Wow! Always expect the unexpected. Most, including me did not think Brexit would occur. I thought fear of the unknown would keep England in the EU even though I quietly agreed with the “leave camp.” I did write several times that if “leave” won, the averages would be crushed as the potential outcomes would be infinite.
What I did underestimate is the scope of public discontent. I did not realize the depth of today’s anathema towards bureaucracy and the Establishment, where many are tired of government deciding what is right for society under the guise of political correctness and multiculturism. Nationalism and patriotism amplified by freedom is exponentially stronger than dogma forced upon society by unelected officials.
Was the Brexit vote a victory for freedom and democracy and a defeat for yet even more bureaucracy? If the answer is yes to this question, Brexit is something to be cheered not feared.
Many have asked me why Brexit is so destructive? I have fumbled my explanation echoing remarks of the central bankers, bureaucrats, and other Establishment leaders.
The key word in the above response is Establishment, or the elitist group that the two most democratic societies are rebelling against, the group that feels the most threatened by the populist political movement on both sides of the Atlantic.
Reiterating the above question, Is Brexit the catastrophic event some are suggesting? Based upon economics 101 a catastrophic event occurs from a liquidity crisis, a loss of confidence, a massive unexpected devaluation or default. Higher taxes and greater regulation are chronic albatrosses.
Bureaucratic organizations do not produce a product or produce wealth. They have the ability to transfer wealth or prevent wealth creation but produce nothing other than bigger budgets and government control.
Four years ago one of my recurrent themes was that society was on the cusp of a tectonic change. Little did I know how prophetic my remarks have become. The US is no longer the global policeman after 75 years of that unspoken role. Seventy five years of increasing multipolarity and interdependency has now taken a major reversal.
The EU and the America’s unspoken role of the global policeman were symbiotic, defined as actions aimed to prevent another European conflagration. The President publically abdicated the US policeman role five-six years ago. Is not Britain following the America’s leads in changing the world order of the last 75 years? In my view, both events are significant.
The markets have become entirely co-opted by algorithmic trading where over 85% of total volume is done electronically via a cross correlated models, models that based upon established norms. These norms are flashing a bright red but are these models/warnings rational?
Today, like every other shock will also pass. Fear will irrationally crush some issues/sectors. Writing commentary will be easy given the depth of topics that can be discussed. But as always noted today’s eventual outcome is one that has not yet been discussed.
What will happen today?
Last night the foreign markets were up. London was up 2.40%, Paris up 2.59% and Frankfurt up 2.05%. China was up 0.58%, Japan up 0.09% and Hang Sang down 0.27%.
The Dow should open considerably higher following the worst two day drop since August. Has anything changed since Friday? Some could argue that if the gains are sustainable, is this not yet another example of crony markets controlled by a few mega electronic trading firms, firms that are speculators not investors? The 10-year is off 8/32 to yield 1.47%.