Weekend reading: Bored of Brexit? It’s only just begun

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• 1 The Investor July 2, 2016, 11:36 am

  p.s. Before anyone threatens either violence or to take their own life, depending, when I say “It’s just begun” I don’t mean I’m planning to inflict more huge Brexit articles on you anytime soon. 🙂

  I mean it’s going to be the background music here and elsewhere for years.
• 2 Underscored July 2, 2016, 12:06 pm

  Some interesting thoughts on the financial sector from the BIS. http://www.bis.org/publ/work490.htm

  “In this paper we examine the negative relationship between the rate of growth of the financial sector and the rate of growth of total factor productivity. We begin by showing that by disproportionately benefiting high collateral/low productivity projects, an exogenous increase in finance reduces total factor productivity growth. Then, in a model with skilled workers and endogenous financial sector growth, we establish the possibility of multiple equilibria. In the equilibrium where skilled labour works in finance, the financial sector grows more quickly at the expense of the real economy. We go on to show that consistent with this theory, financial growth disproportionately harms financially dependent and R&D-intensive industries.”
• 3 Gregory July 2, 2016, 12:10 pm

  I’m sure If You really exit (I’m not convinced) the move will be just symbolical. Norway, Switzerland, Icelend are out of EU but strong part of Europe and has a lot of treaties with the EU.
  I think this from Hungary.
• 4 The Investor July 2, 2016, 12:14 pm

  @Underscored — Interesting, will take a look. My criticism of such arguments in the past is that they tend to assume closed economies, either by design or in practice. e.g. Even in that extract it seems to be modelling skilled people working in finance versus, say, engineering/high-tech R&D, but is it allowing for the influx of talent/capital from overseas that might make up for it? I suppose I should wait until I read it! 😉

  On a global scale it’s been clear for decades that too much talent/energy goes into the financial sector, but whether unilaterally disarmament (more realistically downgrading) is a good idea is another matter.
• 5 John from UK Value Investor July 2, 2016, 12:30 pm

  A C Grayling’s letter was interesting, but I disagree on both points:

  1) That a ‘super majority’ should be required for major constitutional changes such as Brexit, with Grayling’s example being 60% or perhaps 66% (two thirds).

  I disagree because the marginal vote is always one person. If there were 100 people in the UK and 65 voted to leave, that wouldn’t be enough to win under a 66% super majority rule. Is that reasonable? That 65% of the population cannot overturn a decision only supported by 35% of the population. Sounds dodgy to me and is no better than a simple majority (i.e. 50%) requirement.

  2) Referendums are a very bad way to make decisions, so let’s just ignore this one and not trigger Article 50.

  I agree that referendums are a very bad way to make decisions. Parties should have manifestos and get voted in on that basis. If people want to leave the EU they should vote for a party that would trigger Article 50 (e.g. UKIP).

  However, it doesn’t matter if referendums are a bad idea. We had one. Leave won the vote and so we should follow through. Simple as that, otherwise the perception of ‘democracy’ would be shot through to hell and back with perhaps extremely unpleasant social consequences. So if there was a mistake it was to hold a referendum in the first place, but we should not now compound that mistake (if it was one) with the far worse mistake of ignoring the outcome.

  Fortunately it looks like all the likely party leaders in-waiting have said that the triggering of Article 50, for better or worse, is pretty much inevitable.
• 6 dearieme July 2, 2016, 12:37 pm

  “almost anything might now happen”: but almost anything might have happened had people been scared/persuaded into voting Remain. Deutsche Bank goes bust. Italy collapses. China breaks up. President Clinton attacks Iran and tries to provoke Russia some more. Stuff happens.

  Come to think of it, that’s a strong case for Brexit. Things will happen. It will pay to be nimble. Britain outside the EU will be able to be far nimbler than the EU will be.
• 7 The Investor July 2, 2016, 1:01 pm

  @dearieme — Weak argument I’ve been hearing from Leavers all week. “Bad stuff could happen, so why not throw more bad stuff into the mix. What they hey?”

  Those things could all happen, yes. We’ve added to the risks. And now we’re likely going to meet them with at the least a Brexit-induced recession, and then according to expert consensus a permanently weaker economy by 2030.

  As I’ve said many times this week, in my view if you voted to control immigration or to get back some allegedly lost sovereignty (any gains of which may be subsumed in a decade of bureaucracy) or ‘less red tape’ (despite the fact that 95% of it is perfectly sensible, and the UK civil service has been “gold plating” a meaningful proportion of it for years, anyway) fair enough, we can agree to differ.

  But own the decision and the consequences. Perhaps there won’t be an economic impact or a undesirable political impact. But Leavers need to own it if there is.
• 8 Grand July 2, 2016, 1:21 pm

  What i’ve found interesting is that many ‘leavers” seem to be ignoring the short term and medium term implications of Brexit and genuinely the feelings of their neighbours, well I feel thats the case here in London.
• 9 HumbleMcDuck July 2, 2016, 1:38 pm

  So PERC is saying the Leave vote mostly comprises under-educated poor people who “arguably” don’t know what leaving the EU will actually mean for them, and a gang of prosperous old duffers who are comfortable enough not to care.

  Sounds about right.
• 10 old_eyes July 2, 2016, 2:51 pm

  “Leave voters consisted roughly of those who have already accumulated assets over their lives plus those who don’t feel they ever had any chance of doing so.

  Remain voters consisted of those who still feel (for whatever reason) that they could make financialisation work for them, either because they’re young or because they’re rich and could become more so.”

  No I don’t buy that at all. I and many of my friends and colleagues should be in the Leave group (wealthy division), but are solidly Remain because we see the point of the project, and because we are old enough to have direct experience (or learned at our parents and grandparents knees) of what it used to be like.

  What I have heard from Leavers I know, and from listening to people chatting on the train today (seemed to be in a strongly leave carriage), is immigration, immigration, immigration. And as I have commented before, confusing the actions and policies of our sovereign government with the EU. So many seemed to assume that we would now be sending all immigrants back, including non-EU, forgetting that government has always had the power to control non-EU migration if they wished and have shown no tendency to do so.

  Yes I know you are worried about whether there will be a good school for your child, but I am afraid that has remarkably little to do with the EU as far as I can see.

  So there may be an element of the financialisation in people’s thinking, and it is surely worth exploring, butI am just not hearing it as a major factor.
• 11 Learner July 2, 2016, 3:36 pm

  I couldn’t finish the Wales Online piece. “I’m not worried if my grandchildren can’t go to Europe to live. Why would they want to go to another country? We have the best country.” Utterly depressing.
• 12 gadgetmind July 2, 2016, 4:25 pm

  The best stats for the differences (and at times the similarities) between Remain and Leave voters can be found here.

  http://lordashcroftpolls.com/2016/06/how-the-united-kingdom-voted-and-why/

  The “force for good/ill” chart is the most disturbing as it suggests that Immigration (natch!), Multi-culturalism, Equality for Women, the environment and even the Internet are in for a rough ride in a country ruled by Leavers.
• 13 Learner July 2, 2016, 5:15 pm

  I disagree with a great deal of the reasoning in this piece, but interesting to hear it in their own voices. Worth a watch, especially for remainers.
  https://vimeo.com/172932182
• 14 Fremantle July 2, 2016, 6:55 pm

  @Grand

  If we all voted to spare each others feelings, we’d end up electing for the party that is supported by the most emotionally unstable members of society.

  I might say that many London Retainers are failing to consider the motivations of the Non-London Leavers who may have voted to give London a bloody nose.

  Fears about immigration are often amplified by lack of exposure to migrants and exacerbated by the limited exposure they do have, be it the travellers setting up a campsite in their area, or Slovak labourers living a dozen to a house and barbecuing on the street. A reasonable number of British have never been to London, and many that do come hate it. I think they’re wrong, but I don’t think they’re idiots for the way they feel.

  It always seems to me that there is a certain type of politics that calls for a new electorate rather than a political debate. The voters chose wrong is a fallacy and stops the sort of analysis that might lead to future success.

  I believe the architects designed the EU as a form of benign dictatorship by the technocratic bureaucracy. The EU is no more likely to invite Scottish or London separatism and out of spite and as an example to the remaining tribe, may well try punishment over reform.

  I’d happily have voted Remain if the EU had remained a tariff free zone with free movement of labour, but left members free to pursue their own Non-EU trade deals and to regulate domestic industry as they see fit. No Common Agricultural Policy, no EU funding for anything other than administrating trade between members, no grand pan European state. That stuff is for want to be Emperors and the UK shook off imperialism a generation or two ago.

