AMONG the many benefits of being in residence as a Fellow at Harvard’s Institute of Politics some years back, was to become acquainted with some of the faculty at a university overflowing with the academic equivalents of rock stars. Niall Ferguson, the whip-smart and charismatic professor of history, had a keen interest in SA, which gave us a connectivity beyond his lectures and social encounters.
However, both his British origins and academic background and his keen understanding of markets ensured that in the past few weeks, he was in huge demand by US-based hedge funds to predict the outcome and consequence of June’s Brexit referendum in Britain. It does not derogate from his academic acumen or powers of prognostication to note that he got the result wrong.
He is in good company and the results for him are far less adverse than, for example, Prime Minister David Cameron, whose ill-fated bet on the outcome cost him his job.
Then there are the betting markets, the media pundits, the polling firms, not to mention the EU and the world economy, which wanted one outcome and landed up with another. Still, it was disconcerting to read in the Wall Street Journal on June 29 that one theme emerged early from the ashes of “probably the biggest slap in the face ever delivered to the establishment in the history of universal suffrage” — that the “computers got it right and the humans got it wrong”.
Apparently, investors seeking keener insights paid Ferguson “upwards of half a million dollars to get his views on the outcome”, which was a narrow win for Remain.
He noted afterwards that “almost nobody got the Brexit vote right. Anybody who called it right was more lucky than prescient.” In a somewhat mournful Sky TV interview last Sunday, leading Remain campaigner and former British prime minister Tony Blair complained that the problem for politicians these days is that “leaders are surrounded by a wall of noise … the mainstream media intersects with the social media and it all becomes very distorting”.
But some machines did. Unlike the punters and the predictors, they do not suffer from “projection bias” — favouring an outcome the investor prefers.
The Journal article cited a fund category known as commodity trading advisers, which use customised trading algorithms to spot market trends and place bets on futures and other derivatives. As the Journal notes, “most of the models didn’t factor in British election polls, bookmakers’ odds or the political tea leaf-reading that swayed other investors looking for an edge”.
One machine model used by Altegris main fund that appreciated 4% when the results were known (versus about $3-trillion wiped out for investors in most other stocks and funds) had a simple explanation for the counterintuitive success.
“Our models aren’t going to be affected by the same sentiments a human would be,” said Laura Magnuson, the fund’s main strategist. So, her firm kept faith with gold and yen bets and profited accordingly.
This writer, along with every other holder of a modest pension pot or investment portfolio, did not share in this fortune, though the panic reaction in the immediate aftermath has abated a little, even if the political uncertainty has continued to roil markets everywhere. But I too was swayed by the emotional impact before the vote, and in addition to a portfolio-hit lost £10 by taking a spread bet on Remain winning by six points (it lost by four). Before retiring entirely from the field of political punditry, perhaps I can offer the case in mitigation.
The most emotional moment in the entire Brexit campaign was the murder the week before referendum day of British MP and Remain campaigner Jo Cox in her Leeds constituency. When her apparently deranged killer, Thomas Mair, was charged with the murder two days later, he refused to give his name and told the court, “My name is death to traitors. Freedom for Britain.” I assumed this would be a turning point in favour of the more moderate message of the Remain camp. Yet in Cox’s own voting district of Kirklees, the voters chose by a larger margin than the national total, 55% to 45%, to leave the EU.
That arch anti-imperialist Vladimir Lenin would no doubt have delighted in the bust-up of the largest political union established since the Second World War, especially since it stands as a counterpoint to the Soviet Union he established, now also unstitched. His famous phrase of a century ago suddenly seems very modern and certainly extremely European: “There are decades when nothing happens and there are weeks when decades happen.”
The weeks and days following the shock British result have certainly seen the certainties of decades evaporate. The certainties of globalisation’s upward and onward march, the primacy of risk-aversion being uppermost in economically literate voters’ minds, and the prognostications of experts. None of these nostrums seem applicable in the post-Brexit world. The aftermath of the result desperately requires leadership to navigate the tides unleashed by this political tsunami. Yet it seems almost entirely absent from the shallow bench occupied by European political commanders.
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The British political leadership on both sides of the aisle is in tumult and the EU is hardly much better. Few would be excited or even reassured by the appearance of European Council president Donald Tusk, who offered the Nietzchean cliché “What doesn’t kill you makes you stronger.” Actually, the only people strengthened by the result are arch-populists such as the French National Front leader Marine le Pen. Her country’s 61% disapproval for the EU signals the storm will not abate soon, and she makes Nigel Farage seem like a quiet moderate.
Peggy Noonan, Ronald Reagan’s speechwriter, noted that in times of great crises, the world has been helped by leaders who formed what she terms a “genius cluster”, not so much in terms of intellect, but in the ability to provide decisive leadership. She cites the providential cluster of Franklin, Jefferson, Washington and Hamilton at the time of the US independence struggle. Or Roosevelt, Churchill and De Gaulle in the Second World War. Objectively better figures and fitter to lead than, say Donald Trump or Hillary Clinton.
Here at home, the dual appearance at our hinge of history moment of FW de Klerk and Nelson Mandela helped smooth the path of one of the most fraught moments of national transition. But perhaps the only, or last, remaining leader of stature in Europe, who has turned caution into an art form, is Germany’s Chancellor Angela Merkel.
At the private dinner for centre-right political leaders, which immediately leaked out, she was reported as reminding politicians of their essential duty, especially the hapless and absent Cameron. Suggesting that he had called the referendum to settle a problem in his own Conservative Party, she opined: “The principle should always be: country, party, person. Cameron did it the other way round. And when you do that, things always go wrong.”
Before any leaders in the Union Buildings, for example, experience, aptly German, schadenfreude at the British crisis, it is worth remembering Jacob Zuma’s unique and serial contributions to proving Merkel’s warning true, and indeed universal.
• Leon is a former leader of the opposition. Follow him on Twitter: @TonyLeonSA