July Newsletter: Brexit Impact

27 July 2021

Dear reader

Sports fans love their statistics. We were bombarded with these throughout the Euro 2020 football championship. As England progressed from one stage to the next every statistic was used as an omen to somehow reassure us of the outcome of the match ahead.  One stat I did not hear though was the fact that the UK had not reached a major international final while being in the EU! These statistics though are based on such small numbers none of us are fooled by their randomness.

When the number of instances become much higher say 50, 100 or 1,000 we begin to read something into the data, quite often incorrectly. Even with large numbers, as there are so many things going on in the world, i.e. ‘noise’, we can easily fool ourselves into seeing patterns that do not really exist. Conversely with so much ‘noise’ around it can take us forever to finally come to a conclusion. For instance, two of the last three US presidents found it impossible to come to the conclusion that climate change is caused by humans!! Also look at the cartoon above. How long would the random number generator keep saying nine before we realised it was not working? When do we realise something is or isn’t random?

We are of course living through a huge random event right now. We knew pandemics happened but had no idea of when one might occur. Recent scares such as Ebola, bird flu and swine flu left us using a small number of instances to suggest that the Covid-19 impact would be limited. How wrong we were. The huge impact of the pandemic means that its ‘noise’ is drowning out pretty much everything else. Every ‘real’ pattern that is developing is very hard to see.  In the UK, the pandemic is doing a good job of hiding the real impact of Brexit.  There are plenty of instances to show how businesses and the economy are being affected by Brexit but no…. is it Brexit or is it the pandemic? The story can be spun to whichever way your viewpoint requires. Final proof of Brexit’s continuing damage to the economy of the UK might not be there, but investors, as we have said before, must pay attention to incomplete data to make decisions.

So do not be fooled by the Brexiteers who continue to cheer. Five years of hurt since the referendum has never stopped them dreaming.  The outcomes on the ground sadly suggest they are fooling themselves hiding behind the random timing of the pandemic. In the words of Nassim Taleb author of the investment book Fooled by Randomness, ‘Heroes are heroes because they are heroic in behaviour, not because they won or lost’. As the UK heads for another Brussels showdown over Northern Ireland it is becoming increasingly apparent that the heroes of the UK these days, are confined more to the football pitches of Hackney Marshes than the playing fields of Eton. It may be a long time before we see the UK economy gleaming again….

Kind Regards
Craig Harper
Mole Valley Asset Management