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
News
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
Brexit
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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“(Big surprise, you can’t devalue your way into becoming Germany).”
Depends on which Germany you’re trying to emulate
My World Index Trackers-Equities and Bonds Portfolio -continues to perform and is growing. Wonderful how resilient free capitalist societies are. Once the “angst “ is over and there are real reasons for people’s anger with the status quo otherwise we wouldn’t have had the Scottish referendum,Brexit and Trump etc-life will go on. People on either side of the arguments need to start talking to each other and have a sensible debate. This seems to take time as people begin realise shouting at each other is not very productive. I would suggest stopping rubbishing valid democratic referendums and votes results would be a good start.
If no body observes the basic rules anarchy ensues.
Onwards and upwards!
xxd09
“Overpay the mortgage or invest instead?”
The author makes the case that the return on overpayment of a mortgage is equal to the interest rate on that mortgage, however, this assumes that the price of the mortgaged property remains static, and the only return is reduction in interest paid over the lifetime of the mortgage.
In overpaying a mortgage, you are effectively increasing your equity stake in the property. If the price of the property goes up, then your stake in that increase also goes up.
In simplistic terms, if one had overpaid a mortgage so that your equity stake had increased to 50% as opposed to 40% had you not overpaid, and the property had increased in price by £50K, then the effect of mortgage overpayment would be a return of 50%-40% = 10% x £50K = £5K. Assuming you sold at that point, of course.
Of course, prices can come down too!
Or am I missing something?
Regarding Robinhood getting a broker licence.
Has anyone got any experience of the other no fee brokers?
From my research there seems to be 3 main ones, e Toro, free trade and Trading 212.
E Toro seems to conduct all their business in USD, but they don’t seem to list all their fees anywhere so I don’t know how that would work with regard to currency conversion fees, other than finding reference to one.
Free trade I havent done so much research into because its app only, and id like to sit down with a spread sheet etc etc.
Trading 212 on the face of it seem the best, they seem to have web access and even an ISA that as far as I can work out is fee free. But suffers again from not publishing their fees centrally and that has tidbit like “we don’t charge any fees to withdraw funds* (*but our bank does)” which just starts to feel scammy.
So all in all I’m left with the feeling of replacing a known fee structure with an unknown fee structure, and I’m buy and hold so the savings aren’t going to be massive anyway.
Thoughts?
It’s now clear for all to see that the benefits of leaving the EU just don’t exist. There is just about a valid argument to be made for respecting the referendum result if a deal was available but not for leaving without a deal. The leavers who push this no-deal scenario through will reap what they sow in due course.
The heart of the matter is, as you eluded to at the end of the article, that no deal isn’t an option in the long term. A new relationship will have to be sought and guess what? It will likely look very similar to old deal but with poorer terms for ourselves and an associated loss of world influence. Sadly, I suspect this outcome is now unavoidable.
You aren’t buying a stake though, you already own a 100% stake. Your mortgage amount doesn’t increase as the value of your house increases.
Even at the extreme of them repossessing your house, I believe they sell the house an give you the money left over, so either way you get the upside.
Its like a bond holder doesn’t really see any upside to the stock price.
@xxd09
no chance that portfolio is currently growing in £ terms because the exchange rate is falling somewhat?
@xxd09 — I would have accepted May’s compromise withdrawal deal and a soft Brexit (stay in customs union and single market, get back sovereignty) as a reflection of the very tight referendum result that Leave overall won.
Unfortunately Brexiteers didn’t. They don’t accept the fact that they didn’t win a landslide mandate to do whatever they like to the country without anyone squeaking a voice of opposition, as we have seen repeatedly for the past three years.
I do agree with you that at some point we all need to calm down a bit. However with the new government apparently genuinely trying to trick the country out of the EU by its timing of a General Election, I’m not inclined to take the high ground just yet.
