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Weekend reading: Brexit bites

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One of my occasional forays into the cruel and unusual punishment of Brexit. Not your cup of tea? Feel free to skip to the money links below.

Will August 2019 be remembered as the moment the Brexit brown stuff hit the fan? It’s a brave call – what with the three-year pantomime already resembling a bust-up between a mountainous Marmite stockpile and the London Array.

But so far it’s been mostly political, with one unprecedented crisis after another Parliamentary omnishambles.

Now it’s the economy, stupid.

Or, as the Brexiteers call it, the stupid economy.

We voted to be poorer

Even I wouldn’t imagine the UK’s just-revealed lurch into ‘negative growth’ last quarter was entirely due to our decision to shoot our own foot off.

The 0.2% GDP contraction between April and June – the first such shrinkage since 2012 – may in part be an unwinding of a previous growth boost the UK ‘enjoyed’ from companies frantically stockpiling before the last Brexit cliffhanger.

Also, Brexit’s fellow traveler over in the White House deserves some of the credit for the way in which he’s advancing America’s not unreasonable case against China. The resultant trade war is hitting German manufacturers as surely as Texan farmers and Chinese chip makers.

But I think we can mostly blame Brexit.

The UK economy applied the brakes with the 2016 Referendum result. Not entirely – we escaped a recession – but we’ve been losing momentum ever since. That lost growth had cost us £66bn by April, according to the ratings agency S&P. There’s been no positive news since then, and I wouldn’t be surprised if the figure is now significantly greater.

Given our depreciated currency, whatever the exact number is you wouldn’t want to see it in US dollars.

And remember – as we Remoaners are wont to remind-ya – Brexit hasn’t even happened yet! Nevertheless Brexit uncertainty intrudes into the reports of many of the UK companies I read, aside from the multinational behemoths.

UK retail, for example, is on its knees. If you’re confident of a post-Brexit bounce back (and you’re not too worried about Amazon) you can already buy listed commercial property REITs at a 40% or greater discount to the underlying assets.

As for British manufacturers, they seem to have made little from the weaker pound they’ve always wanted. (Big surprise, you can’t devalue your way into becoming Germany).

Not that manufacturers are of key importance to our service-orientated economy, unless you’re a blurry-eyed Leaver nostalgic.

And even if you are, don’t you dare bring fisheries into it. The entire UK fishing industry is about the size of High Street bike shop Halfords.

Down but not out

One episode of shrinkage doesn’t equal a recession, as an erectile dysfunction expert might say. We’ll need two quarters of negative growth for that.

Will we get it? Who knows but the omens aren’t good.

The likes of Chancellor Sajid Javid are always pointing to the resilience of the UK economy as a reason to be confident about Brexit. It’s true that unemployment in particular is very low.

But remember we were busy bouncing back from the deepest downturn for global economic growth since World War 2 when we voted for Brexit. Where would we be now if the recovery had continued unimpeded by the referendum-winning Gang Show?

Anyway, bragging about how great the existing trading framework is working even as you’re seeking to undermine it as a Brexiteer makes no more sense than Woody the Woodpecker hammering away at the branch beneath his feet.

The boys are back in town

Active investing in the face of this Technicolour episode of the Twilight Zone is a maddening enterprise and I envy all you sensible passive investors serenely sailing through it with globally diversified index funds.

I made an especially duff call a few months ago. I believed Parliament looked like it would prevent the Brexiteers from doing their absolute worst. The pound was rallying but it still looked potentially undervalued so I pivoted a decent chunk of my global funds back to Blighty and sterling.

Oops! As things turned out, the ultra-Brexiteers repeatedly voted against Brexit for their own Byzantine reasons, and the rest is history, Boris Johnson, and the pound back down at a two-year low.

Chastened by that experience, I have to consider that the worst case scenario could really come to pass on October 31st.

Boris Johnson is many things – most of them better expressed in Olde English slang about merkins and fopdoodles – but he’s not stupid. It’s hard to believe he really wants to preside over a no-deal Brexit and the likely consequences.

On the other hand we can see Team Leave are at work again now they’ve got the band back together, with Downing Street preparing to blame everyone else for the mess of their own making, from the EU to British MPs, cynics and pessimists like me, and no doubt poor Larry the Cat.

