What Pulp Fiction can tell us about the next stage of Brexit

Everyone’s feeling a little punch-drunk

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I don’t plan to go deep into the Brexit deal itself this morning, because I don’t like wasting my time and yours on fretting over something that is still contingent on rather too many factors.
The agreement is also a mere 585 pages long, but I assure you, that had nothing to do with my decision.
Instead, let’s look at the more immediate issues – which hurdles does it have to clear before we can say this is all done and dusted (for now, at least).
The markets would like this deal – but will it get done?
Long story short, from what I’ve read so far – and I’ve tried to keep that to a minimum, because pretty much no source is trustworthy on this subject – the actual deal is about what you’d expect if you’d been attempting to keep a realism-tinged view of things so far. We take a long time to exit, so disruption is minimised. But room for manoeuvre outside EU rules is limited.
Remainers and Brexiteers will both be unhappy with it, which is probably a sign that it’s the most realistic deal on the table. And if you voted Brexit primarily to avoid further political integration with the EU, then I think this is probably as good as you’re going to get.
From an investment point of view, markets would like a deal. Last night, when Theresa May said that the Cabinet at least had agreed on the deal, the pound surged.
So markets want to avoid “no deal”. That’s mainly because they have no idea of what “no deal” would actually mean. It’s a gaping hole of uncertainty, and markets will usually tend to price those on the gloomier side.

Furthermore, markets will probably like the shape of May’s deal. It’s definitely a soft Brexit. It doesn’t involve a huge immediate disruption to very much. It would effectively solidify and park a lot of issues for the time being.
So if this deal gets done and dusted, you can expect a whole heap of recriminations on either side. But if is signed off, then I would expect the pound to rally significantly. It might not rocket (that’ll probably only happen if markets also become convinced that the Bank of England is finally prepared to raise interest rates). But I certainly would expect it to have found a floor.
The big question now is: will it get through?
What Quentin Tarantino can tell us about the next stage of Brexit
There’s a great scene in the Quentin Tarantino film Pulp Fiction which I think is appropriate to this situation. This is a family email, so I can’t quote from it verbatim – and I’m sure most of you have seen it anyway. But I can give you the rough outlines.
At the start of the second section of the film, a boxer is getting a pep talk from a gangster who wants him to throw his final fight, in exchange for a lot of money.
The gangster warns him: “The night of the fight, you may feel a slight sting. That’s pride messing with you.” Needless to say, our boxer is encouraged to ignore the sting. Needless to say, he doesn’t, and the story unfolds rather marvellously from there.
Anyway, that’s a long way round of saying: a huge number of parliamentarians are now feeling that same sting.
The Remainers are wondering if they should take a stand and reject the deal. The hardcore Brexiteers are wondering if they should take a stand and reject the deal. All of them are wondering whether it could be good for their careers to make a heroic leap for power right now.
And every single one of these people suffers from having a not-insignificant    ego, or they wouldn’t be where they are now in the first place. A big ego is not necessarily a bad thing, by the way – that’s an observation, not a criticism. But in this case, the heady cocktail of individual ambition, the chance to “take a stand”, and sheer joy in risk-taking, may be too much.
What this all means for your portfolio
What’s the upshot? Ultimately, if this deal doesn’t get done (or something close to it), then I’d be very surprised if May stays. Having got this far, she has every excuse to step down with the remnants of her pride intact.
She can easily turn around and say: “Look, I didn’t vote for this in the first place, but unlike Dave, I stuck around to sort out the mess. If you don’t like it, you lot fix it.”
(Who knows? Maybe there’s a spare, as-yet-unrevealed Johnson lying around somewhere who can parachute in and save us all.)
That would not be good for the pound. And of course, if May steps down, that probably does increase the chances of a Jeremy Corbyn government. That would not be good for the pound either.
So here’s the only recommendation I’m going to give right now: don’t take a short-term punt on sterling. And just watch for the deal’s progress through parliament. And plenty of resignations in the meantime.
As for the longer run – compared to most other things, the UK is cheap right now. As John Authers points out, if you have a very long-term approach, “maybe it would be a good idea to buy UK assets now.”

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