Monday, June 20, 2016

Brexit Worries

The main headline today has been that stocks are higher as Brexit fears ease.  The claim is recent polls are showing the "remain" camp is back in the lead so everything is going to be fine Thursday. Uh, excuse me but that is the worst cause/effect, and linear reasoning I have ever seen. Or for lack of better words what BS.

So it's all good eh?  I guess that since most polls show a basically 1-2 point difference in either direction that to me seems really close.  If the "remain" camp had a 4-6 point lead I'd think differently.  But polls are notorious for having error margins of anywhere from 2-5%.  So a 1-2% lead is nothing.  I think that headline insults traders and smart investors.  They are not so easily fooled by a poll that shows a 1-2% spread over a vote that means so much.  People with real money on the line don't risk it with slim margins.  If anything the move today shows that worldwide capital is heading to the US until this mess in Europe abates.

This vote is going to seal the fate of not only Britain, but the European Union.  There is no win-win. If Britain votes to stay in they'll continue experiencing sub-par economic growth. Since Britain joined the EU in 1973 they have seen ever decreasing growth rates. Just take a look at this chart. You can see an exceptional period of expansion started its long decline to the anemic growth the country has now.  If this chart isn't plastered all over British television then the media there has been bought, and is just as corrupt(and useless) as the politicians that bought them.

Now if Britain votes to leave that will be great for Britain, but a disaster for the EU. That will only accelerate what I see as the ultimate decline of the Euro.  The Euro benefits stronger economies at the expense of the weaker ones. Additionally countries with higher debt loads before entering the EU have experienced a sharp increase in debt costs during the Euro's climb. Now that the Euro's value has declined it has dampened the effect somewhat, but I fear the damage has already been done.  There is no way out for Greece, Italy, and Spain without a default of some sort on their debt.

This seems to be a somber post, but there is a bright side. Out of the darkness comes light. No matter what happens eventually in the future the good will prevail. The basic human tenants of doing whats right and making progress will prevail. It just doesn't always follow the sequence it should.

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