Brexit or how I'll make a killing in forex

For someone in Britain? What it means practically really, is that your purchasing power suffers. Their savings are effectively worth less than they were as their currency devalues -- it costs more to buy anything. Their real wages are worth less. And most importantly maybe, to the central bank, the interest and principal on debt (because the low interest rates that permate the world spawn more and more debt and it is out of control worldwide, Britain included) is worth less. For you? Probably not much effect, other from the macro instability that currency moves create. Or unless you trade with Great Britain. Or if you want to travel to Great Britain. You can get more out of a vacation there for your dollars than you could a year ago.

The real story is that in a backward way, the British voters accomplished what Mark Carney and the BOE desperately want. We are in the midst of a global currency war -- every central bank in the world has been frantically trying to devalue their currencies. For the most part they have been taking turns, but when one is successful it comes at the expense of others. They are doing it by whatever means necessary -- and have gotten bold and radical in how they have intervened in markets. Suppressing interest rates (the old school way), but because the debt levels have gotten so high and taking interest rates too far negative is difficult, they have essentially destroyed various markets by essentially creating money or credit out of thin air and using it to purchases assets. Primarily in the debt markets (but some central banks are outright buying equities to create an illusion of a strong economy) -- to drive prices up and yields down. They are trying to steal growth that doesn't exist, by beggaring their neighbors. But in effect, since everyone is playing the same game, they have created a lot of public and private debt and robbed growth from their own futures.

It's short-sighted and reckless, politically-inspired "policy." And it will end disastrously. But in the short-term, what it means is that they can blow a few bubbles a little bigger, for a little longer, even as the global economy stagnates and there is unrest all around. The FTSE (British stocks) is at all-time highs, for example, on the back of the weak pound you asked about. So if you can afford to speculate on British stocks, you have made money on paper. If you are average Joe worker? Your paycheck is worth less. The central bank would consider the asset bubbles they have created a benefit, but it's phoniness -- there is nothing fundamental about it, and it will ultimately be unsustainable.

I've posted about the slow-moving train wreck the various central banks have created a lot on here -- this has been ratcheting up for a long time and is reaching a critical mass. As they lose control of the monster they created, and it has become more and more apparent to people that they don't have a clue (and are backed against a wall now) and have created terrible misallocations of capital (because what artificial interest rates do is encourage reckless behavior and crazy debt), more and more voices have been weighing in -- essentially to say that it won't end well. Here was Bill Gross' (a well-known bond fund manager) letter to investors yesterday, if you are interested. It's worth the read:

https://www.janus.com/insights/bill-gross-investment-outlook

In terms of the pound, Brexit accomplishing what Mark Carney wanted anyhow is significant for them. Despite what politicians have tried to convince people of, a weak currency isn't a good thing. It will rob people of their savings and making their wages worth less (via inflation), and maybe allow politicians to avoid making hard choices a little longer. But the pound isn't any different than the dollar or the yuan or the japanese yen right now, in that all of them have been destroying their currencies -- pretty much with sledge hammers. One might trade a little better at a point in time, relative to another. But in real terms, the purchasing power in all of those currencies has just degraded away and debt levels have gotten very extreme. It will go on until the next credit / financial crisis, and they have no more control. This time, though, debt levels are much greater than they were in the past, and the ability of the central planning banks to intervene has taken a major hit. So there will finally be a massive deleveraging (like the one that should have happened in 2008). That will mean a lot of suffering, but in the long-term it is the only thing that can allow all of the toxicity they created with reckless manipulation to flush out and for us to get back to a healthy market-driven economy.

 

Not sure how I see it. I think it can be a big positive IF the U.K. does the right things now. But I don't know that they will. If they don't, people will blame the wrong thing for their problems. The EU is a regulatory mess that has helped put a giant anchor on the Eurozone economies. It's not entirely responsible, but it is a major drag. There are going to be other countries leaving, probably, as nationalist sentiment keeps ratcheting up, as it has been. Denmark, Sweden, Germany, France, the Netherlands, Italy. ... they all have major political movements focused in part on getting them out. So the chances that the EU survives too many years into the future probably aren't that great. I suspect all that the U.K. did was be the first to abandon a sinking ship. Which could be great for them in the long run. Now the question is whether they want to free up their economy from overregulation and allow markets to work. If they succumb to populist nonsense and do stupid things, it won't be a positive. They'll just replace one anchor on their economy with other anchors.