Good reads from around the Web.
I warned in the aftermath of the EU Referendum that I wouldn’t be letting the subject of Brexit go in the months ahead.
And sadly for my ego – though happily for the country – that means it’s time to eat a bit of humble pie.
Because… so far, so meh.
Don’t get me wrong, I still believe there will probably be a long-term economic price to pay for any true Brexit. I can’t see much in economic theory that allows for anything else.
I repeatedly stressed I wasn’t forecasting an economic catastrophe – but that I did think in 20 years the economy will likely be smaller and more unequal than if we’d stayed in Europe. I haven’t changed my mind on that.
As for the cultural and social issues, I will remain a Remainer even if Brexit ultimately boosts our economy. I’ve seen how Brexit has made many people feel first hand, and I’ve read reports of far worse. Brexit is, for me, a step backwards for our society.
But with those caveats out of the way, I’ve got to admit that the big economic shock I expected in the aftermath of the result simply isn’t materializing.
Consumers are still spending. Manufacturing is expanding. Company directors who said they were fearful in the aftermath of Brexit have changed their mind. Most housebuilders report no change in demand following the vote. Early PMI readings looked terrible, but they increasingly seem to reflect panic rather than predicting the near-future of the economy. Employment has held up well.
I would link to articles citing all the latest data and reversals, but to be honest at this point the evidence is pretty much universal.
What went right?
For me, the tone began to change the minute Theresa May formed her new government. You could feel confidence returning. If we’d still been in the midst of a Conservative leadership battle, as initially planned, things might be different.
I also suspect the Bank of England’s decision to act dramatically has – contrary to the claims of many Brexiteers – made things better, and indeed risked derailing its own forecasts of a dramatic slowdown. (A sort of bittersweet result one imagines for BoE insiders…)
Carney’s quick actions mean liquidity has continued to flood into an economy that wasn’t doing badly anyway. It has kept the banks willing to lend. Forcing down interest rate expectations has helped keep the pound low, which has only been good for the economy so far.
True, imported inflation from a lower pound will take a while to come through.
There are signs, too, that the housing market is softening despite the wall of money being thrown at it (though to be honest this seems to be down to the stamp duty hikes and BTL tax treatment changes as much as Brexit.)
And then there’s the elephant in the room – we haven’t actually Brexit-ed.
Our economy – which contrary to Leave’s claims was doing perfectly well in Europe before the vote – has surely continued to motor on partly because nothing has yet changed in terms of trade deals, market access, or regulation.
If Brexit really does mean Brexit, that cannot last.
Strong voter, swing trader
I improved as an active investor when I learned to admit my mistakes quickly, change my thinking, and cut my losses.
And the reality is I expected the massive uncertainty introduced by the Brexit vote to shock the economy. It hasn’t.
None of this means I now believe the EU Referendum was a good idea, let alone that I should have voted Leave.
Far from it. I still consider it was a dangerous gamble, that there will be long-term harm, and that in general the motivations behind the vote to Leave are the antithesis of the sort of society I’d prefer to live in.
But so far, so wrong, from an economic standpoint anyway.
For the sake of the country I hope my confounding continues.
Have a great weekend!
From the blogs
Making good use of the things that we find…
Passive investing
- A brief history of Smart Beta – Canadian Couch Potato
- The US Vanguard 500 index fund turns 40 – The Reformed Broker
Active investing
- Learn valuation with NYU’s Aswath Damodaran – Musings on Markets
- One reason smart investors fail to beat the market – Dash of Insight
- The S&P 500 looks a bit pricey – UK Value Investor
- Why do you invest in stocks? – Howard Lindzon
- Successful failure [Video on value investing] – The Value Perspective
- The Fed: Myths vs reality – Investing Caffeine
Other articles
- The power of ‘and’ – Retirement Investing Today
- This sort of nonsense is why you want F.U. money – The FIREStarter
- The financial independence community is wrong – Liberate Life!
- 10 money revelations for a mid-30s guy – A Wealth of Common Sense
- An attempt to use machine learning to find the safe withdrawal rate for retirement [Note: Geeky!] – StreetEye
Product of the week: In the weird world of near-zero interest rates, High Street banks have reacted to the Bank of England lowering its Bank Rate by quietly increasing their margins on tracker mortgages. Stick with fixed rates, advises The Telegraph, which points to a two-year deal at 1.69% with £250 cashback from Yorkshire Building Society as the best fixed rate on the market.
Mainstream media money
Some links are Google search results – in PC/desktop view these enable you to click through to read the piece without being a paid subscriber of that site.1
Passive investing
- Indexing is capitalism at its best – Bloomberg
- Even if rates rose for 30 years, you could make money in bonds – Bloomberg
- Hargreaves Lansdown customers flock to trackers [Search result] – FT
- No signs of complacency at Vanguard – Morningstar
- The evolution of Smart Beta ETFs – ETF.com
Active investing
- Tactical allocation funds: Even worse than expected – Morningstar
- How investors’ reading influences stock prices – Harvard Business Review
- Swedroe: Are these ‘superstar’ returns likely to persist? – Advisor Perspectives
- More Swedroe: Contrarian strategies can deliver – MutualFunds.com
- What are the ‘ultimate stockpickers’ buying now? – Morningstar
- September is a strangely bad month for stock markets – Telegraph
A word from a broker
- Top tracker funds now in the Wealth 150 list – Hargreaves Lansdown
- Who is in and out in the first post-Brexit FTSE reshuffle? – TD Direct
Other stuff worth reading
- Capitalism and democracy: The strain is showing [Search result] – FT
- John Lanchester: Shareholder activism as a literary game – The New Yorker
- The state of the UK housing market in five graphs – Telegraph
- The great pensions tax squeeze [Search result] – FT
- Santander’s 123 account was costing it £1billion a year – ThisIsMoney
- Should you self-insure your health? [Interesting costs data] – ThisIsMoney
- Government consulting on £500 pension advice allowance – Guardian
- Debt is now a way of life – Guardian
- Finland is experimenting with a ‘basic income’ – Forbes
Distraction of the week: I just finished – and guiltily enjoyed – Billions on Sky Atlantic. The drama pits dreamy hedge fund manager with dark secrets Damian Lewis against law-breaking prosecutor Paul Giamitti. Think The Dark Knight Rises shot by CNBC. Now on pre-order at Amazon.
