)
By the time the US market opened, sanity had returned to UK trading – and then we were off on another rollercoaster.
At the end of the day, I’d achieved my aim; I’d lost less than 1% on what had become an all-equity portfolio.2
Sure, as Lars Kroijer noted to me later, it would have been far easier to hold a few index funds for a similar result, since most of the returns were down to currency swings. Home currencies often tank at the same time as home markets, he reminded me, which means overseas holdings in a diversified portfolio will see coincident gains. Another notch for his belief you should just own a global tracker.
From my point of view though, Friday was about survival in the chaos. I’ve done better by stock picking and trading over the long-term, and I hope to do so in the future.
I didn’t see the Brexit as a profit opportunity, but rather I had to negotiate a chasm of potential downside.
Young, less free, and singularly shafted
You’ll see more in the articles below about how the prospect of Brexit caused chaos in the global markets.
Glib comments to the effect that you shouldn’t care because your US shares went up 10% may well prove to be wide of the mark.
Uncertainty has massively increased, and Europe faces an existential threat.
Global growth will be without doubt slower than it might have been – simply because there is no mechanism by which this vote and this shock can increase it, though we can argue about the scale of the decline.
Yes, life will go on. The UK pound might even eventually rise as a haven, if the Euro goes to hell in a basket and even a stodgy, self-strangling UK economy looks like a better bet in comparison.
I have no doubt though that Britain is going to be poorer as a result of this vote. The extent to which whoever gains power in the aftermath implements the professed wishes of Leavers will determine exactly how much poorer.
It’s easy enough to paint apocalyptic scenarios – a run on the pound, soaring interest rates as we lose our triple-A status and foreigners refuse to finance our deficit. Maybe some localized violence.
However the truth will likely be more mundane, economically-speaking.
London will come off the boil, much global capital will head elsewhere. A few Northern exporters irrelevant in the grand scheme of things will sell a few more widgets to China and India. If immigration is massively curbed, then there’ll be fewer jobs but hourly wages for the crappest jobs might rise by a few pennies. But most things will be more expensive because labour costs will increase and for as long as the pound is weak we’ll import inflation. The poorer regions who voted for Brexit will see less money as tax revenues dwindle and growth slows.
Something like that.
But while I feel somewhat sorry for these poor and marginalized communities – and as I say I was concerned about them long before this vote – I save my greatest sympathy for the urban young.
The aging provincials voted in their imminent decline. The clever young overwhelmingly voted the other way.
As an FT comment that went viral on Twitter pointed out on Friday, young Britons may be about to lose their generation’s single biggest advantage.
They can’t see how they will ever afford a home of their own, job security and pensions are long gone, and they are crippled by student debts.
But free movement in Europe gave them the incredible opportunity to live elsewhere and to enjoy an entirely different life if they chose to.
That freedom, that potential – and all the living that would have gone with it – may just have been voted into oblivion, by old people.
In the worst versions of what happens next, the drawbridge goes up, those freedoms are lost entirely, and they’ll be stuck in the UK even as their bright young European peers drift home and their foolish parents who voted for Brexit wonder why it takes so long now to be served a coffee in Costa.
At its pre-Brexit best, Britain was a large cap version of thriving Estonia.
At worst, it’s now on the path to becoming a less socially ordered version of Japan.
Some Brexiteers are all for this, incidentally. On Friday I re-tweeted a comment by The Reformed Broker that sardonically congratulated the Brexiteers – they’d still have the immigrants, but now they’d have a whole lot less money, too.
One reply: “Good. To kill a tape worm you starve it out.”
Get poor and the immigrants go home. Genius.
Down with the revolution
I feel I haven’t said half of what I was going to say, but I doubt many people even read this far and I don’t blame you.
I avoided Brexit articles in the run-up to the vote, which I now slightly regret. It seemed a kindness to readers, but perhaps it might have swayed a few Leavers not to be so silly.
I know plenty of Monevator readers will agree with my sentiments – because about a quarter of this site’s readership hails from London.
We know London has its problems. Some persevere with it just for the salary. But others of us love the place as much as it has confounded and frustrated us, and know that this vote against the EU is as much a vote against our home.
They – and certainly many other Remainers around the country – will agree with a friend of mine on Facebook who wrote this morning:
Nigel Farage described the result of the referendum as a “victory for ordinary people, a victory for decent people”.
So I am now proud to be extraordinary and indecent.
Anyone with a passing knowledge of history should shiver when politicians with ugly views start championing the cause of the common man. True lasting progress nearly always happens slowly – populism virtually always end badly.
From the demise of the Roman republic to the rise of communism in Russia, even when (as so often) the populace had every right to be angry, they typically cut their nose off to spite their faces and uprisings made things worse.
