A ‘no deal’ Brexit outcome would justify another referendum
In this game of chicken, the EU may wrongly expect the UK to swerve on ‘Irish backstop’
On practical grounds, I have previously argued that the costs of another Brexit referendum outweigh the benefits: I judged another referendum too divisive. Yet today it is increasingly likely either that no agreement will be reached with the EU or that no deal will be ratified by parliament. Would this change my position? Yes.
I saw no objection in principle to re-running the 2016 vote. The notion of “one voter, one vote, once” is not democracy. Voters are entitled to change their minds, individually and collectively. Moreover, the electorate has itself changed. The grounds were practical: it would be difficult to organise another referendum in time; it could be difficult to get EU agreement to withdrawing the Brexit notification; and the outcome might be to crash out without a deal. Above all, a deeply divided country might emerge yet more divided.
In making this argument, I assumed the prime minister would in the end reach and then pass a withdrawal deal. Such an agreement would mean the UK’s departure was reasonably harmonious. This, in turn, would permit negotiations on a long-term relationship with the EU. It would preserve amicable relations with the UK’s most important partners, apart from the US: the European countries that share both its values and its continent and with whose destiny, for good or ill, Britain’s is inevitably and eternally entwined.
In that context, a terrifying possible outcome of another referendum might be rejection of the deal that has been reached, not a decision to withdraw the Article 50 notification. It would be a decision for “no deal”. That very possibility also underlines a practical difficulty with another referendum: the number of choices. There could well be three: the deal; withdrawal of notification to leave; and no deal. It is possible to organise such a vote. But doing it in a proper way would be unfamiliar and probably unpopular. Furthermore, no clear preference might finally emerge.
Suppose, however, that there was no deal to put before voters. Now there would be just two choices: the “no deal” option and withdrawal of the notification. That would be far simpler.
If there were indeed no deal, it would certainly be because of a failure to agree the “ Irish backstop”. But it would be extremely stupid, for both sides, to fail to reach a deal over this because the outcome of that would be a hard border in Ireland. For the EU’s committed support of Ireland to end with what it seeks to prevent would be crazy. But crazy things happen. In this game of chicken, the EU may expect the UK to swerve, but be wrong.
So, what then? Some argue this would be fine. They are wrong. The UK would lose a highly favourable trading relationship with by far its most important trading partners, plus the EU’s preferential agreements with other countries. It would do so in return for hypothetical (and certainly less favourable) deals with some other countries at some point in the future. It would face a difficult and possibly protracted transition, while the day-to-day organisation of its trade is reshaped. The confidence of those who have invested in the UK on the assumption that it would stay inside the EU single market and customs union would be undermined. The deeper belief that Britain was run by competent adults able to understand their country’s interests would be destroyed.
The UK would, not least, end up relying on co-operation over trade in goods and services, security, justice and many other things with countries whose core project it had abandoned, without an agreement. And yet, we are told, Britain would be well protected against the anger of its partners by the World Trade Organization — which is toothless at best, alas, and is now being turned inside out by the US.
Let us suppose these fantasies do win the day: Theresa May either fails to reach a deal or parliament fails to ratify it, the two possibilities being evidently related. I do not predict this: I have no idea whether a deal will be reached and ratified. But suppose this were the case. Then such an outcome must be put to the people once again. Knowledge that this will happen should concentrate minds in government and parliament.
It is possible that the 52 per cent of voters who chose Leave meant leave, irrespective of the circumstances and costs. But it is also rather likely that many wanted to leave with a withdrawal agreement and at least the possibility of close trading (and other) relationships with the EU thereafter. If “no deal” is the folly that is going to emerge from the processes now under way, then the people deserve to be asked: is this what you really want? If the answer is “yes”, a second time, then so be it.
Scientists launch $4.7bn project to read DNA of all life on Earth
Earth BioGenome Project will lead to new drugs and aid conservation, biologists say
International biologists have launched an ambitious project to read all the DNA in each of the world’s known animal, plant and fungal species over the next 10 years, sequencing 1.5m different genomes at an estimated cost of $4.7bn.
The anticipated spend by the Earth BioGenome Project (EBP) would be similar, allowing for inflation, to the cost of the Human Genome Project, which read the genetic code of just one species, Homo sapiens, between 1990 and 2003.
The EBP could transform biology as extensively as the Human Genome Project had done, said Professor Harris Lewin of the University of California, Davis, who chairs the project.