Like these links? Subscribe to get them every week!
- Note some articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”. [↩]
Comments on this entry are closed.
I think it’s far too early to tell
Let’s look at what actually happened
The referendum result was announced
There was some infighting in the Conservative party for a few weeks
Everyone went on holiday/watched the football/ watched the olympics for 7 weeks
I wish I received a pound for every time Theresa May says “Brexit means Brexit” in the absence of anything meaningful to say
I am reminded of Hemmingways quote on how you go bankrupt “gradually…. then suddenly”
Enjoy this website, but seriously please stop insinuating that those of us who voted Leave are racist/ small minded etc. That’s arguing in bad faith
EUR:GBP also recovering steadily week on week to 1.19 from 1.15 just a few short weeks ago. A number I’m watching with much interest. It doesn’t affect FIRE as for that I’ve assumed 1.123 but every tick up gives me either more surety my plan will work, more home or dare I say it more car for a bit of Med fun.
It’s far too early to tell. Most of the stats released so far are looking backwards. The exchange rate hasn’t recovered much compared to the intial drop and and as you point out Brexit hasn’t happened yet. I think you’re right about the long term harm
Smug – predicted and invested according.
I’m going to have to take issue about Carney though. Worth reading the notayesman block by Shaun Richards. He calls him Calamity Carney and that nails it. Carney has been arrogant, wrong and what actions he has carried out at best were neutral and at worst counter productive.
What he did before the BrExit contributed to the panic (that we now all agree wasn’t justified and simply enriched people like me), what he did afterwards made things materially worse putting significant and unnecessary pressure on final salary pensions.
Shaun also gives a brilliant critique of EU economic policy as rammed down the throats of the Southern Europe. So severe has been the unnecessary misery inflicted on Greece for example, that I firmly believe that anyone who voted to remain and hence supported that sustained fiscal waterboarding, ought to be ashamed of themselves.
Not sure why the UK would have wanted to stay tied to the Zombie corpse that is the Eurozone… http://www.thisismoney.co.uk/debate/article-3771827/EUROGEDDON-Nobel-winner-warns-euro-doomed-political-elite-s-refusal-admit-misery-s-causing-means-s-far-worse-come.html
The treasury committee, headed by Andrew Tyrie, in its prescient May report on the costs and benefits of EU membership predicted that decisive BoE action could at least significantly soften the brexit blow. Helpfully it treats short and long term impacts separately:
https://www.parliament.uk/business/committees/committees-a-z/commons-select/treasury-committee/inquiries1/parliament-2015/eu-membership-15-16/
Just reading this again and in the long term, frankly, it’s only looking bleaker now that there’s still no direction on what brexit means and Theresa May is firm on immigration (and thus leaving the single market). I’m worried about industrial & innovation policy, May’s big bet, but do really hope the UK can make it work.
As an aside, I think I just hit FI. A lot’s in pensions which I can’t get to and not set up quite right as of now (company pension I’m transferring to my SIPP has to be invested), but doing the math and extrapolating income from when it is… The spreadsheet says I will generate more passive income than as a family we would spend.
Method – used nothing magical.
Use the tax wrappers
Go for High yield shares
Buy when they are out fashion
Invest a lot per month and plug away for a lot of years.
I think I only know conclusively in 12 months when the money get re-allocated and when it generates it’s first set of dividend, which will also build in a contingency.
The only issue them being becalmed waiting to get old enough to access the SIPP, still that’s a nice problem to have.
@ Martyn
Presumably you are measuring your “gains” in GBP?
Yes I live in Britain so account in GBP – however I own Physical Gold Dollars and Euro’s as emergency money and some French shares/a small sum in a Vanguard Global tracker.
I’m not sure if this is atypical I put priority in buying a house and paying down the mortgage, this eats a fair bit of capital that could have been invested. But I don’t really include the house as an asset more as a cost reduction on the expenditure front, I don’t have a rent outgoing.
Possibly of note I don’t really watch capital value, I graph the income thrown off. That struck me as the most measure that would be most useful. Year on year capital changes are therefore not captured.
@Martyn
There is a post on here headed “Day three in the Big Brexit House”. I would suggest you are Barry Blimp made flesh
Personally I am already sick of all the articles and TV reports on Brexit did this and Brexit done that. Err – we haven’t actually done anything yet!! It’s all hot air. And unless we have access to 2 parallel universes where in one we didn’t leave and one where we did and can leap forward 20 years, people will continue to argue whether one would have been better than the other – it will in truth only be guesswork cos so many other things could affect the future. If the EU breaks up in the next 20 years, then I think that’s one thing where you could genuinely point to Brexit as a cause but otherwise it is and will always be guesswork.
