The Dis-United Kingdom.

May 28, 2019

In five weeks I head over the pond to teach for the eleventh year a course titled “Money & Responsibility” to 25 students, mainly from the States. The one-week program is an all-encompassing series of lectures designed to give the attendees a grounding in the basics of money as well as subjects of a broader nature. The Cambridge University involvement is led by Dr. Jerry Toner, a former institutional money manager from the City of London and now a Fellow of Churchill College. One of his lectures is on Brexit and here are some excerpts:

“Theresa May has announced that she will resign as Prime Minister of the UK on 7 June. Boxed in by her own ‘red-lines’ she had no room to maneuver. She had said no to allowing continued freedom of movement, no to a customs union, no to another referendum. It was not surprising so few politicians were able to find common ground with her.”

“Why is the UK so divided on the EU? Partly it is about history. The British Empire was focused on overseas trade and colonies in the New World. Europe was seen as a source of problems, whether in the form of French revolutionary ideas or Hitler and Mussolini. When the UK joined the European Economic Community (as the EU was then known) in the 1970s it was seen as a purely economic opportunity. The subsequent European drive towards greater social and political integration has antagonized many more traditional Brits, who want to drink their beer in pints not liters. The rapid level of immigration from Eastern Europe after the EU expanded in 2004 meant that many felt they were becoming foreigners in their own country.”

“These divisions were starkly revealed in the voting patterns of the referendum. It was the over 55s, the less well-off, and country-dwellers who voted to leave.  The young, urban and rich overwhelming voted to remain. There was also division within the Union itself. Scotland and Northern Ireland had large majorities to remain, with Scotland anxious it would be isolated in a post-Brexit world, and Northern Ireland fearful that reintroducing a border to the island would reignite the troubles of the past.”

“It is hard to be optimistic at the moment about the prospects of the UK, its stock market or its currency. The likelihood of a political turn-around in the near term seems bleak. But investment is a long game. The UK has a long history of being one of the most successful capitalist economies in the world. It is home to some world-leading companies, such as HSBC, Rio Tinto and Diageo. Its labor laws are flexible and its tax regime is favorable to entrepreneurship and investment. It is also home to some of the best research Universities in the world, with 6 in the top 25 according to the QS rankings. Cities such as Cambridge are booming on the back of the spin-off businesses resulting from this expertise. The UK’s markets may continue to struggle as the Brexit endgame plays out, but this should be seen as an opportunity to buy quality assets on the cheap.”

Nick Hoffman