The latest wheeze from the Defenders of Democracy is to consider holding a General Election over the October 31st deadline so we crash out while there are no grown-up MPs at home to stop it happening. I saw a Tory MP interviewed by the BBC conceding the enemies of Brexit may try to thwart such actions “in the courts”, as if the law was something only a dirty foreigner would stoop to.

Let’s remember the courts have already upheld previous skullduggery by Remainers, such as that MPs should get a vote before triggering Article 50, precisely because it was, you know, the law.

I don’t see how MPs insisting the law should be followed are Enemies of the People – and I don’t want to live in a world where the courts aren’t there to protect the hard won rights of us little people against our rulers – but then I’m not a 55-year old Leave voter who talks as though I lived through the Blitz.

Brexit: Imagine a bureaucrat stamping your papers forever

Let’s be realistic: We can’t rely on Sinn Féin to save us from a no-deal Brexit and the disintegration of the Union.

Yes, Brexit has brought us to a place where that sentence was not ironic.

So perhaps Johnson will go through with it, and this isn’t all an admittedly more plausible bluff.

He seems to me entirely the kind of must-win schemer who would turn over the Monopoly board as a kid, so anything is possible.

Maybe he’ll salvage his conscience by turning us into Singapore by the North Sea as the best way to benefit from the rotten hand of cards he’ll have dealt us.

It’s all very difficult, and I will certainly make more mistakes on the way to navigating Brexit from an investing perspective. It’s hard to win when you’re tossing a loaded coin.

One mistake I won’t make again though is to think the pound looks cheap while Brexit is still in play. That’s to fall into the same trap as the Brexiteers who point to the fact that our economy is doing well while we’re freely trading with our biggest trading partner as a reason to confidently derail the relationship.

The pound looks cheap against the world as we knew it. But we don’t know what’s to come.

We won’t truly know for years, most likely. If you’re a Leave fan who somehow read this far, please understand that one thing.

The day after we make our glorious break with the EU in a no-deal scenario, we go back to the EU and begin negotiations about trade. There is no escaping it.

Even assuming the EU partly saves us from ourselves (for its own reasons) by, say,  extending current arrangements in some kind of emergency status for an indefinite period of time, we’ll still be negotiating from an ever-weakening position.

The talks will go on for years. I’d bet you £10 that progress will be being referenced somewhere in the pages of the Sunday newspapers (or their digital equivalents) a decade from now.

It will never end. And something that five years ago most of us were totally relaxed about and basically ignored because it just worked will be an annoying buzzing in our lives indefinitely.

Meanwhile three years worth of Leave voters have passed away, leaving the EU has been revealed as like having your cake and eating it only in the same way as Henry 1st ate his surfeit of eels before keeling over, and we have a prime minister plotting to achieve Brexit by doing it while nobody is running the country.

Draw your horns in. Avoid hero bets. Stay diversified.

And put a raincoat on.

From Monevator

I asked the chief executive of a bank to give me a mortgage and he did – Monevator

From the archive-ator: The surprisingly savage way tax reduces your returns – Monevator


Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!1

UK economy shrinks for the first time since 2012 – BBC

Interest rate cut by Bank of England now on the cards, say analysts – ThisIsMoney

House prices fall unexpectedly as pre-Brexit caution strikes – Guardian

Government moots pension fix for doctors, but what about the rest of us… – ThisIsMoney

…better to solve doctors’ ‘taper tantrum’ with flat rate relief [Search result]FT

Chase Bank cancels all debt for Canadian credit card customers – Guardian

The private equity industry is sitting on a record amount of cash – Institutional Investor

Burford Capital’s rebuttal to a bruising short report is a punchy read – CityWire

Feeling rich? Wealth is all relative, IFS study shows [Search result]FT

Products and services

Free stock trading app Robin Hood gets a UK broker licence – TechCrunch

Yorkshire Building Society offers children’s saving account paying 3.8% – ThisIsMoney

Ratesetter will pay you £100 [and me a cash bonus] if you invest £1,000 for a year – Ratesetter