@Martyn,
There is no physical law that says dividends cannot decrease. I think it noteworthy as well that the dividend yields of FTSE 100 companies are on average higher than global averages. In the longer term as globalisation becomes more entrenched this may correct itself either by UK companies reducing returns by way of dividend payouts (as has gradually happened in the US) or global dividend yields rising towards UK yields. Which do you think is more likely?
So obviously London and the business community totally freaked out about the vote, but the rest of the country’s response was somewhere between ‘meh’ and ‘yay’! As one retail head noted the week after (and I can’t for the life of me find the quote now), “We’re not expecting a massive slow down in spending as a result – 52% of people voted *for* this, so why would they be shocked or upset? They might even buy some champagne from us!”.
The fundamentals haven’t really changed, except for the value of Sterling (and I note that that’s creeping back up now). Given that most of the world seems to be in a competitive race to devalue their currency and artificially generate inflation to offset the dreaded deflation, that looks like a win from where I’m standing (although as an employee of an exporter for whom the EU market is small at best, I admit I’m biased). A modest devaluation of Sterling is by far the easiest way to rebalance the UK economy.
At the same time, I totally accept the view of disliking Brexit for the social aspect – I think that’s a totally legitimate criticism of the situation.
Guide to all Remainiac reporting/blogs
In event of good news use this
“Inspite of brexit”
In event of bad news, always use the words
“Because of brexit”
How does the market price in Brexit, especially when it is second guessing what Brexit actually is, before we even get to the effects of what is actually implemented will be?
The answer is the market doesn’t know – through any notion of the wisdom of crowds or otherwise – and neither do any individuals, experts or otherwsie, regardless of whether they are madarins, politicians, bureaucrats, academics, hedge funds, brexiteers, bremainers, taxi or uber drivers.
The definition of success or failure of Brexit will, absent binary outcomes of a catastrophe, or runaway economic growth (relative to the EU or G7/G20), be open to interpretation by either side to say they were right. The reality is, we will simply never know, it is all conjecture, where the counter factual can not be tested. Even if there is runaway growth or a catastrophe, whilst the finger will be pointed at Brexit, it does not necessarily provide the cause and effect outcome.
As an active investor, I always welcome volatility and cyclical markets. This, more than anything, is the single biggest determinant in terms of trading opportunities. This is separate and completely isolated from whether I think a particular path is the right or wrong for the country.
So, for me, it is all about finding and profiting from things that I am confident are (a) mispriced and (b) have a large margin of safety. This has served me well for the past 10 years and I see no reason to change that now.
@naclue
The UK tax system favoured dividends hence UK companies tended to pass profits back this way, elsewhere I think it’s different.
Going forwards? It depends upon interest rates and inflation. Where do go for a return currently? Dividends are about the only game in town and buyers will in my opinion continue to chase down yields and push up capital values until interest rates rise. On a related note, I was a buyer of fixed income preferences, when they were cheap, I own quite lot of LLPC, SAN, NWBD, the price of these has been driven to the point where they have comparatively low yields, instruments such as these will suffer big capital falls if either interest rates or inflation takes off. So a risk for me in one sense, in another they throw off cash which can be invested in whatever happens to look they good value.
Interest rates have not been this low for this long very often historically. Meanwhile inflation is also very low. Money has also been printed on a vast scale. My bet is that will continue for a few more years. But these are extraordinary times and if/when normallity returns capital values will crash back.
@Neverland
Maybe you are right. However I read everything I can, research a subject to death, then I move. I did this with BrExit.
Leaving was right and I argued the case with anyone who wanted to at the time. The best counter argument went thus…. Just because you are voting for exit having fully and objectively considered all the arguments doesn’t mean the vast bulk of the leave voters have and are they not going to be very dissapointed when there are not mass deportations. Possibly they will be but 5 years from now they will all be better off than they would have been. So even if they vote to leave for the wrong reasons they still calling it right.
I like Europe, I holiday there, I lived and worked there. The EU is however dreadful and it’s been made abundantly clear it will not be reformed.
If that make me a Blimp, well I’ll accept the moniker.
‘Don’t get me wrong, I still believe there will probably be a long-term economic price to pay for any true Brexit. I can’t see much in economic theory that allows for anything else.’
The keyword here is ‘theory’. The economy doesn’t follow theory, it follows practice and is therefore as unpredictable as the weather. You might just as well say ‘the last day it was sunny it rained the next day. It’s sunny today therefore it will rain tomorrow.’ Monevator, I know from reading your posts that you are a theorist and today discovered also an idealist. Is your real name Jeremy Corbyn, by any chance?
@Neverland @PC — Yep, agree it’s too early to tell the long-term consequences. But the jury is in on the short-term economic consequences IMHO. There either aren’t any or they’re benign.
@BennyG — As I’ve said before, I’ll write what I like on my own site thanks. 🙂 Perfectly happy for people to go elsewhere if they don’t like it. I said “in general” and put it in italics to try to emphasis “not every last Leave voter…” but there was clearly a significant minority who were racist and I’d be prepared to bet a majority who were racist and/or small-minded and/or petty. (Help for the slow).
A majority starts at 50% (help for the slow) which still many millions of Leave voters who weren’t, but the fact is that was/is a huge part of the campaign, the rhetoric, and virtually every vox pop or similar you see on Why Leave Won. In contrast, racism say is non-existent in the Remain dialogue. You can’t choose your bedfellows I’m afraid (although you can choose not to be their bedfellow, although I accept for some the principles of leaving the EU made it a price worth paying).