  Other than that, review your portfolio, see if recent events have resulted in a need to rebalance, and go and do something more interesting or fun!
• 15 SB July 2, 2016, 6:57 pm

  I agree that almost anything might now happen. Which got me thinking… is Brexit truly a black swan? Personally I struggle to think of it as such.
  Last summer one economist with whose views I often agree put the likelihood of Grexit (from the Eurozone not the EU) at more than 50%; he also suggested that in a number of scenarios Grexit might have created enough of a shockwave to break up the Eurozone completely. In my view as far as economic shocks go a meltdown of the single currency would have been more detrimental to the world’s economy and its financial systems than an exit of Britain (until recently, the world’s 5th largest economy), from the EU.
  Regardless of how badly this ends for Britain, the US seems to be puffing along. I anticipate that in the wake of all this Brexit excitement the remainder of the EU will pull together and circle the wagons. Even without the UK it is still an incredibly wealthy market with a highly skilled and well educated population. They won’t be calling any referendums for a while on the continent. I think the EU will be fine.
  As for Britain… well it looks like it has, so to speak, left behind the fair EU’s shores, ent’ring with cheerful shouts the wat’ry reign and plowing frothy furrows in the main. I hope this ends better for us than it did that time for the Trojans.
• 16 Winter July 2, 2016, 7:04 pm

  I voted Leave and am in my 20s. I’m also doing well financially, I must be in a minority. The EU is a disgrace and needs to reform. It has failed a whole generation of Southern Europeans, many of whom have come here because it is inflexible and undemocratic. Nearly everyone I’ve spoken to seems to agree with these points, yet voted Remain because they want ‘to reform the EU from the inside’, have we not been trying this for years?

  I voted Leave to give the EU the wake up call it so solely needed, my prediction is we’ll get a much improved deal in the next 9-12 months and vote again to stay in. As for this new rubbing coming out of the Remain camp about referendums being a bad idea, I simply don’t accept this argument. What is a better way for a country to decide an issue that a simple question and vote on the topic, we should have more.
• 17 cat793 July 2, 2016, 7:12 pm

  @ Gregory
  I think to a large extent that once the dust has settled you will be right. I worry about the “we have to teach the British a lesson and make an example of them” brigade but it is in everyone’s interests to maintain goo, close relations. Also whatever settlement we end up with I think that it will have to maintain free trade and movement of people for practical reasons. I am travelling at the moment and speaking to people from other European countries and they don’t want to see the UK alienated from their fellow Europeans. They see the British as key to keeping Europe balanced. Thy also seem to have always seen the UK as ambivalent and so are not particularly shocked. Only anecdotal I know.

  I also think there might be some silver linings. This is a wake up call for reforming and reorientating the direction the EU has been going in. I think many Europeans see this as an opportunity which has mitigated some of the ill feeling towards the UK.
• 18 cat793 July 2, 2016, 7:14 pm

  That is a great article by Ishiguro in my opinion.

  @The Investor
  By the way I for one appreciate your political Brexit posts. Keep it up.
• 19 K. July 2, 2016, 8:04 pm

  @Monevator
  My view is that you are making a mistake simplifying reasoning of people and defining them as primitive subjects as described in economics or sociology.
  This is a mistake and Steve Keen wrote a book on this.
  Politicians are making the same mistake as central bankers which is not surprising as they both work together…

  Brexit is the vote of optimists and people who believe that Britain can be great for its own people.

  Don’t deny people the right to be irrational because .. they are people..
• 20 Faustus July 2, 2016, 8:38 pm

  There seems to be a lot of wishful thinking from some in this comments thread. Utopian ideas and promises, from whatever angle, are dangerous and almost always lead to very much worse outcomes than the status quo. The 20th century is littered with examples.

  The Investor has made a convincing case why this was a reckless gamble, and AC Grayling makes a powerful case why referenda are such a blunt tool to resolve complex questions, particularly when the outcome can jeopardise the very integrity and existence of a state (in this case the UK). I also doubt there would be nearly as much anger now had Farage/Gove etc not peddled such a catalogue of lies and misinformation (especially on immigration) during the campaign, or jettisoned debate for a kind of class war against experts and the educated.

  We certainly do not hold all the cards, and ours are also much weaker than those we are negotiating with. From an outsider’s perspective, the UK looks more divided, humiliated, and lacking in leadership than at any point in recent history, while our EU neighbours will now be thinking twice about playing similar gambits. We apparently have no more than a couple of dozen expert trade negotiators, and our civil service has admitted it is totally unprepared for the job. Meanwhile, our current account deficit is so colossal that we are wholly reliant on foreign investment to balance the books. Those are facts. In such circumstances I am sure that major trading partners will be lining up to do deals in order to exploit their advantage on terms which are extremely unlikely to be superior for us than those we currently enjoy.
• 21 Gregory July 2, 2016, 8:42 pm

  It doesn’t matter what the name of the game. Nobody knows for sure the future of the EU but everybody knows that UK is part of Europe.
• 22 Northern leaver July 2, 2016, 9:29 pm

  “You might have voted leave for sovereignty reasons”

  Said with tones that this is a bad thing!

  This is one of the most important reasons that hardly got a mention during the shambles that were the “debates”
  On referendum day, I was at the polling station, and the irony struck me that the EU and the Remain side have convinced people to enter a polling station and vote Remain and thereby REMOVE their ability to vote in or out the people who make their laws.

  On a personal note, the market is back to where is was, and my holdings of shiney metal shone wildly , my only regret was being too busy to buy the dip…
• 23 The Investor July 2, 2016, 10:05 pm

  @Northern Leaver — Occupational hazard of writing 11,000 words about this vote in the past 7 days and fielding over 300 comments from Monevator readers. 🙂

  I said it like that because if I say “there were clear economic reasons” then someone will come in and say “no, it’s about sovereignty.” If I say “immigration” someone will come in and say “no, it’s all about the economy.”

  There’s no real solution to this; I’m a waffle-y writer as it is. It does highlight how difficult it is to talk about the Leave vote, or what they want though.

  As for the rest of your post, there’s no plan to remove universal suffrage, and that wasn’t on the ballot. You must have walked into the wrong polling booth in a different referendum.
• 24 The Investor July 2, 2016, 10:10 pm

  Oops, I meant to say if I say “immigration” then someone will say “sovereignty” and if I say “sovereignty” then someone will post an 11-minute video (which was interesting, if depressing — thanks) which talks continually about economic disadvantage (/borderline envy). Someone else will say it was about sticking two fingers up to the elites, while an elite will come on and say actually he’s well-off, lives in London, and voted Leave because he thinks we should be in NAFTA.

  The point being one can’t win. Leavers all want different things.

  Remainers all wanted to remain in the EU, for all its flaws — or in my case at least until it in any way resembled the brooding temple of Sauron it’s painted as.
• 25 Marked July 2, 2016, 10:24 pm

  Faustian, Gove et al promised 350 million a week to the NHS. Now that number in Gove’s speech is 100million a week by 2020 which of course is much less than the compounded CPI of the next 3 to 4 years.

  However of it all, Leave wouldn’t have won without Boris, and he clears off because his support base ebbed. Well to me he showed himself to be a coward. Yes it would have been a bruising selection but if he did get into the final 2 the grass roots would have supported him not too dissimilarly to Corbynista’s supporting Corbyn. Sorry but he should have seen it through. So no-one had a plan, except maybe Gove!
• 26 Nikolay July 2, 2016, 10:47 pm

  I’m an infrequent reader of this excellent blog and only today caught up with its latest Brexit posts.

  I would like to make a comment which is related to the first post in the series (sadly closed for comments).

  First, I must say that agree with both the tone and most of the content of that post. My comment is related to a detail which I found missing in the line of reasoning there. I hold the author in great esteem so I am really surprised by this omission. I see this omission committed time and time again also by many other erudite people.

  My comment is related to the statement “immigration came too fast”. I agree with this and I also think that this is probably the single most powerful reason for the outcome of the referendum. What I disagree with is that this is somehow ascribed to the EU. The fact is that the EU regulations allow for up to 7 years during which the freedom of movement for people can be restricted. In 2004 (when Poland and 7 other East European countries joined the EU) all pre-existing EU countries apart from the UK made use of that restriction. It was a conscious act of the then Blair government not to make use of that restriction. I remember at that time reading self-congratulatory comments in the FT and in the Economist that the UK is a bastion for economic liberalism in the EU. The trouble was that UK taking an exception to this common sense approach created a sort of funnel effect – since all those emigration-itchy East Europeans could not go anywhere else they went to the UK. I’m saying this as an emigration-itchy East European myself. This funnel effect created the tidal wave that changed the mood in the UK.

  Later on, with Romania and Bulgaria the UK decided to stick to what other EU countries wisely do – it adopted the 7 year restriction. This restriction period expired in 2014. There was a lot of hysteria that the next tidal wave would be by Romanians and Bulgarians.That tidal wave did not materialise. At the same time, more than one million Romanians and Bulgarians have left their countries since 2014. Why didn’t we notice them? Well, simply they had more than 20 countries to chose from, not just the UK. This was the main difference to what happened in 2004. So many of them decided to go elsewhere (e.g. Germany, Benelux, Austria). You see, UK is geographically a lot further away from Eastern Europe than is Germany or many other affluent countries. So many East Europeans prefer to go there – the distance matters (a Pole working in Germany can go back to his family most weekends by bus or by car). Also, in many other ways (e.g. culturally and even culinary) the continental Western Europe is closer to Eastern Europe than is the UK. So, given the choice most East Europeans would not pick the UK as a preferred country to emigrate to.

  What I am trying to say is that the tidal way of immigration which swept the UK after 2004 was largely self-inflicted by the then UK government. If it has only stuck with the restrictions allowed by the EU legislation (which is what the other EU members wisely did) the UK would not have seen this tidal wave. And the outcome of the referendum might have been different. Thus for me Brexit has little to do with the EU being overly liberal when it comes to movement of people. Rather, it is a miscalculation or negligence on the part of the Blair government. I believe that ultimately history would judge him to have committed two grave mistakes – one was the Iraq war, the other one was opting-out of the 7 year restriction period.
• 27 Northern leaver July 2, 2016, 11:14 pm

  @investor

  Don’t get me wrong, I’m not having a go, your writing are by a country mile the best finance blog going. Not only for your investing wisdom but also entertaining musings.

