Brexit uncertainty means UK is uninvestable | Hacker News Reader

Brexit uncertainty means UK is uninvestable

uk.businessinsider.com

32 pointspjc5064 comments

It's a strong claim to state that increased variance causes "uninvestability".

It _might_ be fair to say that what is instead occuring is that the market hasn't revalued appropriately.

Not enough upside / "safety margin" to account for the increased risk.

Equally though it could be said that this is a statement about the market's opinion of the actual risk involved - e.g. it's all going to actually be fine.

Whilst it's still impossible to buy real estate in London for less than 10x the median salary I find claims that "the UK is uninvestable" extremely suspect. Where are all the sellers?

The number of homes for sale has dropped to a decade low (lowest since the 2008 financial crisis). And property prices in London have dropped.

The uncertainty around Brexit means that people don't want to buy, nor do they want to sell at a loss until they're sure that they have to count it as a loss. There's a lack of liquidity.

https://www.theguardian.com/business/2018/oct/05/uk-house-pr...

Edit:

As I point out in a comment below, if you're a foreign investor investing the day before the referendum, the exchange rate along means you lost 14% of your investment so far.

> nor do they want to sell at a loss until they're sure that they have to count it as a loss.

I mentioned this as a possibility in my comment. Prices have not been adjusted because people don't actually believe, on the whole, that Brexit means anything material.

> And property prices in London have dropped.

By a low single digit percentage, last year, primarily at the top end of the market.

If you're trading on leveraged derivatives that might be relevant. There are approximately zero actual individuals affected by a change of that magnitude.

As I said, when we see real hard and fast falls, then I'll be interested. Right now it's just bluster on all sides. All talk, no action.

I ask - politely - if you're going to reply with a nitpick, and state that actually it's 2%, or 3%, not 1%, or something - consider what this actually means. Brexit is being spoken about everywhere as some sort of hugely important world-breaking apocalyptic event, not a very slight adjustment over decades.

The single largest contributor to quality of life for every single person I know is quality and availability of housing.

Everything else is linked to that - we don't need food banks because people can't afford food, we need food banks because all the money disappeared into a rent hole first.

>Prices have not been adjusted because people don't actually believe, on the whole, that Brexit means anything material

I'm a London property owner who's pondered selling. Brexit will probably make a big difference but who knows how it's going to go just now. I'm going to sit it out and see but there could be a big fall with a no deal brexit. That said we survived WW1 and 2 so we'll survive a trade hiccup.

> we survived WW1 and 2 so we'll survive a trade hiccup.

I don't understand this reasoning. We didn't all survive WW1 and 2. If you mean the union survived - the Republic of Ireland left the union shortly after WW1. And if Brexit isn't _as bad_ as the Blitz, surely that could still mean it's pretty awful.

It's ultimately unclear to the that the London property market is linked to reality in a meaningful way so I think it's really hard to make predictions.

The availability of credit is a big factor, and the 'step changes' in quality, etcetera.

In the residential market I think it's quite easy to find Apartment B that is easily twice as good as Apartment A, but it doesn't cost twice as much because of the arbitrary steps introduced by lending criteria (e.g. if most buyers have approximately X income then there's a massive glut of apartments in the 4X-5X range).

Renting is even more acute than that.

But yes, I'm pretty tired of all of this 'end of the world' style posturing. In some ways I suppose it means we're all so comfortable now that we're able to spend time waffling on about abstractions like this.

The prices haven't moved relative to the pound, which has dropped sharply. If you're a US investor, and you made an investment the day before the referendum, the exchange rate alone has seen you lose 14% of your investment. 14% is a large drop.

The pound is at a historical prolonged low - except compared to the miners strike during 1984-5.

But it's interesting how the markets did not predict that remain could lose:

* On the 28th of May 2015, the EU referendum act was introduced. One pound in dollars was 1.46.

* It came into force on the 1st of Feb 2016, one pound in dollars was 1.42.

* On the 22nd of June 2016, the day before the referendum, one pound in dollars was 1.46 USD.

* By the 30th of June 2016, one pound in dollars was at 1.33, and it's stayed around the 1.30 mark for a long time.

* Right now it's only dropped to 1.28.

So I ask you:

If the markets foresaw the referendum (which the polls showed was always pretty close 51-49), why did the price of pounds not drop further before the referendum? Surely they knew there was a risk of 'leave' winning? Some people claim it was already 'priced in', however we can't see a significant drop between the legislation being announced, and the polls showing the election is close.

The conclusion I draw is that the markets aren't rational. Until the 'apocalyptic event' happens, people don't believe it will happen.

So that's why the pound didn't drop _before_ the referendum. Similarly, the pound will not drop before the UK drops out with no deal (despite it being a real possibility), because these things don't get priced-in in advance.