@Martyn — Congratulations. Enjoy FI. 🙂 But “fiscal waterboarding” etc is nonsense. Was Ireland “fiscally waterboarded”? Or did it restructure it’s economy and it’s now growing healthily. As always, Europe is certainly not perfect but this sort of rhetoric is hilarious really.
@Underscored — Ditto.
@William III — Well, that’s what I expected too. It’s actually really strange to me that the uncertainty isn’t causing more disruption; I accept the argument made elsewhere that a majority of people voted Brexit so a majority might be happy and willing to spend more etc as a reflection of their confidence, but the data shows clearly that wealth/education/employment status etc skewed heavily towards Remain (Barry Blimps in their home studies aside) so it’s unclear to me that the Brexit majority should/can be moving the dial to make up for the uncertainty felt by the rest. The suggests we haven’t felt the impact yet, likely because the swift BOE action and devaluation is cushioning the blow. But time will tell and of course the longer this continues (i.e. no pain) the more uncertain Remainers will turn into disappointed Remainers who are nevertheless happy enough to get back to spending/investing etc. That’s why confidence (BOE/May etc) is so critical, as you’ll appreciate.
@Sara — That’s true, and for some people the best thing will always be to ignore macro-economic developments, political news, and so forth. Others of us enjoy trying to figure it out, however. It’s clearly a hugely inexact art though.
@Naeclue — Indeed, UK All-Share dividends are currently uncovered by earnings (on a reported basis, not sure about cashflow basis). I expect that to improve without further cuts if we avoid a recession though, banks start to ramp up payouts, and energy comes back.
@Matt — Sensible stuff, cheers.
@Just Saying — Guide to a certain ilk of Leave-maniacs… please feel free to go read another website and never come back.
@JonWB — That’s true, but normally the difficulty of pricing is reflected in uncertainty and declines. Sterling aside, that’s not really evident here, especially now much of the FTSE 250 has bounced back. True there’s still some UK banks and property stocks that are down post-Brexit, but I think the markets are really giving it all the benefit of the doubt at the moment. It’s probably something to do with the likely very long timescales, which is maybe a factor I’d underestimated, which wasn’t hard given the absolute lack of knowledge/planning from Leave on the subject. As it’s become clear nothing is going to change for a long-time, I suppose one can get more sanguine about business coping with it?
@Chris Evans — No. Are you a non-sequitur spouting Internet chatbot?
@Chris Evans: totally agree with that sentiment, in fact theorists – you might call them ‘experts’ – are more often than not disguised idealists. As one of few great leaders of the empire once said, a pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. Let’s agree that Brexit means Brexit and get on with it: we now have the opportunity to complete Thatcher’s vision without an interventionist EU breathing in our neck moaning about so-called equality and morals (as defined by the ‘experts’ no less – or probably more accurately, communists). I know Murdoch is on our team – not always the most savoury in his tactics I must admit, but certainly one that can be trusted to keep distrusting the experts and theorists/communists. Make Britain great again!
@BennyG you may not be, and I appreciate that the plural of anecdote is not data, but to a man (and woman) everyone I know who voted leave turns out to have been a closet racist and generally small minded.
They have been encouraged out of the closet ‘cos they now believe 50% of the country agrees with them.
My wife, a Canadian, has been asked when she’s going home.
@William III I had to chuckle when I read ‘communists’ in your piece. I had considered using the same word myself in mine. But we mustn’t be naughty but all live together like happy boys and girls whether the reality allows it or not. As you say, let’s get on with ‘Brexit’ and, having extricated ourselves from the quagmire that the EU has become, make a success of it.
@Chris Evans — You guys really do hoist yourselves by your own petards.
I guess many of us here are lucky in that the massive rise of hate crime on the streets isn’t affecting us directly. Many of my friends have been hit hard by it, and there are no signs of it abating. With 17m votes behind them (which may only be in their minds but it doesn’t matter) those committing these crimes feel supported by the majority.
On the economic side, the slump in sterling is bad for me personally, as is the fact that I now can’t recruit from the EU. Yes, I still can in theory, but who’s going to move to the UK with this nasty smell in the air?
The UK may muddle through, but the rest of the world is moving in one direction and we’re very much now heading the other. We’re in for a rough ride.
@gadgetmind — Absolutely, I was speaking about the economics, barring that allusion to the societal/cultural factors. Besides the hate crime (where the fear can obviously be constraining even before any actual physical interactions — I have a friend who pretty much stopped going out after dark in the wake of Brexit and is only now getting comfortable again) I have spoken to numerous vibrant young people who are leaving for Berlin / Barcelona / Central and South America. Depressing.
Also, I appreciate this article in the FT (search result) is describing a certain kind of Londoner’s problems, but also depressing.
[Rant deleted on reflection. Don’t want to go down that rabbit hole again! 🙂 ]
@William III – ‘Make Britain great again!’
When was Britain greater than it is now? (or two months ago at least).
@sara -‘all hot air’
Unfortunately it is not. EU funded projects are already being rejected due to uncertainty about how funding would continue post-BrExit with British partners. Many start-up companies rely on these for survival in the early days. My last three companies would not have survived without these. And as for the impact it’s already having on future joint research projects in the education community….
@BennyG — As I’ve said before, I’ll write what I like on my own site thanks. Perfectly happy for people to go elsewhere if they don’t like it.
