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The Retired Investor: Lessons Learned From Brexit
It has been 10 years since Brexit took center stage in the politics of the Western world. The populist furor of an unhappy electorate triggered Great Britain's exit from the European Union. How has that worked out for the Brits?
The populist rhetoric of a "Global Britain," their answer to MAGA, was supposed to secure their borders by reducing immigration. Bureaucracy would be jettisoned; regulations and the budget would finally be restored after 14 years of Conservative Party mismanagement.
It would be the first populism-led attempt to overhaul one of the world's oldest and wealthiest democracies. A decade later, it appears the nation is up to its ears in chaos. Prime Minister Keir Starmer resigned this month after serving less than two years despite a landslide Labor Party victory. He was supposed to save the country from years of successive Conservative Party prime ministers.
Instead, the country is struggling with low growth, higher inflation, faltering public services and an electorate that is every bit as angry and partisan as our own. Over the past decade, the country has had six prime ministers. David Cameron, Theresa May, Boris Johnson, Liz Truss, Rishi Sunak and now Keir Starmer are some of the names you may recognize. Brexit itself, scandal, market panic, immigration, and electoral rejection are just some of the factors that have sunk Britain's leaders.
Back when, many economists were predicting an immediate recession if the country left the EU. It didn't happen. What happened was that, over time, the British economy grew far less than it might have if it had stayed in the trade bloc. At the same time, business investment and productivity slumped as trade suffered. The typical family is worse off by thousands of pounds per year.
The pound dripped sharply after the Brexit vote, collapsing by 10 percent, the largest one-day drop in its history. That triggered a sharp increase in import prices, leading to an inflation shock that affected everyone across the board. The exit from the EU also involved erecting trade barriers that hit goods exports, since the EU was still the UK's largest trading partner until last year.
The problem deepened since no one in government had a clear plan on what to do once the votes were counted. This led to years of political infighting and indecision. A weaker currency should have led to a surge in exports, but the uncertainty around Britain's future clouded business judgment and investment. Investment is estimated to be almost 18 percent lower and productivity 4 percent lower than it would have been if a plan had been forthcoming.
The currency has never recovered.
The Office for Budget Responsibility, the independent watchdog of the UK Treasury, predicts that the UK is on track to suffer a 4 percent hit to national income over a 15-year period. A U.S. National Bureau of Economic Research report claims that the country's GDP per head is between 6 percent and 8 percent lower than it would have been without Brexit.
As for unemployment, that fell dramatically in the initial Brexit days to the lowest rates since the 1970s. However, COVID took its toll on the labor market. The employment rate has never really recovered and remains between 3 percent and 4 percent below what it would be under a "remain" decision.
Can I extrapolate from the UK's experiences to the present immigration, trade, and tariff policies of the Trump administration? Not really, at least in the short-term. Equity markets in both countries recovered quickly after the referendum and Trump's Liberation Day. Both countries' economists initially predicted a steep decline in economic activity, and both were wrong. However, over the long term (a decade in the UK), large trade policy shocks seem to lead to lower investment, productivity, and employment growth as supply chains and trade patterns unravel.
Not surprisingly, public support for Brexit has fallen since the 52 percent versus 48 percent leave vote. Today a majority of voters (56 percent) would back rejoining the EU, according to YouGov, and 70 percent of Britons support a closer relationship with the EU. Support is strongest among Labour and Green Party voters and weakest among Nigel Farage's right-wing, Reform UK party. Reform UK members oppose rejoining the bloc by 83 percent. That party has gained support as immigration and affordability have become major issues for voters.
The next candidate for PM, at least among the Labour Party, is Andy Burnham, a Manchester mayor with authentic populist appeal. In a special election, Burnham beat the Reform Party, which pundits believe will clear the way for him to head his party and win the PM title in Britain. The question is how long he can last, given the issues and the populism in his country and around the world.
Readers may recall several of my past columns in which I have explained the populist wave of discontent in the U.S. and worldwide. I wrote that, here at home, over a 20-plus-year period, no single president survived to serve a second term, except Richard Nixon (who was impeached without completing his second term).
Populist voters have a very short fuse. Promises are made, but unless real progress is made within four years, the electorate has no patience for incumbents who can't or won't deliver. Overseas, beyond the UK, France, Germany, and Hungary, several other countries are facing populist challenges to incumbent parties.