However, if there is no deal, we should probably see very large market movements.

> The conclusion I draw is that the markets aren't rational. Until the 'apocalyptic event' happens, people don't believe it will happen.

I think that's a fair assessment. Perhaps no-one wants to be the first to move.

From what I’ve read in various discussions, I think the general consensus amongst investors is that the worst case scenario is so utterly mind-boggling unbelievably horrifically apocalyptic that essentially none of them believe anyone could possibly let it happen.

Either that or they see an angle to make money from it, but that’s a minority.

Well, it's always the case that the worst case scenario is apocalyptic (I don't think the superlatives add much, it's already The End).

You could invest in the UK, and tomorrow there could be a political revolution that kills half the population, or bombs could start flying, or whatever else completely unrelated to Brexit.

People don't take that in to account not because their fingers are in their ears or whatever, but because its' likelihood is essentially nil.

Things can get worse without it being The End.

Mass starvation because of trade friction (not blockades!) is a possible outcome of no-deal — at least, it genuinely looks like one to me.

That’s one point I’m making.

That outcome is so severe that it’s considered “don’t be silly, they would never allow it” territory, and the single reason I have for treating it otherwise myself is the observation that many who campaigned for Brexit publicity denounce much smaller losses as “just project fear”.

A worse point is that I have twice seen it suggested the UK makes use of its nuclear arsenal to get a more favourable outcome. The first of those named the city I now live in (Berlin) as the target.

How does that make sense in any scenario?

The profit available to a party that shipped food in at double the cost would be utterly insane.

That's just one possibility.

The poorest in the UK can’t pay double. They can already barely afford food reliably, as evidenced by the growth of food banks.

Fresh food doesn’t survive long arbitrary delays, either in the field (there are already labour shortages in UK fruit farms) or in transit (if the customs process takes longer on average after extra staff have been accounted for, as that leads to ever-growing queues to cross the border — something which is very much an “it’s complicated” scenario because while the UK can in principle unilaterally decline to check things coming in, the consequence of doing so is being compelled to choose between doing so for all nations or face action in the WTO).

The question of affordability is only made more extreme by the decline in the value of GBP.

Note that this is not something I consider to be an inevitable consequence of Brexit itself, merely the spectacular arrogance of the people running the show, as the UK could’ve planned to hire enough extra customs inspectors and build inspections ports, but didn’t.

They should’ve started with no-deal as the base scenario and worked up to the best possible improvement, but they’ve started with a self-contradicting mess of aspirations and had massive internal arguments every time they had to decide which part to give up on.

I think the more interesting scenario would be a revolt as people choose to pay for food over rent (food banks act more as an indirect subsidy on landlords).

Maybe it'll happen. I won't be holding my breath.

This is also a possibility. Again, the only thing I am sure of is my inability to assign probabilities any more accurately than the most naïve way possible. Unfortunately if the problem is with the supply, no amount of money will prevent caloric deficiency — rationing might be sufficient, don’t know, devil in the details as well as the broad type of outcome.

But JRM and other cronies are going to make a ton of money so of course they don't give a f https://www.thelondoneconomic.com/news/jacob-rees-mogg-line-...

Direct inward foreign investment experienced a large anomalous and record breaking peak in 2016, the year Brexit was essentially announced. The total size of this investment was almost half the FDI of the EU for that year. [1]

Provisional quarterly estimates suggest that the downward trend in net FDI earnings ended in 2017, recording the first annual increase since 2011. [2]

1: https://unctad.org/en/PublicationsLibrary/wir2018_en.pdf (Annex, table 1) 2: https://www.ons.gov.uk/economy/nationalaccounts/balanceofpay...

It's not just uncertain. The prospect of no-deal means an economic apocalypse in just over 4 months' time is a serious possibility.

No deal would be a huge buying opportunity.

Even in the worst case scenario, the UK is almost certainly not going to collapse. I mean it’s survived way worse times.

It might take a beating, but it’ll figure it out.

Bring on the good "almost certainly not going to collapse" times.

“When there’s blood in the streets, buy property.”

UK property prices rarely fall much the market just becomes illiquid for long periods.

Worst case scenario? Significant employers and businesses leaving for other EU nations? Hundreds or thousands of UK business undervalued presenting buying opportunities? Hundreds or thousands that will almost certainly not be in the UK five years beyond purchase, except in a much reduced or sales-only capacity. See almost every foreign takeover in recorded history.

Like in the 80s, when half of an entire generation could not get work, or the work they trained for.

We'll figure it out, for sure. At an opportunity cost of tens of thousands of lives, and who knows how many anti-depressant prescriptions as well as monetary cost. So yeah a great buying opportunity for those who don't need to endure the consequences.

