The Crushing Brexit Wave From Europe
So there’s this girl, we’ll call her Brit, and she bumped into this cad who, through your standard string of lies and emotional manipulation, convinced her to have unprotected sex.
Brit was caught up in the heat of the moment and threw caution to the wind, because that moment felt like freedom, even though her pursuer isn’t that smart, and the promises he was slinging sounded too good to be true.
The guy — we’ll call him Nigel — smiled when he saw his conquest, in that creepy way liars do when you know they’re hustling you, and said to Brit in a smarmy tone, “See, I told you you weren’t gonna get pregnant.”
Which is, of course, just a way of illustrating the ignorance spewing from certain corners of the economics, media and British political communities these days as they confidently point out that “see — we told you Brexit wasn’t gonna cause any problems.”
To which I say: “It’s only the morning after. You know nothing.”
We’re now in the waiting game. Soon enough we will know if the rabbit died. And based on the way global economics works, I’m betting this particular rabbit has a date with rigor mortis — and that undeniably impacts us here at home.
Economics isn’t a science terribly fleet of foot. Reactions to initial inputs take time to manifest.
Just because, for instance, tens of thousands of restaurant workers don’t instantly lose their job when minimum wages rise doesn’t, ipso facto, mean minimum-wage rises have no negative consequences, as so many higher-wage proponents have blathered.
Seattle and D.C., both of which raised local minimum wages more than a year ago, are only now seeing demonstrably slower growth in minimum-wage jobs than is occurring in the surrounding communities that didn’t raise the cost of labor. The wage laws are hurting the very people they were intended to help. Gosh, who saw that coming?
Throw a rock into a pond and it takes time for the ripples to disrupt an ant pile built on the far shore.
Brexit is no different.
Britain’s Big Brexit Questions
Only three months ago Britons cast their stone into the pond. In economic terms, that’s like judging the likelihood of pregnancy on the morning after. You can make all sorts of meaningless assumptions, but the only thing you know with any certainty in the immediate aftermath is that there’s a chance — maybe a frighteningly good chance — you made a big, life-changing mistake last night … and only time will tell.
Right now, everything looks calm, and Britain is back to chugging along without a problem. The FTSE 100 is up nearly 12% on the year, bouncing back from its slump following the vote and almost doubling what our own S&P 500 has done this year. Everything is just rosy, right?
The fact is that business-relocation decisions take time to percolate as management goes through detailed cost-benefit analyses, and as they feel out potential opportunities in various target cities that are now looking to poach British companies by offering relocation incentives.
Many executives are already looking in that direction as global auditing firm KPMG recently reported that three-quarters of executives surveyed are considering moving their headquarters, or at least some of their operations, out of Britain so that they can maintain easy access to the EU market. Moreover, there’s a very good chance The City, London’s version of Wall Street, loses its preferred status as the financial capital of Europe, a blow that will kneecap the U.K. economy.
Trade negotiations, meanwhile, take years to hammer out, and the degree to which European bureaucrats punish the Brits (a highly likely probability, despite British Prime Minister Teresa May’s delusions) won’t be known until it’s tackled during those negotiations. How will Britain implement Article 50 (it starts the process of terminating Britain’s membership in the Union), and what will be the direct and indirect impacts of that on consumer and business sentiment, trade and the currency, already at 30-year lows?
Will Scotland and Northern Ireland flee, cutting percentage points off the British economy, which would then impact the currency and economic sentiment globally?
Did Brexit fuel a similar fire to leave the European Union among Italians and the Dutch, which would have catastrophic impacts on the EU and, again, global economic sentiment?
Did it embolden Catalonia (think: Barcelona) to finally pull itself free of Spain, which, also again, would cause an irreparable tear in the EU?
Like I said, let’s give this some time to gestate. It will take years before the real impacts of Britain’s lustful mistake are known.
Already, though, signs are evident that all is not so copacetic in, and because of, the British Isles.
Waves Across Europe
Globally, latent worries exist that Brexit exacerbated concerns that Europe is an increasingly unstable continent. I’ve heard that now in various places I’ve alighted, from London to Moscow, and in conversations I’ve had in Asia. That’s important to us here in the States, because an unstable Europe imperils the European consumer market (the world’s largest), which then has painful impacts on the U.S. dollar and already struggling U.S. manufacturers … and that would rip through the global economy.
The British pound has plunged to levels it hasn’t seen in more than a generation. Because currency values are to individual countries what stock prices are to individual companies, action in the pound signals longer-term concerns about the British economy.
Norway is balking at the prospect of allowing a post-Brexit Britain into the European Free Trade Association, a tiny collection of European countries not part of the EU, but which have access to the European single market. Norway is the association’s big kahuna, but the six-times-larger British economy would instantly swamp Norway, and the Norwegians, rightly, are concerned about losing their swagger. That undermines some of the original rationale for Brexit and weakens Britain’s position in the continental economy of tomorrow.
Sentiment toward Britain’s political scene is fading. The country is adrift politically and, much like America, is riven internally by deeply divided beliefs among Britons. That has the capacity to tear the country apart geographically at some point.
Big Changes Are Coming
Like I said, we need much more time to know exactly what Brexit really means to Britain, the EU, the global economy and, germane to us, the U.S. economy.
As these questions I’ve raised are answered and the impact of Brexit becomes clearer, I’ll be looking for opportunities in both Britain and across the EU to take advantage of the changes for my Total Wealth Insider subscribers.
Knowing the ways that seemingly unrelated dots connect globally and the time required for initial ripples to grow into bigger waves, I am quite certain that Brit was rash when she succumbed to the stories that Nigel was slinging … and that, in due time, the world will be forced into dealing with the tremendously negative social and economic ramification of her actions.
Until next time, good trading…
Jeff D. Opdyke
Editor, Total Wealth Insider