Boris’ negotiating strategy is like holding your family at gunpoint in front of a bunch of strangers and saying you will shoot them unless the strangers give you money
Three possible results:
– you bottle it then everyone beats you up
– you shoot yourself
– you shoot your family, then yourself
Currency devaluation has certainly helped with total return, but we don’t seem to have had significant price inflation so the gains are very real if you wanted to cash out for a major purchase.
Over 50% investments in US more likely cause-equities and bonds
I am disappointed that public opinion hasn’t moved more than it has, but then Brexit hasn’t happened yet.
I would like to understand what we are trying to accomplish with brexit. The longer this whole fiasco has gone on the harder it is to understand. We are now trying to stop parliament making decisions plus making it harder for companies to invest and telling people who are from Europe to clear off. This is unlikely to end in sunlit uplands more like faulty towers. I wonder what historians will say about this period of British history. I am going to be treating this as a possible repeat of Austria and it’s stock in the world going from significant to having the economy it has today. History teaches us that being unpleasant to people does not result in things getting better. Apologies for this personal opinion you don’t have to agree with me and I would really love to be wrong but I honestly feel a bit saddened by it all
https://www.bloomberg.com/news/articles/2019-08-08/the-non-weirdness-of-negative-interest-rates
There is too much money in the world and not enough productive opportunities in which to invest it seems. Everything rises until it doesn’t 🙂
Personally, I’m globally diversified with only 8% of my portfolio in the UK. It was looking good until the idiot in the WH started the latest round of tariffs. Ho-hum.
I’ll want to lock in these currency gains so am looking at Hedged ETFs for some if my portfolio (maybe 50%). I’m aware I’ll miss out on any upside if Sterling declines again, but seems reasonable to me.
I have a question that I haven’t been able to answer on this inter-webby thing:
How long am I hedged for? If I buy a Hedged ETF, do I have that effective exchange rate for ever? A year? A month?
Thanks in advance,
A depressed Re-moaner.
A question I always like to ask brexiters:
When you voted leave what solution did you have in mind for Northern Ireland?
Always gets them angry.
@Netherland – those of us in the firing line are no doubt thinking it’s a shame you don’t choose your family.
In the light of all this, do people think that UK government bonds are still as “safe” as they are supposed to be – the steady bit of the portfolio?
@haphazard. Safe in terms of repayment, yes, the UK can print its own money. Safe in terms of interest rate rises, safe enough if you keep durations low. Safe in terms of inflation, well that is also likely to raise interest rates so keep durations low and maybe hold some UK IL gilts exposure ( keeping duration low). Safe in terms of expropriation or discrimatory tax treatment by a future anti- wealth government, probably since they will be hungry for foreign financing.
It would be a lot better if we lived in less interesting times but the risk compared to equities seems to be generally as it was.
This kind of fallacy really grinds my gears and is illogical. There was no kind of, win by a landslide and get a hard Brexit, win by a whisker and get a soft Brexit. There was no ‘type of Brexit’ on the ballot paper. It’s binary, there was leave and remain.
Leave won and we must Brexit. I would rather have an economic crisis than a constitutional one. Being poorer I can stomach, living in a country where we don’t enact the largest democratic vote in it’s history is farcical.
At this point Boris is right, get us out. Do a deal, or do not, we are leaving one way or another. And so we should!
@Andrew — Well, in point of fact that’s wrong. It was an advisory Referendum. It doesn’t have to be implemented *at all*.
I agree with you that from a democratic perspective better to do something than ignore it completely. Hence I feel a very soft Brexit was an acceptable outcome. We could then revisit in say 10 years to see if we wanted to go further.
Shouldn’t have been advisory then. What’s the point of even having a referendum unless the result should be enacted?
It’s clear cut. There was a referendum. There was a result. Enact the result and get on with democracy. If this is top trumps in democracy, really, you have to enact it, even if you have to suspend parliament to do it. There has never been such a large vote in our history and if you don’t enact it then it’s a farce. We may as well not have a democracy anymore. If the results don’t count, what is the point.