UK to stay in Interrail scheme after U-turn – BBC

A first look at the iShares MSCI World ESG Enhanced ETF – DIY Investor

Homes for sale with swimming pools [Gallery]Guardian

Comment and opinion

Don’t let China’s devaluation permanently devalue your portfolio – A Teachable Moment

Overpay the mortgage or invest instead? – The FI Fox

Why most people will never be any good at investing – Safal Niveshak

When money dies: On inflation, Bitcoin, and measuring value – Of Dollars and Data

Nervous bride – Humble Dollar

How to best invest in the face of negative interest rates – A Wealth of Common Sense

More on living today and not always in Tomorrowland – Calibrating Capital

Thoughts from a guy who quit his blog on a high – Young FI Guy

The doctrine of shareholder value has helped investors, not workers – Morningstar

Universal laws of the world [Missed this last week!]Morgan Housel

Work is not a job, and the web of life – Simple Living in Somerset

bItCoiN iS [not] a SaFe hAvEn – Reformed Broker

Are Americans right to be so bullish about their housing market? – MarketWatch

Investing with a conscience in a complicated world – Abnormal Returns

Howard Marks on investing as a negative art – Novel Investor

Stagecoach: Is it time to hop on-board? [PDF]UK Value Investor


Boris Johnson will have to return to the realm of the possible [Search result]FT

No 10 cancels staff leave, hinting at likelihood of a snap election – Guardian

Brexit: Corbyn seeks clarity on ‘unconstitutional’ election-time no-deal – BBC

Cummings the new Rasputin is outshining Johnson as antihero-in-chief – Guardian

Portugal lures foreigners with tax breaks and anti-populist stance [Search result]FT

Sterling’s nosedive tells us the truth about Brexit – Guardian

Kindle book bargains

Misbehaving: The Making of Behavioural Economics by Richard Thaler – £1.99 on Kindle

The Miracle Morning: The 6 Habits that Will Transform your Life before 8AM by Hal Elrod – £0.99 on Kindle

The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron by Bethany McLean – £1.99 on Kindle

The Asshole Survival Guide: How to Deal with People Who Treat You Like Dirt by Robert Sutton – £1.99 on Kindle

Off our beat

“The sense I was clever was knocked out of me”: Confessions of university dropout – Guardian

We need a wizard who can appeal to the moderate orc voter – McSweeneys

10 years later, how has Andreessen Horowitz changed Silicon Valley? – Worth

Mystery solved: Why cats eat grass – Science

The climate crisis must mean the end of British summer holidays in Spain – Guardian

Was email a mistake? – The New Yorker

Beware the ‘repowering’ generation – The Guardian

And finally…

“The inability to envision a certain kind of person doing a certain kind of thing because you’ve never seen someone who looks like him do it before is not just a vice. It’s a luxury. What begins as a failure of the imagination ends as a market inefficiency: when you rule out an entire class of people from doing a job simply by their appearance, you are less likely to find the best person for the job.”
– Michael Lewis, Moneyball: The Art of Winning an Unfair Game

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{ 69 comments… add one }
  • 51 Vanguardfan August 11, 2019, 10:13 am

    There are two groups of people who I blame for where we find ourselves. First the ERG, who have voted down the ‘orderly’ Brexit option and slowly pushed debate so far to the right that the masses now believe that any Brexit ‘deal’ is basically remaining. I personally think that remainers have been far too ‘nice’ in accepting the result – these people don’t need appeasing, they need calling out for what they are. Brexit in their hands is about Americanising our economy and our public services.
    The second group are the Labour Party. I can more or less accept as a valid position ‘we will honour the referendum and seek a least economically damaging Brexit’.However, due to the above, we are way past that position now. Those in the Labour Party who genuinely think we should leave should have voted through the WA. There was then everything to play for in the subsequent trade negotiations. Most remainers would have accepted this as a compromise, although clearly, clearly, inferior to our current arrangements. In not doing so, history may judge them equally culpable for whatever chaos ensues.
    I can’t decide whether the Brexiteers in govnt really believed (still believe?) that the EU will offer preferential trade terms to the UK, or if this was always a spin for the gullible.

