In Britain “Compromise” Appears to be an Endangered Species
- There has been a lot of news about Brexit. It can be easily summarized. The default position is a “hard exit” where there is no agreement. Prime Minister May will attempt a “Hail Mary” pass to get some variation on the recently negotiated agreement with the EU through Parliament. Other forces are attempting a different “Hail Mary” pass by seeking a new Brexit referendum. A new referendum appears to have somewhat better odds, though neither appears likely. A new referendum carries risks as well given that there is little data on the probability of a different result. Britain and the EU are now beginning to accept the reality of a hard exit.
- Implications: The level of disruption from a hard exit will be higher than it would have been had preparations been started earlier. As we said last month, Britain is fairly strong and likely to be fine over the long term regardless of events. The implications for the EU are more complicated. Various uncertainties are likely to remain over the continent, thus preventing equities from achieving valuations consistent with traditional earnings multiples. Whenever these clouds disappear, there could be a nice rebound in valuations.
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