We are seeing this here in the U.S. as we head into the midterms. Promises made but not kept have sent President Trump's approval ratings into the 30s. Within the Democrat Party primaries, a war is already brewing between a growing populist wing of the party and the more conservative incumbents. Established Democrats, their critics say, offer failed 40-year-old policy solutions that have been rejected out of hand by younger generations of disenfranchised voters.
Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.
The Retired Investor: Sovereign Wealth Fund Could Help Solve America's Financial Issues
Critics dismiss a federal sovereign wealth fund as a "solution looking for a problem." We can't afford one, they say, we are already in too much debt. The real solution is to cut spending and raise taxes.
How has that solution been working for you? My argument is that buying stakes in our companies, especially in strategic areas, by a U.S. government fund will only improve our financial position. Not only within our own country, but also in our ability to compete globally.
Investments in areas like artificial intelligence could generate far more cash and profits in the future than we could imagine. Those profits could be used to pay down our debt, reduce deficits, and fund the country's needs in areas like healthcare, alternative energy, clean energy initiatives, and social programs.
Unlike some advocates who argue that the government should hold a large stake (20 percent or more) in companies, I believe this would be excessive and would impede companies' ability to operate efficiently in competitive markets. Japan, for example, limits its holdings in that country's equity markets to no more than 7-8 percent.
What will it take to convince Congress and the public to establish such a fund? Unfortunately, I suspect it will most likely occur during a financial crisis. Crisis, what crisis, you are probably thinking. The markets have shown they are just too resilient for that to occur. That was my attitude until last month.
That is when I heard Former Treasury Secretary Henry Paulson, who navigated us through the Great Financial Crisis of 2008, warn of a potential "doom loop" in the bond market. He worries that demand for U.S. government debt could collapse soon.
This, he said, could trigger a cycle of lower bond prices, higher yields, and rising inflation. There is more than an element of truth to that since our government's Treasury market underpins everything from mortgage rates to corporate borrowing to equity prices. He urged policymakers to prepare an emergency plan and have it ready when demand for U.S. government debt falters.
While his comments did not elicit much comment from the media, his warning, by no means, should be taken as just 'off the cuff' remarks. In my experience, Paulson, like any ex-Treasury chief, doesn't just start spouting off about a debt crisis unless it's vetted. To me, it was a clear trial balloon well-crafted by the Fed and the U.S. Treasury. The "when" of such an event is difficult. If his doom loop is correct, sometime next year might be a good guess.
In the meantime, I believe legislation to establish a federal sovereign wealth fund will be passed with bipartisan support. It will be part of this "on the shelf" emergency response plan that Paulson urged the administration to work out now.
A crisis, as he suggested, would leave the Federal Reserve as the lone buyer of our treasuries. Realistically, that would mean the government could be forced to "print" money in one form or another. That would trigger a fresh round of inflation, eroding valuations across most asset classes, including equity.
This could cause a large (30 percent-plus) decline in the stock market. That most certainly creates a crisis. If so, it would be an ideal time for a newly established federal U.S. sovereign wealth fund to enter the market. The fund could establish substantial positions in a wide range of companies at bargain-basement prices. Not only would that be ideal from a price perspective, but it would also establish a floor under the stock market. That would shift investor psychology from 'the Fed has our back' to 'the fund has our back.'
Readers may dismiss my observations as little more than a pie-in-the-sky daydream (or nightmare), especially given a stock market at record highs. However, this administration has taken great pains to offer added incentives to more Americans to enter the equity and bond markets via tax-deferred retirement accounts. Some argue this may only be a prelude to dismantling Social Security. They may be right.
However, if that were true, as the number of Americans involved in the financial markets broadens through retirement accounts, there is an added incentive by the government to ensure that, in the event of another financial crisis, retirement savers do not lose their shirts. What better way than through the support of a sovereign wealth fund that has our back?
Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.
The Retired Investor: U.S. Sovereign Wealth Fund a Good Idea?
What do Bernie Sanders and Donald Trump have in common? Yes, they are both octogenarians, but even more important, they want to establish a sovereign wealth fund in the U.S. They may differ in their approach, but it is an idea whose day has come.