  • 52 Vanguardfan August 11, 2019, 10:17 am

    By ‘Labour Party’ I suppose I mostly mean the Corbyn cabal (Milne, Murray, McCluskey). A different leadership would have produced a different outcome.

  • 53 Monevator Fan August 11, 2019, 10:51 am

    I’m not a currency speculator but prospects for sterling do not seem good. Even if we do remain it will take time for the UK to recover from this period of delusion. Is it time to sell sterling hedged global bonds and unhedged global bonds?

  • 54 We There Yet August 11, 2019, 1:06 pm

    Oh no not BREXIT again.
    Reading some of the comments on a site which is primarily dedicated to Monevation there is no doubt that BREXIT debate has become toxic and somewhat antagonistic on both sides of the argument to the point of being tiresome.
    To attempt a little perspective; None of us, not one of us, has either a crystal ball or a time machine, unfortunately this means that no one can see into the future or go back and change the past, no matter how much we want to, or think we know, decisions are made at a point in time with the information we have. We are where we are now, living in this moment and we have to deal with the decisions we the people collectively made (demos; strength of the people), until we are permitted to decide to make a different decision.
    Anyone claiming that one opinion or the other is; moronic, stupid, clueless didn’t know what it was doing, remoaning, or any other daft unicorn comments doesn’t help at all and definitely is not grown up debate. It also leads to an unfortunate opinion that stupid people shouldn’t be allowed to vote and ‘I’m smarter than you’ comments, and if you think that through we don’t want to go there.
    As for opinions on the drawbacks, benefits, blame or otherwise of BREXIT they are just like noses (every person has one). It hasn’t happened yet, its a process not a single day (regardless of crashing cliff edges) and none of us know what the future holds, and we definitely don’t know what will happen over the next 20 years (if one did one would be considerably richer than thou already)! We the people, the demos collectively made this stupid or otherwise sensible decision. That fortunately, or unfortunately is the way democracy works, (hence TI can I change the headline to; Did We All Vote to be Poorer?)

    Upshot; no one commenting here can collectively decide the future today, but what we all can do is focus on the here and now and how it influences all our financial decision making for the future. Attempting to use this site to incite annoyance, influence the next vote, calling each other remoaners or unicorns and such should be left for the gutter press, our politicians (same thing?), the talking heads and the political blogs. (If I’m wrong then I for one misunderstood the purpose of this site).
    As individuals we will ALL get to vote next time, GE or whatever, so can we please focus on sorting our finances, now, today? Yes have an opinion, but let’s use any opinion or knowledge to all help each other financially going forward?
    Finally, please can we all forget wasting energy attempting to influence or change the past (believe me at our lowly level you can’t) but to learn from it and use that knowledge create a happier future. Oh no not Brexit again….now I’m the tiresome one.

  • 55 Factor August 11, 2019, 5:19 pm

    @WTY #54

    My sentiments entirely. As they used to say when I was young, “No use crying over spilt milk”. Instead, get on with “mopping it up.”

  • 56 ermine August 11, 2019, 6:56 pm

    @55 and @54

    did you miss the bit up top, above the fold

    Not your cup of tea? Feel free to skip to the money links below

    Perhaps in an ideal world there would have been a skiplink so you didn’t have to sully your sight with Brexit stuff, but the clue really was in the title

  • 57 The Borderer August 11, 2019, 7:45 pm

    @54 & 55

    Please remember, this is Monevator’s blog. Feel free not to read it if you wish.

  • 58 Marked August 11, 2019, 9:03 pm

    @TI only thing wrong with your article is no direct use of the words Barry Blimp

    This will make you laugh. My outlaws are hard brexiteers, but my mother-outlaw said she wouldn’t vote Tory ever again if Johnson got in. Now it’s “give him a chance” etc. Typical Brexiteer changing their mind to fit the facts. This is the same mother outlaw who hates the immigration of europeans into England despite being French and still holding a French passport! You can’t make it up! Oh and they could probably buy a house or two in Singapore like that famous Brexiteer tinkering with electric vehicles- meaning their wealth will insulate them from the effects of Brexit.

    I just feel sorry for my children and their reduced chances in life.

