Brexit & My Writer’s Block

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I hate to admit it, but I’m stuck.

I have writers block, and not being a professional writer have had no experience to force myself through it.

Time and again I sit down to write something, only to find that the subject has changed, some new development has altered the facts and the effects are so sudden that I have to discard everything that I thought I was going to write and start over.

Its demoralizing.

Take Brexit for instance. Several times I’ve sat down to write something on it, but Brexit is now best explained like a Homeric poem, involving political intrigue, shadowy figures manipulating citizens for their own ends, and battles for leadership. That’s not how this began, but over time a politically mismanaged attempt to lance a populist boil from within the conservative party ranks has metastasized into a full blown crisis. To date Brexit has cost two Prime Minister’s their job, it has left one of the oldest democratic institutions in complete gridlock and has fractured the two leading political parties in Britain.

Currently the Tory party in England is choosing the next head of the party (and next Prime Minister of the country) with high expectations that it will fall to a man who spent the bulk of the Brexit campaign lying about the benefits of a leave vote and who had no intention that his side should actually win.

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This is Boris. Boris is a politician. Here is Boris standing in front of a bus with a promise to put more money in the NHS if Britain votes to leave the EU. Boris was lying about putting this money into the NHS. Lie Boris lie

Meanwhile the core issues surrounding Brexit remain unresolved. So badly has this been handled that the British government has been granted two extensions so they don’t leave the EU without a deal (which would be bad for everybody). However having been granted those extensions Britain remains no closer to resolving the core matters that divide the various camps of various Brexiteers.

I could go on like this for some time, but there are whole books written about Brexit now (I recommend “A Short History of Brexit” by Kevin O’Rourke), covering in far greater detail all of the issues surrounding the attempts to leave the EU, how it has come about as a movement, and why the problems remain intractable and will likely not end well.

What I think we are witnessing is how political issues become political crises, and how it becomes increasingly difficult to predict what happens next. In functioning democracies political disputes resolve in a compromise in which neither group gets precisely what they want but recognize that not reaching a compromise would be worse. Today’s current political climate has become anathema to compromise and various groups would rather risk everything and get nothing than lose some of their standing. Historically this hasn’t been a good sign for countries.

Currently Brexit is scheduled for October 31st. That extension was granted because Theresa May had begun negotiating with Jeremy Corbyn (another populist) and the Labour Party to find votes for her Brexit deal. This negotiation looked to find votes for May’s existing deal with the EU, which would have resolved the issue surrounding the Irish border and kept Britain in the Common Market while also opening the door to a second referendum. Her party balked at this treachery and thus ended her tenure as PM. Boris Johnson, the man currently on track to replace Theresa May has said that he wouldn’t “rule out” proroguing parliament if MPs attempted to block a “No Deal” or “Hard Brexit.” I imagine that the EU wonders why it has invested all the time it has trying to help the UK.

All of this is silly, dangerous and maddening. For investors it means that there continues to be a ticking time bomb on the global stage, and like Donald Trump and his tariffs, anything could happen. And amazingly it continues on unabated, no closer to a compromise and no closer to a solution.

Hopefully this means I’m over my writers block.

“The opinions expressed are those of the author and may not necessarily be those of Aligned Capital Partners Inc (ACPI).  ACPI is regulated by the Investment Industry Regulatory Organization of Canada (www.IROC.ca) and member of the Canadian Investor Protection Fund (www.CIPF.ca).  This commentary is for general information only and not meant to be personalized investment advice.”

Let’s Undo Brexit! (Here’s How)

Brexit-2If there was ever going to be a moment to gain some clarity about what the Brexit would truly and ultimately mean, Friday was the day. Following the win by the leave camp, markets were sent reeling on the uncertainty stirred up by the referendum, and by the day’s end Britain had gone from being the 5th largest economy to the 6th, $2 trillion in value had been wiped from the markets, Scotland wants another referendum as Northern Ireland is proposing a unified Ireland, and embarrassingly the top google result in the UK following the referendum was “What is the EU?”

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The buyers remorse now swirling around the UK seems to have ignited a renewed “Remain” campaign. Already there is a petition to have another referendum, citing the quite reasonable objections that a 52-48 split does not indicate the kind of definitive turnout to, in good conscience, topple the British economy and break up the UK. In other corners some of the bloom has quickly come off the rose.