  If you believe in investing in indexing trackers, which I do and also practice, then in theory all these black swan type events, brexit or otherwise, should not matter a jot. Just keep buying and wait.

  The economic arguments for/against brexit are cobblers, the only thing we can be sure of it will be different. For every person crying over a currency decline, another company wanting to invest in the UK just got a huge discount.

  I agree, the EU is not quite the house of Sauron yet, but a remain vote would have given them the carte Blanche to carry on in a manner than most people didn’t agree with. That’s democracy.

  Keep you your excellent blog and the often very excellent comments section.
• 28 John from UK Value Investor July 2, 2016, 11:37 pm

  Assuming Nikolay is right I think the “Polish Funnel” theory is a good one. Perhaps the idea was to send everyone in the UK to university so that they could all work in finance and all those nasty cleaning jobs could be done by immigrants. Didn’t quite work out that way though did it.
• 29 FI Warrior July 3, 2016, 12:21 am

  The law of unintended consequences will feature large here, given both sides in the battle for the future of this little muddy island were broad churches, so have the basic flaw of disunity built-in. Then they didn’t seem to have a plan on top of that just for good measure; you really would think people would be a little less cavalier with their destinies.

  A sinking £ for example could boost exports, hence nullifying damage to confidence in the UK economy and speculating global investors in the business of disaster capitalism could swoop in like vultures to snap up fire-sale bargains, giving the impression of success before the usual asset-stripping. (Boots is just the latest sad example in the 21st century)

  Unfettered by regulation under new rulers from the extremists of the austerity cult in charge, the economy could be boosted by hosting the funds of the global elite in what could now be the unchallenged No. 1 tax haven on the planet. Great again, taking back sovereignty, butlers.

  It’ll be interesting to see how much of that trickles down to the NHS, the barren industrial wastelands littered with ghosts of past manufacturing glory and society’s vulnerable in general.

  Perhaps, a silver lining is that the next generation might use this experience and consider educating themselves on the basis of facts alone, if ever allowed to choose to bet their futures at the roulette table. The only certain thing now though, is that this’ll be interesting whatever the outcome; fasten your seatbelts and hedge your bets fellow-passengers, there may be turbulence ahead.
• 30 Richard July 3, 2016, 7:11 am

  The biggest risk now is ourselves. Half the country (including the mainstream media and the polititians) are almost willing the direst predictions of Brexit to come true. As if that would be some kind of ‘victory’. By constantly talking up the risks they scare business who may make decisions based on an overhyped fear. The EU is made out to be the injured party, when they are the ones looking to ‘punish’ a democratic vote.

  We shouldn’t be complacent but the vote is done. Either balance it by highlighting the risks to the EU or the world and/or start highlighting the positives. We are our own worst enemy and will basically talk ourselves into ressesion.
• 31 The Investor July 3, 2016, 8:12 am

  @Nikolay — Excellent insights, thank you. I did remember some fuss about how we were overdoing our enthusiasm at the time, hence I left my comments vague as to who was to “blame” for the initial large influx but I had long forgotten the specifics. (I put “blame” in quotes because I think the surge in immigration has been great for the UK on aggregate, economically speaking and particularly at a time when we needed the boost, too, but I do accept as I’ve said that it was too fast for many, and hence probably should have been slower and more understandingly handled). It does sound on this score that excessive EU enthusiasm has been the architect of its own downfall, although it’s always hard to guess at the counterfactuals of course. Cheers for the generous comments about the blog.

  @Northern Leaver — Thanks re: the blog. Re: the economic impacts, firstly the site isn’t just about index trackers, there’s a more holistic wealth creation motivation for writing it, and I think that will/could suffer from Brexit for many. (E.g. Jobs, future economic growth and taxes etc). Fully agree and have written that well-diversified passive investors should keep on keeping on. On investing itself, there is an active strand to both the blog and my own investing (compared to my co-blogger) though I do wonder if the past week has shown this is becoming an anachronism in terms of the mixed message it sends to the majority of readers. Finally, the *risks* are not “cobblers”. You don’t leave an economic union, crash your currency, imperil your most important sector (finance) seemingly at the behest of a cohort of the voters, and ramp uncertainty up towards peace time highs without consequences. We’ll see how things turn out, and there are natural hedges/countervailing forces, but the risks are increased. Leavers should own that, presumably because they think it’s worth it for the outcome.

  @Richard — You’ve made your point on that score multiple times. It’s not up to those of us who foresaw an economic consequence to Brexit — nor, say, the consensus of economic experts who Leave dismissed — to suddenly pretend we think the risks are balanced. They are not balanced. Economically speaking Brexit was by far the riskier option, whatever its purported merits for sovereignty/immigration/scaring London/pick to suit. And Brexit has made the risks worse for Europe, too. Everything is now riskier than before.

  @FI Warrior — Indeed. “Risk” doesn’t necessarily mean there’s not potential any upsides, as you point out. We could maybe talk about “risk versus reward” as we do with investing, but it’d be very cumbersome, and for now not worth it as the ratio is heavily skewed towards risk on a short-to-medium view IMHO.
• 32 Richard July 3, 2016, 8:44 am

  @TI sorry, I wasnt suggesting the risks were unbalanced or your writing per see. Just that it would be good to hear views on other markets or how/where benefits could come from Brexit (so we can grab them 🙂 ). Anyway, I will leave the politics and go back to investing

  Having said we talk ourselves into ressesion I am now wondering whether I should continue with my pension/ISA stock investing approach or if I should switch and clear the morgatage. If I remember you cleared yours recently so you must be feeling personally pretty well placed to take on whatever comes next. Maybe that security is worth the potential gains (that may not come now).
• 33 magneto July 3, 2016, 10:48 am

  “On the left side, fixed income ETFs, doing their job in offsetting the more volatile stock index products to the right. From the SHY (1-3 short-term Treasury bonds) to the LQD (investment-grade corporates) to the BND (total bond market), returns are positive over the course of the month. This is why traditional fixed income ought not to be abandoned at low rates, even though it seems that there is limited upside. The answer to that is always “in comparison to what?”
  The Reformed Broker (link above)

  So all is well in the Bond Camp!
  We can rest content that no matter how high Bond prices go, and no matter how low Bond -ve real yields go, there is “Nothing to Fear but Fear itself”.
  Bonds always will always be -vely correlated with stocks, secular Bond bear markets are so last century; and will never reoccur in our lifetime!
• 34 john July 3, 2016, 11:10 am

  @Richard, you’ve got the wrong site buddy. Paying off the mortgage “in case rates go up” is espoused by some but not here. True, we may be forced to put rates up when fx rates inflate imports 10% but you can always pay the mortgage off when that happens.

  I’ve been involved in the mexican stand-off with london property for 5 years. Sorry to those of you who got rich buying london 20 years ago but I’m licking my lips at this one. Actually, I’m not sorry.
• 35 The Investor July 3, 2016, 11:31 am

  @magneto — It’s when I read comments like yours that I think I should just switch comments off this site. We have had this discussion dozens of times over the past 5-7 years, during which time rates have steadily fallen. Nobody sensible says “rising rates will never reoccur in our lifetime!” and we’ve published at least two articles trying to quantify the rate and scale of declining capital values should they do so, and explained why it isn’t necessarily something to fear (because if it happens in most scenarios global equities will be doing better).

  But then you — someone who is something of a regular reader so presumably has read those articles or at least the comments — comes along with a completely disproportionate bit of newspaper-comment section style hyperbole, and I am forced to either delete the comment, reply yet again to explain where it’s wrong or misleading, or else leave it to fester or even gather support like a snowball of inaccuracy, to potentially mislead readers who have hitherto been glad in 2016 that they had some ballast to their volatile equities.

  Finally, a bit of humility might be in order; certainly I feel and have stated it here, having finally published in 2015 I thought UK gilt yields had bottomed and been proven as wrong as everyone else who has read the death rights in this phase of their long-term cycle.
• 36 The Investor July 3, 2016, 11:36 am

  @Richard @John — I own no property and have no mortgage. Last he told me (/published I think) co-blogger The Accumulator hasn’t technically paid his off, but he did reduce equities to produce a cash pile big enough to offset it, having re-evaluated his risk tolerance so that might be what you’re thinking of. But @John is right I’ve made the case of having a large mortgage in this low rate environment, presuming you’re happy with the increase risks and arguably with property prices (I’ve not been in London), and @TA has written too about the upsides/downsides. 🙂
• 37 Nikolay July 3, 2016, 11:43 am

  @TI

  I get your point. I think a lot of the supposed EU failings are of UK making. The supposed “too quick” accession of Eastern Europe was championed by the UK – as was Turkey’s accession to the UK (the Tories only recently changed their tackle on this).