  • 59 Getting Minted August 11, 2019, 9:57 pm

    There is much concern about Brexit, but this may be an opportunity to buy UK shares when they are relatively cheap. I calculate that buying £1 of income is 35% cheaper in the UK than it is globally, and 41% cheaper in the UK than in the US. This is based on the dividend yield of selected income investment trusts. Is this a value opportunity or a value trap?

  • 60 The Investor August 11, 2019, 11:00 pm

    @Getting Minted — Well, my complaints about Brexit are not about what it’s doing to me personally, at least in financial terms. 🙂 (Arguably it’s already helped me buy my flat thanks to the huge spike in the value of overseas assets after the Referendum…) I share elements of your thinking, which is basically what I’m talking about in post #42.

    @all — Thanks for the comments, even the “why Brexit” and thanks for sticking up for the occasion to discuss it here to. I’ve discussed many times over the past three years while I’ll continue to bring it up, mostly in these Brexit-focused ‘specials’ every now and then. As I say in the piece it’s pretty pointless IMHO getting fed up with hearing about it, unless we suddenly stop the whole thing we’re guaranteed to hear about it for most of the rest of our adult lives I imagine (at least if you’re over 40) and if we Remain-ed from here then Leavers would perhaps understandably be unlikely to shut up about it either. So may as well get used to endlessly discussing it, our future trading relations, this deal won, this deal lost, it’s not going away. Sadly that’s what we voted for.

    I happen to think the discussion on this blog is relatively civil though, with only light touch moderation and none at all required on this post. Usually it ends intemperately with the unpleasant end of the spectrum turning up but that hasn’t happened this time. I might even leave the comments open into the week for that reason (usually I have to close them as I haven’t time to police outright racism and xenophobia in the working week 🙁 ) which I’m happy to do if people have more to say.

  • 61 MrOptimistic August 12, 2019, 12:41 am


  • 62 ZXSpectrum48k August 12, 2019, 6:11 pm

    @MrOptimistic. “iShares IGUS lists this as a holding. USD USD/GBP Forwards –507,557,215.00. So looks like a punt of 507M in USD or GBP perhaps borrowed in one currency and paid back in another. Dunno. No explanation or timescales. You can see why hedging could be expensive!”

    Given the AUM of this sub-feeder is around £400mm (and spot GBP/USD is 1.2080), it will need to buy around $500mm of a GBP/USD fx forward to hedge it’s currency position. This most definately isn’t a “punt”. It’s a volatility reducing hedge. That hedge will cost very little in transactional terms (perhaps 5bp/annum assuming 12x 1month rolling hedges). Due to covered interest rate parity you will lose the interest rate differential between the two markets (currently about 1.25%/annum).

  • 63 JC Van Damme August 12, 2019, 6:21 pm

    As a fellow European from the other side of the water it’s reassuring to read that not all reason has been lost on the islands :). I really like how your Brexit posts are nuanced yet unapologetic and factual. Yes you also express your opinion in them, but you add the facts that have formed that opinion and call people and things for what they are.
    In Belgium we are unfortunately not immune to political crises, mostly due to the same kind of rising nationalism, populism and even anti-EU sentiment that is popping up in several places. But even more than ill-informed opinions what bothers me most is the inability of politicians on either side of the polarized debate to overcome the polarization and to deliver meaningful improvements to society. Not that we should expect politics to be the sole driver for change, but at least it shouldn’t make things worse, right? It has gotten to the point that I tend to avoid political news here because it slightly upsets me. So I can surely relate to the ‘oh no Brexit’ feelings expressed above, but of course like you said readers are free to skip the whole article and live happily ever after. Keep the good posts coming!

  • 64 ermine August 12, 2019, 7:38 pm


    > This is based on the dividend yield of selected income investment trusts. Is this a value opportunity or a value trap?