The number of sovereign wealth funds worldwide now exceeds 100. These state-owned investment funds are professionally managed and intended to provide their countries and citizens with an investment pool that delivers long-term financial returns, enhances national wealth, and fosters fiscal stability.
The largest such fund in the world is the Norwegian Government Pension Fund with assets of over $2.11 trillion. The Chinese rank second and third, with the SAFE Investment Company ($1.95 trillion) and the China Investment Corp ($1.56 trillion). The Arab nations make up most of the remaining entries on the top ten list.
It may surprise readers that, while there is no Federal fund, Alaska, New Mexico, North Dakota, Texas, and Wyoming do have state-sponsored investment funds. Several Native American and Alaskan Native tribes also manage similar funds.
In February 2025, the president issued an executive order directing the Treasury and Commerce departments to develop a plan for creating a U.S. sovereign wealth fund. They did, but the White House didn't like some of the particulars. In addition, like so many of the administration's initiatives, Congress must also approve such a plan. It has also established a commission to study the matter.
In the meantime, Trump has taken 10 percent stakes in a variety of companies, including Intel and IBM. OpenAI's Sam Altman, the CEO of the AI startup that is planning to go public this year, has been talking to the administration about a government stake in his company. Altman suggested he could donate equity in his company to seed a potential wealth fund.
On June 1, Sanders announced he planned to introduce legislation establishing the American AI Sovereign Wealth Fund Act. The act would impose a 50 percent tax on OpenAI, Anthropic, and other AI giants, payable in stock. In this way, the public would be given a direct stake in AI and its leading companies. This is not too far from the thoughts and discussions Trump has been having with AI sector managements for more than a year.
In this era of populism, where demonstrations against the threat of job loss due to AI are becoming more frequent, a government-owned wealth fund would give the people a direct role not only in determining the future of this technology but also in giving more than the very rich an opportunity to benefit from the trillions of dollars being spent on developing AI.
The key reasons cited for why the U.S. has yet to establish such a fund center revolve around the country's current poor fiscal health. The government has been running huge budget deficits that are increasing every year. In comparison, most sovereign wealth funds are typically established by countries that generate budget surpluses from natural resources or other revenue streams.
In the U.S., with a national debt of more than $37 trillion, where would the money come from to establish such a fund? Critics argue that instead of a fund, the government should focus on managing its existing debt and reducing budget deficits. In addition, the prospect of cronyism and mismanagement is a great concern.
In my opinion, the critics have it wrong. Next week, I will argue why a federal sovereign wealth fund could be essential especially in a time of financial crisis if it should occur.
Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.
The Retired Investor: Higher Immigration Means Fewer Jobs For Americans, Or Does It?
Last Tuesday, the House narrowly voted to award $70 billion to federal agencies responsible for immigration enforcement. That was the second multibillion-dollar infusion of cash to the Department of Homeland Security in a year. Will that money be well spent?
Over the years, I can't count the number of times I have heard the phrase "immigrants take jobs from U.S.-born people." The assumption behind this belief is that jobs are scarce and immigrants will take whatever employment is available at lower wages. This idea has been around since at least the 1880s. The Institute for Policy Research at Northwestern University, among other economic research centers, begs to differ.
Recently, in a research paper entitled "U.S. Immigration: Rhetoric and Reality," academia attempted to address this idea as it stands today. The authors studied immigrants as both employees and entrepreneurs over a five-year period from 2005 to 2010. Their conclusion was that immigrants are far more likely to start companies, and they create more jobs than they take. Their work found that immigrants improved the economic outcomes for native-born workers!
Over the years, various studies have found that many immigrants are likely to start their own businesses. Today, on a national basis, immigrants make up 23.6 percent of all entrepreneurs. They make up 18 percent of business owners with employees, according to GovFacts, a non-partisan company that gathers government information.
More than 40 percent of Fortune 500 companies — including Google, Tesla, and Pfizer — were founded by first or second-generation immigrants. Jensen Huang, the co-founder of America's most important company, Nvidia, was born in Taiwan and moved to America at age 9. Today, that would not be possible.
The truth is that immigrants play a larger role in driving American innovation than many Americans care to admit. Immigrants represent 16 percent of all U.S.-based inventors and are responsible for 23 percent of all patents filed in the nation. Do yourself a favor and read Huang's background.
