Another Brexit delay – so what happens now?

A pro-Brexit protestor © Cliff/SOPA Images/LightRocket via Getty Images
Last week’s excitement proved to be premature

This article is taken from our FREE daily investment email Money Morning.

Every day, MoneyWeek's executive editor John Stepek and guest contributors explain how current economic and political developments are affecting the markets and your wealth, and give you pointers on how you can profit.

Sign up free here.

It’s now only a month to go until the MoneyWeek Wealth Summit on 22 November in central London.

Will Brexit have happened by then? Will we be in the middle of a general election campaign? Or will we still be in parliamentary limbo?

Whatever’s going on, it’ll have a profound effect on your investments. So make sure you’re sitting in the audience to find out what some of the UK’s smartest investment experts think you should be doing with your money.

Book your ticket now. Look forward to seeing you there!

And now, to this morning’s topic – you might be able to guess what it is…

How have they held Brexit up this time?

At the end of last week, everyone was rather excited. Boris Johnson had managed to agree a deal with the EU.

The tricky bit was getting it past Parliament. And so it turned out. In fact, Johnson’s withdrawal deal didn’t even get voted on. That’s because MPs backed the “Letwin amendment”, so-called because it was proposed by MP Oliver Letwin.

What was this particular bit of legislative fiddling?

The goal is to stop any chance of a “no deal” Brexit. The idea was that Parliament might approve Johnson’s deal, but that the paperwork might not then be done by 31 October, at which point Johnson would take the UK out with “no deal”.

You can say that this is down to a lack of trust, or you can say that it’s down to Remain MPs trying to find any way at all they can of derailing this process. The effect is the same either way.

In short, it means that Parliament won’t approve the prime minister’s deal until the legislation for it has been passed. In turn, that meant that the prime minister had to ask the EU for an extension until 31 January, whether he liked it or not.

So what happens now? Well, the government would like to get the legislation done today and to have a “meaningful vote” tomorrow.

What does that mean? Well, as I pointed out on Friday, I’m not an expert on parliamentary procedure. But I’m sure there are plenty of other sticks that can be stuck in the spokes. For example, as the legislation goes through, everyone and their granny is looking to add stipulations to it – like demands for a second “confirmatory” referendum, or other amendments that will again derail the process.

It’s a bit frustrating, but it does ultimately all point in the same rough direction: either the deal goes through now, or something like it goes through later, maybe after a general election. Who knows? Maybe the EU will get fed up and won’t grant an extension (that does seem a long shot, let’s be clear – it would have to be incredibly obvious that the blame lay with the British side in some way).

This belief that we’ll get some sort of deal eventually is the reason the pound hasn’t crashed this morning (although again, don’t bet on it staying that way – there are plenty of panicky moments still to come).

UK assets are cheap, almost regardless of what happens with Brexit

Again, while this is very distracting, my main point to investors would be that in the long run, it doesn’t really matter. British assets and the pound are cheap right now on any objective measure.

Yes, we’re going to be talking about Brexit for a long time even if this deal gets through this week. But for all the indignant spluttering by economists, the idea that anyone really knows what the long run holds post-Brexit is silly.

More to the point, something as vague and hand-wavey as “Brexit means GDP will be <insert spuriously accurate forecast, complete with laughable decimal point, here>% lower than it would otherwise have been in two decades’ time” is priced in.

As the FT notes, a “source” from respected hedge fund Lansdowne reckons that “UK companies are significantly misplaced. If you compared UK and US unemployment, it would be difficult to differentiate the two, and yet the narratives are radically different.”

Meanwhile, currency strategists all agree that – assuming no deal – the pound is cheap. According to one, again reported in the FT, in the absence of the Brexit discount, the pound should be up at €1.30 to the euro, and “well north” of $1.40 to the US dollar.

So if you’re looking for cheap stuff and you can stomach the stress, you might want to increase your exposure to the UK. Equally, if you feel like waiting, it probably doesn’t matter either.

Given the extent of the slide in both sterling and the relative underperformance of UK stocks, it’ll probably take a while for them to come back, even once the coast is clear.

Meanwhile, if you want to know more about how to protect and grow your money in the wake of Brexit, global trade wars, negative interest rates, and all the other chaotic goings-on the world right now, then book your ticket to the MoneyWeek Wealth Summit now.