Sure. And Kazakhstan has survived worse times still. It's in way worse shape than the UK, in every aspect you want to compare. Maybe the UK after Brexit can survive like Kazakhstan survives?

Or pick your (least) favourite nation that's in dire economic and social strates: DRC, Yemen, Myanmar, ...

The UK will certainly survive. The question is: in what way.

UK has strong economic fundamentals. It is in better shape to withstand uncertainty then undeveloped economies.

My understanding is that UK economy is just as fragile and precarious as any in the developed world, which is to say, uncomfortably so. What do you consider to be strong economic fundamentals?

A few ideas that come to me are very strong institutions (rule of law, property rights, human rights, etc), extensive infrastructure (roads/transit, electricity, comms, etc), and a culture that supports and encourages free enterprise.

It’s always fun to hear how different perspectives make people consider different things apocalyptic.

I’ve lived in Serbia throughout the stuff most of my British friends consider surreal and wouldn’t even imagine as a post-brexit crash, even in a no-deal scenario (the government just deciding to taking everone’s foreign currency savings one day, state-sponsored pyramid schemes, UN sanctions causing all the big industries to collapse, NATO bombing causing almost a full stop in any economic activity for about 4 months). Even then, we thought that the real apocalypse isn’t happening there, but a few hundred killometres away where civil wars were raging.

Countries, economies and people survive far worse than an economic dispute between civilised nations. Fair enough, the pound might take a dip and some people will lose jobs, but that’s hardly apocalyptic.

The situation in Serbia back then may not have been perceived as an apocalypse (or not by some, anyway) but that is very far from perceiving it as harmless, or, even more absurdly, desirable.

I'm Greek. The Crisis wasn't an apocalypse. We're still here. But we really didn't want all that to happen to us and nobody wants that happening to them, either.

You know what I mean? If you cut my leg off I won't die, but I really, really don't want you to cut my leg off.

That is actually pretty close to one of the possibilities I see.

I am so uncertain about what’s coming up that if someone asks me, I say:

“Roll a D6.

Roll 1, UK cancels Brexit

Roll 2, UK goes into the EEA

Roll 3, UK does whatever it takes to get a deal because the alternative is uncountenancable

Roll 4, the cost of a deal deemed to be too high, no deal Brexit. Flights on hold until separate airspace law agreement produced; 2 GW HVDC link with France switched off until separate agreement arranged; shipping slowed by customs checks resulting in tailbacks containg essentially 100% of HGVs in the UK; brain drain and capital flight, possibility including the physical relocation of all equipment from certain factories in the UK to (say) Slovakia.

Roll 5, same, but UK attempts to respond with the solution that worked in the Opium wars. UK military says “no” on grounds it would have to declare war on itself, much to the surprise of whoever is PM at that point.

Roll 6: UK military says “yes” and then (the scenario you recalled happens to the UK).”

I literally cannot make a better than even estimate for these outcomes, but I would be surprised if they are actually all 1/6 odds.

Six months ago I was expecting all options would result in rioting and attemped arson by at least one group, possibly multiple opposing groups at the same time. Now, I am starting to think the mood is more mellow, as one pro-Brexit demonstration drew 4 people, including the 2 organisers.

On the other hand, my response to Brexit has been to move to Berlin.

Uncertanty is the time for the best buying opportunities.

Sure, you can take a gamble and win. But you can also lose big. History shows that, lacking a crystal ball, you're more likely to lose than win.

So there's an opportunity for some investors to win big but most of them will lose. And even the ones that win will likely lose out on their next gamble. Such is the way of unstable markets.

>History shows that, lacking a crystal ball, you're more likely to lose than win.

Does it? My gut feel says 50/50

There are generally more ways to lose than to win. Entropy is like that.

Well obviously it’s risky. History has also shown that uncertain times is when the largest fortunes have been made.

My point was that calling uncertain times uninvestable is stupid. It is a different climate and for a certain type of investor it is a gold mine.

> History shows that, lacking a crystal ball, you're more likely to lose than win.

This is the opposite of what history shows. Markets have grown on average. Buy a varied assortment of assets, an index of British assets, you’ll do fine. Just don’t expect good quarters in the short term. You’ll be up a lot in 10 or 20 years.

Yes if you average over the market you're likely to make money in the long term. Though note that in some cases long term can be on the order of two or more decades.

Buying into a risky market right before a down turn will only increase the time for you to see a return on your investment. Meanwhile you could have been making a "steady" income in less uncertain markets. Or even invested in the world market as a whole.

It's interesting how many of the lead Brexiters have such strong connections to financial services. I do wonder sometimes if the whole thing is a play on the markets because I haven't seen any cogent explanation for why Brexit is a good idea yet. What exactly are they going to do with the things they have taken back control of that is better than how these things are currently run?

Disaster Capitalism:

https://www.theguardian.com/commentisfree/2016/jul/04/disast...

