Checking out of the Hotel Europa? Good luck finding the exit

Wow. I go away for a week and come back, and suddenly Brexit is up in the air again.

It's nice to be back all the same. But leaving the European Union is getting to be trickier than checking out of the Hotel California.

So what's actually going on here? Does the Article 50 challenge mean we're not going anywhere? Will we have to have further votes and referendums until we vote the 'right' way? And what does it all mean for sterling?

Let's have a look...

What is Article 50 anyway?

Article 50, like many things to do with the EU, is a half-baked, fudged solution to a problem no one thought they'd ever have to address – how does a country leave the EU?

It's a few paragraphs in the Lisbon Treaty that says a country can leave the EU by telling everyone else that it's going to do so. Once Article 50 is triggered, there are two years' tops of negotiating. Then the country is out on its ear.

That's the gist of it.

The sticky question is: how do you trigger Article 50? The Lisbon Treaty just says that a country has to do it "in accordance with its own constitutional requirements".

Leaving the EU involves repealing the 1972 EU Communities Act. Theresa May's government argued that the referendum meant the government had a mandate to go ahead and leave. But given the way that British democracy works, some people have – successfully, for now – argued that in fact, Parliament needs to vote on it. Parliament makes the laws, and only Parliament can take them away.

The government plans to appeal to the Supreme Court. That'll probably be heard in December, and the result will probably be out in January.

So what happens next? If the government loses – which is certainly possible – then Parliament would get to debate and vote on whether to trigger Article 50. In other words, if they really wanted to, they could scupper Brexit.

That would be a heck of a slap in the face to the voting public. Even if I'd voted "remain" I think I'd be a little wary of how that looks and feels to the average voter. One big problem with the world at the moment is that trust in institutions is at a seriously low ebb, and this is not really the best way to restore that trust.

Chances are the Brexit rejection wouldn't be as blatant as that. I'd imagine that most MPs would feel some sort of moral obligation to vote in the same rough direction as their constituents, which would mean a majority vote for Brexit.

However, running the gamut of the parliamentary process certainly provides plenty of scope for influencing the exact form of Brexit we get – how hard, how soft, if you like – and even if we end up leaving, it's difficult to see how that sort of tumult helps our negotiating position.

The other big question is: would Theresa May decide to call a general election, in an effort to stamp her authority on the debate? It's by no means impossible.

What are the investment implications of all this?

We'll see how things pan out. But let's put the politics aside for a moment – the money is what we're here to talk about right now. So from an investment point of view, the most significant thing to consider for now is probably the pound. I'll talk about the less obvious implications (in as much as there are any) in a future Money Morning.

But for today, the new phase of squabbling over Brexit probably means that the pound has seen its lowest point for this year. Markets have got it into their heads that the "harder" the Brexit, the worse it is for sterling. So anything that bogs down the process of leaving and makes a series of compromises – or even no Brexit at all – more likely, is likely to send the pound higher.

We probably won't know the result of the government's appeal against this ruling until early January. So even if it goes the government's way – by no means guaranteed, or perhaps even likely – then between now and the end of the year, I think the bias for sterling has to be higher.

What does that mean? It probably means that all those lovely dollar-denominated assets in your portfolio – the ones that have probably enjoyed double-digit returns in sterling terms since the Brexit vote came out – will have peaked for now.

On the other hand, if you hold any domestic stocks – banks in particular – they'll probably start to recover and hold up their end of the portfolio a bit.

Now, I'm not suggesting for a moment that you should try to time the market on this. For one thing, I might be wrong. Politics is unpredictable, after all. If Theresa May does gear up for a general election, that could throw the pound off once again.

For another, you shouldn't really own anything in your long-term portfolio that is only there because you're betting on currency movements. That's gambling, not investing.

But that said – if you are reviewing your portfolio, and you come across something that's really only there because you were taking a punt on the pound's short-term weakness, then I think it would be sensible to lock in your profits on that now.

The MoneyWeek Brexit roundtable

We just held a MoneyWeek roundtable discussion on Brexit. There were some big hitters from the pro-Brexit side around the table, including Roger Bootle of Capital Economics. It was a lengthy and stimulating discussion. You can read the distilled version in the latest issue of MoneyWeek magazine, out today.

However, in the process of boiling our two-hour, 20,000 word debate down to something closer to 5,000 words, I had to cut an interesting side discussion about the state of British politics today and the potential for holding another general election and what it might mean.

That now seems particularly relevant, so I'll be putting that in today's MoneyWeek Unlimited email, which only goes out to MoneyWeek magazine subscribers. If you're not already a magazine subscriber, sign up now – you can get your first few issues for a bargain price and really, I reckon this sort of information could save you a lot of money and hassle in the long run.