Hopefully, the information above might help to dispel the notion that this decline in immigration simply means finding a nanny or housekeeper is more difficult than it was in the past. The hit to American productivity from this immigration slowdown is much deeper than that, and its impact could stretch far longer than a single administration.
Another research organization, The Yale Budget Lab, found in a study entitled "Lower Immigration Means Lower Productivity Growth" that "even a temporary immigration slowdown would leave as many as 4.6 million fewer working-age people than it would otherwise have had by 2033." They believe that the gap will persist for decades.
By 2052, economy-wide productivity could be lower by between 0.25 percent and 0.44 percent (currently at a 0.8 percent annual rate) due to a decline in new business creation. It could even be lower depending on how long Americans insist on the current immigration policies.
I ask myself how many AI breakthroughs will occur in other countries by those who have been denied entrance into the U.S.? Who will replace a generation of Baby Boomers like me with the skills and experience that we represent? The country is already feeling the gap caused by our retirement. The melting pot is practically empty, readers, and there are fewer and fewer people to fill it.
Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.
The Retired Investor: Does Declining Immigration Mean Growing Employment?
The immigration policies of the Trump administration may have some unexpected consequences in an era when Baby Boomers are leaving the workforce. Couple that with the AI boom, and we may be in for decades of lower productivity and a declining workforce.
Illegal immigration has already fallen by over 80 percent since Trump took office, while legal asylum seekers entering the U.S. has dropped by 99.9 percent, according to the Cato Institute. The reduction in legal immigrant entry have also been effective and are 2.5 times lower than illegal entries.
Last week the Republican House passed an additional $70 billion in spending for an immigration crackdown bill. They passed their bill by 2 votes. Now the legislation moved on to the Senate. The money will fund immigration enforcement. Clearly, the war on immigration continues.
In retrospect, today's anti-immigration policies collides with one of the enduring American myths; that of the "melting pot." It was a cornerstone of American identity for decades. Without immigrants, so the story goes, there would be no United States. In one sense that is true, since the only inhabitants of North America in the time of the colonies were native Americans.
Although America's population makes up about 4 percent of the world's total, it accounts for 17 percent of all international migrants. As of 2023, more than 47.8 million immigrants lived in the U.S. That was the largest absolute number in the nation's history. This foreign-born population accounted for 14.3 percent of the total population, almost as high as its 1890 peak of 14.8 percent. Historically, when immigration numbers have reached this level, there has been a backlash in attitudes towards immigrants.
In past columns, I have delved into America's love/hate relationship with immigrants. As early as 1751, Benjamin Franklin worried about the number of Germans "swarming" into the colony of Pennsylvania. Suffice it to say that in the most recent presidential election, the majority of voters approved of Donald Trump's anti-immigration rhetoric.
One result of these efforts has been a steep decline in U.S. population growth. One of the steepest in many years. Why does that matter? For one thing, lower population growth equates to a smaller workforce over time. The Congressional Budget Office had projected that higher-than-expected immigration levels between 2024 and 2034 would have increased U.S. GDP by an estimated $7 trillion to $8.9 trillion.
Their analysis, along with that of many economists, argues that immigration was vital to economic growth. It does so by expanding the labor force and boosting consumer demand. Today, as the number of new immigrants decline precipitously that rosy view of economic growth and productivity is no longer a sure thing.
The analysts at the Federal Reserve Bank closely monitor employment, since full employment is one of its most important objectives. This year, they found that the monthly job gains required to keep unemployment steady (the breakeven rate) have now dwindled to near zero. Few economists expected to see the results of this drop off crop up so soon in the monthly employment figures. The immigration slowdown seems to be having an outsized impact on labor force growth.
Normally, a decline in job growth would signal an economic slowdown, but not this time. Employment growth has been anemic, and yet GDP growth has forged ahead. The combination of lower immigration, retiring Baby Boomers, and the advent of labor-saving AI is impacting job growth but not GDP growth, or at least not yet.
As for the labor market overall and its impact on the economy, both the retiring Baby Boomer workforce and declining immigration do not bode well for productivity growth. There is a hope that artificial intelligence will reverse the hit to productivity, but others argue that it will only do so at the expense of labor.
In my next column, I will expand on the benefits of immigration and exactly how the lack of it can hurt U.S. productivity.
Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.