It was a polite request and you demean yourself and your site with this sort of petulance. This site has always been about all comers enjoying good natured debate and it would be nice if you could get over yourself and referee contributions in the fair minded way you have generally done until Brexit came along. And Benny G is right, besides
@investor
The IMF assessment is that Greece was deliberately thrown under the bus to save the Eurozone. It does not and has never had any chance of repaying the money it owes. It (the IMF) also concedes it was complicit in doing this.
Once this is understood the whole context of what was done to Greece can only be viewed only as punishment or torture.
Hence I think calling it fiscal waterboarding is quite justified.
I don’t pretend to claim any moral high ground, however some remain supporters do. Just before the referdum a lady in work said she was voiting to remain becasue of all the good the EU did for the third world. I said what good? The EU is a rich country club which excludes and discriminates against non-members. I’ll give you an example Africa grows coffee and it’s exported in it’s green bean form, rather than roasted and exported – Why? Africa would make more money, employ more people and be more prosperous if it could do the whole job. The EU applies tarriffs, the raw coffee can’t be grown in the EU so there is no tarrif, however beans can be roasted in Europe and indeed are, so roasted beans are priced out the market by tarrifs and EU companies add the value by roasting and reap most of the profit.
This is repeated everywhere, where it an be done in Europe competiton is ruthlessly suppressed by punative tarriffs. This serves to keep the EU rich poor parts of the world poor.
I went through this with her and in the end she still voted to remain, but not because the EU helps the third world.
@pulpo — As I’ve said before, I’ll write what I like on my own site thanks. Perfectly happy for people to go elsewhere if they don’t like it.
The Investor:
“You guys really do hoist yourselves by your own petards.”
Actually I think you’re more guilty of that yourself.
The problem is that you are pushing your side as having all the moral high ground as well as the intellectual high ground and the economic high ground. Adopting that sort of position can never turn out well. It’s just setting yourself up for a fall.
Anyway, just something for you to mull over.
Hi @Investor,
one thing that i’ve been wondering is why you haven’t addressed during your more impassioned Brexit discussions is the Moneyweek house view which I would imagine a lot of your readers will have seen.
A lot the writers there are experts (maybe not academics, but experts still) and they seem to be of the opposing long term view to you.
I was wondering what your opinion of their opinions were?
i’ll put my hand up and say i’m pro Brexit – I agree with the Moneyweek long term view but I really do have much graver views about the social impact (including the rise of power to idiotic racists) that I hadn’t considered at the time (white privilege blinkers I suppose). I think there is a going to be a lot more mid term turbulence than most Brexiteers realise.
He really isn’t. That ‘polite’ (which is debatable) request is still a sheepskin for “I don’t like you attacking my views and I’m threatening to do X unless you dance to my tune”.
You are free to disagree with the crux of the argument but if you can’t take it, perhaps personal blogs aren’t for you.
I disagree.
First of all, because of the GBP devaluation my future earnings, as measured in VWRL shares, have reduced by more than 10% compared to the beginning of the year. People only look at the post-referendum impact, but currency markets have been pricing in the uncertainty since November last year. If you are already financially independent and are sat on a nice fat diversified global portfolio, good for you, and that’s where I hope to be one day as well. But as it is, currently I’m still in my accumulation stage and a 10% cut in salary … well, I don’t appreciate it.
But that’s not my main point. Let’s talk about UK’s future economic prospects.
As much as some people may dislike it, this island is heavily dependent on financial services. I have not as yet seen any concrete proposals on how to reduce this dependence. Lots of of drivel about us leading the world with cutting edge technology but no plan for what this technology is going to be and how we’re going to position ourselves as leaders in that area. Unless Solar City, Tesla Motors et al are looking for a new home and our pre-referendum immigrant bashing fest was our bit for California’s tech industry relocating here? Where are we putting them up then? Blackpool? Birmingham? Oh, right, the Northern Powerhouse. It’s not like tech nerds spend that much time outdoors anyway, so weather shouldn’t be a factor.
I work in the City and here’s what’s happening: the firms have begun establishing branches and subsidiaries on the continent. No, we haven’t left the EU yet, yes, we still have passporting rights, but when these are taken away, then it will be too late to begin strategising about the alternatives. It takes time to establish a foreign operation – build up the business, train staff, build relationships with regulators, etc. – so we are moving ahead now. A permanent foreign presence is more expensive than using the passporting, but given the uncertainty about the future, we have decided it’s worth the cost. However, a business is not a government, we don’t print money. What we spend on setting up European subsidiaries has to be offset by savings elsewhere or covered by future profits. Future profits will not cover this investment, not in a traditional sense, anyway. Because we are not expanding the business (which would result in future profits above the current trend line), we are spending the money so that we can keep what we already have. So it will have to be Option 1 – savings elsewhere. Guess where that Elsewhere is (hint: it’s an island).
Aside from startup costs there is one more difference between channeling business through a foreign subsidiary vs using the passports. The business that goes through a foreign subsidiary is taxed abroad. With the UK being a lower tax jurisdiction than most of the mainland Europe, most would prefer to be taxed in the UK, so this foreign tax burden, although not relevant just yet (will be come relevant when foreign operations start making profits), will in foreseeable future begin eating into HO profitability. And, obviously, whatever tax gets paid to the French and the Germans won’t be paid to HMRC.
