Today in Brexit, Day 1,034

Today in Brexit, nothing happened. Oh sure, Scotland First Minister Nicola Sturgeon laid out plans for a potential independence referendum, the partisan upheaval surrounding the European Parliamentary elections continued, Conservative Party members kept fighting about what to do with Prime Minister Theresa May, and May continued mulling what sort of Brexit legislation to present to Parliament for another vote. But this is all mostly just business as usual. Moreover, it is representative of how Brexit has gone all year. Big deadlines come and go, hype-ridden headlines declare every last happening is monumental, but ultimately, politicians kick the can a bit and nothing changes. Heck, the only thing that has changed relative to Brexit all year is the date, which has morphed from “March 29” to “by Halloween.” This shouldn’t surprise. It is how the EU normally conducts business. Can-kicking and incremental change was the story of the entire eurozone debt crisis. For investors, we think the lesson is simple: Talk is cheap, and action is rare. Getting caught up in headlines—and making reactionary investment decisions—is likely to prove an error.

Here is another lesson: Trust the market. For the past six months, all we have heard is how terrible this Brexit storm is for the UK’s economy and markets. The will-they-or-won’t-they over a no-deal Brexit, the discord in Parliament, the weakening of the two main political parties, the allegedly rising risk of a leftist government, talk of constitutional crises, businesses stockpiling goods, the government playing politics with no-deal prep—you would think it is the end of civilization as we know it. Yet over these same six months, UK stocks are beating global markets. Yes. You read that right. The MSCI UK Index, in US dollars, is ahead of the MSCI World Index over the past six months.[i] That statement is true in British pounds, too.[ii] If Brexit were so darned disastrous and UK politics so at risk of coming irreparably unglued, would UK stocks really be outperforming?

Brexit was never going to be easy. It was always going to come down to the wire. Not to toot our own horn, but as we wrote in the wee hours of the morning on June 24, 2016, as the world digested the Brexit vote: “Once the government invokes Article 50 of the Lisbon Treaty, they’ll technically have two years to negotiate exit terms and a new relationship, though such treaties have acted more like guidelines than strict law in recent years.” And guideline it was! EU leaders have now extended the Brexit deadline twice: first to April 12, and then to Halloween. We still don’t have an exact date, beyond that fuzzy guideline. May and many in her government want the matter settled by May 22 (the date, not the 22^nd iteration of the prime minister), so that they don’t have to suffer embarrassment at the ballot box in European Parliamentary elections the next day. That is why she is so keen to get legislation back in front of Parliament. Yet other parties don’t share her incentives. Handicapping the timing is therefore impossible.

In our view, expecting politicians from any party or ideology to execute such sweeping change efficiently and transparently is always and everywhere an error. Whenever you get several dozen self-interested people in a room together, conflicts of interest will drown out progress. Instead of decisions, you will get agreements to disagree, which result in kicking the can. All UK and EU leaders have done so far is buy additional time to reach consensus in areas where consensus appears impossible. It was always going to lead to a Brexit in name only or a no-deal Brexit where everyone gets tired and walks away—but with insufferable dithering on the way to those endgames.

For now, we all remain trapped in the insufferable dithering part. But keep your eye on the prize, as that is what markets seem to be doing. At some point this saga will end. How and when, who knows. But end it will. Businesses will finally gain Brexit clarity. Everyone will be able to move on and unleash whatever long-term investments they shelved during the foggy wait. All the other stuff—May’s future, a new government, maybe a snap election—will come into focus as well. But until then, we suggest bracing for a whole lot more noise than actual action.