    Ah, that reminds me, back in the day, of reading this monevator post should you swap your shares for an investment trust on a discount

    I confess that I swapped some of my IGWD for EDIN at a (un?)wholesome 8% discount, it was one of the ones I wanted to have after reading that article in 2008 but never got round to because I started with other ITs. ISA allowances were smaller in those days too. I mean, what on earth could go wrong?
    * I am paying in an increasingly worthless currency
    * Neil Woodford – EDIN has some of his stamp all over it though it’s been five years
    * everything’s up in the the sky, although the hate for the UK means we are perhaps less overvalued

    But heck, an over 4% yield with decent track record in these desperate times… opportunity or trap indeed, that is the question

  • 65 Sam August 13, 2019, 11:08 am

    Interesting post. I have to slightly disagree with some previous comments stating that negotiating a “soft brexit” which kept Britain within the single market and customs union would have been the best approach. Staying in these two bodies necessitates surrendering a fair amount of sovereignty and keeping the free movement of people. Given that these two factors were among the most important reasons for many people who voted to leave, any sort of brexit which did not in any way address these two factors, but instead continued with the status quo, could not be accurately described as reflecting the result of the referendum.

    As someone else has said above, if Remain had won, would there now be any talk of a “compromise deal” which ended free movement and withdrew us from many EU institutions. Or would it be business as usual?

    Once the initial referendum result has actually been honoured the people who are so enamoured with the EU are entirely free to continue to press for re-membership or whatever other relations with it. But in a democracy you must always first honour the result of any democratic exercise that is undertaken. Failure to do so is very damaging to the democracy itself, which is ultimately the foundation of any economic prosperity.

    Love him or loathe him, I think BJ has adopted the correct approach. It is to state definitely that we will leave on a set date, either with a deal (which does not involve staying in the single market or customs union) or without a deal.

    As always, thank you for the links 🙂

  • 66 We There Yet August 13, 2019, 12:18 pm

    Ermine @56 and Factor @57
    Sorry but I can’t let that poor attempt at ‘comply or ignore’ go by. How can we ‘not read things’ and ‘skip it’, if we don’t yet know what they say?
    A thought experiment for you; Someone has told you they will broadcast a supposition and as you may not agree then skip it (ie; no reading, have no comments and no opinion in blog terms).
    Then you read it because you might actually learn something, and then comment with what you think is an equally valid supposition of your own.
    But ‘opinions’ tell you, you should have skipped the post, you can not have an opinion, or post any comments (as you were told you should have skipped it).
    Would you not yourselves think that attempting to ‘enforce’ ‘you should skip it as we now don’t like your comments’ promotes groupthink, prevents descension and stifles opinion?

    We would not learn much about improving our finances from each other that way.

    Censorship by using ‘you should have skipped it’ as a proxy for ‘I don’t like your opinion so don’t have one’ is not what monevator, or TI would do, or does do (I assume TI means that you might just want to read something else). I’m sorry this sounds more controversial than its meant to be but its still as valid a point on preventing opinions. PS keep up the good work TI et al (& ermine!:). Now back to the money stuff..

  • 67 The Investor August 13, 2019, 3:40 pm

    @WTY — I think the point was that you were suggesting these Brexit posts shouldn’t be written. Censorship on the grounds that the opinion might not be want *some* readers want to read (even disregarding the fact that plenty of others clearly do, and also want to discuss it) is yet another form of censorship.

    Suggesting you skip my writing about Brexit that I choose to write on my own blog — i.e. a fair warning that it’s about Brexit not the nuts and bolts of investing — is my best compromise.

    Cheers! 🙂

  • 68 Getting Minted August 14, 2019, 1:23 am

    EDIN has certainly got worse recently and is now on a 15% discount and providing a 5.2% dividend yield. It’s suffering the Woodford (now Barnett) blues as well as the Brexit blues.
    Right now the UK equity income investment trust sector seems a good place to (probably) lock in a 4%+ dividend yield and cover the safe withdrawal rate, if you can ignore the volatility of your capital, and hope for mean reversion, but DYOR.

  • 69 Mr Optimistic August 14, 2019, 2:53 pm

    @ZXS. Once again thanks. Could you explain how this works in simpler terms 🙂
    Also, the original question was about duration of hedge, renewal frequency. As I welcome a free education your help would be appreciated !
    @JVCD. I also avoid political news too. It is however noticeable how the pro-EU lobby here has made a very poor defence of EU membership and it’s all negative or aggressive ‘ we’ll stop you and you can’t stop us’. I voted remain but now support brexit.

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