And then there is the hive effect. I personally quite enjoy setting up foreign offices (I’ll get to do more of this now, so hurray Brexit), training natives in our civilised operating codes and conventions, y’know, all that stuff, plus the constant flying from London to Paris and Frankfurt will up my air miles balance. But let’s not forget what this means for the UK. When we hire and train people abroad, it means that we’re not hiring and training people in Britain (still hurray Brexit?). I’m amazed how Brexiters don’t appear to understand what a reduction in future tax revenues and a shift in investment by British firms from the UK to the continental Europe means to them and their children.
@TI, your blog, but your brexit rants aren’t half boring.
I haven’t read this one, just skipped to the round up, but my guess would be;
– its another whine about how educated liberal intellectuals like yourself have been scuppered by nasty skinheads…
-You’ll ignore the youth unemployment in the southern states,
– ignore the farmers in the third world who can’t sell produce because of EU subsidies encourage overproduction,
-even better you’ll ignore the unfairness in a Saudi dentist struggling to live and work here whilst an unemployable layabout can as long as they had the good fortune to be born inside the club…
…and to top it off you’ll have some bizarre belief that the EU is a Bastien of liberalism. Truly belieiving Hungary and Lithuania are more liberal countries than this one…
Like I said, I didn’t read it, bit of luck next week I’ll get to read your opinion on virtually any other topic, as I do usually enjoy the commentary above the roundup.
@hosimpson
You have no idea what your future earnings will be, unless you have a crystal ball. You are buying fewer VWRL today than you were, if the currency recovers then this will mean a loss, if it falls further it’ll mean profit, over time it’ll pound average. My view is that thee is no earthly reason why the UK currency should be strong we are long overdue a fall (and it ought ot lower, remember we are huge importers)
But this is currency risk and unless liabilities and income are matched then it has to be discounted as a factor outside of your control. If your future liabilities are not going to be £ there is an argument for earning in the juristiction you are intending them to be in.
Having spent a fair bit of time working in large companies you are niave if you think the tax system is not already gamed, BrExit give an opportunity to fix some things that we currently aren’t allowed to.
Again I’ll give an example a very large French Telecom with a huge UK operation never made much profit – on enormous turnover. Why? The Fremch Arm owned a number of technologies, CRM and billing systems, in reality systems that were off the self and then customised. The UK arm was compelled to use them (they were not best of breed, in a beauty contest would not have been chosen) and was charged a very large ongoing royalites. Likewaise the brands were shifted to France and again royalties were due. The profit then effectively transferred and taxed in France. The Amercians played a similiar game but chose Ireland, EU is not you would notice going after the French National Teleco.
I have seen the remain argument that Europe will be very mean and will punish us. I think this unlikely if no other reason than we can hit back, they hit a few rich city types – no offence, we hit the mass of farmers, manual workers and the middle classes. The electorial consequences would be devasting in Europe, thier attack – probably applauded by the the Liberal left, our reposte changes the political landscape. Obvious cars are good target. But it’s a target rich enviroment.
I’ll give you a more obscure example. The way to make sugar is to use cane, it’s light and easy to transport before we joined the EU we imported cane and refined it into sugar. After we joined the EU we used sugar beat. Cane was tarriffed out of the market. Other than keeping French farmers employed there is no sensible reason to use beat to make sugar. It’s easy to see in a trade war the entire UK sugar market moving back permanently to cane with devasting consequences on the continent for French beat farmers.
There are lot of these – entire products permanently and irrevocally substituted away from the current European encumbents.
I worked in Bretagne (the UK is Big Brittany by the way) for a while when the was problems exporting their ‘Princes’ which are colley flowers. French farmers set fire to huge piles of them and shut the road system down, the Government gave into their demands Frence farmers are not to be trifled with. Imagine the consequences for a French Government in massive reduction in Sugar beat demand, they would hang Hollande (or whoever succeds him) from a lamp post. They do after all have form they guilotined their aristocracy
It works thus for every remain argument, examined forensically they fall apart.
@pulpo — As I’ve said before, I’ll write what I like on my own site thanks. Perfectly happy for people to go elsewhere if they don’t like it.
That’s fine other than the fact that it isn’t true. You put your views out there because you want people to visit and inviting people into your own home and then being rude to them is simply bad manners.
You have lost the plot over Brexit rather and it is spoiling this site.
@gadgetmind
I have the same problem, except I don’t want to recruit in the EU I want to recruit in the UK and anything that tips the economic case into ensuring I can win that argument on money fundamentals is a good thing.
I don’t have to argue the nebulous it’s good for the country, I can simply say it’s cheaper – argument closed.
@pulpo — You write:
That’s fine other than the fact that it isn’t true.
No, it is true. If I could install a plug-in that prevented Leave voters from reading and commenting on the site, I’d consider doing so.
I’d definitely lose some great readers, include some I’ve had good discussions with back and forth over the years.
But on average, my audience would be much improved.
@Green_as_grass — I wrote that because William III was being sarcastic, and the Leave voter in question didn’t even notice. They read such phony rhetoric and nod in agreement. Which is of course how we’ve ended up Brexit-ing.
Indeed, your readership would improve. It amazes me how a bit of trolling as per above uncovers what many leavers are really about.
And to continue our earlier exchange on trade deals, the G20 news of today sounds like a tough cheddar reality check to me.
The way I see Brexit is that compared to all of the other risks facing the world economy including the UK it is not particularly significant so why expect anything alarming even over the longer term? Neil Woodford has so far made the right call on Brexit. He didn’t think much would change and the UK would do ok with or without the EU.