  The UK political elite has consistently tried to “dilute” the EU by allowing in countries of disparate economic development hoping that this would slow down the further integration of the EU. Thus a lot of the problems (or supposed problems) like high migration or swift exodus of workplaces to the new member countries were, actually, result of UK’s own intervention and lobbying, not of inherent EU flaws or of over-reaching on the part of Brussels.
• 38 grislybear July 3, 2016, 11:54 am

  Heres my ten pence worth. I was an apprentice carpenter when the UK joined the EU in the early 1970s the economy was pretty bad, a lot of people I worked with were emigrating to Australia more people were leaving than coming in. In the early to mid eighties recession I couldnt find any work so I went to Germany to work. I came back to the uk for a few years and went to Disney Land Paris doing contract work for about 2 years mainly because the money was very good. The problem I see with leaving the EU is come the next recession the only bolt holes will be Australia and Canada.
• 39 Underscored July 3, 2016, 12:01 pm

  @ The Investor

  A cool and thoughtful explanation of what is going on:

  https://www.youtube.com/watch?v=nwK0jeJ8wxg&feature=youtu.be
• 40 magneto July 3, 2016, 12:06 pm

  “Finally, a bit of humility might be in order” TI

  Humility in the face of uncertainty, regret to say is a constant underlying theme for this investor.
  And am certainly uncertain about Bonds!

  Haven’t a clue where they will go in the next few years!
  But could they be the subject of Irrational Exburence?

  As you point out far brighter brains than this investor’s have been wrong for many years now, about Bond prices. One day they will be right, but goodness knows when! It nevetheless behoves investors to be at least aware of the risks and maybe read some financial history.
  Today just might be atypical.

  It is not as though investors do not have other choices on the Fixed Income side. The Investor himself has suggested Stocks + Cash for those a little uncertain about Bonds.

  Occasionally Bond Bulls produce semi-log total return charts which mask the underlying capital volatility of bonds (albeit far less than for Stocks). These charts should be treated with caution.

  What do we want from Fixed Income?
  A low volatility Asset Class to counter/balance the volatile Stock Asset Class. The reservoir from which we can rebalance as Stock opportunities open up.
  The “take your risk on the Stock not Fixed Income side”.
  Those who extend Bond Durations to seek yield and -ve correlation are taking a risk, which may work out but then maybe not!

  Hope am keeping the tone balanced and constructive?

  All Best
• 41 Richard July 3, 2016, 12:16 pm

  @TI apologies, got you confused. I have generally been of your school of thought (invest for greater return) but having been through redundancy recently and seeing how long it too to get a new job (even with lowest unemployment ever) I have started to become more cautious. If I was to change course and hit the morgatage I would probably take the offset approach, at least then I can jump in and take advantage of something if I feel it is worth the risk.

  @TI @John I am not really worried about interest rates. As I say above, I am more worried about jobs in the coming time. If jobs look secure then agree I hope to try and do nicely out of any drop, you can call me the next Duke of Westminster :). Not sure how long I could keep afloat if job market collapses along with the stock market though. Of course it is a personal decision, if you have been in a run of secure jobs or have plenty of cash behind you maybe you feel less cautious.

  I guess this is the advantage of no property, not only can you easily downsize or say move back with parents, you can also easily chase the new jobs (on the continent if that is what it comes to).
• 42 FI Warrior July 3, 2016, 12:50 pm

  The whole Brexit backlash is mirrored in most countries, more so in the relatively wealthier ones (on a world-wide scale) because people have seen their living standards decline at varying speeds for a generation now. While I understand their pain because I have not escaped the experience either, what I battle to understand is how here they scapegoated the EU for every problem in their life.

  The EU like any human institution could be improved of course, but is no worse to our health than the individual national governments or even our own daily sabotage of our lives through bad habits and failings of character. As such, distilling all your ills into one bogeyman is simplistic in the extreme and infantilises reality.

  As an investor, when uncertainty threatens, often the amateur can only use the one blunt tool they have access to to try and hedge the risks for their future, and that tool is diversity. Surely then it shouldn’t be hard to see that the EU has that same protective function in that it’s a diverse union and as such there will always be a spectrum of differences. So if extremism arises in any one country, those hard-working, sane and enlightened individuals can shelter in another country until reason is restored.

  If you stand alone as a country and the levels of intolerance and ignorance boil over as happens in any population at times, history teaches us that the resulting civil disagreement can tear the country apart, impoverish it and leave it divided for generations. Witness the recent histories of Spain and Greece for this sort of toxic experience in recent times even. Retreating into isolation then, is beyond primitive regression and self-harm, it’s dangerous given enough time.

  Honestly, do people who voted to put more power over their lives in the hands of local politicians feel better about their futures watching the backstabbing, lies and general venality displayed in just the last few days. When staring down the barrel of a gun in a lousy choice of your own making, at least ask yourself the question ‘Do I feel lucky?’ before flipping a coin to decide your life.
• 43 gadgetmind July 3, 2016, 3:14 pm

  BTW, those who question the merits of migration (no, not immigration as it works both/many ways!) should read the 2016-04-09 edition of New Scientist, which is their migration special report.

  The statistics back the free movement of people in a big way as it benefits both those who migrate and the areas they migrate to.

  As for the Remain side wanting their predictions to come true (as they already are doing) well it validates our economic and business based models, which is always a useful from a checks and balances point of view. That this is bad for the UK, and particularly for the demographics who voted leave, is perhaps unfortunate. However, having done all we could to prevent it and having failed, I guess it’s down to the politicians, business leaders, economists and scientists in the Leave camp to show how Brexit can be made to work.

  Politicians = Gove and um, a retreating Boris?
  Business leaders = That Weatherspoons chap and ???
  Economists = Null set?
  Scientists = ditto?

  Still, I’m sure they’ll all pull together.
• 44 john July 3, 2016, 3:59 pm

  @Richard, I regret the tone of my previous post. I’ve been out of work and I try not to forget the misery and the panic I felt. A reserve fund must always be first priority. The risk tolerance of the rest of your portfolio is up to you but remember that paying off the mortgage is for all intents and purposes identical to paying into a bank account with a net rate equivalent to the mortgage interest rate.
• 45 Richard July 3, 2016, 4:35 pm

  @John – don’t worry, I didn’t detect any tone myself :). I would have said the same before the redundancy. I think in time I will be back to that mind set though I am a generally cautious investor myself (tend to take the TA passive approach).

  @Gadgetmind from an investing point of view, talking down the market could be very lucrative to the savy investor. As long as you believe it will go up again and your own cash flow is safe. Think of the bargins!

  Now I said no more politics but I do feel you are doing a diservice to the illustrious leave supporters.
  Politicians – Donald ‘the wall’ Trump, Putin and I am pretty sure Kim Jong Un were all keen supporters of leave.
  Buisness leaders – the guy that makes JCBs and the guy who makes hovers. I mean what else does an Englishman need (along with their burger and pint for a £1).
  Economists – there are 8 economists for Brexit. I mean 8, that is a lucky number in China
  Scientists – obviously they have an agenda to keep the EU gravy train coming in. Cant trust them.
• 46 Topman July 3, 2016, 5:28 pm

  @Nickolay “….. Turkey’s accession to the UK [sic]”?

  Was that the one that voted for Christmas?

  Friendly joshing apart, I found your “funnel” item interesting. It was news to me and I suspect to others here; I genuinely wonder why it has not featured in any immigration based debate where I have been a “spectator”.
• 47 Neverland July 3, 2016, 6:23 pm

  If nothing else the referendum has revealed a truly divided country

  English national party versus the rest

  Majoritarian rule without checks and balances has most recently been seen in countries like Turkey, Hungary and Poland

  It’s pretty ugly

  Not to late to move money out of the uk
• 48 Learner July 3, 2016, 7:00 pm

  > sovereignty/immigration/scaring London

  If it didn’t resemble a typo of ISIL/ISIS, I’d nominate SISL as official catch-all acronym for the many drivers of brexit 🙂

  The cultural issues aren’t going away now or after the policy change and I find it very interesting, but it’s almost orthogonal to the matter of What Happens Next. However we are stuck in this information vacuum for Summer, until a new leader is confirmed. Plenty of room for good discussion, here and elsewhere – recent posts have drawn some friends to the Monevator table.
• 49 The Investor July 3, 2016, 8:57 pm

  Podcast interview with Tim Hartford summarizing his Brexit fact-checking. (How intelligent people who read Monevator and voted Leave can hear this sort of thing and still not understand why Remainers are so frustrated with the tenor of the Leave side both during the campaign and afterwards is beyond me. And to be honest a tad frightening.)

  https://www.acast.com/ft-alphachat/fact-checkingbrexitclaimswithtimharford
• 50 FI Warrior July 3, 2016, 9:56 pm

  @ TI, I think you just hit the nail on the head there, it is very frightening when your world suddenly implodes without warning, when people you thought you knew seem strangers now; did you ever really know them? The never-ending unease of uncertainty, what will happen now, will we be OK? Can we plan anything, just living in limbo, defensive strategies.

  My extended family span 10 nationalities, mostly European, I include English in this, because no matter what happens, look at a map and history, it’s a fact whether the narrow-minded accept that or not. We are intermarried and biologically integrated now across generations, family units and countries, so how do you unravel that because others want to be negative and destructive? How do you divide families, friends, or a child?

  Why should my Scottish uncle to take just one example have to leave Portugal where he’s so happily retired, what did he do wrong? Why should all my variously assimilated cousins have to choose which one country they have to live in when they become adults, guaranteeing the unhappiness of one of their parents, rending their grandparents apart?

