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“Constitutional outrage!” “A despot in Downing Street” – the papers are having fun this morning.
It’s at times like these that I take great joy in remembering all the moaning and groaning and hand-wringing that the great and the good used to do back in the old days (a bit less than 15 years ago) about political apathy.
Voters turnout was down. MPs were “all the same”. They weren’t connecting to “the people”. It didn’t matter which party you voted for. Democracy was stagnating.
Well, it ain’t stagnating anymore.
This is democracy, not despotism
Boris Johnson went to the Queen yesterday. He asked her if she could please give him the go-ahead to prorogue Parliament – shut it down, in other words.
The Queen rubber-stamped it because that’s what her role is. She doesn’t actually get a say, or even attempt to have one on these things, because the queen (or king) doesn’t actually run the UK these days.
Now, prorogation is not unusual. Parliament is usually shut down once a year. The session starts with the State Opening – where the Queen opens Parliament, and we get the Queen’s Speech, where the party in power lays out its plans for the year ahead.
The session then ends about a year later, with prorogation, any laws that haven’t been passed wither on the vine, and it all starts over again.
The current Parliament is unusual, according to the House of Commons Library. This particular session has been running since 13 June, 2017, which makes it the longest session we’ve seen since the English Civil War (which ended in 1651).
That’s because politicians have been busy with Brexit – long sessions tend to coincide with constitutional change.
So prorogation itself is standard. What is unusual, of course, is the timing and the purpose of the prorogation.
Johnson is shutting Parliament down before a new Queen’s Speech on 14 October. There’s then a big meeting in Europe on 17 October. And Britain leaves the European Union (EU) on 31 October, unless something changes before then.
So the goal here is to run the clock down so that the various coalitions of MPs who want to thwart Brexit have less time to do so.
So your views on the philosophical rights and wrongs of this prorogation will almost certainly stem directly from your view on Brexit, which is why I’m not going to waste time debating those here.
If you’d like to get Brexit done and feel that three years of parliamentary faffing hasn’t helped much, then prorogation is an unfortunate necessity. If you’d rather Brexit didn’t happen, then it’s a “constitutional outrage”.
What it doesn’t do is indicate that there’s a “despot in Downing Street.”
When Parliament is prorogued, it can’t do anything. So, for example, this doesn’t set a precedent whereby Johnson himself or someone like – I don’t know, Jeremy Corbyn maybe – could come to power, shut down Parliament, and then impose capital controls/confiscate property/privatise the NHS overnight (delete according to taste).
All this means is that parliamentarians can’t revoke an existing arrangement that they all previously agreed to, which indicates that we’ll leave the EU at the end of October.
So please feel free to seek out the view that conforms to your own confirmation bias and be content with that. For now, we’ll look at the investment implications.
Here’s what prorogation means for investors
Clearly, the odds of Britain leaving the EU without an agreed deal on Brexit – which were already a lot higher than markets had believed – have gone up.
The pound doesn’t like that, because right now the pound’s knee-jerk reaction to anything Brexit-y is to go down.
It’s also worth remembering that not all market participants are au fait with British politics. Throw a scary word like “prorogue” into the mix, and some of the algorithms will hit “sell” and do their research later.
We’ll presumably also see at least an attempt by the opposition to trigger a vote of no confidence, or in some other way call a halt to proceedings.
Whether that can succeed or not is by no means clear. But the potential for surprises, twists and turns, and lots of consulting of the Big Dictionary of Obscure Parliamentary Terms and Historical Precedents (I believe that’s the official title), is extremely high.
So I’d expect turbulence over the next couple of months, certainly. But if you’re an active investor and stock picker, I’d use that time to build up your cash reserves and make a watchlist of stocks that you want to buy. This is the kind of torrid atmosphere that creates buying opportunities for quality companies at unusually low valuations.
What I would also note is that in markets, “buy the rumour, sell the news” is a pretty good dictum to operate by. That would suggest that the odds on the pound falling as low as it’s going to get at or around the time of “hard” Brexit are also high.
On the other hand, if you’re not a picker of individual stocks, then you might as well just stick to your investment plan. Maybe increase your weighting to the UK if you feel so inclined – it is cheap on an objective basis, particularly relative to other markets – but do bear in mind that most of us suffer from “home bias” (a tendency to have too much money in our own country’s stockmarket).
So unless you have consciously had a particularly heavy emphasis on overseas markets in your portfolio, then you might find that you already have more than enough exposure to the UK.
We’ll have a lot more on this in the next few issues of MoneyWeek magazine. If you’re not already a subscriber, you can get your first 12 issues for a mere £12 right now – sign up here.