Blain’s Morning Porridge – Jan 18th 2023: Time for the UK to get honest about the crisis.
“Admitting my mistakes will cost me my job, but I will sleep at night
This morning: The UK stock market hit a new high yesterday! And its all due to Brexit – apparently? Sometimes we bet on red and it comes up black. As long as the UK remains delusional about making a bad call, the nation will continue to underperform and sink down the league tables. We could make national honesty a strength!.
Apologies for late and short comment. Great fun in Hamble yesterday as wonderful friends dropped in for a late lunch that morphed into dinner, supper and lengthy debate on how to put the world to rights… We solved it, but blessed if anyone can remember how this morning. Days like these make the pain of the day after worthwhile… (and to be fair, the sun may be shining, but we are all a little shabby…)
Before I go into today’s rant…. the Porridge is all about explaining calmly and rationally the irrationality of markets. I try to be honest – even when it means saying things many people will object to. Many moons ago an optimistic Bill Blain made a last minute decision to vote for Brexit on the basis of how badly the Remain camp had explained the benefits of staying in. I took a punt on the potential benefits of an independent UK in the global economy. Turns out not to have been the best call I ever made – I live with my many mistakes.
To move forward I acknowledge my mistakes. That’s something politics struggles with… Politics move markets. Today, it’s time to explore the little-known economic science of cause and effect:
I have been drinking Laphroaig Islay Whisky since childhood – that’s not as bad as it sounds. My mum put in into hot toddies to cure sniffles and colds. The incredible thing is: over the 55 years since I first imbibed the golden nectar, I have not had a single bout of Ebola or West Nile Haemorrhagic fever – absolute proof positive of the incredible prophylactic properties of medicinal, peaty, smoky Scotch! A clear example of cause and effect.
UK stock markets are apparently equally magical – despite all the doom and gloom, they only ever go up (if you can forget about the past). Look at the FTSE – at a record high, and a market cap of nearly £2 trillion. And its apparently a clear Brexit bonus…
There are all kinds of reasons the FTSE has done so well – not least being the fact UK assets are relatively undervalued on a relative basis for downright obvious reasons to do with the shaky sovereign trinity of a dodgy currency, a stressed bond market, and political incompetency. Because markets are self-correcting, sterling weakness and the largely defensive nature of the UK’s main stock index lie behind the upside. Some 70% of FTSE earnings are made overseas, so sterling weakness actually benefits the optics for the UK stock market.
The fundamentals for the UK are getting better – very slowly. All credit to Premier Rishi Sunak – the adult in the room who has brought an element (albeit small) of stability to the economy. Under Sunak we’re unlikely to see the wild swings in political competency that’s been the hallmark of the tottering UK economy since David Cameron lost the plot in 2016. Investors like dull, boring and predictable – and they don’t come much more boring, predictable or dull than Rishi.
Yesterday morning was funny.
I received a missive informing me that since the Brexit vote in June 2016, the FTSE is up 27%. Magic. It was a planned press release timed to the FTSE hitting an all-time high. It explained how all that stock market upside is entirely due to the success of Brexit. I was very, very pleased to have it so clearly explained to me – all these years I’ve been looking for something positive Brexit has brought to the UK, and there it is: our stock market has risen 27% since the vote.
Now, I don’t want to start the day by calling the report delusional – but it clearly is. Just because it was in a rather lame Brexit benefit peddling fake-news website, doesn’t mean it’s not true. Maybe the UK stock market is up 27% because of Brexit, and its nothing to do with the fundamental weakness of UK stocks on a relative basis making them look screaming buys, or that good UK companies (of which there are many) are massively cheap compared to global peers.
I promptly forgot about the report.. shaking my head at sheer nonsense of the claim.. But then, later last night a chap asked me about it in the Victory pub. He had also read the report and regarded the claim as gospel truth. He really does believe the UK stock market hit a record high due to Brexit.
I tried to burst his bubble with clear rational facts. I explained that since June 2016 and the Brexit vote:
- Sterling has declined 11% versus the Euro.
- The French stock market has risen 71%.
- Germany is up 58%.
- The US Dow Jones is up 86%.
He looked at me like I had two heads.. “I thought you were supposed to know about markets” he said before walking away disgusted at my lack of faith.
He wasn’t impressed with my argument. He sincerely believes Brexit has been a massive benefit for the UK economy. In terms of markets, it was… if you shorted the UK relative to anything else. The UK stock market is up a staggering 27%.. meaning you lost at least 30% of potential returns by investing in the UK post-Brexit vote instead of literally anywhere else. Brexit might have been a massive success for the stock market, but the reality is the UK is the only G7 nation where GDP remains at pre-Covid levels.
Today the UK does look attractive. Because it is so bleak. And because, finally, there is a growing realisation the problem is Brexit. If we are honest about Brexit, then the UK can move forward. Until then.. we are stuck.
An increasing number of people are like me – willing to admit it was a mistake and it was handled extremely badly. The political failure to exploit the opportunity happened. We can’t go back and start again. It is what it is – a mistake and we live with the consequences… The only way back is to acknowledge a mistake was made – which, unfortunately, vast swathes of political thinking in the UK, in European Reform Groups, in the Brexit Right and in parliament just aren’t willing to do.
I voted Tory at the last two elections. I personally like my highly competent Tory MP. I will vote him out at the next election – Liberal or Labour.
Today I am convinced the UK needs a new government in place as soon as possible. A government that isn’t shackled by its internal inability to admit Brexit was a mistake. A new government will have the opportunity to reset Brexit – not re-join the EU, but figure out the UK’s new relationship with Europe, and how the UK outside of Europe is a core part of the European economy.
That’s a massive challenge, and if one thing worries me about prime minister Sir Kier Starmer it isn’t the Labour looney left wing, Labour’s ability to sort the NHS, or their potential competency with the economy – it’s that Starmer might bottle the challenge of sorting out the UK’s future with Europe, the risk he might also pander to the small minority of Englishmen who still think Brexit is a jolly good idea.
There is another reason we need a UK election sooner rather than later. Rishi Sunak is a highly competent, good politician, but he is a highly linear thinker. My very good chum David Murin, who writes about politics and markets in his Murrinations Blog describes Sunak as lacking leadership charisma and strategic vision – displaying s stereotypical approach of hunkering down in Downing Street trying to solve the multiple economic crisis waves overwhelming the economy through micromanagement and technocratic solutions – there is no grand vision – and thats a real crisis!
What the country needs now is a competent lateral thinker to solve the strikes, the NHS, security, the Brexit wound and the rest– none of which means bringing back Boris!
No time for five things this morning.. full service tomorrow morning.. Out of time and back to the day job.