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Holly's Blog: Brexit walks into a bar - "Why the long farce?"

By Mike Narouei, Content Producer at Boring Money

1 Nov, 2019

In the latest Act of the Brexit Pantomime, as we move towards an election on 12th December, the pound retains its starring role and is going to be key to determining how our investments perform over the coming months. In October, sterling was up by a hefty 5% against the dollar and was the best performing major currency in the world. Oooooh! But what lies ahead is uncertain.

If Widow Twankey’s Conservative party gets a big enough majority to deliver Brexit with both speed and some clarity around the process, then sterling will likely rise further as we move into 2020.

But no-one quite knows how this panto is going to end, and this could all still result in the UK dropping out of the EU without a deal on the new 31st January deadline. In this case the pound will get a kicking. The FT reports that some currency analysts predict that the disruption could be severe enough to shove sterling down to parity against the dollar. Ouch. (It’s trading at $1.29 this morning.)

No Easy Golden Eggs

Whenever there’s a large potential swing in any financial market, there will always be plenty of people lining up to make what are effectively bets. But there are no certain Golden Eggs here. The only certainty is a few months of turbulent volatility when the day traders will be out in force.

In theory, if the pound goes gangbusters, then our holdings in international shares will probably do relatively badly. The biggest 100 listed firms in the UK – the FTSE 100 – typically earn most of their money in foreign markets, and then translate it all back into pounds when they tot up the numbers and report back on how they’re doing. If you’ve made profits of $100 million when the exchange rate is $1.50, that’s £67 million. If the exchange rate for a pound is $1.20, that’s £83 million. So investors with global share portfolios have mostly benefitted from a weak pound.

Trouble is, I’m never that convinced by all this economics textbook stuff and lazy assumptions. There are so many levers (Leavers?) in the world, all being pulled in different directions at different times – China/US trade tensions, interest rates, wars and corporate woes being just some of the Ugly Sisters – that it’s impossible to consider anything in a vacuum. So we wait. And we watch. And we wonder just when we’ll all be able shout, “Brexit? It’s Behiiiiiiiiind Us!”

The Hero?

On a final note, I’m generally very sceptical of videos of famous people which get widely fawned over on social media. Bah humbug ‘n’ all. But I actually did enjoy this one showcasing Barack Obama at his best. He talks about leadership, driving change and being a force for better.

- "I get a sense among certain young people on social media that the way of making change is to be as judgemental as possible about other people. If I tweet or hashtag about how you didn't do something right or used the wrong verb, then I can sit back and feel pretty good about myself because 'Man did you see how woke I was? I called you out!' But if all you're doing is casting stones, you are probably not going to get that far. The world is messy. There are ambiguities. People who do really good stuff have flaws."

It struck me how rare it has been in 2019 to see dignified leadership in action. Watching this was a bit like having butter on your toast after a month of margarine. More please.

Have a good weekend everyone.