Confusion of VIs

I suspect that most of the people involved in the sub prime business knew that it would not end well but decided it was not in their personal interest to call time on it. The big short showed just how hard it was to rock the boat. IIRC a couple of CEOs did and were quickly replaced by the shareholders, prompting another to say something like "you cannot leave the dance floor while the music is still playing". In my own role a large part of my bonus depended on how accurate my forecasts turned out - something I had absolutely no control over. Anyway back on topic. I feel Brexit is going in the same direction, most people I get to speak to who have a deep knowledge of finance or the practicalities of negotiating new trade deals think it is going to be a disaster but feel it is not in their personal interest to start making noise about it. Perhaps the post above is a sign of that this may be changing, it covers concerns I have been hearing discussed for months now but never seemed to be reported.

Some already do but its a message that most people don't want to hear, so think that they have to give their sale to guy with the top price and super confident pitch. They do this even when in their heart they know they have little chance of getting the promised high price, FOMO rules.

Its not my dismal forecast it's the Treasuries and very telling that they have not revised it upwards following the actions taken by the BoE and the Chancellor to take account of the vote. Almost as if they think that these will turn out just to be putting sticking plasters on a major wound. What positive effect, we are going to be a poorer and massively divided country for years to come. Re your example: Brexit has already made NHS managers jobs even harder, owing to the loss of around £3bn owing to price rises resulting from the £s devaluation and a bit more from increased recruitment costs. Operational managers (and even trust General managers), don't have any ability to influence the availability of English nurses and have already switched recruitment efforts from the EU to the far East.

I would be surprised if that wasn't at least part of the reason.

I agree with most of that apart from the part in bold. In real life you have to use the best you have got. For a few years I was responsible for predicting the annual outcome of investment strategies based on predictions garnered from a 30 year economic model. I knew from our testing that the 5yr, 10yr, 30yr predictions could vary wildly depending on what day you started the model from, never mind black swan events, but without backing from the model no Board member would approve any investment. So in the end it was mainly ar5e covering but at least it provided evidence that what information was available was considered before making decisions.

I went to a briefing the day before the rise that predicted exactly that. Carney raised rates because he thought that after letting expectations of a rise get so high he would lose credibility if he didn't; despite the latest economic data not supporting a rise. So the £ went down because the markets saw through him and realised that the rise could be short lived.

Models are just a way of formally showing you properly considered all the currently known factors before coming up with what you think is the central case and the potential impact of the known unknowns if they materialise. Of course there are the unknown unknowns (the black swan events) that may also materialise and invalidate your model; in. Life sh!t happens you just have to accept that it may, and avoid putting all your eggs in one basket. Your alternative of ignoring the known factors/risks is also a model, a poor one that over time will cost you money and opportunity.

I think there is more trashing to come if we have a hard Brexit, maybe well below parity. Also still plenty of opportunity to print more money. We may have to buy own gilts to cover it but we could probably manage 10 or 20 years of doing that. My German was ok but never became fluent as most of the time I was working for Siemens who even then had English as the working language in the Perlach computing division. Also even back them Munich was very international so English was also the main language used when socialising. My kid's German is at a good conversational level (did GCSE and AS level) not fully fluent but good enough to be accepted. It isn't a problem as all of the teaching material/lecture notes etc. are available in English and all of her tutors speak fluent English (they have to be as they are also required to be able to lecture/tutor in English, for the higher degree courses which are now mainly conducted in English).

They will borrow/print the money, the likely side effect of trashing the £ will be seen as a benefit helping us win the race to the bottom.

So far Brexit has probably held up house prices - by devaluing the £, keeping interest rates down and the QE coming A hard Brexit would certainly deliver a house price crash in $ or Euro terms but not so clear cut in terms of £ as it would mean near 0% (or even negative interest rates) plus lots more QE for the foreseeable future.

You asked what would be a significant fall and 1-2% definitely would not be negligible to a chancellor who needs more not less growth to balance the books and is already having to work with some pretty bleak predictions from the OBR. I would have thought your biggest concern would be the actions that the likes of Mogg would take to try and compensate for the loss of EU trade. A massive investment in infrastructure mainly roads and housebuilding fueled by relaxation of planning rules is definitely on the cards

So no point in ever investing in anything long term then?

Yes, there was an impact caused by the economic dislocation of joining the EEC. Many commentators think it took 10+ years before the benefits of joining paid off and we recovered the lost ground. And that was caused by us leaving behind some pretty limited trade deals in return for a much bigger and deeper one. Now we are going to have the economic dislocation of leaving the words biggest and deepest trade deal (single market) plus the other 60 or so deals we access by being members of the SM - in return for almost nothing. Not going to be pretty is it ?

1-2% would be significant, 5% is massive.

I agree It was based upon assumption some of which were ridiculous - A50 invoked immediately and no action to mitigate impact from the BoE. However Osborne has now gone and the Treasury will have considered the criticism of their report and has been given several chances to revise their forecast but have declined. Presumably because they think it is still valid. Minford's piece was full of basic maths errors and everything that has happened to date re the difficulty of the UK replacing its existing trade deals makes it look even more of a fantasy.

I did ending up not significantly worse off - is much better than forecast.

Like all forecasts it's just a central case based on a list of assumptions that may or not prove valid. However, it does indicate that for us not to be significantly worse off a lot assumption would have to be very wrong, with an equal chance of things turning out much worse than forecast.

Somewhere up thread there is a link to articles debunking Minford's claims - I cannot find it right now but IIRC in brief it was both mathematically unsound and economically illiterate, certainly I never saw any subsequent studies or forecasts supporting it. Earlier today Mogg was explaining how we were going to make a go of Brexit, apparently protectionism will go and there will be an intensification of competition which will generate vast additional wealth £135bn between 2020 and 2025. No details how were given but I think it probably translates as by making the 99% work much harder to survive while getting rid of all that worker protection and eco cr@p.

I have just heard that the Treasury has decided there is no need to update its April 2016 assessment of the impact of leaving the EU, i.e. it still stands by it. https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/517415/treasury_analysis_economic_impact_of_eu_membership_web.pdf Given that a hard Brexit is looking increasingly likely, this is probably the most relevant paragraph.

Try what, dealing with reality? Even the American's are finding it harder and harder to escape having to comply with single market rules when trading across the world. Accepting reality is not accepting defeat, quite the opposite in fact. We will need to align with one of the 3 major trade blocks and unless we are feeling particularly masochistic, it will be with the EU and will require us again having to accept the rules and regulation of the single market. It would be interesting to hear your alternative route for rebuilding our trade links.

Google commissioned it's new Kings Cross office over 5 years ago, it was the anchor tenant that played a large part in getting the development moving. Facebook has been in discussion about acquiring premises for several years. You may want to update your knowledge of FDI, it was on a rising path for 12 years this peaked in the Q4 2016 and is now falling.

After we leave we will end up clinging to the skirts of one of the major trade blocks EU, US or China and accepting their rules/regulations in order to gain access to their markets. Which would you prefer. Out of the EU frying pan into the US fire perhaps?

The German regions do have very different identities and the areas where I worked (Munich, Berlin and Frankfurt/Dermstadt) probably would be the most pro UK, but these are also the regions that matter most.

What do you think all of this amounts to compared to the average forecast drop in UK economic output that will result from a hard Brexit?

If you had lived and worked in Germany you would know that is not true. They see the UK as their natural partners in Europe.