Always a touchy subject Brexit… The EU isn’t a utopia though, nobody can argue with free trade being brilliant and aligning standards make complete sense but did the project start to represent a monster that couldn’t be tamed? That’s where I feel the referendum was lost. Labour are complicit in their incompetence for us to now be in this position.
p.s. Long time reader, thanks for the time you put into this website.
@Andrew — The point was to see how people felt. They voted by a slender majority to Leave. This is best represented (advised…) as a soft Brexit.
I don’t disagree it was a stupid confusing exercise that should never have taken place.
However if you wanted to do it and have it “clear cut” then we should have specifically been given the options (“the deal”) and it should have required a bigger margin (eg 60%)
This is normal in systems that use referendums routinely.
We didn’t do that. The only excuse for the sham of a Leave campaign and the fact that almost everything it said was incorrect IMHO is that the referendum was non binding.
Approbrium seems to be the remainers weapon of choice. Vague ideas of ‘ sovereignty’ seem to be at the root of the Brexit arguments. Whilst the hard brexiteers get a lot of bad press, the hard remainers, who want no change at all, stay concealed. Had the remainers got their act together we could have got a soft brexit and the Irish border wouldn’t be an issue ( as it is this just plays right into the sovereignty camp although some here don’t seem to get that).
Unfortunately, instead of a capable politician we got TM and now the brexit party means the Conservatives have got to push an unequivocal leave position for the sake of their survival. Truth and logic were left behind long ago by both sides. Today there is a trade union useful idiot opining that yesterday’s power cuts could be a sign of things to come under brexit. So, gone out of his way to try to confuse and inflame.
I think BJ has judged it right, if right still exists, and now something has to happen, the current debate is febrile and pointless.
The EU have said they won’t negotiate. That is a very aggressive and provocative statement, as bad as any brexit chanting. So they think the time for talking is over too. Apparently.
My money would still be on a delayed hard brexit with the transition period negotiations rowing back to a customs union. The big risk to this is hard line remainers trying to block everything. There’s good and bad on both sides.
I take it then, that you don’t mind what kind of Brexit we have, as long as it happens, as it’s a binary question and all.
In view of that would a soft Brexit not be preferable as it doesn’t quite so completely alienates 48% of the population?
@Ben
Freetrade are included in Monevator’s Brokers Comparison table. I’m using them for my ISA this year. A web-based application is on the cards but not immediate pipeline. Here are their fees – https://freetrade.io/pricing which is pretty transparent.
@Brod. Re hedging, that’s an interesting question. I always assumed that the hedging instrument ( eg forward contract) must be held inside the portfolio. I’ll go and take a look at a hedged iShares etf and report back
“In law and public policy, the observation that equally qualified expert witnesses can come to opposite conclusions …”: but in public policy, at least, “witnesses” tend rather to be equally unqualified and inexpert. That’s presumably what Gove was driving at back in ’16 – economists’ predictions tend to fail; they don’t really know what they are talking about.
That is presumably because macroeconomics is little better than a morass of tautologies and question begging. If as clever a chap as Maynard Keynes couldn’t make a successful, coherent analysis of it, it’s just too tough.
@MrOptimistic.
> “Had the remainers got their act together we could have got a soft brexit …”
How exactly? Were “remainers” asked any more than “leavers”? In her Lancaster House speech, TM had settled on a very hard Brexit before there was even any meaningful public debate.
> “… and the Irish border wouldn’t be an issue ( as it is this just plays right into the sovereignty camp”
Yes, but what puzzles me greatly is the complete inability of large parts of the British media and political scene to see events from other countries’ perspective and to understand that other people have sovereignty too. Even EU countries!
> “The EU have said they won’t negotiate.”
They have said no such thing, not even close. They have said that they won’t renegotiate the withdrawal agreement. After all, they have already spent the last 2+ years negotiating that. The have repeatedly stressed that they are happy to change the political declaration, and of course we will be negotiating the future relationship for years to come – even without a “deal”. (And in fact, even if they wanted to, there is not the remotest possibility from a logistical point of view that they could renegotiate the whole thing from scratch in the two and a half months to October.)