  I came from an extremely conservative, narrow minded, small-town start, but through the gift of education and the pain of uprooting everything I knew to make a new life where the opportunities were, my eyes were opened to the beauty through diversity of the world. Used to ~30 languages in classes through decades of education, leading seamlessly to the jewel of tolerance that is London, I have changed too much now. When going back to my roots, though I appreciate the sense of security, history, continuity, (I suppose I’m saying the increasingly rare sense of belonging and meaning in today’s fast-changing world) But, even so, I now find I prefer to return to the variety that enriches life in every way, I am not threatened by people who are different, I have grown, variety is the spice of life.

  The toxicity spreads when there are ideological arguments about the causes of this new disruptive threat and some resent others for the opportunities they have vs those others, assigned by random events like birthrights and the motives of strangers voting. (inevitably selfishly)

  Ignorance may not be the root of all evil, but it is surely the low watermark of civilisation. The utopian ideals of something as powerful as the EU made it a target too rich to evade being hijacked by corporate greed, but we could have done so much better than simply primate level. We could have shown the world that the whole is worth so much more than the sum of the parts, that humanity is capable of more in co-operation rather than conflict, that prosperity is increased, not threatened.

  If that were not the case, why is the basic unit of human life the family, without which individuals of our species struggle to find reasons to live?
• 51 Nikolay July 3, 2016, 10:14 pm

  The referendum exposed inherent faults of the UK constitutional setup (or lack thereof). To start with, the UK is a quasi-federal country but the relationship between the central government and the federal units is not spelled out. In a normal federation the upper chamber of the federal parliament would represent the members of the federation (in UK’s case this would be England, Wales, Scotland and NI). Any change in the constitution or any treaty with foreign country would require a majority of the federal units to agree to it. In this case 2 of the 4 federal units are adamantly against this constitutional change. In a normal federation this would be the end of the story. In fact, some federations require supermajority (in the US constitutional changes require 2/3 majority of the states). The Lisbon treaty of the EU stipulates a 55% majority of the countries AND 65% majority of the population.

  Using a simple majority as is the case with the referendum means that a populous country like England can dictate its own terms on the smaller partners in the union. England is hardly unique in imposing an unbalanced union on its neighbours. In Europe there were many other unbalanced federations where one more populous country was, essentially, dictating what happens in the union – Czechoslovakia, Yugoslavia and the former Soviet Union come to mind.

  It is the discomfort of such asymmetrical unions which makes the EU appealing to many small nations in Europe. Montenegro voted to secede from Yugoslavia (by the way, by stipulating a supermajority of 55%) but is more than willing to join the EU. The same applies to other small countries which were previously in an unbalanced federation – Slovakia, the Baltic countries, the other ex-Yugoslav countries. In this context the Scottish preference for staying in the EU can easily be explained as an alternative (or counterweight) to the unbalanced and, ultimately, unjust union with England.

  There was a lot of gloating among some in the Brexit camp that UK’s leaving might be the death knell of the EU. What many don’t realise is that the EU existed for nearly 20 years before the UK joined (in fact it was the UK which was begging to get in for about a decade with France blocking UK’s application as de Gaulle was suspecting lack of commitment to an “ever closer union”. Turns out he was right). Thus, far from being the death knell of the EU Brexit might be, actually, the death knell of the UK. The lack of balance in the UK’s constitutional setup was made painfully obvious to everyone, not just to the Scottish electorate. So the UK would either have to – quickly – address this shortcoming (and subject major constitutional changes like Brexit to an approval by a majority of the constituent countries) or this will be its end.

  Unfortunately, the can has been kicked for too long – for such drastic constitutional change to happen the issue of the English parliament needs to be addressed. A federal upper chamber of the parliament in London would need to be created, too (perhaps abolishing in the process the unelected House of Lords). In brief, nothing short of a constitutional revolution would need to happen. I don’t believe this can happen in the current political environment. The two major political parties are engrossed in infighting and backstabbing. I can’t see anyone who would be in the position to champion such a radical constitutional change. Thus, I’m afraid, the most significant result from the referendum would be the end of the UK.
• 52 Paul July 4, 2016, 1:58 am

  This is a list of some good things that the Brexit vote has given us so far:

  An increase in my wealth (FTSE 100 shares)
  A long overdue weaker pound that makes £ assets more attractive to foreign investors and boosts the competitiveness of British exporters.
  http://www.independent.co.uk/news/business/news/london-property-house-prices-brexit-overseas-buyers-first-time-eu-referendum-housing-market-a7108026.html
  A promise of fiscal easing by the UK government to support economic growth
  A promise of Monetary easing by the Bank of England to support lending and boost stock prices.
  Early indications of important international trade partners wanting to arrange free trade agreements with post-Brexit UK
  https://heatst.com/uk/11-countries-gearing-up-to-strike-trade-deals-with-britain/
  A chance for British people to vote for and vote out the people who make laws that effect British people (wow imagine that).

  I guessed that all of these things would happen if we voted to leave the EU and I welcome them.

  Clearly the Remainers passionately disagree with us leaving the EU but it would be decent of them to at least recognise that there was a rational and progressive case for voting Leave even if this case relied on optimistic assumptions. Project Fear and Project Smear didn’t work. The demonisation of Leave voters as racist thickos whose votes can be ignored is symptomatic of specious groupthink in my opinion.
• 53 Neverland July 4, 2016, 9:09 am

  @Paul

  Unless your total wealth, measured in sterling, has gone up by more than about 5-7% (a rough estimate of the effect of the pound’s fall on medium term inflation) your wealth has actually gone down

  On paper I’m c. £150k richer than I was before the referendum and I’m very sure I’m really poorer

  The leave voters expressing their views on the comments of this site aren’t exactly bowling me over with the brilliance of their insights…
• 54 The Investor July 4, 2016, 9:50 am

  @Neverland — Curious and for clarity, when you say “it’s not too late to move assets out of the UK” are you referring to buying/owning UK-listed foreign assets (e.g. an emerging markets tracker fund) or are you thinking Swiss chalets, US rentals, gold in Japanese vaults etc (or something you feel more practical).
• 55 Neverland July 4, 2016, 9:51 am

  Majoritarianism (as a theory), similar to democracy, has often been used as a pretext by sizable or aggressive minorities to politically oppress other smaller (or civically inactive) minorities, or even sometimes a civically inactive majority (see Richard Nixon’s reference to the “Silent Majority” that he asserted supported his policies).

  https://en.wikipedia.org/wiki/Majoritarianism
• 56 Neverland July 4, 2016, 10:45 am

  @Investor

  No I’m talking about moving out of UK focused stocks, UK bonds and Sterling cash deposits

  Unfortunately being British passport holders and having a micro-business here, the Neverland family is kind of stuck in the UK and very exposed to what is looking very ugly in my opinion at least

  When you live in a country and earn there you are hugely exposed to a political catastrophe in that country

  I do genuinely regard Brexit as a potential political catastrophe

  The form of catastrophe will be wealth withering rather than life threatening, so personally I won’t be stocking up on shotgun shells or mini-gold bars from the post office

  Having significant investments overseas during a political catastrophe in your home country help, but they won’t reduce the pain that much

  In the land of the blind, the one eyed man is king…but he still has **** all depth perception
• 57 The Investor July 4, 2016, 11:30 am

  Thanks for clarifying, for once we’re in close agreement. I’ve never been less exposed to UK economy. A chunk of this repositioning is from post-Brexit result firefighting, sadly, but you can’t win them all.
• 58 Neverland July 4, 2016, 1:24 pm

  @Investor

  Chin-up. You may get that 2-bedroom palace in Shepherds Bush when the fat lady sings
• 59 magneto July 4, 2016, 3:08 pm

  Interesting to see the debate now turning more to investment issues, and in particular whether we might all be underweight International?

  Elsewhere have noted others actively buying non-UK in anticipation of a better tomorrow thereby.
  While they may be heading in the right direction long-term, prices were more in their favour a few weeks back!
  Today a 10ish percent premium has been added!
  That hardly makes them more attractive price-wise!

  We can’t help peering into an opaque future and anticipating trends.
  This investor is only too guilty in this respect.

  But by forcing ourselves rightly or wrongly to focus on today’s pricing in £Sterling, we continue to reluctantly part-top-slice International positions again this week, thus allowing said International positions to apparently grow in £Sterling, while yet skimming off some of the illusory £Sterling gains..

  Now what will be interesting is to watch whether £Sterling mean reverts.
  Hardly likely it would seem!
  Carney and Osborne doing their best knowingly or unwittingly to talk £Sterling down.

  Eyeballing £/$ charts show some mean reversion over the mid-term, but a pronounced down trend over extensive decades. We discussed this earlier in another thread, remembering that in 1900 a Pound Sterling was worth in excess of $4.00 !
• 60 Neverland July 4, 2016, 4:02 pm

  @magneto

  When sorrows come, they come not in single spies. But in battalions
• 61 Tyro July 4, 2016, 7:35 pm

  @Paul (and FYI Northern Leaver)
  “A chance for British people to vote for and vote out the people who make laws that effect British people (wow imagine that).”

