Before I start it has taken me 2 weeks to calm down after the UK voted to leave Europe. My writing style is a stream of consciousness written quickly to try and capture my essence and thrust at a particular moment in time. This piece is not totally financial but hopefully it stirs some interesting ideas I apologise in advance if anyone takes offence as I am rather direct.

The above picture was taken in 1937 for 70 years it was was used by many in the UK media and beyond to try an impart the inequality and class division in the UK and especially England. 

Take a look below on the left hand side and you will see another picture also taken in 1937 but used by the Nazis as propaganda to frighten the German people. Beside it is a poster that was publicly displayed during the UK referendum. To me it is a modern day copy.

The headline shows migrants with the headline “Breaking Point: the EU has failed us all” It shows mainly non-white refugees and migrants. Quite simply its an incitement to hatred ! For politicians to peddle such ignorance and xenophobia is a sad reflection on English society.

 

Remember the great vision of Winston Churchill who had the moral courage to promote a vision after the Second World War of a European United States in which Britain would play a key part. Take a look at this old Pathe film footage of Churchill’s speech ‘Europe Unite’ (1948, The Hague,Holland)     Europe Unite

Also if you have 4 minutes listen to Jon Danzig’s compilation of Churchill’s speeches  Churchill’s Antidote to War

In 1986 the BBC produced a satirical sitcom based on British politics. Take a quick look at this clip its only less than 2 minutes. Its nearly 30 years old. It will certainly make you think. Yes Prime Minister

Now lets get down to business. What does this all really mean for business.

The first thing is Europe has to make the UK eat shit. Sorry for the expletive but its the simplest way to say it. I speak very directly so this is what I see. I have been reading the anti European headlines in Robert Murdoch’s red top rubbish newspapers like the Sun and the Star for over 40 years. Now you have what you want and to everyones amazement we all see that they have no plan what so ever. Be care full what you wish for, you just might get it. The politicians all talk about delaying the triggering of Article 50 of the Lisbon Treaty, some say 2 years and I even heard one say 7 years! What a hapless unorganised joke. The truth is that you can’t have your bread and eat it. You will be forced for clarification. And I think it will be quicker than we all think. Make sure to close the door behind you.

UK banks need a footprint within Europe and are openly talking about moving to other European capitals like Dublin, Amsterdam, Frankfurt, Paris and Lisbon. Dublin should have a clear advantage.

European business will cut back on investment in the UK. The FTSE250 is at 15,933 today, I see it easily dropping to 10,000. The FTSE today is 6,556 and could easily drop to 4,000. So stocks will drop.

UK consumers will defer spending on thing like holidays and big items like cars. House prices will fall especially London property as its financial centre looses ground to other European centres. I can see this happen as I write in Dublin. As of yesterday 5th of July there are over 18 billion pounds now frozen in property funds that have stopped(gated) investors from selling out of their funds. Names like Henderson Global Investors, Columbia Threadneedle, Canada Life, Aberdeen Asset Management, M&G Investments, Aviva, Standard Life and BlackRock Inc.

As of yesterday France’s official GDP is 2.182 trillion euros against Britain’s 2.172 trillion euros making it the 6th largest economy not the 5th any more. Britain only accounts for 4% of the worlds GDP. So good luck rustling up some business in Peru, Mexico or Vietnam because your going to need it.

The night of the vote you can see that from 4am in the morning that there was a large increase from the UK in google searches under the term “Irish Passport”

Downgrade for Britain

As of last week all three financial ratings agencies Standard & Poors, Moody’s and Fitch have all downgraded the UK’s credit rating. Standard & Poors went as far as to say that they forecast a “significant slowdown in 2016-2019”.

Fitch stated “uncertainty following the referendum outcome will induce an abrupt slowdown in short-term GDP growth, as businesses defer investment and consider changes to the legal and regulatory environment.”

Fitch stated that future developments could result in:
-Evidence that Brexit is having a more harmful impact on the UK economy
-Worsening public finance developments leading to a continued rise in the government debt to GDP ratio.

I don’t speak financial lingo but that don’t sound good to me.

I know I’m going on a little but I’m nearly there. I see that airlines like Ryanair are now directing future investment away from Britain. Their announcement last week said they would divert 1 Billion Euros away. Also Wizz airlines have made a statement saying they will no longer invest in the UK. Easyjet are formally seeking another air operator’s certificate (AOC) outside of the UK following Brexit. I won’t even talk about British Airways who I know have had a profit warning but a correction of 32%! Before Brexit vote it was 531p and today 361p.

Take for example a place in England like Sutherland. 7,000 local jobs depend on its local Nissan car factory. Half of all its cars produced go to Europe and yet 61% of the population voted to leave? There’s an old saying ‘Never underestimate the stupidity of people.’

Final Financial Thoughts

I see the GBP(Great British Pound) has lost one tenth of its value in a week against most of the major currencies. Regarding the Euro £1 will get you €1.17 today, to me this is heading for parity. If I was a gambling man I would say much lower like €0.90. Maybe they should take the G from GBP.

The rate for investing in 10 year bonds(bulldogs) and the shorter term 2-5 year bonds are decreasing which means that big investors think the UK economy will slow. To combat this Carney will reduce interest rates. This will further weaken the British Pound(BP) and also cause inflation.

As we have seen all over the world the next action is very predictable, yes you guessed it Quantitative Easing(QE). Printing money to buy your own bonds. Boosting credit and pushing money into the economy. As the interest rates approach going negative you get instability. Biggest looser here will be the banks and anything to do with property. Public finances will take a hit forcing the government to raise taxes and cut spending. If there’s one thing the markets hate, its uncertainty. Well to me it looks like a there is very little.

The damage that Johnson, Gove and Farage have inflicted will take time to appreciate. The first two went to Eton where I think the picture at the start of my blog was taken back in 1937. Johnson known for his knowledge of English literature must have never read the line in the book ‘The Scandalous Man’ which says “The hand that wields the knife shall never wear the crown.”

Like a Tommy (British soldier) crossing an enemy minefield on his own putting his foot down and hearing a click as he steps on a landmine. He looks around looking for his comrades. Unfortunately there’s no one there. Even if its not a land mine, he will probe forward in the smoke and haze not knowing whats ahead?

Europe as we all know needs certain reforms. Unfortunately in our hour of need you were not there, unlike your forebears. Wish you the best of British luck!

Pearse Coughlan, 07/07/2016