Let’s clear about the mess of Brexit. First, the media is awash with so many opinions from those who had no idea that a vote for Brexit was in the realm of possible outcomes. Yet there is no lack of insights into the end of Britain’s role in the EU. Never have so many people been spewing the hogwash of hysteria into the portfolios of public investors. So in a very typical French philosophical format, let’s DECONSTRUCT last week’s outcomes:
a. The British held a DEMOCRATIC election in an effort to get public support for greater involvement in the European project. In the spirit of no taxation without representation, Prime Minister Cameron put forth a referendum because further U.K. entanglements with Brussels would mean a greater need for the British people to be on the hook for vast amounts of money. The problem for Brussels is that other European citizens may desire a similar voice and then it will be incumbent upon all politicians to seek approval from the taxpayers. The arrogance of the European elite (nomenklatura) was so great that the idea of Brexit being voted in was beyond the bounds of their gated communities. But the majority did vote in favor of LEAVE causing great losses for portfolio and power holders. The decision will have short-term repercussions as the French and their Piss BOY Jean-Claude Juncker attempt to punish the entire British citizenry for the temerity to SHUN the high and mighty of the Brussels ivory tower. The British are better off out of the EU because the cost of maintaining a perpetual transfer payment regime to support the debt-burdened European nations will be too great a cost for the British Treasury.
Then there was a major mistake when the equivalent of Moe, Larry and Curly rushed to downgrade the British debt to AA. Too bad these are the same rating agencies that failed to downgrade U.S. mortgages. I would ask MOODY’s, S&P and FITCH: How is it possible to grade European debt when the ECB has no centralized taxing authority to stand behind it? The ECB is a bottomless pit and the U.K. will be proven smart by relieving itself of an enormous liability. To think otherwise is jejune.
b. The talking heads were in TEARS, crying that the U.K. will be left in shambles after all thinking people depart for the golden shores of EU. Do you really believe that Barclays is in worse shape than Deutsche Bank? The balance sheets of the U.K. banks have been under repair since the onset of the Lehman crisis while Deutsche Bank and the other domestic banks have been rehearsing for cameos in the Night of the Living Dead. Yes, Britain will have problems but will have the regulatory latitude to address the problems. Today, strategist Boris Schlossberg noted that the British pound would fall to PAR with the dollar outside the EU because of the massive current account deficit plaguing the U.K. economy. To Boris, I say wrong. If the Brits stayed in the EU its current account would still be massive but the tools for dealing with it would be limited.
A vote to stay in the EU would mean that the U.K. would soon adopt the EURO and become a member of the ECB, WHICH WOULD MEAN THE ONLY WAY TO CORRECT THE CURRENT ACCOUNT DEFICIT WOULD BE INTERNAL DEVALUATION AND AUSTERITY. The British economy has been the best in Europe during the crisis years because the BRITS depreciated the POUND in 2008 while embarking upon some budget austerity. If the U.K. remained firmly ensconced in the Brussels regime it would mean that Britain would become more like Greece, Spain and Italy: low growth and high unemployment in an effort to correct budget and current account deficits. The answers are not as simple as the jejunistas on the teleprompter would suppose.
c. The outstanding appearance today goes to Dick Kovacevich for his CNBC interview. The former Wells Fargo CEO spoke truth to the powerful (yet again) when he said the Brits OUGHT to go to the “front of the queue” on trade deals for it will be far easier dealing with the untethered politicians in Whitehall versus the overregulated halls of Brussels. Everyone lamenting the BREXIT vote is decrying the impact on British trade. Its impact will be most felt from Europe because the French-imbued EU is an anti-free-trade zone. The French are proud proponents of tariffs and restricted access and I am willing to wager that the beloved TTIP is a long way into the future, especially as socialist President Hollande is under great criticism from French unions for any type of free trade pact and 2017 is a national election year in France.
Even the Germans have actively demonstrated against the TTIP so when critics say the British are harming themselves on trade I am doubtful about such criticism. The British will be far more flexible outside the EU. A perfect test case will be the Hinckley Point nuclear power plant to be built by the French. EDF is the proposed builder, which is 85% owned by the French government and many French jobs are at stake. I wonder what the betting line is on it getting cancelled due to French anger at the Brits. Kovacevich is correct: An act of retribution by the French and EC President Juncker would cause negative ripples around the globe. It is a very difficult situation facing the world financial community but in one thing I am certain, THIS ANALYSIS OUGHT NOT BE JEJUNE. As Woody so splendidly declares in “Love and Death,” I’m jejune.
***As we move forward into the third quarter of the year I warn to stay focused and flexible for the remainder of the trading year will become more “adventurous.” As I have warned all month, trade with fervor and invest with fear. I will be compiling my trading threats and key barometers as the new quarter unfolds. Always strive to battle another day and preservation of capital in tumultuous times is a key ingredient to survival. For those who aren’t convinced, 2+ 2=5. You do the math.
***This is the time for orders for the ROTTEN HEART OF EUROPE from Amazon and Yra Harris as book seller. No one has had Brexit and the EU correct as my friend and mentor Bernard Connolly. Get a good bottle of Kentucky whiskey; sit back and absorb the wisdom of Bernard. If you want to excel in a mad world you need to arm yourself with the relevant information. “The Rotten Heart of Europe” is a must have for knowing all the relevant characters in this “sea of madness.”