EU – BREXIT Results – our thoughts
At KMG we had already considered all the issues and the following comments are how we see the future; albeit things will be very fragile and volatile as we work through a new world order for this is a global event.
Regardless of the result there was going to be a sterling crisis (your funds will do well because they are globally diversified in currency as well as regions, even if markets fall) and the world won’t end.
The Euro would have come under pressure at some point anyhow as it dawns on all that the fault lines are within the whole club, and the referendum has highlighted them pretty well.
There has to be a massive re think on the whole EU project following which a new very different treaty will emerge which most of EU including UK can live with.
In the meantime the BOE, FED, ECB etc will flood the market with so much liquidity to stop banks collapsing, much as we have done since the credit crisis of 2008. We will dribble along to another crisis which has to happen when we finally realise that the debt has to be written off. But this is likely to be years away.
BUT in the meantime three scary issues:-
- Trump is pushing the same voter dissatisfaction and with mountainous debt in the US, markets will remain nervous unless Clinton appears a clear winner, but this is not until the 8th November.
- The bank of Japan now owns 40% of all Japanese government debt and it is the top 10 shareholder in 90% of listed Japanese companies, everyone can see the dilemmas there and compare it to the EU. Yet the Governor of the Bank of Japan announced today they are poised to do more to stabilise their currency and markets.
- ECB is in magic catch up mode with the Japanese and is currently buying €50bn of debt in the market every month and we now have 10 Trillion of negative yielding debt, now that puts Trump and vote exit in some context!
As we voted to leave then all the above remain completely in place, except the deck chairs of the sinking EU Titanic get moved around.
Sterling and Euro currency crisis likely but otherwise:
- Fault lines remain
- New treaty will be negotiated
- More printing of money until we can’t get away with it
- Trump might win and will scare us all
- Japan, well who knows, because it’s real and must end somehow, some time (possibly like Germany in the 1930s?)
- 50bn per month BEING PRINTED IN THE EU etc. again for how long?
All of these things are just a time line issue to an eventuality of writing off the debt , or inflation through new currency creation (the Canadian central bank are working on digital currency now as a leader in this experiment) and combination of disruptive and compression technology may arrive fast enough to evolve a new world order.
The final problem however, is education and I am afraid the great mass of humans simply can’t cope with the speed of change which we are all bringing on ourselves every day and in every way as we embrace the technology which completely up ends all our lives.
It’s the final point which is central to the Trump and BREXIT campaigns and which is so disruptive. Will we look back at Jo Cox and see this as the straw, as with Prince Ferdinand in 1914, which led to unbelievable human destruction to sort out all our ignorance? I think not and I think the future is bright but extremely volatile.
You should have received this week a great piece of information about our performance against wealth managers.
Your KMG portfolio is in the best place as we move through the new understanding of life in the new World and it will take years to work it out. Your portfolio is globally spread and we will consider in the coming days the opportunities that become available. We will write again in due course on portfolio changes, but for now we hold tight.