Friday, June 24, 2016

- A Brexit Note

When they were putting together the Euro, I was working at Moore Capital, Louis Bacon’s pressure cooker for profit generation. Exceptionally smart people went in one door along with a ton of information, and piles of money and the stressed wreckage of what used to be human beings came out the other. Working about 10 feet from me at the time was my long time friend Drew Matus, now the megabrain Senior Economist at UBS. If you’ve been watching Squawk box for a while, you’ve certainly seen him. Smart cookie that Drew.

Anyway, we were doing like everyone else at the time. Working through the complexities of trading derivatives in a brand new currency, which had no actual trading history. There were no rules for it, but eventually the industry settled on a consensus of a GDP adjusted synthetic price history. But the discussions to get there caused a lot of talk about the vices and virtues of such very different cultures all working together as closely as they would be.

Of all 20 or so econo - derivatives guys who were involved in our discussion, only 2 thought the Euro was marked for death the day it was formed. Drew Matus, and myself. So I’d like to give a shout out to my former brother in arms over at UBS. We were right (of course) but as usual, we didn’t know when. We were arguing (at the time) that you couldn't get the Italians and the Germans to think about public finance the same way because of cultural differences, and without it the effort was doomed. We never saw the immigration thing coming, or that the real dichotomy would be between the Brits and Greece. Still ... we were on the mark in principle.

Brexit will add some global friction to trade, and lower GDP’s in the near term. I could see that possibly sending global rates negative, but that's an outlier and not the way to bet. Politically it will also allow both the Euro and the UK to be as stupid as they want to be without the interference of the other. How stupid is that? No idea yet. But most bottom up economic philosophies don’t function nearly as well in practice as they look like they would on paper. You just can’t enrich people from a distance, they can really only enrich themselves. But the UK will now have a chance to pump the brakes regarding Islamic immigration. Whether it will be enough to keep them from going over the cliff is anyone’s guess.

The big winner in last night’s Brexit vote was … Donald Trump. It’s now seen as possible to overturn the globalist power structure, and it wasn’t before. Even what looked like a strategic error for him until very late last night – going to the UK instead of campaigning in Ohio – has turned out to be a complete score for him when sentiment defied the polls and went for exit instead of remain. He’s either some kind of evil genius, or the luckiest man alive. I’d bet on luck.

What do the post deconstructionist and enlightened girls over at Slate think of the Brexit vote? According to a young lady by the name of Jordan Weissmann, they think what girls always do about change... they're afraid.


Hell_Is_Like_Newark said...

A statement from the Trump campaign:

The people of the United Kingdom have exercised the sacred right of all free peoples. They have declared their independence from the European Union and have voted to reassert control over their own politics, borders and economy. A Trump Administration pledges to strengthen our ties with a free and independent Britain, deepening our bonds in commerce, culture and mutual defense. The whole world is more peaceful and stable when our two countries – and our two peoples – are united together, as they will be under a Trump Administration.

Come November, the American people will have the chance to re-declare their independence. Americans will have a chance to vote for trade, immigration and foreign policies that put our citizens first. They will have the chance to reject today’s rule by the global elite, and to embrace real change that delivers a government of, by and for the people. I hope America is watching, it will soon be time to believe in America again.

Hell_Is_Like_Newark said...

A few things I have learned since the vote:

The process of leaving takes up to 2 years to allow the negotiation of new trade treaties, etc. During that time, it is very possible that there could be a re-vote. Think of what happened in Spain with the Lisbon treaty. The vote was held again and again until the people voted the "correct" way. Once the correct outcome was obtained, there was no more voting. We could see a repeat of this in the UK.

Or we could see the whole damn EU unravel over the next 18 months as more countries have referendums.

Interesting times...

Muzzlethemuz said...

I woke up this morning and read of the Brexit. The first thing I thought was, "YES!!!" The second thing I thought (as a die-hard RFNJ) fan was, "What would Tom say about this?" Came over here and, BOOM, already posted. Thank you for the insight. Always nice to receive confirmation of my gut instincts from an econ guru.

HILN, great follow up. I completely agree.

Muzzlethemuz said...


And so it goes.

The Millennials will see to it that the world comes together as one, yet becomes more diverse. Safer, coddled, inoffensive, pro-LGBT and pro-Muslim. What paradox?

Only The State will have the guns. The State knows what is best for us. Hillary said so.

Cars will drive themselves. No need to think. Anyway, driving is scary. 40,000 people get killed in automobile accidents every year. That is dangerous. And scary.

We, the dissenters, of course, must oblige them. I mean, we'd be racists if we didn't.

Hell_Is_Like_Newark said...

Doing my 'reading rounds' on the net, whilst having my morning coffee:

It appears the pro-EU forces are going to attempt what was done with the Lisbon Treaty... keep having votes until the peasants vote the way the elites want. There is a push for a second referendum to cancel out the previous one.

Other reports is that the leadership will just ignore the vote, drag their feet beyond the two year mandate to leave.