  Nothing has depressed me more about this whole farce than the people who claim we are getting democracy and sovereignty back but couldn’t in a month of Sundays describe the EU’s political system and the processes of decision-making within it – which means they’re not in a position to identify whether, and in which respects, it is undemocratic etc. So this may prove enlightening:

  1. The body which has the supreme authority for making laws in the EU is the Council of Ministers, which is composed of all of the ministers in the governments of the member states. (Obviously they don’t sit all together – there would be hundreds of them in the room – so they meet in different formations as functional committees, e.g. the environment ministers meet to make environmental laws, the finance ministers meet on financial matters, etc.) Yes, UK government ministers are sitting with their counterparts in Brussels, making EU laws, throughout the year.
  2. Anything too ‘political’ to be decided by government ministers meeting in this way is kicked up to the formation that brings together the prime ministers (or presidents, depending on each state’s internal arrangement of roles), and this formation of the Council of Ministers has its own name – the European Council. This body includes the UK PM and when it decides an EU law then the UK PM has participated in making it.
  2. The average length of time it takes for a law to be made from its first proposal is around two years (although this can vary widely, so that some take much longer, the procedure doesn’t allow for them to take very short periods of time).
  3. During this time it will go through various stages of development and re-drafting on the basis of submissions made and amendments sought from a variety of actors, including national parliaments, who have various means of throwing a spanner in the works if there is something they really object to.
  3. The UK House of Commons has a lamentable record when it comes to exercising its right to consider and participate in the making of EU law. Hardly any MPs ever turn up to debates, when they are held, and many of them have not bothered to grasp even the basics of the EU political process so are oblivious to the powers they could wield, if they chose, to affect EU laws. (The House of Lords, by contrast, has a very highly-regarded committee that produces reports that are influential throughout the EU.)
  4. During the years in which a law is being crafted working groups of relevant experts from all member states, including the UK, drawn from industry bodies, trades unions, consumer groups, academia and so on get to have their input, sometimes repeatedly as it goes through the various drafts. When it works properly this can filter out the elements of the draft law that are daft or unnecessarily contentious. Of course it does depend on those who have a particular objection to something in the draft getting their act together to raise the objection during the drafting process – if nobody else knows that there’s some cultural norm in your country that means the draft law is unsuited to you they can hardly redraft it to fix your problem with it unless you tell them what the problem is. Again, the UK could do better here.
  5. The process is largely ‘owned’ by a body called COREPER, a.k.a. the Committee of Permanent Representatives of the Member States. Each member state sends an Ambassador to the EU, but they are called Permanent Representatives. The PRs have staffs (diplomats) drawn from their foreign ministries, and they conscript civil servants from the relevant ministries in their home states. So for example while a proposed EU environmental law is in process, there will be a team from the UK’s DEFRA involved in preparing it alongside similar teams from those ministries in other states who have responsibility for environmental matters. All this is done in situ in Brussels, which is why you have armies of UK-employed civil servants living in Brussels or flying out there weekly.
  6. The European Commission is NOT the legislator that makes laws in the EU. In contrast to COREPER and the legions of diplomats, national civil servants, and experts it uses, the EU is a tiny bureaucracy – some years ago an academic with expertise on the EU wrote that it was about the size of Hampshire County Council, and I don’t think it has grown massively since. Most of its employees are translators/interpreters or support staff. It is headed by a college of Commissioners, one nominated by each member state, and each oversees the operation of an area of activity that the Council of Ministers has agreed should be under the EU’s remit (or ‘competence’ in the jargon). It is a kind of multinational civil service. It also functions as a referee – the member states agreed to create the institution and give it the task of holding each member state to the agreements it had freely signed up to, so that each member state would have the assurance that every other member state would abide by its commitments. (Those of you who’ve taken Political Theory 101 should now be thinking of Hobbes.) True, the Commission has the exclusive right to propose legislation – but as I’ve tried to outline above, the proposal soon leaves its hands for those of elected politicians. Besides which, the only academic study I know of that looked at how the Commission came to propose anything discovered that over 90% of its proposals were made at the behest of a member state.
  7. Most EU laws are decided using a procedure called ‘co-decision’, meaning that the law depends on agreement between the Council of Ministers and the European Parliament. We elect UK MEPs to the European Parliament, just as we elect the UK MPs who are members of the Council of Ministers. If we don’t like the EU laws our UK ministers and our UK MEPs have participated in making, we can throw these politicians out.
  8. Some decisions/laws are made in the Council of Ministers by unanimity, which means each state has a veto.
  9. Some are made by qualified majority voting (qmv), under a complicated arithmetical system designed to ensure that large states cannot dominate small states. Here the name of the game for ministers is to try to form a winning coalition for decisions they favour, or a blocking coalition for decisions they want to prevent, or if there’s not much at stake for them either way on the particular issue at stake they can trade off their ‘vote’ for a reciprocal favour from another member state somewhere down the line. Not much sensible about all this can be said here, save to say that this is a decision-making process requiring a lot of political skill and states that do well in it are those who can create and maintain the goodwill of other states. Also (and this will surprise a lot of people) although formally laws falling under the qmv procedure require a vote, in actuality the ministers virtually never need to actually hold a vote. They already know where the balance of the vote has settled, i.e whether a winning coalition or a blocking coalition has succeeded in being formed. How the UK fares in all this is down to how skilful our ministers (and their teams) are. If we think our ministers aren’t up to the job, it’s up to us to do whatever we need to do to send a better team.
  10. The laws require a court to adjudicate them. The EU’s main court is the European Court of Justice (ECJ), based in Luxembourg. It has jurisdiction over those areas of activity that member states have decided should be part of the EU’s remit, principally the Single Market. The ECJ is not at all the same thing as the European Court of Human Rights, based in Strasbourg. The Strasbourg court adjudicates the European Convention of Human Rights. This Court and Convention have nothing to do with the EU – they are associated with a different intergovernmental organisation, the Council of Europe, set up at the end of the 1940s, and of which we are also a member. (Incidentally Churchill was a prime mover in setting up the Council of Europe, and the European Convention on Human Rights was largely written by British lawyers. Ironic given the calls by sections of the Conservative Party for us to withdraw from the Convention and thus the jurisdiction of the ECtHR.) Leaving the EU will not remove our obligations under the European Convention of Human Rights nor will it mean we are no longer under the jurisdiction of the European Court of Human Rights (which is what I think a lot of Leavers believe, and part of what they mean when they say ‘we want our country back’).
  11. The UK freely agreed to place itself under the jurisdiction of these courts, and did so for good reasons. You cannot have laws without an impartial arbiter to adjudicate them, else each party would be judge and jury in its own case. Moreover, British judges sit on them.

  My main aim in making these points is to scotch the myth that seems to have grown up amongst an alarmingly large proportion of the UK electorate that EU laws are made at the drop of a hat by a bunch of foreigners under the command of the dictator Juncker and then imposed on us hapless Brits against our will. That’s just stupid, stupid, stupid, tosh. Sure, there are specific criticisms to be made about the democratic quality of the EU’s political process, and also specific criticisms to be made about the ECJ (and indeed the ECtHR, though as I’ve explained that’s off-topic since it has nothing to do with the EU). Academics have been making these criticisms for years. But they do so against a backdrop of understanding that all political and legal systems are criticisable, and there’s no particular reason to think that the EU is especially outrageous. As it happens one (eminent) expert on the EU political process, Andy Moravcsik, even claimed some years ago that the EU is more democratic than its member states – see: http://www.esiweb.org/enlargement/?cat=92.

  Final point: in democracies citizens have duties and responsibilities too. Looking after the quality of political life is not just the job of the politicians. Citizens have the duty to their fellow-citizens to take the trouble to find out whatever they need to know in order to be able to debate intelligently and rationally with others and to arrive at reasoned judgements about matters of collective concern. Contributing to massively important decisions on the basis of ignorance, misconception, prejudice,and impulse makes those who do it unworthy of their vote and harmful to the rest of us. I don’t direct this final comment to that miniscule percentage of Leave voters who know a great deal about the nitty-gritty of the EU, also understand modern domestic and international politics and democratic theory, and can put together a reasoned and coherent argument favouring Brexit. (I likely wouldn’t agree with you, but at least we’d be in the zone of reasonable disagreement.)
• 62 The Investor July 4, 2016, 7:49 pm

  @Tyro — Superb. Thank you for sharing that here.
• 63 SemiPassive July 4, 2016, 7:56 pm

  @Richard, depends on your mortgage rate to a degree. If it’s 2% vs a Cash ISA rate of about 1% (and about to get lower) or gilts at sub-1% then overpaying your mortgage is about the highest risk-free rate possible.

  I’ve just finished Lars’ excellent Investing Demystified but my one gripe is the minimal risk asset class is short-dated bonds/treasury ETFs which return basically nothing after fees. OK so there is no interest rate risk on them, but I’ve come to the conclusion you may as well sit in cash within your pension rather than incur the trading fees which wipe out any return.

