Brexit – The Illusion of Democracy

 The reaction to my initial missive on the Referendum result was interesting. Here is a selection of responses:

“Thanks for your speedy analysis of this surprising result. As you surmise it looks like we will be amongst those who decide to hold on until things calm down again before we think of any long term changes.” DH (owner/seller of a large family house in London)

“Excellent piece Jeremy, thank you. I bought a fair amount of the major house builders this morning - 20-25% discount on yesterday's closing price is good enough for me.” KR

“Dear Jeremy, I fully agree with your writeup. Let me know if there are good opportunities to buy. I can act to complete any transaction very quickly.” ZS

“I agree that this may represent an opportunity. Not least because we can take advantage of sterling weakness.” AC

“I am in Lagos and everyone I have spoken to says it's a huge mistake”JK

“Dear Jeremy,

At this point we will put everything on hold until we have more clarity. Overall we remain very interested in London maybe even more than before but will wait for strong opportunities. Based on how things progress I may be also interested to invest additional funds using euros in order to also take advantage of the weak pound and imminent price falls.

As you say we definitely are not in panic and this is the time to wait, be selective and aggressive when needed!” PM

And I hope this is the message that all my communication with you transmits. Whether the market is strong, weak or simply meandering along, you must be selective.

As you know I was advising you not to rush in before the increase in SDLT on 31st March because making a decision based on a 3% tax saving was clearly not very sensible. If you found a high quality property then of course act, otherwise just wait.

Lots of buyers who don’t receive this report proceeded to buy decidedly average properties anyway and bought with little thought. They will rue this in the long run (irrespective of this short-term turbulence).

Fortunately, the select group that receive these reports are successful entrepreneurs and clever businesspeople who are not swayed by herd mentality and panic reactions.

You didn’t rush in unnecessarily before March and judging by the comments above you are unlikely to ignore the opportunities that will appear in the coming weeks and months.

However, you must ensure that the property is best in breed and that the discount is real and not just a reduction on an asking price that was inflated in the first place!

So what have the last few days and months taught us?

Well, if you ever needed proof that you do not want to rely on politicians for your wealth, health and happiness, this is it.

Both the Remain & Leave camps conducted dreadful campaigns based on fear.

Scare stories (focussing on extremely low probability events) were used to try to bully people into making a decision. And now both major political parties are flailing around like headless chickens.

Stock markets saw huge falls early on Friday although by the end of play it was nowhere near as bad. They continued to fall yesterday. Meanwhile, Sterling is as dazed and battered as a heavyweight boxer that has just taken a combination of left and right hooks. But it looks positively steady on its feet compared to some of the banks.

The world suddenly looks a scary place and our politicians have been exposed:

The Brexiteers who lied to get their way now realise they don’t have a clue what to do, hence the disappearance of Boris and Gove. Indeed they are already reneging on some of their key promises, e.g. the NHS will now not receive £354m per week, but we will still be part of the single market!

The “Remainers” whose campaign was also founded on lies and threats (e.g. Osborn’s Brexit Budget which he has already said is not feasible) are reeling at the fact that they lost and were clearly completely out of touch with the mood of voters in many parts of the country.

For the Conservatives, the Referendum was riddled with the sub-plot of who will be the next Tory leader. Meanwhile Corbyn has provided further proof that he is even more incompetent than first thought and his Shadow Cabinet has disintegrated (Labour politicians have never liked him as a leader even though the party’ members voted for him – democracy is overrated, don’t you know!).

And this is one of the fundamental problems – politicians are too focussed on their own/their party’s power than on anything else. But this gives us a very important insight:

Politicians have one goal – to win an election. Whoever becomes the next Tory leader will also have one goal – to get re-elected (although technically he/she will not have been elected in the first place). It is absolutely essential to keep this in mind. No leader of any party in any country has ever just wanted one term in office.

Then consider the fact that London “generates 22% of UK GDP despite accounting for only 12.5% of the UK population. According to the Centre for Economic and Business Research, it makes a net contribution to the Exchequer of an astonishing £34bn.” BBC

Quite simply, London is the foundation stone of the UK economy. Nearly every politician (except Corbyn) understands that it is vital that London maintains its place as one of the key cities in the world.

So there is absolutely no way that in any negotiation with the EU, we can afford to concede the right to “passport” our services and products, the most important of which is financial services. If we do, London suffers inordinately and therefore so will the rest of the country.

In a nutshell it will be nigh on impossible for the Conservatives to win the next election if the economy is struggling and taxes are going up while benefits are being squeezed.

The Conservatives will also be extremely aware that the majority of young voters are very annoyed at the result and although there was cross party support for both campaigns, it is they who will be tainted and perceived as the party to blame for handling it so poorly. This could make them unelectable for a generation.

This is how politicians think and why the hard line Brexiteers will soon be changing their tune even more to ensure that London remains the financial centre of the world.

Politicians always do. We have just seen a classic example of this from Trump. As you may recall Trump promised to ban all Muslims from the US. Although plainly insane as a policy, it was tactically brilliant.

All he was doing was saying what a disturbingly large number of Americans wanted to hear (by the way they wanted to hear it because they have been brainwashed by the “War Against Terror” which is an idiotic concept but that is a rant for another day).