@TI please don’t stop talking about Brexit – it’s the biggest issue of my lifetime.
Please allow the leavers to comment. I find it very useful to hear alternative views even if, so far, it has ended up clarifying my disagreement with them. What I’ve read so far only confirms my view that remaining is the best bet for the UK.
@Peter I agree that the effect of Brexit on the world as a whole is insignificant. We’re not that important.
@Investor: ‘ If I could install a plug-in that prevented Leave voters from reading and commenting on the site, I’d consider doing so.
I’d definitely lose some great readers, include some I’ve had good discussions with back and forth over the years.
But on average, my audience would be much improved.’
What an appallingly arrogant attitude! ‘I am a Bremainer and therefore non-racist, intelligent and inscrutable. Therefore as a Brexiter you are racist, ignorant and stupid.’ If you really cannot bear to accept counter-arguments to your sand-castle theories should you really be writing blogs at all? Theorist, Idealist and now Dictator. Perhaps it is you who should go elsewhere!
Nobody has won or lost the debate over Brexit, because we haven’t had Brexit. Short -term, I see nothing but frictional costs which are a clear negative. Long-term, it’s going to impossible to make a judgement because Brexit will just be another perturbation in a wider ebb and flows of economic cycles, political changes, environmental disasters etc.
The real issue is the inability of a large part of the population to accept and adapt to the inevitable process of globalization. Brexit a manifestation of desire to push back against globalization (“taking back control”). They are rather like Cnut. The’ve be told that they can stop the tide coming in but at best it will be temporary. Yes, globalization has been made more vicious by neo-liberal dogma but the essential thrust is due to technology and that won’t be reversed. Automation, intelligent agents, AI etc are going to flatten the difference between first world and third world and eradicate middle class jobs on an unprecedented scale.
I find that many in the older generation who voted for Brexit seem to want to hark back to the Britain that existed post war. The problem is that type of nation state is now obsolete; not sustainable and not fit for purpose in the 21st century.
@Chris Evans — Really torn: I can’t decide whether to delete your comment or leave it up for my own amusement.
I’m pretty sure from what I know of Monevator readers that I have *on average* a better class of Leave voter here.
So let’s say — hypothetically — that out of every ten Leavers who read this site, we have 1 racist, 3 petty-minded Little Englanders, 3 Barry Blimps, and 3 very reasonable Leave voters who regrettably found themselves having to sign up with the motley rest because their well-considered and principled views about membership of the EU and/or its future meant they saw Brexit as worth the social/economic cost and pain.
Ideally I’d definitely keep the latter, and let’s say 1-in-3 the Barry Blimps, who are basically good sorts, even though they often have dopey views about everything from climate change to personal politics to Brexit.
But that’s asking a bit much of the plug-in technology to filter the readership so finely. So instead I install it, block all Leave voters, and lose 4 readers I’d like to keep but lose 6 I’d happily be without.
On average, after that I’d have in my eyes a superior readership.
And yes, seeing as it’s my blog, that’s what matters. This isn’t the BBC.
@zxspectrum48k I think you’re right
“Brexit is a manifestation of desire to push back against globalization (“taking back control”). ”
and what puzzles me is that the free trading Leavers are going for more globalisation, Dan Hannan for example.
@rugbytrader — Hi, I’m afraid I’d don’t really have much of a view on Moneyweek’s editorial stance, which I’ve no doubt is in place because it works to drive subscriptions from fearful middle-aged middle-class white investors. (The sort I generalize as Barry Blimps).
To give one example, for years they ran that End Of Britain video/marketing campaign, no doubt very successfully. In the meantime the UK economy recovered, employment hit an all-time high, the banks have been recapitalized to near bomb-proof status, the economy was chugging back to health, the deficit was (pre-Brexit) finally coming down, international investors had full faith in the pound and in the gilt market.
Everyone has to make a living, and no doubt they know their readership well. Merryn is great in the FT, too. But while I’ve read some decent articles within the magazine, the house view isn’t something I’m particularly likely to put any store by, or even research in any detail.
RE: The rise of racists etc, yes, I can see it is a huge difficulty for well-meaning Leave voters. Personally, if I’d voted Leave for decent economic/constitutional reasons, having won I’d now be vocally and forcefully to the best of my (very limited) abilities trying to put that racist/jingoistic genie back in the box.
You do see a few of the prominent Leave politicians doing that, but the general tone from Leave voters who express their views on the Internet is one of denial and obfuscation, sadly. 🙁
The Investor:
“They read such phony rhetoric and nod in agreement. Which is of course how we’ve ended up Brexit-ing.”
Oh boy. And you feel that you are far too smart, intuitive, educated and all round sophisticated and cosmopolitan to be swayed by similar rhetoric – rhetoric that you just so happen to agree with? This is what I’m getting at. You aren’t privy to some superior view on this issue that is simply right because you believe you are are cleverer, better educated and less narrow-minded. You aren’t. Your views are as prejudiced and intolerant and full of confirmation bias as everyone else’s, which you keep demonstrating. That is why I said you are guilty of the very thing you accuse others of being guilty of. Please say that you can see that.
Funny that, Investor, as there was me also wondering whether to stop bothering to read your blogs or continue for my amusement. I still find it amazing that you apparently cannot tolerate anyone whose views differ from yours (and, it would seem, there are a lot of us). As you say, it’s your site on which to write whatever you like but in order to avoid discouraging people away from it why not just concentrate on its (presumably) intended purpose: that of discussing investment? Who knows, you may even increase your readership rather than potentially halving it.