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Nigel Farage, the UKIP leader who has been championing the leave vote while Boris Johnson (BoJo for short) has parading across the country with a bus emblazoned with the phrase “we give the EU £350 million a week, let’s fund the NHS instead” has said that was a poor choice of campaign phrase. In other words the NHS will not be getting an additional £350 million per week. JoJo on the other hand has said that there is no urgency in triggering Article 50 of the Lisbon treaty, and instead there should be preliminary discussions before actually starting the leaving process.

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Liars! Lying Liars!

In Cornwall, the picturesque seaside county with a crumbling and weak economy, it has suddenly dawned on the residents that they are hugely dependent on cash transfers from Brussels, an idea that had apparently not occurred to them when they overwhelmingly voted in favour of leaving.

It is worth taking some time to consider some underlying facts. The referendum is non-binding, merely advisory to the government. As the impact of a leave vote starts to set in and people begin to reject the emotional tenor of the campaign in favour of some hard truths, the next government will have time to try and potentially weasel out of the deal. The current front-runner for the next Prime Minister is BoJo himself, a man who had said that he sided with Leave (and became its very public face) because he didn’t think Brussels would really negotiate with the UK unless they knew the Britain might seriously leave.

So I’m going to go out on a limb here and say that Brexit will not happen, at least not like the worst case scenarios have made it out to be. David Cameron has said triggering Article 50 will fall to the next Prime Minister, which is months away. The chief proponents of Brexit don’t seem eager to start the clock on an official leave at all. Despite calls from within the EU to get the ball rolling on leaving, the real appetite to lock down a time table for a permanent withdrawal from the eurozone isn’t there. Instead it seems the winners are happier to let everyone know that they’ve got the gun, and that it’s loaded.

There are months to still screw this up, but the leave camp has had its outburst and now its time to look in the mirror and see the outburst for what it is; and ugly distortion of what the future could be. Nigel Farage and UKIP have had their moment, letting everyone know they are a serious force that needs to be addressed. But the stakes are far higher than I think many believed or thought could come to pass. The GBP fell dramatically, markets convulsed, Scotland and Northern Ireland might leave and starting Monday many financial jobs will start being cut in London. Now is the time to calm markets not with more interest rate cuts but with some measured language that could open the door to another referendum, or at least avoid the worst outcomes of an isolated and petulant Britain.

* this article had initially incorrectly identified Boris Johnson’s nickname as JoJo

The Age of Breakable Things

With Brexit around the corner, the potential for a Donald Trump presidency and a host of other global problems (big problems), it’s hard not to talk about all the chaos and what it might mean to investors even when there is lots of other things to go over. For now, this will be our last article on the subject of Brexit until next week following the vote. I will take a look at some other issues later in the week.

One thing that jumps out at me about “Brexit” is how fragile much of our world is. Progress is most often thought of as making things stronger or better, but that is only true to a point. Progress also has the unfortunate downside of making things much more fragile. The more progress allows us to do, the more fragile each step makes us.

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Beautiful tall buildings like this remain a testament to our progress and how profoundly fragile it all is.

Historically that fragility can frequently be seen during times of war. Britain, undoubtedly the world’s most powerful empire at the outset of the first and second world war, saw how quickly its strengths could be overcome by the weaknesses of a far flung empire. The supply lines, the distant resources and the broad reach of the war all exposed the underlying frailty of the British Empire. Two World Wars was all it took to end an empire that had been 500 years in the making.

What we hold in common with the British Empire is the causal assumption that things are the way they are naturally, that we cannot change the inherent status quo in our lives. Canada, the United States and Europe are rich nations because they are naturally rich nations, and not the result of a combination luck, science, philosophy and culture that have conspired to land us where we are today.

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We live in a breakable society, one that doesn’t realize how fragile it is. In the past few years it has been tested in a multitude of ways, and this year is no exception. Brexit isn’t even the worst of how it can be. Syria has been reduced to rubble, Turkey has essentially lapsed into a dictatorship, with Russia having gone the same way. Venezuela, which I wrote about earlier, has moved from breadlines to mob violence.

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Progress isn’t just uneven, it also isn’t guaranteed. Nations, empires and great civilizations have all come and gone, each of them burning brightly, however briefly, before being extinguished. The speed of a decline in Venezuela isn’t just a result of bad management, it is a reflection to just how much support our civilization needs. The rise of the new introverted nationalism doesn’t see this, and has sought an imagined self sufficiency as a way to relieve temporary difficulties. If people thought that the EU was difficult to deal with when you were a part fo it, wait until you aren’t.