  In comparison equity funds yielding dividend income of 3-4% still look tempting even if the main indices stay fairly flat.
  But with these bond markets pricing in deflation you’re not an idiot if you want to clear down a chunk of mortgage as part of your risk-free allocation. Otherwise you’re effectively borrowing money at 2% to invest in (some) assets paying less than 1%, and some others which might average 4-5% over the next 20 years.
• 64 Neverland July 4, 2016, 9:32 pm

  @Tyro

  I think people in this country have had enough of experts
• 65 FI Warrior July 4, 2016, 10:09 pm

  It seems that the majority of the population are more motivated to put any effort they have into the choice of their daily takeaway than fact-checking claims that decide their future and that of everything they hold precious. (like their children’s futures, to take one random example)

  But, as many here have pointed out, it is what it is now and you can’t fight reality. Ok, so what is within our power to control? Accept that living in an era of unprecedented access to knowledge hasn’t made much difference in the wisdom of the crowd from when decisions were made by reading the entrails of sacrificed goats, suspected witches were eliminated on a no-win no matter what outcome basis and the earth was believed to be flat.

  The evidence is irrefutable, democracy is easily manipulated against those who need it most. Anyone capable of thinking for themselves then would be best served by assuming they are in a tiny minority and planning meticulously. If emigrating to somewhere pleasant like Oz is difficult for some reason, then work out how you can get an EU passport by other means. Whatever happens, don’t assume it’ll all work out because the politicos here and in the EU will have to see sense and do a deal rather than use each others populations in their territories as political footballs. The outright statements from serious contenders for the throne don’t give much comfort on that score, they aren’t even ashamed to be blatant about it, bigotry is the new black.
• 66 Richard July 4, 2016, 10:40 pm

  What I think is more interesting is how many of those who voted remain would have voted leave if not for the economic threats. Image there was a guarantee that’s economically we would be no worse off leaving than remaining – economically. What would the result have looked like then? I would guess even more in favour of leave. I think the Brits really struggle to see themselves as Europeans.

  @ SemiPassive – my morgatage rate is a few percent higher than savings rates. Even more when tax is taken into account. I am thinking of hitting the pension still due to the tax uplift but then rather than the ISA going for the morgatage. Unless stocks really bottom out but need to keep an eye on currency as well. Hopefully rates will drop when my fix ends and I can get a great deal. Knowing my luck that will be Just when they hit 15%…..
• 67 Paul July 4, 2016, 10:52 pm

  @Tyro
  Thanks for trying but you have failed in your mission to persuade people such as me that the EU legislative process is democratic.

  I think this is the most important line from your text:

  “True, the Commission has the exclusive right to propose legislation – but as I’ve tried to outline above, the proposal soon leaves its hands for those of elected politicians”.

  So, the unelected Commissioners have the exclusive right to propose legislation. This is key to the argument that the EU is undemocratic.
  There is also something important to say about this that you haven’t addressed….YES the proposal then leaves the hands of commissioners to be approved by elected politicians (The Council of Ministers) but crucially these politicians can only block proposed legislation, they cannot repeal EXISTING laws.
  So you were expecting me and other Leave voters to accept a system of EU law making where elected representatives cannot repeal existing laws and have no right to initiate new laws.
  Think about it. Would we find it acceptable if British MPs didn’t have the power to overturn British laws or initiate new laws? No, surely we wouldn’t accept this so let’s not pretend that this lack of democracy is okay at EU level either.
• 68 Paul July 4, 2016, 11:16 pm

  @Neverland

  You’ve just assumed that the post-referendum devaluation of sterling is necessarily going to cause inflation in the UK. It may not.
  The UK devalued its currency significantly in 1992 when it left the ERM. Stocks rose strongly in the months following the devaluation but the weaker pound did not cause inflation!
• 69 The Investor July 4, 2016, 11:54 pm

  The evidence is irrefutable, democracy is easily manipulated against those who need it most.

  By coincidence, over the course and aftermath of the Brexit campaign I’ve been reading my way through the history of Rome’s bloody transition from somewhat democratic Republic to despotic Empire. It would be hyperbolic to stretch the analogy too far, but the echoes are concerning, particularly when it comes to populism and also the wilful trouncing or negligent forgetting of why certain safeguards or procedures were put in place.

  Certainly I’ll never wonder “how on earth did the people let them say that or let that happen” when reading history again.
• 70 Richard July 5, 2016, 7:29 am

  As I understand it though, all safeguards and checks were in place. The referendum bill went before parliament. It was debated and overwhelming passed (only the SNP opposed it, labour dropped their opposition). It then went to the Lords and finally for royal assent. Our elected representatives could have stopped it dead here. They didn’t.

  The refurrendum itself is not binding and any changes are highly likely to follow the same process.
• 71 The Investor July 5, 2016, 7:56 am

  @Richard — Agreed, I don’t think the Referendum itself was illegal, just ill-advised. I think we’re at the “crass populism” end of the wedge.

  I was thinking about this last night — how annoying it must be to be a principled Leave voter hearing people like me bleat on about the illegitimacy of the campaign, the distortions and untruths and so on. I’ve certainly been frustrated with losing sides complaining after elections in that vein before.

  But I really do think this is fundamentally different. I cannot recall in my lifetime such a near-consensus of informed opinion (not fully, but very near it) that a political decision has been made through distortion and untruth. Tim Hartford, for example, who I linked to earlier, has regularly debunked the exaggerations etc of both political parties during an election campaign and barely seemed ruffled. Listen to that podcast and he sounds despairing.

  Hopefully as you say the system that is in place will now limit the damage, but it’s a wake-up call.
• 72 Richard July 5, 2016, 8:10 am

  @TI – agreed. You would have thought the powers that be would have realised the possible outcome just by looking at the rise of UKIP in the general election – from an almost nothing party to holding ~15% of the national vote. I think the conservatives got their majority partly by stealing UKIP policies. Perhaps the thing they were trying to kill turned around and killed them

  There is one possible benefit of the outcome of this referendum. If the country continued its lurch to the right with UKIP gaining more and more power then leaving the EU may have been inevitable. This way we kill the far right parties and have moderates in control of the exit. Obviously I don’t believe this, but it is a possible future and we are seeing it all over the world. Maybe we have stolen a march on the far right.

  At least until people find the next scapegoat for their problems.
• 73 magneto July 5, 2016, 9:32 am

  @SemiPassive
  “I’ve just finished Lars’ excellent Investing Demystified but my one gripe is the minimal risk asset class is short-dated bonds/treasury ETFs which return basically nothing after fees. OK so there is no interest rate risk on them, but I’ve come to the conclusion you may as well sit in cash within your pension rather than incur the trading fees which wipe out any return. ” SemiPasive

  Yes you may have noted this subject was touched on
  I.E. Fixed Income/Bonds in comment 40 above.
  Perhaps we could pick this up and develop more meaningfully later, in a less political thread?

  Maybe TA’s update on the Slow & Steady Portfolio?
  The S&S update should be intriguing for the last quarter!

  Meantime take a look at IS15 (Short-Term IG Corps) and see what you think, esp volatility/correlation-wise.

  All Best
• 74 Northern Leaver July 5, 2016, 10:32 am

  @The Investor – whats the books name?
  @Paul – well said sir
  @Tyro – A good rule to follow in life is that the more complicated a scheme someone tries to sell you is, the more likely that they are are about to rip you off.

  For my pennies worth, while I’m inclined to accept you know the inner workings of the system, i respectfully suggest you step back and look at it from a distance. I’m not the BBC’s stereotypical Leaver, I consider myself to have done pretty well being FI mid 40’s.

  To add to Pauls comment, the democratic process revolves around the council of ministers voting for the president. As there are 28 member states, most of whom take out far more then they put in. Therefor the President is always going to be voted in by those poorer member states.

  Its like asking 20 foxes and 8 chickens to vote on whats for dinner.

  The President then APPOINTS the council, his chums to do his bidding.
  He can hire and fire council members at will to ensure what ever legislation he wishes is passed.
  Democratic?

  Many a politician has made very disparaging comments about the EU, however the closer they get to the center of power then their tone changes. Remember John Major being paraded by the BBC with that other fine statesman Tony Blair espousing the benefits of the EU?

  “The often unspoken fear of many people – we should address it honestly and clearly and examine it–is that Europe might develop into a super-state, an overarching Government with no national veto, no control over our own borders, prescriptive decisions, a single currency imposed and the nation state retreating to a wholly subordinate role. That fear exists out there… and we should recognise the fact that it exists… I for one would find such a Europe wholly unacceptable for this country. I do not believe that it is remotely likely, but, if that were to be the future, it would not be a future that would be suitable for this country.”–

  [John Major, Official Report, 1 March 1995; Vol. 255, c. 1062.]

  The EU has hardly been good for the UK

  – Cadbury moved factory to Poland 2011 with EU grant.
  – Ford Transit moved to Turkey 2013 with EU grant.
  – Jaguar Land Rover has recently agreed to build a new plant in Slovakia with EU grant, owned by Tata, the same company who have trashed our steel works and emptied the workers pension funds.
  -Peugeot closed its Ryton (was Rootes Group) plant and moved production to Slovakia with EU grant.
  – British Army’s new Ajax fighting vehicles to be built in SPAIN using SWEDISH steel at the request of the EU to support jobs in Spain with EU grant, rather than Wales.
  – Dyson gone to Malaysia, with an EU loan.
  – Crown Closures, Bournemouth (Was METAL BOX), gone to Poland with EU grant, once employed 1,200.
  – M&S manufacturing gone to far east with EU loan.
  – Hornby models gone. In fact all toys and models now gone from UK along with the patents all with with EU grants.
  – Gillette gone to eastern Europe with EU grant.
  – Texas Instruments Greenock gone to Germany with EU grant.
  – Indesit at Bodelwyddan Wales gone with EU grant.
  – Sekisui Alveo said production at its Merthyr Tydfil Industrial Park foam plant will relocate production to Roermond in the Netherlands, with EU funding.
  – Hoover Merthyr factory moved out of UK to Czech Republic and the Far East by Italian company Candy with EU backing.
  – ICI integration into Holland’s AkzoNobel with EU bank loan and within days of the merger, several factories in the UK, were closed, eliminating 3,500 jobs.
  – Boots sold to Italians Stefano Pessina who have based their HQ in Switzerland to avoid tax to the tune of £80 million a year, using an EU loan for the purchase.