It could be said though, that a lot of the leading Bremainers have strong connections to government jobs, no? What I'm saying is, if the Brexiter's dayjob has "corrupted" them, the same could be said about their opponents, no?

I doubt that most British people in finance were Brexiters, but rather Bremainers. And so it's not the job that tainted them, but rather the job they chose suited their personal traits.

For the funds that have relations with policits, I think it's mostly getting rid of regulations imposed by the EU.

I'm not sure I understand, they are all paid an MP's salary which is something like £75k per year. So I'm not sure that their government jobs are all that valuable compared to the amount of money that could be made by gaming a whole economy. Unless you mean civil servants? There are some retired civil servants that have come out as anti Brexit but the civil service will need to expand post Brexit so I'm not sure what they would have to gain personally from taking this position? If anything, and in common with a lot of other middle class Londoners, they are probably afraid of the value of their houses and investments dropping.

National governments in Europe are notoriously pro-EU despite the apparent contradictions involved (the EU makes those governments less powerful and important). The reason seems to be the EU's habit of giving powerful supporters in national governments exceptionally well compensated jobs as rewards after they leave / get kicked out by elections. See Peter Mandelson for a UK example.

There are myriad ways for ex-politicians to make money afterwards that are easier than becoming an EU bureaucrat. Tony Blair supposedly makes over a million a year from speaking engagements. Boris Johnson earns £150k p/a (double his MP's salary) by writing a weekly click bait opinion piece article for the Telegraph and he's still an MP. Honestly the idea of the EU influencing politicians by enticing them with high salaries for the few politicians that get the chance to be on the Council of Ministers is ridiculous if you stop to think about it.

It's not just a one-off gamble but more likely a plan to become the world's offshore and money laundering heaven. Well, relatively of course. This is why the emphasis in the early Brexit debate was on decoupling the country from the EU regulations.

In other words there might be some chance of immediate and long-term benefits in "hard" Brexit for some, but an enormous short and long term damage for the rest of the population.

Also the best time to sell crap at a cut rate to lose the liabilities.

I remember well the discussions, here and elsewhere, from around the time of the referendum.

Next time I need some happy distraction I might just look up all the pro-Brexit commentators and rub it in there face how entirely spot-on the dire predictions back then actually where.

Too bad they are far too likely to be scavenging for food to indulge my gloating :(

More likely the "lead Brexiters" make a lot on the period high volatility.

They've just changed the goal posts.

"We always said there would be a period of adjustment"

etc. etc.

The markets hate uncertainty so the whole UK economy is wobbling on the edge of a cliff. The tory PM can't even be guaranteed to get the EU deal she is currently championing through Parliament as the backbenchers are revolting.

Only Labor can save Britain from collapse.

Reality check: in the big 4 western European economies (UK, France, Germany, Italy) the UK grew the most in Q3:

https://order-order.com/2018/11/14/uk-top-big-four-eu-growth...

Italy was stagnant and Germany actually shrank!

EU supporters have been peddling this "UK is on the brink of total collapse" story for the last two years and yet the economy has continued to be one of the top performers in all of Europe.

What a load of rubbish, Google and Amazon just announced in the past few months they are investing, they all know Brexit or no Brexit the UK is a highly desirable place for business.

> Google and Amazon just announced in the past few months they are investing [in the UK]

Source?

https://www.independent.co.uk/news/business/news/uk-tech-sec...

https://www.bbc.co.uk/news/business-37988095

"Fk business"

- Boris Johnson, June 2018

https://www.bbc.com/news/uk-politics-44618154

I'm not sure that two of the world's richest companies investing is great sign of confidence. If their investment comes to nought, it wouldn't make a dent in their balance sheet.

https://www.independent.co.uk/news/business/news/uk-tech-sec...

Which ironically means that the GBP will probably go UP when a hard Brexit happens.

>> lack of political clarity makes it very difficult to determine asset price movements

Q: Would "political clarity" determine asset price movements?

No, that's not what the sentence says

Asset prices are composed of many things. Political clarity reduces one component, namely one kind of uncertainty. Uncertainty makes the computed asset price more uncertain. If a given asset is expected to have a value of £1m±10% in a year, reducing uncertainty makes the expected value £1m±5%.

Uncertaintly doesn't affect the headline number directly, but it does affect the ± part of the price price and complicate planning, and the reduced ability to plan may indirectly affect the headline number.

The OP wasn't talking about asset prices, but asset price movements.

That's awfully close to suggesting that one could predict the future price of assets, if only it wasn't for this pesky "political instability".

Surely not?

Asset price movements are basically x-y, where x and y are asset prices at two different times. If the uncertainty of x and y grows, then that of x-y grows even more.

Reply on news.ycombinator.com