> “That is a very aggressive and provocative statement, as bad as any brexit chanting.”
Just imagine for a moment it were the other way round. The UK spent two years negotiating an agreement with the EU, and then the EU came back and said they wanted to tear it up completely again (for instance because one out of 27 didn’t like it), but they had no idea what to put in place instead. (And almost all of the UK government’s recent statements actually appear to be aimed at a domestic audience, not at the EU at all. It seems about assigning blame and preparing an election, not negotiating. Surprisingly, it still seems to work with a lot of people.)
Had remain won by a similar margin, would we now be talking about a soft remain? And if not, then why not? I agree with Andrew. You can’t create a spectrum out of a binary choice just because the result didn’t fall your way. But we’ve been through this all before. You lost. Get over it already.
Had Remain won by a similar margin, Farage would have been ecstatic and never off the news. We’d have never heard the end of it.
We were already soft remain, we had opted out of the Euro, and Schengen.
I’ll also direct the same question that I asked Andrew. As it is apparently a binary choice, I take it you have no problem with a soft Brexit?
Re hedging, 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!
Somebody smart may show up to illuminate the path of truth.
As you say, they won’t renegotiate the withdrawal agreement (and quite right).
All labour have to do is get that through their head, rather than say they’ll renegotiate and vote for it.
Boris would be exposed or grasp the chance to put it in front of parliament one more time.
Chances are a general election could be forced to then get the power to do the real negotiation. That’s where the real decisions will be made.
Got to agree with Andrew. Voted remain yet am in 100% support of leaving. Get behind the majority onwards and upwards.
Whether the referendum was a valid definition of the “will of the people”; or whether illegal funding and/or illegal use of personal data made the result improper; or whether the statements made by either side were untruthful, Parliament voted to enact Article 50 by an overwhelming majority.
What they voted for means that we leave on Halloween (how apt) unless the government and the 27 can agree a further extension.
The fact that Party Politics, nothing more or less, has led the country into this catastrophe, is simply an inditement of the current state of democracy in the UK.
Once upon a time, politicians in a parliamentary democracy where charged with acting in the interest of the people. It seems with our current cadre of professional politicians that they only act in what they perceive to be the people’s (as informed by the gutter press) current interest.
Little wonder that the young are so completely apathetic towards politics.
The Tory party from David Cammeron to May to Johnson have given us this Brexit mess. This is the Tory partys doing it is their mess and theirs alone. They are destroying the currency and next they will destroy the country. Putin must be laughing and congratulating himself on money well spent.
@The Borderer – I think this is a mistake I have made looking at this. Thinking politicians are even acting in what they think the people or the countries interests are. Some are of course, but with a wafer thin majority, I can’t help but feel most are looking where their own interests lie. By opposing any deal they increase the chances of sitting in Downing Street. BJ did this. Labour is constantly testing what they need to say on this point to get in power. Lib Dems see 48% voters they could secure that could reverse 2015 and more.
The issue is it doesn’t go away and there is no sign the the general population have really changed their minds. This will continue to be the main topic for years to come, even if a pro remain party comes to power. The only way forward I can see is too leave. Then if things are really bad, join again, following a vote where sentiment is clearly reversed.
@TI shocked to hear you trying to time the market. And the currency markets at that. You certainly have a stronger constitution than I do. How does that fit with your high risk aversion you mentioned on the house buying post? The two seem somewhat opposed. I am very risk averse as well which is why it is boring trackers for me, buy and hold.
Not too long ago, at what I must confess was a rather beery evening, a friend came up with this:-
How about everyone in the UK voted for anyone except the party that they voted for at the last election?
At a stroke, we could sack every single member of the HOC!
Ah well, just colour me fantasist.
