Unsurprising to most, a large part of my upbringing was spent watching British TV comedies. As much as this helped shape (warp) my sense of humour it also has helped me understand the British regard toward Europe as a whole.
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If you haven’t already, please check out our latest contribution to Business Insider’s ‘Devils & Details,’ the most popular business podcast in Australia. We cover OPEC, the RBA & the ongoing commodities rally. At the end I also tip the Swans and the Storm so I’m due a few wins this week I’d say.
There’s been plenty going on this week that’s caught my attention. Unfortunately just the facts today for some obvious reasons.
Firstly, and I think most importantly, this appeared on my timeline over the long weekend…
Firstly to last week’s biggest issue
Another long week in which market sentiment changes with the ebb and flow of the tide. Monday started with a ‘batten down the hatches’ look at our positions and a sanity check of our investment methodology. After we’d urged caution going into the unknown and protected our clients to the downside leading into the Brexit vote, caution proved to be the right move. We still had to check our thinking and reassess what the departure from the EU meant for the world.
Consensus was that whilst we should always play on the safe side of the train tracks and monitor positions with extra caution, the world’s sentiment seemed to be that this was tomorrow’s problem. My view, as expressed on the VFS Group Tuesday Night Podcast was that the British Government (and the EU) would possibly take the option of procrastination. One right out of my playbook, the strategy is easy and involves coming up with one event after another in order to push back the inevitable in the hope something else comes up of greater importance.
To get an idea of this strategy, imagine, if you will, someone putting off studying for their end of year exams in the hope a meteor hits earth before September.
So the next thing will be the decision on the next PM, then maybe talk of another general election, then Christmas, then maybe a Trump-led USA will commit the Allies to a war with Turkmenistan or some other lunacy and there you go, problem averted. People’s attentions are redirected, vehement rage towards the EU turns to a healthy fist-shaking and everything keeps spinning.
The impact of Brexit will not be understood for a few years but the initial signs are quite encouraging with markets having bounced strongly this week. On Saturday morning all of the commentary was that we had entered a new world called “post Brexit” and that the good old years of “Pre Brexit” were behind us…. but then again that was just the media and they must hold some responsibility for this whole exercise. One can only imagine some of the diatribe written in the Sunderland Gazette playing on peoples fears carrying stories on immigration but being lazy on the economic impacts if a YES Vote.
As we’ve seen in the last couple of days, markets tend to look through the headlines and focus on the future. While the impact of the Brexit is still very much unknown, the impact is unlikely to be anywhere near as bad as the media was playing it up to be. It was interesting to see one of Australia’s best investors, Hamish Douglas of Magellan, say yesterday that he believed there was a 25% chance that the UK does not leave the UK despite the referendum. All we know is that this is going to be a very long drawn out process.
Bloomberg British pound index and the effects of Brexit – 12% fall intraday
On Wednesday last week I bought a copy of one of those finance magazines you see in newsagents, ‘Smartinvestor’ or ‘Money’ or ‘StockTipper’ I think. (I like to continually change what I read so my brain doesn’t get stale) The magazine was on my desk for a few days and I flicked through some of the ideas which were good and was looking forward to really digging in to it over the weekend in an effort to find some post-Brexit gems for clients. On Friday evening I gave up on that idea and filed the magazine under ‘N’ for ‘Never going to read.’ Why?
All bets are off.
The weeks become much longer and the news much worse. It would be remiss of me not to mention how saddened I am by the assassination of British MP Jo Cox, apparently the first UK Parliamentary assassination in over 25 years. Brexit has brought out the worst in many and at a terrible cost.
There is no doubt that those events have altered the course of the British vote. It would appear now however that the vote has moved from ‘razor’s edge’ to ‘almost securely Remain’. I agree that status quo will be the option selected by the majority and we will know from around 10am Friday morning.
The question, however, is whether you are prepared to take that chance? If so, great, just hope that there’s not another significant event that swings the vote back to Leave. I continue to urge extreme caution in the face of such colossal downside risk and summarise it with the following statement:
Jonathan Pain has 29 years of international investment experience having led investment teams in London, Bahrain and Australia. He a regular speaker at investment conferences and seminars as the author and publisher of a widely read investment newsletter, The Pain Report and is well known for his contrarian views.
VFS Director Jack Kouzi recently sat down with Jonathan to discuss Brexit implications, negative interest rates and the Australia economy.