Over the last few days, we’ve seen Leave voters jubilant that Article 50 has been sent, the apparent point of no return. Leavers make optimistic predictions about Britannia once again ruling the waves, becoming a stronger independent nation that it would have done within the EU. If you voted Remain, then presumably you foresee mostly down sides arising from leaving the EU, and are accordingly pessimistic about the future.
Words are cheap — what if you asked someone to stake their job, or a large fraction of their salary, on their prediction being right? I suspect that many of Twitters’ most ardent proselytisers, from whichever side, would decline such an offer. But there are people whose job is to stake their reputations on predicting the economy, professional traders who take positions on the stock market. At least in theory, they have ‘skin in the game’ — it will be bad (expensive) for them if they get it wrong, so they are more likely to give a dispassionate opinion.
So far, the stock market is betting on optimism; that things are going be good, economically speaking — for example the FTSE 250 is signalling this by mostly remaining stable or even moving upward. Some of the effect is to do with the sinking value of sterling, but it’s weird because, at the very least, you’d have to admit that we don’t really know what’s going to happen. No one has ever seen a Brexit before, and uncertainty is supposed to be what markets don’t like. But it’s not just uncertainty, most forecasts are negative. The Leave campaign’s own economic predictions are for a cooling economy during the Brexit process. Even if you think pessimistic economic predictions were politically motivated, most people agree there will be less growth in the near term than there otherwise would have been.
So why is the stock market going the opposite way? My theory is that large corporations are optimistic that the UK government, under the threat of the breakup of the country if the Brexit deal is perceived to have gone badly, will be forced to make epic concessions to lobbyists. Corporations will constantly leak internal reports about their desire to move a factory or their head office, or go on news programs to explain the Government doesn’t understand how to create jobs. Big finance firms in the City are always threatening to relocate if regulations do not favour them, resulting in the ‘socialised risk, privatised benefit’ we saw in the 2008 crash.
In the US, we can see the same thing is happening with Trump, where stocks have also been heading upward. As Ruchir Sharma, chief global strategist at Morgan Stanley, has pointed out, if an unpredictable populist with no previous experience of government came to power in a developing country, the stock market in that country would certainly tank. He describes the US as ‘post democratic’, in the sense that the stock market believes that whatever happens at the ballot box, no president would dare upset it. Trump’s failure to explain his legislative ambitions, or his lack of any convincing means of passing laws, is irrelevant: the stock market knows that Trump is one of their own.
It’s ‘disaster capitalism’, where political change is perceived by the stock market as a state of flux that, always and everywhere, will eventually recrystalise national institutions in their favour.
Douglass Carswell, formerly UKIP’s only MP, is writing a book called ‘Rebel: How to Overthrow the Emerging Oligarchy’. I can agree there is an emerging oligarchy, and also that both Brexit and Trump should be construed as voters railing against it. But the stock market is telling us that far from an overthrow, what we are going to witness is just another opportunity for the vampire squid to jam its blood funnel into anything that smells like money, as Matt Taibbi puts it.
When people realise this, they are going to be pissed off. If you voted Brexit in anticipation of wage rises powered by reduced immigration, that is not going to happen. If you voted for the empire to come back, it’s not going to happen. In 2020, voters will have endured years of epic wrangling with EU, all of which will have made no difference to their lives. They will find themselves in a country where low tariffs, low wages and low regulations are still the only policy prescription for the static or declining living standards most people endure.
Remainers worry about Brexit making the UK marginally poorer, or lament the lost freedom of travel. But what we should really worry about is the backlash when Brexit doesn’t deliver anything except an illusory warm glow of sovereignty and an orgy of corporate troughing. You may believe that Brexit or Trump are blows against the establishment, but the truest measure of elite sentiment is where the money is going, and right now the stock market disagrees with you.