‘No deal’ is highly irresponsible and will damage the livelihoods of people in other countries as well as our own. It represents a complete failure of UK politics. The Government and Parliament ought to decide exactly what realistic future relationship we want to have with the EU, negotiate it, and postpone Brexit until that has been done. Anything else is a gross abdication of responsibility.
@Duncurin agree with you but it won’t happen I don’t think. If it does, it was the remainers what did it, despite the prevailing communications blitz. The good guys weren’t the good guys after all 🙂
@Richard — As disclosed innumerable times on this site, I’m an active investor and get up to all sorts. 🙂 Most shouldn’t, maybe including me, etc. With that said I suspect there’s a clear potential opportunity in the market with many UK shares — even to an extent the overseas earners — looking under-weighted, unloved, and probably undervalued, and the pound probably undervalued in any reasonable Brexit scenario. (i.e. Deal or very long kicking of the can down the road). Most globally diversified UK investor portfolios (including mine but not as much as before the shenanigans!) are pregnant with mean reversion potential should the pound rally… I think that’s 100% fine if you’re a passive investor, as most should be, but still I expect to suddenly hear all about currency risk being a bad thing again if/when that happens. (Since the pound sank all the passive investors have been all “hey I love currency risk!” 😉 ). I also think UK equity income trusts and some other bits and bobs are probably relatively good value — discounts abound and so on. So basically I’ve been taking running stabs at shifting my exposure more in that direction (as ever, not entirely etc!) and then typically reversing some of it when things looked wobbly again. Do not try this at home. Risk aversion means many things to different people. For my purposes it’s the risk of losing money and now not being able to meet the mortgage, not the risk of volatility and definitely not the risk of benchmark deviation for a period. Again, massive wealth warning around all this! But it’s late at night and I’m sure nobody else is listening… 😉 )
And there’s me thinking the advantage of being a passive investor is to avoid investment decisions at 1am.
You had it right with avoiding binary bets and staying diversified. From my point of view, the risk of bond yields going lower and staying there is a risk.
That was what I was trying to square off – active investor who is highly risk averse. As you say, it appears you are mainly risk adverse about being forced to realise a loss by something outside of your control. I can see why you want to live off the interest of capital rather than the capital itself.
Even for active investors, currency always feels so much harder/ riskier to call than individual shares. You can read company reports etc but countries or even multiple countries all interacting….. But I would be the first to say I have no idea where you even start researching and understanding this (but then I wouldn’t claim to be an expert in understanding companies either).
Passive are indeed ridding high on currency. Let’s see how risk averse we really are when it reverses. The thing here is I can’t see how rebalancing or diversifying our portfolios can remove the currency risk. Portfolio is in GBP, most underlying shares are tied to other currencies. Does the old pound cost averaging over the long term work here? When pound is high we get shares cheap, when low we get them expensive? So we should just ignore this risk until we need to draw from the portfolio?
No disrespect meant, I love what you do and this is one of the few the sites I come back to frequently! Even the Brexit rants :). Long may it continue.
Had a conversation in the pub the other day with a couple who work in racing stables down the road. I explained that I am due to retire to Spain in two years and if we crash out of a deal I will, probably be treated as a American rather than a European.
“What does that mean Simon?” they asked
“Well, I am not allowed to earn a living as I will be going on a non lucrative visa (I am retiring so will not get a employment work visa from an employer before going), and I will need to show savings of 32k in my bank per year so I can look after ourselves” said I
“err What?” They replied
“we were thinking of going to Tenerife to find some work and then retire on our state pensions” They Said
“err…” I replied
“Pants.. I wish the Boris bus said this when we voted out. I wish we had clever people like you explain this” In all honesty they said this (I’m not THAT clever)
I like the Brexit monevator rants (I see the nurse has forgotten his meds again), I voted remain..but the country voted out.. let’s just get on with it and let the markets settle
And yes politics in the pub! (the previous conversation was about religion)!