“The blueprints for all living species . . . will be a tremendous resource for new discoveries, understanding the rules of life, how evolution works, new approaches for the conservation of rare and endangered species, and provide new resources for researchers in agricultural and medical fields,” he said.
So far, 19 research institutions around the world have signed up to take part in the EBP and more plan to join.
They expect to read the full DNA sequence of all the world’s eukaryotic species — organisms whose cells have a nucleus enclosed by membranes. These are animals, plants, fungi and protozoa, which encompass all of life except simple microbes (bacteria and archaea).
The target of 1.5m genomes represents all eukaryotic species known and catalogued by science. Biologists say that many more remain undiscovered, with the real total estimated at 10m to 15m species. But they are disappearing fast as a result of human activity, in what scientists are calling Earth’s sixth great extinction; the fifth was the asteroid impact that wiped out dinosaurs 65m years ago.
So far, only 3,300 eukaryotic species have had their DNA fully sequenced, 0.2 per cent of the target. But researchers at the EBP launch on Thursday insisted that, with strong international co-ordination, adequate funding and continuing rapid technological progress, 1.5m genomes could be achieved by 2028.
“The DNA sequencing itself is not the most difficult technical challenge of the project,” said Prof Lewin. “The most difficult part will be to acquire and process high-quality samples from species that are hard to reach.” New technologies such as specimen-collecting drones may need to be developed.
Participating institutions aim to raise the required funds from governments, foundations and charities. The project’s first phase — producing a reference genome for each of the 9,000 taxonomic families of eukaryotic life — will require $600m, of which about one-third has already been provided.
UK participants, led by the Wellcome Sanger Institute, will sequence the genetic codes of all 66,000 species known to inhabit Britain in a £100m national effort called the Darwin Tree of Life, as well as helping the broader international project.
Jim Smith, science director of the Wellcome Trust, compared the potential benefits to those from Human Genome Project, which has transformed research into human health and disease.
“From nature we shall gain insights into how to develop new treatments for infectious diseases, identify drugs to slow ageing [and] generate new approaches to feeding the world or create new bio materials,” he said.
ArcelorMittal: drop forged
Profitability is strong, but markets are worried about the outlook
Mr Market does not think much of ArcelorMittal. Benjamin Graham’s amusing analogy — of a nervy “business partner” — helped explain the unpredictable nature of bourses. ArcelorMittal’s underlying profits from steel have more than doubled since 2016. Its share price has hardly budged. Mr Graham appreciated cheap stocks, such as ArcelorMittal. Mr Market, less so. He worries about the outlook for steel.
That must puzzle Aditya Mittal, chief financial officer of the metals giant. Not only are earnings strong, profitability is too. Operating profit margins should reach 10 per cent this year, the best in a decade. Profits per tonne of steel jumped by nearly half in the first nine months over the previous period. According to Thursday’s third quarter update, the group has halved debt to $10.5bn in less than six years. With US interest rates rising, that should have soothed the nerves of Mr Market. Hardly.
ArcelorMittal’s valuation reflects continuing anxiety. Its enterprise value as a multiple of ebitda, the proxy for free cash flow, is at a depressed 3.5 times, near decade lows. If there are problems in the world steel market they have yet to appear. China’s “blue sky” initiative for cleaner air has forced production cuts on its dirtiest steel mills, especially in the winter months. As an indicator, reinforced bar prices — often from the most polluting plants — have risen smartly this year. On the other hand hot-rolled coil, sourced from more efficient mills, has fallen, notes Jefferies. Utilisation in the Chinese steel industry, more than half of world capacity, is at 12-year highs.
Less stinginess on the dividend might boost ArcelorMittal’s case. The shares yield a paltry 0.3 per cent. Cash flow instead will go to acquisitions: of Ilva in Italy and India’s Essar Steel. Mr Mittal has his own worries and would like to reduce net debt to $6bn before increasing payouts. His family is a big shareholder, of course.
Minority holders have a shorter time horizon. For those very confident in the outlook for steel, the shares look cheap. Most will take their cue from Mr Market.
HMRC to refund child benefit fines for higher earners
Thousands of parents stand to be refunded penalty charges following changes to system
Thousands of higher earning parents who were fined by HM Revenue & Customs following changes to the child benefit system could receive a refund, following a high-profile climbdown by the UK tax authority.
