Opportunities amidst Brexit uncertainty…
We believe that open access across trading partners creates prosperity for all, writes Alex Price, chief executive of Palmer Capital. However, right now the clock is ticking to leave the European Union, one way or another, in 2019. It is therefore incumbent on the government to create a plan that obtains parliamentary support rather than allowing the terms to be dictated by the EU.
The recent election shows the lack of national consensus over the exit, meaning that the political “face” of Brexit will be penalised and villainised by one group or another whatever deal is agreed. The 2010 Lib Dem coalition experience reminds us that trying to be statesmanlike is seldom rewarded by the electorate. Failure matters for the Tories (and for much of UK business) as it would lead to a relatively hard-line socialist government.
We also need to recognise that the growing gulf between rich and poor will most likely continue to grow. This inequality is driven in part by international monetary policy (QE creates cheap finance that’s drives asset values for the “haves” but leaves debts unchanged for the “have-nots”) and in part by technology (which concentrates wealth in the owners of means of production not the workers).
Unwinding 50 years of diplomacy will be tough, but doing this at the same time as a fourth industrial revolution, possible sovereign insolvency, growing social unrest and a resurgent Old Labour looks nigh on impossible. The government needs an uncomplicated plan that can attract the political middle ground with cross-party buy-in. This probably means access to the single market for the UK’s financial and professional services sector alongside access to the customs union to maintain the pan-European industrial supply chain.
In respect of freedom of movement and judicial sovereignty, a middle ground should be achieved through a willingness to compromise. Agreement to pay part of the current £17bn contribution and the guaranteeing EU citizens right to stay would help. A more limited political involvement from associate membership is something that would probably be welcomed by all sides. Compromise would reduce the prospect of the short to medium-term economic shock of departing the EU in a so called “hard Brexit” and help find the widest consensus across the UK, limiting the damage to the politicians leading the negotiation.
With a large current account deficit and little desire for austerity, we rely on the “kindness of strangers”, as Mark Carney says, to finance the government spending programme. A departure in a disorderly way from our closest neighbours and largest trading partner is unlikely to give investors into the UK confidence and could cause massive disruption in the UK economy. This in turn would cause the value of UK assets to fall, create distressed domestic sellers, allow overseas vulture buyers to purchase UK assets at discounted prices, and in the long term see the benefit from gaining sovereignty lost to economic reliance on others.
Palmer Capital would prefer an orderly and constructive exit, although as Churchill said: “a fanatic is one who can’t change his mind and won’t change the subject”, so we should expect a lot of noise in the coming months. Investors will continue to use real estate investments to source safe secure core income to see them through the uncertainty. Palmer Capital also believes that, regardless of the exit arrangement, we will have a generational buying opportunity for value-creating investors. There are so many structural changes happening simultaneously in the UK over the coming years that entrepreneurial firms will prosper from corporate relocations, accelerating changes of use in assets and reshaping of occupational needs in all sectors.
As good citizens we hope for a common sense to prevail, but as an opportunistic investors we remain ready and able to succeed whatever the political environment.
Author: Alex Price, CEO at Palmer Capital