@green_as_grass — Agreed, of course I’m prone to those biases.
But you’re reading an article that let’s not forget has me saying “Yes, I was wrong about the initial impact of Brexit.”
I’m not expecting a medal for it, but in my experience most people rarely change their mind about anything. In contrast I try to be a learning machine.
What I am not going to be swayed by is phony rhetoric that was wrong before the vote, and is just as wrong after it.
One might expect Leavers to be magnanimous about their victory, but instead they seem prickly and intolerant of criticism. I suppose if my vote had led to a wave of hate crime I would be keen to let everyone know that I wasn’t personally racist.
For my part I regard the decision as unwise and uncivilised, and agree with zxspectrum48k’s comments about the need for countries to work together rather than singly. I make no criticism of Leave voters, no least because the more their position is criticised the more they will defend it.
I think the situation now is a bit like the Phoney War of 1939/40. Brexit has been declared but nothing obvious has happened. Mother Theresa’s comforting words about negotiating a special deal with the EU are designed to keep the markets, businesses and voters thinking that all will be well. But the EU-27 will be intransigent about freedom of movement, and sometime in 2017 it will become clear that we are going to leave the single market. At that point banks and foreign businesses will start acting on their plans to move to the Continent and things will start to become interesting.
It is hard to tell what will happen. Will there be a functioning Opposition in Parliament to hold the Tories responsible for the developing economic consequences of leaving the single market? Will things get sufficiently uncomfortable for a large number of Leave voters to change their minds? If opinion in the country changes, will it then be possible to remain in the EU, and on what terms?
We live in interesting times.
@zxspectrum
“real issue is the inability of a large part of the population to accept and adapt to the inevitable process of globalization”
You lack a sense of historical perspective. There is nothing inevitable about gloablisation. I suggest you look at the c. fifty years leading up to WW2 to see exactly how a globalised world economy can build-up and then be broken down through nationalism enacted partly though a democratic mandate. We had two world wars, Hitler, the great depression and comunisim … incidentally that’s also why the EU was formed
“They are rather like Cnut”
Is that like when Robert McNaughtie introduced our esteemed Health Secretary as Jeremy C**t?
An excellent article by Jason Zweig. Even without active stock picking managers the markets can be efficient. Ben Carlson is right: ETFs are the new stocks. http://blogs.wsj.com/moneybeat/2016/09/02/a-bored-investor-is-a-dangerous-thing/
Nihil novi sub sole
@Duncurin
There’s actually no need for countries to work together
Look at Asia as an example. Good economic growth, lots of nationalism, not much cooperation
Military spending in particular is booming
Obviously we need to decouple from the dead corpse of Europe, drag the UK by tug boat into into the East China Sea and sell weapons to all these countries
(PS I’m being sarcastic for any leave voters reading)
Duncurin said:
“Will things get sufficiently uncomfortable for a large number of Leave voters to change their minds? If opinion in the country changes, will it then be possible to remain in the EU, and on what terms?”
Regret and recrimination is one possibility, and quite likely (although a full scale U-turn and a let’s kiss and make up scenario is pushing it), but there is also the possibility of an opposite reaction. If negotiations get bogged down and things become heated and we get a protracted demonstration of everything about the EU that even Remainers dislike then the general mood might conceivably turn from one of concern about the outcome to one of relief that we’re done with them. A bit like a messy divorce. As you say, interesting times.
@Green_as_grass
As it will be a cold day in hell before this remainer lines up with you
Frankly I would rather enjoy a scalding hot chocolate enema
Meantime in the real world, at Theresa May’s inaugural G20, President Obama announces he will prioritise trade deals with the EU over the UK in front of Theresa May:
http://uk.reuters.com/article/uk-g20-china-usa-britain-idUKKCN11A04T
Japanese government commission clearly lays out the consequences for existing investments in the UK by Japanese companies if Brexit doesn’t mean what the Japanese want:
http://news.sky.com/story/japans-unprecedented-warning-to-uk-over-brexit-10564585
But its okay maybe we can get a free trade deal with Australia (population 23m):
http://www.bbc.co.uk/news/uk-politics-36818055
@Neverland
Of course, the US – EU trade deal is progressing swimmingly as well.
@Chris Evans
His Blog, he’s entitled to his view, but I note he has gives it as an article of faith, there is no evidence to support the view and such indications as have so far emerged have been contrary to his expectations, this will carry on.
I on the other hand am willing to take any argument remain can deploy and destroy it. Before deciding how to vote I did exactly this, I objectively weighed everything up and in the final analysis leaving was decisively the right answer.
It was the biggest vote in my lifetime, it was beholden upon me to coldly work out what was best for the future of this country.
I did so. How many remainers can truthfully say the same.
Case in point.
@PC The EU is not about globalisation, quite the contrary it is about uniting all the EU countries into creating a single country with a single tax system, single Government, single army, single foreign policy, etc and then protecting that super country at the expense of other nations. You voted for something you clearly do not understand. They do not keep their goals a secret either, remainers that do understand the EU just argue that it won’t happen. That would seem to me a risky assumption, especially as a remain vote would have been seen as the UK electorate approving of this goal.
@Martyn — I’ve articulated all my views before. I can’t do it every time someone turns up and starts going on about “fiscal waterboarding” and other such rhetoric.
See: http://monevator.com/tag/brexit/