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Brexit is a choice that is both scary and appealing because it is scary. For an entire generation there may never be a choice like this again, a chance to permanently alter the geopolitical landscape, even with little understanding of what those changes can mean or do. Whether Britain will be poorer or richer over the next decade may ultimately hinge on the vote this Friday. Far more frightening is whether our ability to build something lasting, powerful but fragile will be permanently undone in the European sphere.

Notes from the Edge

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The June 18th cover for The Spectator

 

With the BREXIT vote now only days away its worth taking a moment to consider the dramatic political shift that seems to be happening around the globe. Where once left/right politics dominated, or pro-capitalism vs. pro-socialist forces clashed, today the challenge is far more frightening. Today we sit on the brink of the end of the new internationalism and face the rise of old nationalism.

In Jon Ronson’s funny and insightful book THEM: Adventures with Extremists, the author describes his final meeting with a founding member of the Bilderberg Group (yes, that Bilderberg Group) Lord Healy, who explains that at the end of the Second World War a real effort was made to encourage trade and economic growth as a way of deferring future wars. The Bilderberg Group is but one of many, slightly shadowy and often undemocratic, organizations that exist to further those goals, encouraging powerful people to air out their issues and discuss ways to make that vision of the world more likely.

But for millions of people the new internationalism that has been fostered through trade agreements, globalization and corporatism has made the world more hostile to millions of “left behind” voters. It has seemingly given power to cigarette manufactures in Africa, or created unfair and uncompetitive “tax free zones” in South Pacific nations. It has fostered sweatshops in Sri Lanka, dangerous factories in Bangladesh, all at the expense of industrial workers in Western developed nations. In Europe this internationalism is blamed for feckless leadership on humanitarian, fiscal and bureaucratic issues. In America it is blamed for the rust belt through the mid-west.

The response to the growing frustration on all these issues has been a resurgence of nationalism and political “strong-men”. Putin’s Crimea grab was as much about returning pride to Russia as it was about diverting attention from his own domestic issues, reestablishing  Russia’s place as a significant regional power. Across Europe there are rumblings, both of renewed regional nationalism from within countries, as well as growing concern that a “leave vote” in Brexit could destabilize the entire EU experiment. In the United States these issues have given power to the Donald Trump populism, but have also fired the Bernie Sanders campaign.

Energy to these issues have undoubtedly been fueled as a result of 2008, a disaster so wide reaching and so disruptive to the Internationalist narrative about the skill set of the political and corporate classes that it shouldn’t be surprising that millions of people seem ready to do irreparable harm to the status quo. The subsequent inability to provide a strong and sustained economic recovery like some recessions of the past has only made matters worse. Every ill, every short coming, every poor decision and every injustice inherent within the structure that we inhabit is now expected to be resolved by setting the whole thing on fire and assuming that the problem is solved.

I am constantly surprised by how little people actually want to see changed by referendums like these. During the Scottish Referendum, the expectation was that Scotland would continue on exactly as it does, but without any association to London. The Leave campaign in Britain is quite sure that while Britain will no longer be part of the common market, a deal can be worked out that will allow free trade to continue unabated and for British people who live in places like Spain and Italy to continue to do so without visas or travel restrictions. Donald Trump is quite convinced that he can have a trade war with China without upsetting American business interests there, and the host of smaller countries like Venezuela or Turkey can slide into despotism without adverse impacts to their international reputation.

We’re at the edge, with the mob pushing for change (any change) with little real understanding of the consequences. It is little surprise that the technocrats and political establishment are so unlikable and so uninspiring in the face of the radicals and revolutionaries that want to see a sizable change that can’t be brought about until everything is torn down. And while it is true that the status quo can’t remain, it is equally unlikely that the end of the EU, or a British exit will stem the tide of migrants from Eritrea, or that tearing up NAFTA will return factories to Michigan, or that Marine Le Pen can turn the clock back on France and bring back the beret.

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I expect market volatility over the next while as investors and deal makers try and figure out the correct response to either a leave or remain vote. If Britain does leave, the next 100 days will be telling as pronouncements will be made to try and smooth the troubled waters. But the real work will come in the next 2 years, as negotiations will begin to do all the hard work that the referendum creates. You can’t just burn it all down, you have to build something in its place. How successful the reformers are at the latter will be the real test of the new nationalism.