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British Sympathy


If you were tired of the breathless coverage of the Mueller report over the last two years, then find some sympathy for our British friends, who have dangled at the end of the Brexit string even longer.  Their angst is clearly worst than ours.  After failing as badly as any elected body in modern history, their Parliament is likely to permit a “crash-out” Brexit in just two weeks, with no-deal.

Nobody knows what that will mean.  One example is that McDonalds and Burger King have both announced their supply chain will be disrupted, affecting their menu and level of service.  Other supply chains are also impacted but to what effect?  Nobody knows!  Pricing relationships also change.  The Bank of England said their GDP could drop as much as 20 percent.

On the principle that the stock market is smart money, I haven’t worried too much about Brexit, so far, because the British stock market has held up rather well.  That could change quickly on Monday morning.  There is zero possibility that Brexit is good for the British economy in the short term and a small probability in the long term.  Increasing uncertainty weighs heavily on stock prices in every country.

I was concerned about systemic risk to the global financial system, because London is the world’s second largest financial center.  Fortunately, over $1.4 trillion has already moved out of the London market over the past year.  That systemic risk has decreased.  (However, for some reason, jobs in the financial sector seem to be migrating primarily to Amsterdam, not Paris or Munich?)

Sadly, the fingerprints of Russia are also all over this tragedy.  Leading up the original Brexit vote in 2016, Russia planted stories in social media that the arrogant EU was conspiring to permit more immigration, which is the “boogie-man” of populism everywhere.  Since then, the Russians has obtained data showing those most likely to be impacted by globalization, by immigration, and those who have an anti-government history.  They are being fed a steady stream of both true and untrue stories about immigration and EU arrogance.  Propaganda works!  No collusion required.

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