Some of you disagree. Some of you – mainly grumpy, mainly old – voted for Brexit.
That was your right, just as it’s your right to be angry (and wrong) about what I’ve written today.
I hope soon enough we can talk about expense ratios and using your new ISA allowance. I don’t think you’re bad people.
But don’t look forward to a vibrant debate about the pros and cons of the Referendum to follow this article.
And I wouldn’t bother explaining your vote to Leave.
I am likely to delete all but the very most thoughtful pro-Brexit contributions. My site will not be another platform for the wail of stupidity that has led to this result.
I doubt any of my old school bullies or their like read this website. But do I know some Blimpish investors do.
Well, Monevator is not a democracy.
You had your vote. You can take your views elsewhere.
Brexit articles: Quarantine box
- England just screwed us all – Felix Salmon
- After the vote, chaos – The Economist
- Brexit will reconfigure the UK economy [Search result] – FT
- Boris Johnson’s Pyrrhic victory – Guardian
- Evan Davis loses it with one Brexit liar – Huffington Post
- Petitions: For London to declare independence; for a 2nd referendum
- The sky has not fallen, but we face years of hard labour – Telegraph
- Owen Jones: The escalating culture wars have to stop – Guardian
- Brexit is a wake up call: Save Europe – Guardian
- Britain is not a rainy, fascist island – Guardian
- World’s richest people lose $127 billion in Brexit chaos – Bloomberg
- The golden generation leaves a tarnished legacy [Search result] – FT
- London just threw its race with New York – Bloomberg
- So it’s Brexit. What next for shares? – The Motley Fool
- Bag a bargain post-Brexit investment trust – Citywire
- Star fund managers on Brexit’s impact on shares – ThisIsMoney
- EU exit expected to end UK house price boom [Search result] – FT
- More: What does Brexit mean for UK house prices? – Guardian
- Why Brexit is so bad for the global economy – The Atlantic
- Europe makes Brexit-voting UK a safe haven [Search result] – FT
- Revenge would be the wrong E.U. response to Brexit – Bloomberg
- My secret plan for surviving after Brexit – UK Value Investor
- Voted Brexit? How to forgive yourself – Aeon
Have a good weekend.
From the blogs
Making good use of the things that we find…
- Portfolio turnover: How high is too high? – Oblivious Investor
- Introducing… Index Funds: The Movie – The Evidence-based Investor
- Questioning the wall – Tom Brakke
- How not to blow yourself up trading – Adam Grimes
- Warren Buffett went out on top – The Irrelevant Investor
- The new normal: Living with negative interest rates – Investing Caffeine
- Q&A with Tobias Carlisle about concentrated investing – Abnormal Returns
- There are better ways to earn 7% then Argentinian Government Debt – T.V.P.
- Excellent deep dive into last week’s cash vs shares debate – Finalytiq
- How I’ll be invested in retirement – Retirement Investing Today
- The secrets to changing your habits – The Escape Artist
- Some thoughts on investing $1,000 [US but features me!] – Wallet Hacks
Products of the week: The Guardian rounds up a collection of financial services that come with freebies. Why not get a free iPad with your mortgage, or a free eye test with your insurance? Well, perhaps because such deals will rarely be the best all-rounders. These companies are targeting an old part of your brain – the primitive beast within you that seeks a short-term pleasure hit. Better to get back out into the field to till the earth and mull over what’s cheapest in the long-term.
Mainstream media money
Some links are Google search results – in PC/desktop view these enable you to click through to read the piece without being a paid subscriber of that site.3
- Mispricing underlies profitability premium – ETF.com
- Do experts know anything? – Bloomberg
- High household equity in the US is bearish for the S&P – MarketWatch
A word from a broker
- The investment outlook following the Brexit win – TD Direct
- Winners and losers from the EU Referendum – Hargreaves Lansdown
Other stuff worth reading
- Top 10 destinations for Britons looking to work abroad – ThisIsMoney
- Interest-only mortgages are back, for some – Guardian
- The Forrest Gump of the Internet – The Atlantic
Book of the week: Fancy some topical reading in the aftermath of the Brexit vote? Why not pick up a copy of Edward Gibbon’s The History of the Decline and Fall of the Roman Empire. O Fortuna!
Like these links? Subscribe to get them every week!
- Or whatever, I can’t be bothered right now to look up the “red tape” that has supposedly crippled our growing economy. [↩]
- I have a massive slug of cash and cash equivalents, but they sit outside my trading accounts and tracking, as they’re earmarked for a house purchase someday. [↩]
- Note some articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”. [↩]