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.”
Tags: Brexit, British pound, David Cameron, ECB, Euro, Europe, Rotten Heart of Europe, TTIP, U.K.
June 27, 2016 at 9:21 pm |
This EU collapse and dissolution is getting very long in the tooth……. Alright, hubris can probably keep this honey pot festering awhile longer considering we’re just entering the first of 27 innings?
There should be an Eurexit referendum!
June 27, 2016 at 10:06 pm |
I never saw Night of the Living Dead, but immediately felt that I understood the point.
And, yes, Mr. Kovacevich always makes me smile as he uses simple eloquence to make the hosts and guests at CNBC stutter and stammer worried that their jobs are in jeopardy.
It seems so easy to see how the concept of leaving this “union” that ruled not led, and in the name of uniting, has allowed, indeed fomented the tragedy of open borders and all the ridiculous destruction that it brings, not on the un-elected ruling class and bureaucratic minions whose primary purpose in life is to minimize their personal discomfort, living in fear of the those who rule Kafka’s “Castle”, to the those they most clamor about protecting and saving.
Thank God for the Brits who thought this through and realized that exit from this totalitarian vision that is the EU was likely their last opportunity until being swept into the matrix, becoming so much political soylent green
June 28, 2016 at 1:11 am |
Great!
“I do not believe that Brexit will happen” by Gideon Rachman…
Coup d’etat coming…?
http://www.ft.com/cms/s/0/8f2aca88-3c51-11e6-9f2c-36b487ebd80a.html#axzz4Cr1q0200
June 28, 2016 at 3:26 am |
Arthur–Rachman’s piece is exhibit A on my concept of money is fascist
June 28, 2016 at 9:14 am |
Notice how the 52% are labeled “extremists”? I’d rather say that 52% of Britons decided to stand on their hind legs, and are capable of managing their own affairs better than the collective elites of Brussels. This is much more than an “extremist reaction to migration”. Good Austrian economics has never required intricate complications of “official trade agreements”, along with their protective carve-outs. The only agreement needed is, “you have it, I want it, let’s trade, we’ll both be better off.” I’m suspecting BMW, Mercedes, and VW will not quit selling cars to Britain to punish the “extremists”.
http://www.carmagazine.co.uk/car-news/industry-news/ford/uk-2015-car-sales-analysis-winners-and-losers/
Yra, you are so right about the Rotten Heart, many of my students have benefited from their reading of this history. Everyone needs a copy.
June 28, 2016 at 11:29 am |
“I’m suspecting BMW, Mercedes, and VW will not quit selling cars to Britain to punish the “extremists”.”
In this case, hopefully the EU will provide a stipulation allowing British extremists to manufacture their own vehicles.
June 28, 2016 at 3:11 pm |
GDP comes in scorching hot at 1.1% Bring on the tee-vee hawks, these guys are all over keeping this “unprecedented economic boom” from getting out of hand!
June 28, 2016 at 6:10 pm |
yra, your analysis is correct in theory. however lets not forget that its long time that britain does not exist any more. even the stones know that Being British is about driving a German car to an Irish pub for a Belgian beer, then traveling home, grabbing an Indian curry or a Turkish kebab on the way, to sit on Swedish furniture and watch American shows on a Japanese TV.
the majority of brexiters are elderly people that will die before they could even see any implementation of the exit also because they will get less and less cures from nhs due to the upcoming austerity measures. the fact is that uk is not united any more regardless of eu!
uk has become overnite a worse joke than italy and greece. the ignorance of people that voted for the exit is palpable, they say this will stop muslims immigration, lol. what has islam to do with eu? also illegal immigrants will always exist because humanity will always exist. what about the london mayor, is he not muslim? will he get kicked out uk because of his religion? so funny.
to make this story even more comical, theres this clown nigel farage: he had such great chance to show off his undoubtful political ability in front of the eu officials today and he wasted it in the most childish way. even banana republics have better leaders!
lets be pragmatic. the result of this referendum will end up like the best typical italian farce. see the famous quote in the book “the leopard by tomasi di lampedusa”: “everything needs to change, so everything can stay the same”.
lol. there will be new treaties between eu and the new disunited-kindom just to keep quite the coastal fish’n’chip owners (that count zero in gdp), but it will be just a face-lifting job. like 2+2=5, so the disunited-kingdom will still be in eu.
June 29, 2016 at 12:52 pm |
A trade idea: Volatility has been destroyed in the last two days in all products. Now would be the time to get long pound vs. euro for a cheap price. The pound will be the new swiss franc for Europe
June 29, 2016 at 2:17 pm |
David–long term view may be but it will be voaltile,very volatile in the short term because of the desire by some to punish Merry Old England.There was a guy on CNBC this afternoon with Santelli and Steve Grasso- and he presented some of the views of money managers in the world—he called for Britain to be punished severely for having the temerity to challenge the EU—-he must be a bastard child of Juncker but it is a common theme out in the world—
June 29, 2016 at 2:58 pm |
yra i don’t think the eu can destroy gb without destroying themselves, and i think they know that. the eu might talk tough but ultimately they will see its folly. british exports will get cheaper than even the southern european products. meanwhile the pigs banking system is melting away while britain has strong banks and the rule of law
June 29, 2016 at 7:24 pm |
Absolutely–but it depend on how much damage the remainers via George Osborne can do the economy in the time they have remaining—quislings operating for their own gain are always a problem as we celebrate American liberty day—loyalists to their own power and money is with us and they populate the pages of the FT —fascism to preserve the status quo fills the pages of the house organ of the remain at all costs crowd.And for the idiots reporting from the streets of London about a REDO—photo images while powerful recede like a snapchat—THE REVOLUTION WILL NOT BE TELEVISED
June 29, 2016 at 9:11 pm |
UK looks like a saint in comparison to Germany.