May’s compromise is technically the perfect deal - is there a perfect reaction for investors?

There is no answer, there is no way out of the chaos at the centre of government and the Brexit debate, but what can investor’s do? In fact, for them, there is an answer.

Article updated: 16 January 2019 8:00am Author: Michael Baxter

Imagine there are ten people planning on a holiday. Two want to spend two weeks on the beach. Two want an adventure holiday, canoeing down a river with rapids. Two want a city break. Two want a cooking holiday and two want to go cycling. They appoint a leader. The leader finds a hotel in a city based near a beach, with trips to a nearby river with rapids. The hotel also runs cooking classes and there is a nice bike ride nearby.

Everyone hates it. The beach isn’t very big. The city is okay, but there are limited things to do. The nearby river is pretty easy for experienced rowers to traverse. The nearby cycle ride isn’t very challenging.

But no one can find an alternative holiday that offers all those things.

Everyone is furious with the leader, half agree that no one else could do a better job, but someone else wants to be leader, around half the group hate this person.

What’s the answer?

May’s deal is perfect.

The perfect deal in a negotiation is one in which both sides get what they want. Such deals rarely exist. In reality, the perfect deal is one in which both sides worry they have compromised too much.

Forget about the EU, whose own position is just as complex. In the Brexit debate none of the factions are happy with the May deal. By that above definition it is the perfect deal.

MP’s throwing their dummies

It is tempting to say MPs are like kids playing at kindergarten, currently they are playing a game called ‘let’s see who can throw their dummies furthest from their pram.’

But that is not so.

The electorate must own up, they are behaving just as badly. Nothing illustrates this more than the slogan ‘leave means leave.’ I am telling you, half the county feel irate when they hear that meaningless slogan.

The May deal solves the three biggest criticisms of the EU during the referendum. It ends freedom of movement, it gets rid of the UK’s contribution to the EU budget, it means the UK is no longer subservient to the ECJ. Three years ago, many would have said it was the definition of leaving the EU.

None of those criticisms ever added up. Demographic pressures meant immigration from the EU was always going to fall, we are close to entering a period where free movement was going to benefit Brits looking for a move abroad more than other EU citizens. Economically, the UK gained more from the the EU than it cost in terms of the budget. The UK played a key role in defining the ECJ.

People say they are fed up with MPs, just get on with it, but get on with what? Are they saying ‘lets’s just have the cycling holiday: the canoeing trip, the beach/city break/cooking classes?’ People who say just get on with it are part of the problem.

The solution lies with honesty. It lies with each and every politician coming together and acknowledging the impossible problem. The EU negotiations should have been conducted by a coalition of individuals from each of the main political parties.

But voters are no better, they are no more willing to compromise.

As for a second referendum, this is either a betrayal of democracy or the most democratic solution, depending on who you believe. But what would the referendum vote on? The May deal, hard Brexit, a Norway deal, a new deal negotiated by Labour or staying in the EU?

I suspect the solution lies with a referendum and general election. Maybe running in parallel; but then I know that many would say that is unthinkable. Well, maybe it is. But maybe we need an unthinkable solution to an impossible problem, and the public must take some responsibility, and if they are unwilling to grapple with complexity they shouldn’t vote.

Investing

We have heard it enough times, markets hate uncertainty. Uncertainty is the one thing there is an abundance of at the moment.

In such times, it is tempting for investors to play the markets, putting money in after a stock market fall, selling after a jump.

But such as approach is casino investing. If that is your chosen investment approach, you might be better off playing roulette.

But investing is a long-term game. In such times investors need to see through the volatility; ignore the trees and see the wood; stay clear of the casino, strap themselves in. This is a time for patience, keeping your nerve and objectivity.


These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

Michael Baxter portrait photo
Michael Baxter

Economics Commentator

Michael is an economics, investment and technology writer, known for his entertaining style. He has previously been a full-time investor, founder of a technology company which was floated on the NASDAQ, and a director of a PR company specialising in IT.

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