HM Revenue & Customs said it was reviewing cases from April 2013 to March 2016, and would automatically issue penalty refunds if it found claimants had “a reasonable excuse” for not meeting their tax obligation. Typically, the penalty charges were £100.
Since 2013, couples where one partner earns more than £60,000 have no longer been entitled to claim child benefit, which is currently worth up to £1,076 per child, per year. The benefit starts to be tapered away for those who earn more than £50,000 and is reclaimed via the tax system.
This means about 1m parents and legal guardians earning more than £50,000 have to complete a tax return to pay back what they owe, or officially opt out of receiving the benefit.
“The Revenue did not communicate the charge properly at the time it was introduced in 2013. As a result, many parents found they not only had to pay back thousands of pounds in tax through self-assessment returns they didn’t know they had to produce, they were also whacked with late payment fines,” said Becky O’Connor, personal finance specialist at Royal London.
“It’s right and proper that HMRC has changed its mind and will be refunding unfair penalty fines. These were paid by parents who were unknowingly dragged into a liability for a charge they were never properly told about.”
In a statement on Thursday, HMRC said it was “proactively reviewing these cases” following feedback from customers. It said that its definition of a “reasonable excuse” would be based on an objective assessment of individual circumstances, but accepted that “the higher earner in a household who pays the charge may not be the same person claiming child benefit on behalf of the household”.
An HMRC spokesperson added: “Customers do not need to ask for a penalty refund or contact HMRC. We will issue the refunds, where due, over the next six months. If we need more information from people, we will contact them.”
A further consequence of the 2013 legislation is that stay-at-home parents with higher earning partners may have lost out on state pension credits.
A recent report from Royal London revealed that tens of thousands of parents from high-income families had chosen not to register for child benefit after hearing about the tax charge. However, so long as the stay-at-home parent registers and then officially opts out of receiving the payments, they can still build up their state pension entitlement.
In 2017, the number of people claiming child benefit payments fell to its lowest level since records began, with just over half a million families opting out of receiving child benefit altogether.
AQR Capital Management has hired the leader of Facebook’s artificial intelligence research team to head up its own research engineering department. Howard Mansell started at Connecticut-based AQR earlier this month as a managing director.
Like investment banks, hedge funds are competing with big tech firms like Facebook and Google over AI and machine learning talent. Mansell’s defection comes just a month after J.P. Morgan hired away its new head of artificial intelligence from Google, who then poached a senior AI engineer from Facebook after just 10 days on the job.
Mansell is no stranger to the hedge fund industry. He spent four years leading quant strategies at BlueMountain Capital Management before leaving for Facebook in 2016, according to LinkedIn. He also had a short stint at Goldman Sachs following 15 years at Credit Suisse in New York.
A well-known quant fund, AQR appears to be investing heavily in new tech talent. Earlier this month, the firm hired Marcos López de Prado as its head of machine learning. Named a principal at AQR, de Prado most recently led Guggenheim Partners’ quantitative investment strategies business. The company said in the release announcing de Prado’s hire that it would look to bring on more resources to further develop its machine learning tools. Additional hires seem imminent.
Gapping down
In reaction to disappointing earnings/guidance:
- IO -17.4%, ECA -16.3%, VECO -15.9%, BLDP -14%, W -13.6%, GNMX -11.7%, PENN -9.7%, OTEX -7.4%, HOS -7.3%, FARO -7%, PKI -6.9%, PPC -6.6% (also approves new $200.0 mln share repurchase authorization over the next 12 months), TPX -5.9%, AXTI -5.6%, FISV -4.5%, HBI -4.4%, LGCY -4.3%, SPOT -3.8%, USCR -3.8%, HCC -3.6%, SSNC -3.5% (also files mixed securities shelf offering for an undisclosed amount), MPC -3.5%, ALL -3.2%, IDXX -3.1%, XPO -2.7%, WPX -2.1%, LHCG -2.1%, LITE -1.9%, PERI -1.6%, EDGE -1.3%, CODI -1.1%, CF -1.1%, CDE -1%, STOR -1%
Other news:
- CEMI -13% (prices underwritten registered public offering of 2,370,435 shares of its common stock at a public offering price of $6.75 per share)
- GDI -3.5% (announces secondary offering of 20.0 mln shares of common stock by selling shareholder)
- NRZ -3.3% (to offer 25,000,000 shares of its common stock in an underwritten public offering)
Analyst comments:
- DRH -1% (downgraded to Market Perform from Outperform at Wells Fargo)
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