“Only the guy who isn’t rowing, has time to rock the boat”

In the headlines this morning…

Apologies to anyone trying yesterday to link to Shard’s March 2019 Alternative Asset Outlook – I managed to append the wrong site-address which linked to the www.morningporridge.com admin login site. The corrected link is Blain’s Alternative Asset Monthly Outlook

I’m afraid this morning we have to talk about Brexit and Europe. As I got into the lift up to Shard’s Eyrie in the City, the lady standing next to me looked at the TV screen and said: “I’ve had enough of this Brexit rubbish, can’t we change the channel?”

I’m afraid we can’t.

My expectation for Brexit – gazed through a glass darkly – is we’re in for a long drawn out political impasse, Article 50 extension and/or suspension, a Second Neferendum, No-Brexit and a sustained period of UK political infighting throughout the process. Sounds terrible, but probably not as bad as we fear. It will keep sterling uncertain and competitive, force UK companies to stay lean (no bad thing), and eventually we’ll probably all come out of this in better shape.

There are significant implications for Europe also. They may even be positive! Based on what we’re already seeing in term of National inputs into the Brussels swamp, the Brexit threat could be a positive long-term shake up: the creation of a slimmed down, depoliticized EU fit for purpose could be a long-term positive. That would just leave the problem of the Euro to be resolved – depoliticizing Europe and keeping the Euro is probably an unworkable option. I’ll leave it to the Germans to explain why.  

While it’s a shame to waste all these precious pixels taking about Brexit, to understand markets we have to understand the politics. I wish it was simpler….

How I wish we had a president like Trump to distract us. We could spend our time speculating about while he might not be guilty of collusion with Russia, what other horrible bad things has he done? Just how much has he lied about his wealth, taxes and other affairs?

Sadly, instead of a scoundrel in Number 10 we have the sad and pitiful Theresa May. I’ll leave it to readers whether we should be sorry for her, admire her, or dismiss her as an incompetent out of her depth. I suspect she will remain in power for ever for the simple reason that any alternative is likely prove even less able to unite the party or the nation.

Foreign readers will have to understand that gross political incompetency is not something the UK does well. We have occasional moments of skulduggery, foolishness, and light comic relief, but generally the stately galleon of the UK political system is faultless. This long-term political failure is new to us. We are not used to political breakdown. We leave other nations to embarrass themselves with coups, revolutions, scandal and such frivolities. 

Rather than bore everyone with a full scenario analysis, here’s my simple reasoning on the UK:

1. Forget Juncker et al, the 27 National Leaders will not let UK bounce out on a No-Deal Brexit. The April 12^th Deadline does not demand a solution – only that something happens.
2. The mechanics of extending Brexit and arranging UK elections to EU parliament are not overly difficult. Annoying, but not impossible.
3. There is no clear majority in parliament for any form of Brexit deal, soft, hard or no-deal. In short; parliament decision making is going no-where.
4. On a constituency by constituency basis the UK would elect a Hard Brexit government, but no party organisation exists to present the electorate with such a choice.
5. In contrast, the majority of Parliamentary MPs remain “pro-remain”! (Some Conservative hard-Brexiteers hold remain-constituencies, while many Remainer Labour MPs face pro-Brexit electorates!) UK politics hasn’t been single-issue – till now?
6. Momentum for a second referendum is building: the “March”, the “Petition” and the lack of procedural progress, is encouraging pro-remain parliamentarians, who are a majority in the House, to cautiously canvass a second referendum.
7. A “phule” of a leader – and we have just such a man – might see supporting a second referendum as the statesmanlike call and be persuaded it’s a solution to the impasse.
8. A second referendum would give us a vote, but neither side is likely to accept a defeat gracefully. Even a massive majority for Stay or Go would leave plotters planning a rematch.  
9. No idea where concepts like cabinet responsibility now lie, or where elections figure in this.

Over the next few weeks I suspect Parliament agrees nothing. May, or whomever, goes back to EU to request extension – which is granted. UK elections to Europe will follow. Political impasse continues in Westminster. No Brexit looking like the default position. Momentum continues to shift towards second referendum.

In short, we’re heading for more turbulent, boring Brexit debate… yawn.. No Solution..

What does it mean for UK assets? We dislike uncertainty, but UK remains strong performing economy at the centre of the English speaking global business ecosystem. That ain’t changing. UK property looks well cheap.

Meanwhile…

On the other side of the Earth: It’s been 18 months since Blain mini-miss, my daughter, took herself off to Australia on a post Uni gap-year. I miss her terribly, so I’m off to spend Easter with her. We’re planning a Blain mini-Oz adventure, but I will be in Sydney for part of the trip. If any Porridge readers fancy a catch-up on 15^th April, let me know! I’m also looking for suggestions on Wine Tasting in the Hunter Valley and things I’ve got to do around Sydney.

(If any sailing buddies are reading, we’ll be around Port Stephens later in the week and available for crewing in Sydney over the Easter weekend!)

Out of time and back to the day job.

Bill Blain

Shard Capital