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What Now: the Brexit revolt meets the political machine

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12 thoughts on Brexit for investors:

1. It is not good and possibly quite bad for the UK, London and Europe.

2. But it is a very fluid, rapidly unfolding complex situation with lots of cross currents, backwash etc.
The mood here is not of unalloyed jubilation and relief, but more shock and anxiety.

Hard core anti Europeans – really pleased. But even Johnson and Gove look shocked and a little scared.

3. One way to think of it is that a fairly inchoate vote, for a, Brexit, will now meet the machinery of party politics, representative democracy and European Union. It is not a straight line from Thursday’s vote to outright Brexit. Many twists and turns to come.

4. One issue will be speed: do events unfold fast or slow? Do Brexit talks start, to reduce uncertainty, or do they wait till new leadership in place etc. Will Article 50 be invoked (Doubt it.) Angela Merkel indicated she prefers slower pace. So now does leadership in the UK. Faster is worse. Slower is better.

5. Will pragmatists or hardliners win? Hardline would be Europe to teach the UK and others tempted by “exit” a harsh lesson. No cooperation. Hardliners in the UK would press for full scale Brexit asap. The more pragmatic approach would be to seek to calm things down, find a new accomodation, possibly Norway style. Pragmatic is better. Hardline worse. (One litmus test is Calais: will the French continue to do border checks on migrants on UK behalf, so holding them in the “Jungle” camp or will they send them on to be dealt with at Dover.)

6. All this complicated by political leadership turmoil in UK and on the horizon in Europe. British political leadership absent without leave.

Tory Party will have new leader in October. Johnson most likely to run against more moderate Therea May. BoJo current favourite but mood might turn against him for lack of seriousness in very serious situation. Lots of former Cameron loyalists are out to get Johnson. Civil war continues. Also  possible that Tory Party will end up with a moderate “remainist” leadership of a majority remain party but with Brexit policy. Outcome: Norway style EEA.

Labour similarly likely to depose Corbyn or stage a leadership contest. This very fluid. Keep an eye on who gets nomination for Jo Cox’s seat at Batley and Spen. Possible new leadership might remake the party. But also possible it could continue its downward spiral which would only help UKIP.

Also possible longer run there could be a political realignment, with rise of new pro-Remain Centre party/coalition.

6a The entire senior Civicl Service is anti Brexit, pro EU. Who will do the negotiations?

7. Will there be another vote? Not under current leadership but

(i) almost certain there will be a General Election which could be another vote on EU membership, a pro Remain, or Pro Europe majority could emerge in Parliament
(ii) possible also that a new PM might negotiate a new deal with EU – Norway style – and put that to another referendum.

I think (i) is almost certain and (ii) possible.
Key question: would this change the outcome?
Depends on what question is asked: next time hope for a better question which would split the Leave vote and coalesce the pro Europe vote.

8. All this against backdrop of renewed uncertainty over the future of the UK. Scotland pressing for second referendum. London will demand greater devolution. As will other parts of England. Possibility of more fractures amidst weak Westminster leadership. London will press for its own relationship with EU. London’s institutional and political leadership now vital. Already talk of relocations etc but also London becoming. London business and cultural community will do lot to make sure it remains very open. But lots of uncertainty here as well:
https://next.ft.com/content/1169d77f-eb6c-3d75-9d96-4576f0a77b72

9. Political mood culture.
Some celeberation in hard line anti Europe areas. Lots of people do want to “take back control” because they feel they have none. Yet no real sense of jubilation, especially in London but elsewhere.  Lots of anxiety, some remorse, disbelief. Many were registering a protest vote against being left behind by global capitalism and ignored by political elite. Not clear how leaving the EU is really going to appease them, especially as recession bites etc. Not even clear how controls on immigration will be imposed. Anti-immigrant feeling now given more legitimacy, especially outside London,

Lots of people – especially young and in London –  feeling betrayed.
My bet is that people who voted Leave will also come to feel betrayed.

Some of that could become ugly.
Prospect of more division and recriminations, unless credible new leadership emerges to try to unite country.
Politics now a game of pass-the-parcel-existential-crisis. The white working class have decided to pass on their sense of existential crisis to the pro-European middle classes, David Cameron, the metorpolitan elite, the rest of the UK, Europe as whole. This is not rational: that’s the point. People living on benefits in Stoke, with houses worth £500, with no prospect of work, having nothing to lose. Leave vote somewhere between act of populist protest and collective suicide pact. Politics of self harm is only form of assertion left for people who want recognition as much as they want £s from the EU or London.

10. Britain’s standing in Europe hugely diminished. Possible growing hostility to England in Europe for foisting this crisis on Contient. Of course big winners are those that want a weaker Europe, weaker liberal democracies – Putin, Trump, Xi. Danger that Britain becomes much more isolated, unless very deliberate attempt to prevent that.

11. Underlying issues –  political elite out of touch/self-interested, flatlining incomes, anti-immigrant populism, cruel capitalism   – are Europe wide. This is part of the crisis of the Continent and the EU as a set of institutions. 2017 year of very big elections. Spain in political dealock. France establishment fighting off Marine le Pen. Merkel facing elections. European leaders need a strategy to see off rise of populism, especially from the right. Qualifying freedom of movement likely to be a part of that. Not clear how that compatible with single market.

Actually what we need is a different kind of capitalism, social and political contract. But no one yet standing up for that.

12. What does that mean for investing in Europe, UK and London?The natural and right reaction would be to become more cautious, especially about UK as a whole.

Recession/much slower growth likely but also pound and assets cheaper.
This adds to the sense of crisis gripping EU as a whole.

Crisis might provoke more concerted response, which could go in different directions (more integration or more border controls) or further drift which might feed rise of populism etc.

London: it is less clear how this will affect its standing and position, financially, intellectually and culturally as global capital etc.
Property prices will plateau and possible bubble will burst.

Other capitals, places will now compete much more aggressively, especially for financial services etc, but also as open, tolerant, genuinely European.
Edinburgh and Dublin look very attractive.
But London will fight back with more devolution, its own foreign policy (in effect) and as far as possible, its own relationship with the EU.
London will want to become more London not less.

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