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  1. Wealth
June 27, 2016

Why the experts were all wrong about Brexit

By William Cash

William Cash says the editors of The Economist have more than egg on their faces (again).

We heard a lot about the wisdom of ‘experts’ during the Referendum campaign. We heard the views of the IMF, Bank of England, CBI, OECD and legions of bankers from Goldman Sachs to the Financial Times.

All were wrong. What the vote to leave the EU is showing is that the European markets are the ones who are bearing the brunt of the market selling, not the UK. In fact, the chances for a short term economic boom in the UK have probably been enhanced.

No doubt more hedgies would have liked to have followed contrarian hedge fund manager Crispin Odey by betting on Brexit – reports over the weekend show that his fund was up  £220m. According to FINalternatives, Odey’s flagship Odey European Fund had ‘heavily shorted the financial markets and also [had a long position on] gold heading into the vote’.

While most hedge funds followed the ‘experts’ and closed their positions, reduced exposure or were broadly positioned for a ‘remain vote’, other contrarians such as George Soros were also reported to have backed the Brexit horse (and bought gold) against all expert predictions.

Soros made no secret of taking ‘long positions in gold stocks (including large stakes in Barrick Gold and Silver Wheaton) and short positions in a variety of equities in the UK and elsewhere. With gold up strongly and equity markets around the world reeling, Soros stands to make a great deal of money from Britain once again’ reported FINalternatives. Back in 1992, Soros made billions when he bet against the pound, forcing sterling out of Europe’s ERM.

Just as the Establishment’s economic ‘experts’ were wrong about Britain re-joining the gold standard in 1926, or the ERM or joining the Euro, no experts expected Brexit, none forecast it and not a single trade or economic body even dared to think it could ever happen.

But the most embarrassed of all must be the editors of The Economist. Once again this oracle of liberal economic enlightenment has got more than egg on its face – questions must be raised again about its lack of judgment.  The magazine’s once high reputation as the bible of progressive liberal corporate meritocracy must be downgraded – again – to double negative.

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So evangelical are The Economist (now owned 50 per cent by the Agnelli and Rothschild families, with the remaining 50 per cent owned by other investors and the magazine itself) about the dangers of Brexit that even thinking the impossible was verboten.

‘How quickly the unthinkable became the irreversible,’ The Economist sniffed on Friday. ‘The EU, an institution that has helped keep the peace in Europe for half a century, has suffered a grievous blow’.

The sheer scale of the ‘Out’ vote – over 16 million people – and the failure of the markets to do what such ‘experts’ doom-mongered – has seen the intellectual ‘found out’, for knowing next to nothing about the reality of economic realpolitik.

They said the UK markets would spiral and Armageddon would follow. Yet the eventual fall of the FTSE 100 last week turned out to be just 3.15 per cent. Which meant the value of Britain’s largest companies was actually, for the week, with the pound, worth more than the dollar than it was at various times earlier in the year.

It’s not just The Economist. There are legions of professional ‘experts’ and economic commentators who earn a very tidy living peddling the sort of economic groupthink that fits in with the pro-EU and Davos view of the world as an artificial super-state where Global Citizens and Corporate Capitalists are free to roam.

Near the top of the list of embarrassed ‘economist’ egos must be Anatole Kaletsky, formerly of The Times and Financial Times.

There comes a point when a pundit’s serial wrongness on the key economic issues of the day actually becomes a talking point, like an opening Test batsman who can’t score more than 30 runs in eight matches, and ends up not even being able to push the ball off the square. The problem with being a forecaster or commentator that you do need to get your forecasts right – at least some of the time.

Back in February, Kaletsky declared that there would be ‘No Brexit’, writing ‘confidently’ in The Guardian (for Project Syndicate) that: ‘Among the multiple existential challenges facing the European Union this year – refugees, populist politics, German-inspired austerity, government bankruptcy in Greece and perhaps Portugal – one crisis is well on its way to resolution. Britain will not vote to leave the EU.’

This confident prediction may seem to be contradicted by polls showing roughly 50 per cent support for ‘Brexit’ in the June referendum… Nonetheless, it is probably time for the world to stop worrying. The politics and economics of the question virtually guarantee that British voters will back EU membership, even though this may not become apparent in public opinion polls until a few weeks, or even days, before the vote.

To understand the dynamics that strongly favor an ‘In’ vote, start with the politics. Until this month’s deal, Britain’s leaders were not seriously making the case against Brexit. After all, Prime Minister David Cameron and his government had to pretend that they would contemplate a breakup if the EU rejected their demands.

Whether such wisdom (Kaletsky is also ‘partner’ in the economic forecasting company, GaveKal Research) is worth £12,000-£14,0000 a night for an after dinner speech is another subject.  Writing the day after the Brexit Vote, Mr Kaletsky compared the UK voters’ decision to leave the EU as being like a ‘moment in history when the impossible becomes inevitable without ever passing through improbable’. He added that the ‘repudiation by British voters of 40 years of European Union membership… is a shock fully comparable to the Lehman collapse’.

It’s often worth looking at the financial model or financial interests behind a commentator’s economic views, or that of  their employers’ own commercial interests.

During the Cold War few knew that Encounter, the high brow Anglo-American literary and cultural magazine was funded by the CIA as an ideological propaganda tool. Founded in the 1950s, at the height of the Cold War, (originally edited by poet Stephen Spender and the writer Irving Kristol) as an Anglo-American and anti-Stalin counter blast that acted as an intellectual vehicle for pro-American foreign policy. Spender remained editor until 1967, until it was exposed that the magazine was largely funded  by the CIA. He was then replaced by Frank Kermode.