Yet at the weekend he toned down his comments by saying he would only ban Muslims from countries with links to terrorism. Still ludicrous but a big shift and if he gets into power then you can expect this policy to be watered down even further.

This should not come as a surprise as politicians themselves openly admit that they are simply telling us what we want to hear:

De Gaulle once said: “"Since a politician never believes what he says, he is quite surprised to be taken at his word."

And Mr Juncker, president of the European Commission, said : “When it becomes serious, you have to lie.”

So expect further promises/lies to be neatly swept under the carpet in coming weeks.

Meanwhile the door is very firmly being left open to allow us to fudge the issue - Angela Merkel’s one line tweet in response to the vote “Damn” was very clever and not just a throw-away line. A day later her Chief of Staff said: “Politicians in London should have the opportunity to reconsider the consequences of an exit.”

Because despite the posturing of some European politicians this is not good news for them either and it is not in their interests to have the UK leave (but by the same token they cannot be seen to be capitulating either. Hence the balancing act of apparently not having “an amicable divorce” while still hoping to share a bed in the long term).

On top of this and arguably more importantly, the role of other vested interests should not be ignored. Below is one of my favourite charts. The Strategas Lobbying Index tracks 50 companies that spend the most on lobbying (


As you can see they massively outperform the S&P. This is not a coincidence!

There are numerous companies, sovereign wealth funds, family offices, banks and pension funds who have significant interests in London and the Eurozone. They also have access to the politicians and will not be sitting idly by and allowing significant long term destruction of their assets.

This ultimately is the delusion/illusion of democracy. Politicians pay lip service to the masses but answer to a different master. Cynical but true. It is very possible that we will not leave the EU at all, but even if we do it will be in name only.

Although things seem shocking now it is not as if we have declared war on Europe and nor is the Black Death ripping through the continent.

There is an extremely high probability that a compromise will be reached as there are simply too many vested interests - political, commercial and private - that would suffer if the status quo changes massively.

Although the vote may have been “seismic”, it was also exceptionally close, so it is not as if the UK public has conclusively declared that we want to sever all ties with Europe and nudge the country a few hundred miles north (although that would take us closer to Iceland so that is no good either…).

Expect both European politicians and Brexiteers to reach an agreement proclaiming a brave, new era for Europe and stronger ties than ever between us all. Meanwhile the likelihood is that little will change although lip service will be paid to various reforms.

For example, Linklaters suggests that “If the UK were to remain in the European Economic Area (EEA) (the Norwegian model) or if it enters into a bilateral trade agreement with the EU and European Free Trade Association (EFTA) membership (the Swiss model), the right to free movement is likely to be preserved. A UK-EU free trade agreement may result in the EU allowing the UK free access to the single market, in return for a form of right of free movement.”

Consequently, I think this is a period of massive opportunity. As you probably know I believe we are in the same phase of the property cycle as we were in 1998. Indeed back then everyone felt the world would implode too:

1. The scars of the 1990 recession were still raw.

2. Property prices had recovered swiftly and everyone was convinced that they were too high. Indeed when Labour won the 1998 election they promised to eradicate boom and bust!

3. Asian economies were tanking, Russia defaulted on its debt and Long Term Credit Management went bust. The fear was that it would take the global financial system with it.

4. The FTSE stood at 6179 in July 1998. It then plummeted to 4648 in Oct 1998. However, it rebounded to 6620 by July 1999.

But it’s different this time I hear you cry. It is and it isn’t. As Mark Twain noted history doesn’t repeat but it does rhyme. What does repeat and remain constant is human nature/psychology.

Of course, nothing is certain but despite the turmoil the underlying fundamentals are highly unlikely to change significantly. Indeed the power of vested interests is also one of the major reasons why the property cycle is so reliable in the UK and the U.S.:

After every crash we see massive government intervention to shore up the banks followed by stringent regulation of them to prevent another crash ever happening again.

But boom and busts continue to happen because the vested interests, i.e. banks, once back on an even keel, spend years lobbying for the regulations to be relaxed. They are invariably successful which leads to looser credit rules which leads to the next great credit boom and subsequent bust.

Then the banks are saved and the cycle repeats. This has been happening for over four centuries in the UK and 200 years in the US. This is not an accident. We still have significant financial restrictions on the banks. As these are relaxed, I expect to see property prices rise significantly higher in the years to come before we see the next big crash.

But this crash is years away if the cycle holds which it has done for the last four hundred years with the exception of the two World Wars (if you want to read more on this I strongly recommend Fred Harrison’s book “Boom or Bust”).

If you buy over the next few years then the gains made before the crash will protect you. It is only in the last crack up boom phase that you need to be cautious, i.e. when everyone else is panic buying you want to be selling or paying down debt. For example, if you had bought in 2005 then you were protected from the falls if you had to sell at the market bottom.

Right now, many buyers will delay their purchases, which is understandable. Indeed if you think there is a reasonable likelihood of London losing its status as the global financial centre then you should not act.

However, if you believe that London will continue to be one of the dominant cities of the world, then now will prove to be a great time to buy.

I know I am repeating myself, but the key is to be very selective and wait for great opportunities. So you must ensure that you are in a position to act swiftly and have total market coverage so that you have first refusal on the best opportunities.

I would love to hear your comments on this and do let me know if you have any questions by emailing or calling  0800 389 4280 (+448003894280 from outside the UK.)

Best regards,