Thoughts on the most important election since the 1970s

Most people met Theresa May for the first time last month… and they weren’t impressed.

The New Statesman’s Stephen Bush described Theresa May during the campaign as a “supply teacher who’s lost control of the class”. Sounds right to me.

Most people met Theresa May for the first time last month… and they weren’t impressed.

When she did show up, she looked awkward and unsure of herself. Her manifesto reminded everyone that their dad is going to die soon. And that the Tories are posh people who’re into killing wildlife.

May was expecting a comfy 100 seat majority in the commons, and the freedom to Brexit as hard as she liked. What she’s got is a low single-digit majority, propped up by the DUP.

So what’s all this got to do with Risk and Reward?

Well, one look at the board today tells me that small caps do care about Theresa May and her flimsy majority. When politics creates investment opportunities, Im into politics.

And the stakes are high in UK politics right now. The Brexit deal needs to be hammered out by April 2019. The deal matters: a hard Brexit will mean a much poorer Britain. It’s as simple as that.

(It’ll also mean a weaker pound, which can be either good or bad for small cap stocks depending on where they make their money.)

Five thoughts on Brexit

Depending on how the negotiations go, the UK (and your portfolio) could look very very different in Spring 2019. Brexit matters a lot. I’ve a couple of thoughts on that…

The first is that the new Government will be very weak. Normally the cure for a weak divided government is another election. But two thirds of Parliament needs to vote for that, and Labour won’t want it. So we’ll be have a pallid and weak Tory government for the next two years, working on the toughest and most important policy issue since the war.

The second is that eurosceptics will have a lot of sway in the new government. The reason May called the election in the first place is because she didn’t want to be hostage to the “swivel-eyes”. Hard luck!

The third is, in a Conservative-led government, the DUP will be a big voice. The DUP is the hardline Unionist party in Northern Ireland. It has its own reasons for wanting a very hard Brexit, one that involves giant border checkpoints between Northern Ireland and the Republic.

The fourth is that the Europeans aren’t going to make this easy. As I’ve said, the deadline for all this is April 2019. There’s a lot to get through. This morning Donald Tusk, the EU’s President and official bad cop negotiator, tweeted this:

Here’s Manfred Weber, the leader of the centre-right group in the EU Parliament:

And Günter Oettinger, the EU budget commissioner:

You take my point. The Europeans aren’t going to wait for the UK to get its ducks in a row. Time’s a wasting.

And the last point is that, for the first time since the referendum, we can see a constituency for a softer Brexit. The Tories lost in remain-y places (cities) and among remain-y groups (72% of 18-24 year olds turned up, and mostly voted Labour).

To be sure, there wasn’t a huge difference between Labour and Tory manifestos on Brexit. But May has charged ahead with her vision of a hard Brexit, and called this election to secure her vision. And lost.

So where are we. We have a weak Tory government, and the possibility of a coup against May. Within government, the hard Brexiteers are stronger. But in Parliament overall, the soft Brexiteers are stronger.

And the Europeans are impatiently tapping their watches.

I suggest UK investors do what I have done for The Penny Share Letter, and Brexit-proof their portfolios. By this I mean, make sure that a good slug of the cash your companies make comes from abroad. That’s your hedge. You don’t want to be 100% long British companies serving British markets, not until this is sorted out.

Have a great weekend!

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