The magazine closed in 1990, a year after the end of the Cold War with the fall of the Berlin Wall. The final editor, Richard Mayne, was a friend of Graham Greene and a former assistant to Jean Monnet, the anti-democractic ‘father’ of the EU whom I have written about before as being the ‘Father’ of the EU Project.

Which brings us on to the real subject of this column: the failure not only of the EU project, which now seems in serious danger of imploding from what German politicians are calling the ‘Brexit Domino effect’, but the failure of The Economist to retain its own seat as a top-tier publication of independent thinking.

So worried was The Economist about the result of the Referendum vote that they delayed printing until the result was known. This was perhaps wise as they have a predilection for getting things badly wrong – having called for Britain to join the Euro, being a champion for the single currency and also famously calling elections wrong.

The Economist, no fan of Brexit – ‘the unthinkable’ – which it sees as a threat to its very liberal enlightenment existence, has been particularly incensed by the fact that the British people have silently spoken in unequivocal democratic terms. The latest cover shows Union Jack with the cover line ‘A Tragic Split‘, with the subheading: ‘Britain’s senseless, self-inflicted blow’.

The Economist revered David Cameron and Osborne in the last election and regards them highly, with Osborne being regarded as a high priest of the very liberal material consumerism – backed by corporate big businesses – that The Economist so loves.

That freedom of movement exploits UK working wages, driving them down so much that British workers cannot get jobs, let alone a decent wage, is not seriously addressed by The Economist who believes that freedom of movement and multicultural liberal economics and cultural pluralism is a mantra that cannot be questioned.

The notion that the global bible of the CEO corporate high priesthood is The Economist is somewhat ironic. The publication was founded by journalist James Wilson in 1843 as a magazine in favour of free-trade which opposed the Corn Laws.

That the magazine is now a cheerleader for an undemocratic and unaccountable EU that has now become an EU customs union and a trade block protectorate is perhaps best forgotten. Yet Britain has been trading with the world since the 16th century. As we will hopefully see after Brexit, the UK – the world’s fifth largest trading nation – is quite capable of negotiating its own global free trade agreements, just as Iceland does with China.

Nobody ever says you need to be ‘in China’ to trade with China, or ‘in America’ to trade with America – so why you need to be ‘in Europe’ to trade with Europe?  The truth is we don’t need to be part of the protectionist EU trading block that The Economist now acts as a puppet media propaganda vehicle for.

This is a magazine whose high-regarding, patrician and anonymous editorial voice has often been so embarrassingly at such odds with its intellectual ability to call any major political issues economically or politically right, including joining the Euro or the general election of 1992 among a list of student-level judgement calls, including being early fans of Bitcoin.

The problem with The Economist for too long has been an aloof glibness that essentially ignores the inherent disconnect and blindness between the very news stories it publishes and the comment lines and economic forecasts it promulgates. Back in the early 1990s writer James Fallows argued in The Washington Post that The Economist was hypocritical and ‘used editorial lines that contradicted the news stories they purported to highlight’.

Andrew Sullivan then weighed in as editor of The New Republic, saying it used its ‘marketing genius’ as a substitute for its woolly liberal thinking, lack of investigative news reporting and lack of original analysis ending up with a ‘kind of Reader’s Digest‘  for the Davos-visiting and US corporate elite. The Guardian have also attacked the liberal global bible, saying, ‘its writers rarely see a political or economic problem that cannot be solved by the trusted three-card trick of privatisation, deregulation and liberalisation’.

With all the religious extremism that is destabilising the world today, it maybe worth mentioning that The Economist famously declared God officially dead in its December 1999 Millennium issue – publishing God’s ‘Obituary’. Clearly they don’t worry about the world’s multi-billion Christian (estimated 1.10 billion Catholics) and Muslim population.

The Economist particularly loathes Boris Johnson. Yet before the Referendum vote, Cameron liked to use the analogy of Boris Johnson being his star striker. He was at least right about that. Only on Thursday night the problem was that not only did Boris score a hat-trick, but was playing for the other side.

It will be interesting to see what line The Economist takes with Johnson in the upcoming leadership election. Michael Gove would be a much more favourable candidate – only he almost certainly won’t be standing.

A nice example of The Economist‘s aloof, glib, self-regarding and liberal evangelist tone is the line used to open its hysterical attack on Boris Johnson when he announced his declaration for ‘Leave’: ‘TODAY the commentariat, and almost no one else, has been waiting excitedly for Boris Johnson to show his colours in Britain’s upcoming EU referendum’.

Almost none else ? Ump.

What about much of the population of London, the readers of The Daily Telegraph, the 1.6 million plus readers of the Daily Mail – compared to the 170,00 ‘elite’ readers of The Economist in the UK. Or perhaps the 16 million voters of Britain who voted against the EU project – and voted against the culture of unelected global elites that The Economist exists to protect.

Like The Economist, Cameron liked to say that ‘influence’ is more important today than sovereignty. Yet this in itself is a self-defeating and elitist position. Britain has almost no influence in Brussels because of the ‘Qualified Majority Voting Principle’ that came in after 1986 (it was different in 1975 when we joined the EEC).

The Economist says that it sees ‘much to lament in this vote—and a danger that Britain will become more closed, more isolated and less dynamic. It would be bad for everyone if Great Britain shrivelled into Little England and be worse still if this led to Little Europe. The leaders of Leave counter with the promise to unleash a vibrant, outward-looking 21st-century economy. We doubt that Brexit will achieve this, but nothing would make us happier than to be proved wrong’.

Needless to say, I am confident it will. The Economist – representing the corporate interests of the EU – were wrong about the Euro, wrong about the ERM, wrong about most elections, wrong about the US economy in the 1990s, and are almost certainly going to be proved wrong again.

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