Blain’s Morning Porridge – July 30th 2019
“They stab it with their steely knives, but they just can’t kill the beast..”
In the headlines this morning: https://morningporridge.com/stuff-im-watching
Boris discovered just how much they love him in Scotland.
This does not feel like a great time to be long Sterling. But…. as sterling slid on the heightened prospects for a No-Deal Brexit, the UK stock market soared, driven by M&A speculation. A reader sent me a text to congratulate me on being spot on when I gave the considered market advice “When May is Gone Put Your Buying Boots on!” on May 23rd. Theresa resigned the following day, and the market is up 7.5% since! I must be an investment genius….
What should the current mantra be?
How about: While Boris Bluffs and Blunders, the Pound will remain a’Chunder?
Sterling is down 2.6% against the Euro since Boris became prime minister. That’s an extraordinary decline. A no-deal Brexit will hurt all ways: UK, Ireland and Europe. Yep. Its going to hurt Europe as well. Time for everyone to wake up.
Over the next three months it looks likely to remain brutally negative for Sterling as the Brexit deadline approaches. Dominic Cummings and Boris are framing it simply: Brussels agrees to compromise on the Irish Backstop or it’s a No-Deal. Boris is refusing to meet European leaders until they agree to positively discuss ditching the backstop. It’s become a very High Stakes game of Poker – and no one wants to lose face. A sober assessment of the risks and potential gains might be in order. Europe betting on the UK blinking is a big risk for a pretty minimal return. Boris is not bluffing – he’s all-in 110% on the UK leaving – any kind of political future depends on it.
The UK is going to leave whether it gets a good or bad deal. Which means the current stand-off over the Channel is pretty much pointless willy-waggling on both sides. There is a much better compromise to be done.
The waggling is over a pretty dumb concept – The Irish Backstop. C’mon. Does Europe really think the UK is going to breach promises to be a good non-European European and will exploit an open Irish border after Brexit? The UK is about the only country that enforces most of the current rules! The Backstop is the kind of passive aggressive clause that makes simple good deals impossible. Nobody wants to see the Irish border closed – so lets get rid of the clause, and keep it open. Negotiate it away.
At the risk of attracting negative comments from my many European readers this morning… Please, make this simple. Change the Backstop so we can all remain chums. Why? Because it’s not important, its not a real issue, and we’re all bored of it. Move on. It’s not difficult. Don’t tell us the Backstop is critical, or even important, and global trade can’t function without it (Clue – you can trace everything on computers). It’s a pointlessly stupid clause that in standing in the way of a solution that benefits everyone.
You know the response I will get to that plea… Outrage from Brussels. Why should Europe shift, when it’s the Brits that caused all the trouble?
For Fecks sake – will everyone please grow up!
For Brussels to “win” the hand it requires UK politics to hold back/topple Boris. But what would they win? Are the stakes worth it? What does Brussels gain by forcing the UK to back off? Nothing. It might send some kind of Hotel California signal to the rest of Europe – you can check out any time you want, but you can never leave. But, Europe must know its’ potential for stronger European union is enhanced without the distraction of an uncommitted UK, that UK imports from Europe feed the whole economy, and a UK that remains engaged with Europe is better across every single metric.
Even the most extreme of the lunatic far Brexit wing realise an open trade door with Europe is massively positive for UK.
Leaving Europe with a bad no-deal is going to play badly for all parties. Forget all the nonsense rhetoric about the UK going out and quickly signing trade deals, and finding new markets – it won’t be as bad as Project Fear suggests, but it will still hurt. But it won’t hurt as much as Europe. The UK has some critical and massive advantages over Europe:
- The UK still owns the keys to the monetary printing presses – if the crunch comes, the UK can inflate and pump the economy and import whatever is required. There will be consequences – inflation, currency weakness, and social ones also. In contrast, European nations still have to agree new fiscal rules to run alongside the Euro – the don’t own their own money trees!
- The UK has the advantage of being able to move swiftly – its not hamstrung by Brussels bureaucracy or the red-tape that characterises business across Europe. Labour and business rules are pro-growth.
- The UK remains the premier centre for English legal and financial services. I read a confidential report by one of the major Golden Circle legal firms suggesting less that a couple of hundred real jobs have transferred out of London (and most of these were French).
Perhaps the current sorry state of the UK is not such a knee-jerk sell as the markets seem to think.
Meanwhile, did anyone watch the BBC’s Panorama Last night? Boeing’s Killer Planes made some very sharp points about how the plane-maker sacrificed safety in order to pay out investor dividends, buyback its own stock and pay its senior execs massive bonuses. Kind of sickening to watch the CEO refuse to accept any responsibility for 346 deaths while taking his $70mm per annum “reward” from the company.
If you have been following the story, then the BBC said nothing new. But it’s the fact millions of people will watch the programme that counts. When aerospace engineers say the plane is unsafe, corners were cut, and they won’t fly on it…. then why would paying passengers. Airlines know that. Bottom line is the B737 Max crisis is escalating and becoming a public relations disaster of a force 10 magnitude. Take a look at how the stock is underperforming and work out how much lower it could go.
Out of time, back to the day job..