Welcome to a Brexit new world

Posted: June 27, 2016 in Uncategorized

Brexit has been a momentous event. Even if there are still voices that Brexit could be undone (and it will be like that until Article 50 is invoked) – let’s assume that Brexit is done.

This is history in the making – like the fall of the Berlin Wall or the 9/11 terror attack.

It will shape the world to be.

First of all, this resembles a Bear Sterns moment – not a Lehman moment.

For the non financial expert the Bear Sterns moment happened in March 2008 ..a big fall, but everything was recovered by June 2008. But it did contain the seeds that made a Lehman Brothers fall. not that I predict the same, but be wary.

This looks similar and we could recover everything by September, but it could contain a Lehman Brothers moment somewhere in the future.

Brexit has consequences all over the world and you (or your adviser) needs to understand that.

Just a few examples:

China has over 15.6% of its total export to the UK!

Oil recovery could have been cut short.

The South European economies will be on even more strain – not only the financial markets. The UK now is 10% cheaper – competing for tourist and UK tourist will have to reconsider their holidays.

Japan is in deep trouble as the Yen is a safety currency. It has not much export to the UK, but it is indirectly exposed via Asian exports (specially Vietnam, Malaysia and Thailand)

Australia has a low direct exposure, but it is exposed via China.

The European bloc has been based on the power equilibrium UK-Germany-France. Now that UK is gone, Germany and French will grow tenser.

Apart the various nations asking for referendum (France and Austria), there could be talk of a Nordic alliance (UK, Norway, Denmark, Sweden). And also the Eastern bloc Europe was counting on the UK counterbalance to Germany.

Russia has a mixed blessing. A crisis of the EU is bad for export, but definitely the EU will not think of Ukraine or the Russian issue – leaving it to the USA.

Europe in all will lose power as world power.

The US rate hikes (in the bond market) have already been postponed to …2018!

Ad the UK? The UK, if managed well, could even fare better than the rest as Europe was not exactly a free trade market and had a lot of red tape. The fall of the Sterling will be great for exporters and tourism. Unfortunately squabbles between politicians will most likely prevent that.

Other countries directly affected are South Africa, Nigeria, Venezuela, Brasil and (bit less) Argentina.

This is the event that I was waiting for. It is not been pessimistic – just statistics …we avoided a thousand issues between US Government spending closures and Greek bailouts…it was just bound to happen sometime. And it does not change my view or investments – it is just an acceleration on the trajectory designed (by stupidity or else) by our politicians after the Great Financial Crisis. While the Reserve Banks did a great job – the politicians just squabbled and pushed austerity (even if no economic model supports the theory that austerity solves a crisis).

In effect it feels very 1938. If you do not believe  me go and watch the 2015 beautiful and scary German Top Box Office movie “Look who’s Back”

https://en.wikipedia.org/wiki/Look_Who%27s_Back

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