  If you wish to be part of an EU superstate then great, however to think the UK is better of IN the EU then you are either on the receiving end of the massive envelopes of cash flying round Brussels machine or simply do not understand what the EU is actually about.

  Quote from Jean Monet – One of the founders of the EU:
  “Europe’s nations should be guided towards the superstate without their people understanding what is happening. This can be accomplished by successive steps, each disguised as having an economic purpose but which will irreversibly lead to federation.”

  Right, Im off to play squash then feed my high horse. Thanks to Monevator for this fine space to vent.
• 75 Neverland July 5, 2016, 10:49 am

  @Paul

  I’m laughing at your selective reading of history 🙂

  When sterling left the ERM in 1992 interest rates dropped from a peak of I think 13-14% to 5%. This is what caused the stock market to go up

  Now when Britain leaves the EU interest rates are 0.5% and Bank Of England owns about a third of all the government’s issued debt

  There isn’t really scope to do the same trick

  You do have a point that inflation may be muted in a recession. But then your wealth gets creamed by the recession…

  ..its like saying “Aha I have escaped being hanged!” while tied to a stake and being burnt alive

  I just wish this was an economics lesson I was seeing from a greater distance than my own front door…
• 76 Tyro July 5, 2016, 11:15 am

  @ Neverland: you’re being ironic, right? If not, let me invite you to have your plane piloted by the passenger wearing the nicest outfit next time you go on holiday.

  @ Paul. In response to your first point, you perhaps missed the bit where I wrote that virtually all legislation is proposed by the Commission at the request of a member state (i.e. the Comissioners don’t just dream up these things by themselves) and I’d be amazed if some of them hadn’t been suggested to the Commission by a UK Government. As to your point about repealing EU laws, it’s just plain wrong. It’s a normal part of EU operations for laws to be repealed or allowed to expire – this happened to 10,974 EU laws in the years 1997-2008 (I got these figures from a UK Houses of Parliament briefing paper, not from the EU).
  @ Northern Leaver:
  “A good rule to follow in life is that the more complicated a scheme someone tries to sell you is, the more likely that they are are about to rip you off.”
  Well, I’m generally with you on this one. But it’s also true to say that when it comes to political institutions in complex societies, complication is a price of democracy. (And bear in mind here that our majoritarian first-past-the-post political system is not, outside the UK, universally thought to be fantastically democratic. Its chief merit is that compared to other systems it ranks highly for accountability; its chief defect is that it ranks poorly on democratic representation.) The EU’s political system is complicated, but a large part of the reason why is that it tries to build in opportunities for every affected political actor (states’ governments, national parliaments, sub-regional governments – many of its member states have devolved or autonomous regions – affected interests, citizens, uncle Tom Cobbleigh and all) to have some input. If the EU was less democratic it could be less complicated. But then perhaps you’d be moaning about that.

  ” … the democratic process revolves around the council of ministers voting for the president. As there are 28 member states, most of whom take out far more then they put in. Therefor the President is always going to be voted in by those poorer member states.”

  What? This is such garbage I hardly know where to begin. The Council of Ministers does not vote for its president; the Presidency of the Council revolves automatically around the member states – they each take a turn for 6 months. The prime minister or president of whichever country holds the EU presidency during that 6 month period becomes the ‘President’ of the Council of Ministers (after all, they need somebody to co-ordinate and chair the meetings). After that, the presidency moves on to the next member state in alphabetical order and its PM or president takes on the mantle for 6 months. And so on. The UK has held the EU Presidency several times.

  “The President then APPOINTS the council, his chums to do his bidding.
  He can hire and fire council members at will to ensure what ever legislation he wishes is passed.”

  Again, no, no, no. I can only assume you didn’t actually read my initial post. The President of the Council of Ministers doesn’t appoint the members of the Council. Those members are the ministers of the governments of the governments of the member states. David Cameron’s cabinet ministers – Osborne, May, Greening, Hunt, Gove, Hammond, Fallon and all – are members of the Council of Ministers. The President of the Council can neither hire nor fire them because each set of ministers is appointed on election by the citizens of their country. The citizens of each member state are the only ones who can hire or fire members of the Council of Ministers.
• 77 Richard July 5, 2016, 11:39 am

  FPTP arguably meant UKIP got 1 seat as opposed to 85 seats. Conceivably the conservatives would then have had to form a coalition with them, to prevent a labour led coalition taking power. That would have been interesting – not enough to force us to leave the EU through parlement but starting to look scary. Though if I was UKIP I wouldn’t want a refurrendum under such circumstances. I would look to increase my power base for 2020. Of course if it looks like I was going out of office in 2020 then I would push for last ditch refurrendum.
• 78 Northern Leaver July 5, 2016, 12:58 pm

  Tyro, are you either writing a book or work for the EU?

  Maybe Im wrong, maybe the the council are selected based on their opposition to the endless laws. Maybe all the Eurosceptic Mps and MEP and every other sceptic people are wrong, Maybe John Major didnt mean it when he said the EU could “…develop into a super-state, an overarching Government with no national veto, no control over our own borders, prescriptive decisions, a single currency imposed and the nation state retreating to a wholly subordinate role”

  Maybe the 50% unemployed youth in the southern EU countries think, wow thank god they have such a complex fair and balanced political system that you describe, or else they could really be in trouble!

  Whichever way you skin this, the number of countries now fed up of the EU policies damaging their own economies is growing.

  Unless there is stitch up and Brexit is not implemented, maybe the Brexit decision is a catalyst for change and a reformed EU might be acceptable. There are many good things that came of the EU, its not all bad, but enough is enough and lets move on, both as a country and on this blog. Over and out….
• 79 FI Warrior July 5, 2016, 1:27 pm

  @ Tyro, ”You’re being ironic, right? If not, let me invite you to have your plane piloted by the passenger wearing the nicest outfit next time you go on holiday”

  Please don’t even make these suggestions, put to a referendum here, the majority vote would always be for the most beautiful person on the plane. I can see it now, a new reality TV show ‘Who wants to fly a plane?’ Then the dazed survivors on the ground after the crash saying to the camera ”Maybe taking back control of the plane wasn’t such a good idea, perhaps they had a point when they said only experts should do the actual flying part, even if some of them were different in any way to us”

  I am being ironic, but it doesn’t feel like humour, it’s more like a laugh-or-cry situation. What the triumphant bare-majority don’t realise just because the economy hasn’t obviously been destroyed within a week is that it has just only begun, it’ll work more like a slow puncture. It’s like the wreckers on the coast in centuries past who preyed off salvaging the debris of those ships; destruction can only ever reap diminishing returns.
• 80 John B July 5, 2016, 1:47 pm

  Interesting to see that commercial property funds are suspending trading as their cash reserves can’t match the outflows. It shows just how the granularity of the property market makes liquidity hard. I guess a property investment trust doesn’t have the same problems, as you are investing in the company, but I’m still glad I don’t invest in that segment
• 81 Learner July 5, 2016, 5:54 pm

  FPtP is also the reason the opposition party is currently imploding. Voters know their vote is wasted on smaller parties – they don’t get representation in proportion to the vote – so they try to alter the major party instead, which resists, and here we are. But the election reform battle was fought and lost in 2011 (against a similar campaign of outright lies, funnily enough).
• 82 Paul July 5, 2016, 9:21 pm

  @Tyro
  I said that elected politicians have no power to repeal existing EU laws. That’s a fact. Of course they can ask the Commission to repeal a particular law but the unelected Commissioners are not obliged to take any action.

  @Neverland
  I think you are just assuming the worse. Moodys for example have made a call that the UK will not experience a Brexit recession. We shall see. I stand by my point that any inflation we experience won’t necessarily erase gains in the stock market caused by sterling weakness.
• 

  Mogul

  83 Time like infinity September 17, 2023, 11:27 pm

  @Tyro #61: Thank you. A truly brilliant summary, especially with the difficulty of typing into the small Comment box on a smartphone virtual keyboard 🙂

  7 years on and Brexit is a grim reality to be endured. A £40 bn p.a. tax shortfall. The NHS in pieces. The £350 mm per week Leave dividend shown to be the mirage it always was. London fast on its way to becoming a finance backwater with the FTSE 100 (and at one stage the FTSE All Share) worth less than Apple. Onto our 4th further Tory PM (one every 22 months on average) since Cameron’s resignation, the most hard Brexit of whom crashed the economy, put the Tories 30% behind in the polls, the £ touching parity with the $, and lasted all of 49 days in office. The UK, less London, now ranking behind the standard of living of every single one of the 50 US States. The UK economy no larger than in 2007 FAPP. Here in 2023, in broken Britain, were still asking of 2016 “what have we done?” Guess what, even Nigel Farage admits Brexit has been a failure.