Brexit – State of Play

The March 29 11:00p.m. deadline for the UK’s exit from the European Union is fast approaching. Such a constitutionally consequential event will, by nature, demand excruciating political high drama. All the essential ingredients are in place: power, money, intrigue, betrayal and for those who love suspense (investors excluded) the ending is a complete secret. The final episode, I am sure, will upstage The Sopranos and likely leave us all no less bewildered. I do not profess any greater knowledge of the expected outcome as anyone, but I think a recap of the series so far will set everything-up for the final season.

A deal has been agreed between the EU and The UK’s Prime Minister. The bill goes to parliament for a vote on December 11th. The outcome is likely to be resounding No, a defeat for the Prime Minster. The sum of Remainers and those Brexiteers unhappy with the deal overwhelm the ‘Compromisers’ (that’s my term, don’t look for it in the press). The barrier to any Brexit bill centers on terms for Northern Ireland, specifically the border between the EU Republic and the North. The unresolved complication of a hard border between the two neighbors post Brexit is set to drive debate up to and beyond March. The Conservative coalition government relies for its majority on the North Ireland’s DUP who have already unanimously rejected the ‘Backstop’ or unresolved, open-ended we’ll come back to you… solution as an unacceptable indefinite cessation of authority to the EU. The question for Tuesday’s vote is how big the exit agreement’s defeat will be and will May and her government survive.

All outcomes remain on the table and I would hint at their likelihood in order as follows: 1. An agreement is struck in-time for March 2. No Deal Brexit 3. A new referendum 4. No Brexit. One certainty is uncertainty, but the good news is by the second quarter of 2019 we will know the result. How investors should traverse the coming months is unchanged. Select the very best quality companies that are growing and accumulate over time. Regardless of politics and geography those companies that exhibit sustainable earnings growth over the long-term will generate superior returns in an ever changing, ever challenging and macro landscape.

David J. Gallacher, CFA is Partner – Portfolio Manager at C.J. Lawrence. Contact him at dgallacher@cjlawrence.com or by telephone at 212-888-3841.

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