@Richard: but the country voted out.. let’s just get on with it and let the markets settle
My two biggest issues with this position are:
> There is nothing remotely less anti-democratic about resisting a hard brexit than there was when the people who claimed to be pro-brexit actively worked to stop a softer brexit; and resisting a hard brexit is at least less the less hypocritical of the two. The hard brexiters have shown they are willing to abuse any option available to try and force through what they want, and I have no issue with those opposed to it responding in kind.
> Let the markets settle? We have Brexit and what is likely to be a minority government by that point. The prime minister can’t call an election unless the opposition votes with them, or he loses a vote of no confidence. A hard brexit is the best way to keep the pro-EU membership vote coallesced behind parties that support rejoining asap. The main trade deal being discussed for after brexit is with a country that the Brexit brigade used the previous version of to argue for leaving the EU (TTIP which didn’t happen). I’m not remotely persuaded that if we leave in October the market will be stable 5 years from now. Every single thing that goes wrong post-Brexit will be blamed on Brexit (in the same way we’ve done the same with the EU since joining).
@John – that was said by @Simon not me. But I broadly agree with just getting on with it from a practical point of view. This is a toxic issue. If we don’t leave (with or without a deal) ~50% of people still want us to leave and will feel betrayed. This will poison politics. It will continue to overshadow everything. Farage will be back with avengence and the only end point I can see is leaving. A bit like Scottish independence. Enough people want it and will keep fighting for it until it happens, maybe not today but some day. Other than leaving, I don’t see how you change the minds of the 50%. Unless you wait and hope time will take care of it. Meanwhile the question not being properly resolved in the minds of the people will hurt the economy, politics and everyday life.
Leaving will also be the thing needed to get us to join again in a politically acceptable way.
Great article and writing style. Duncurin, “disappointed that public opinion hasn’t moved more than it has.” It’s because a material number of leavers voted under the mistaken belief in doing so the UK would become a “self-governing independent nation” and to “reclaim sovereignty” and national identity. There are lots of myths and basic misunderstandings in that stand point. But it’s fundamentally linked to the UK’s history as an island apart from the continent. The British don’t see themselves as Europeans. As Mrs May once put it the UK has never been comfortable being part of Europe. Leave MPs and leavers talk about the EU and decision making in Brussels as if we weren’t part of it! So for those leavers, economic arguments aren’t relevant and it’s easier in any event to dismiss complex uncertainties. They see the Irish border/GFA issues as an annoying inconvenience – can be solved by technology, erm, in several years. Ironically, there’s a view that the best remain hope is no deal. As then reality will hit. The UK was paralysed by the fuel protests some years ago. Good luck this time. Panic spreads fastest of all. Longer term, say by 2029 another core of leavers will have comprehended that their problems weren’t caused by EU membership nor have been solved by losing it.
@Richard 44 TI did point out one way you could hedge currency and still stay invested. Sadly I recently sold out of mine bought on the back of that article booking a profit, on the grounds that I expect to be able to buy this lower in the near future due to a) the pound tanking more and b) more wider sabre-rattling.
Yeah, I know I shouldn’t, but hell, one needs to get some sport out of the f*wittery that is Brexit. In the unlikely event that sanity prevailed on this septic isle in November I’ll take a bath if I buy back in later on but I will be so much better off in other ways I will celebrate the loss.
No reason why not, if your investment horizon is 20years + then ignore it. Hopefully a couple of decades down the pike people will think about Brexit like we think about the Suez crisis. If you can’t bring yourself to ignore it at the mo, a half split IGWD and VWRL gives you a bit of both.
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.
By ‘Labour Party’ I suppose I mostly mean the Corbyn cabal (Milne, Murray, McCluskey). A different leadership would have produced a different outcome.
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?
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.
WTY
@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.”
@55 and @54
did you miss the bit up top, above the fold
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
@54 & 55
Please remember, this is Monevator’s blog. Feel free not to read it if you wish.
@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.
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?
@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.
🙂
@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).
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!
@GM
> 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
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 🙂
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..
WTY
@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! 🙂
@Ermine
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.
@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.