Sunday, 26 June 2016

Brexit - Rolf's View

Britain surprised the world with a vote to leave EU after being part of it since 1973. 

Honesty it was not a big surprise to me. Well it's not that I am bragging after the result is announced! “Very lame”, you may think, but there are several truths to it. 

The uncertainty of the world and Brexit to a certain extent had led me to starting a series of Gold and Silver articles lately. Refer as follows:


It is not to advocate any buying/selling, but to allow ourselves to understand the precious’s metals’ history and its impact on the world when uncertainty is looming.  

Expect the unexpected these days! 

Majority of people here are almost certain that Brexit is a myth and even speculated in stocks hoping to profit from the eventual result. It is not uncommon. It is like saying PAP will always win all Singapore elections. This is mainstream thinking and nothing wrong with that. Yet, counterintuitive to normal belief, the unexpected sometimes do take place! The world is apparently going through a stage of anomaly these days. Do not be surprise if Donald Trump is elected coming November. In fact, There should be no political rant here, but I seriously do not see much long term difference between whether Clinton or Trump being elected as the president of the United States.

Always understand both sides of the coin! 

Recently, I read many articles and videos relating to the Brexit referendum and majority of the articles on papers are inclined towards "Remain". For a start, I was convinced about the benefits of staying too. Nonetheless, me being me, I usually will not allow myself to see or hear just one side of the story. I did some research on the opposite camp and come across a video as follows: 



In another incident last year while having dinner with my former British boss, we discussed about the same topic. Back then, I was pretty sceptical about the viability of Brexit. My perception was jolted when ex-boss told me his side of the story about why Britain will be much better off in the long run to be out of the EU. It is always more convincing hearing from the horse mouth - a local Brit in his mid 50s who travelled widely and someone I look up to as always logical and sensible.

With that, my views are more balanced.

Do not be over-confident even with familiarity, it is not sufficient! 

For many years now, I had worked with the Europeans. My current company also has hundreds of British employees. It is not unfamiliar for me to travel to UK and other countries in Europe, working with both internally and externally with British and Europeans. Considering that, and in addition to all the articles I read relating to Brexit, you may think that it's no surprise that I will consider myself knowing this referendum much better than the average people on the streets. 

Nah.... absolute not! 

The reason is clear. I am not a British, neither did I follow Britain closely as compared to China and USA. It is also more difficult for us to judge politically or socio-economically a country if you do not grow or stay there. This is despite the business aspect which I may have experience in. Hence if the only exposures we have are just by reading articles online, it is without a question – insufficient! With that in mind, I did not make any action speculating on stocks before the result, neither is it any easy to take sides.

Rolf's final thoughts

Many people thought a coin has two sides. Nope, it has three sides – head, tail and edge. I prefer to stand at the edge of the coin, rather than to take sides of head or tail if Brexit is the right decision. 

Good for long term only if...
Nonetheless if you were to ask me for my truthful personal opinion, I believe that Brexit is actually GOOD for Britain in the long run. That is provided that the British citizens can stay strong and united to create a brighter Britain of their own just like centuries ago when they were such a dominant force. It is absolutely not necessary to be part of the bloc to become successful.

Didn't we Singapore survive after leaving Malaysia? There are countries like Norway and Switzerland who are doing relatively better than their rest of European counterpart being not part of the bloc as well. 

Many believe that after Brexit, Britain will be on the way to decline. In my view, EU as a whole is already declining and even at a faster rate than Britain. Except for Germany who is doing relatively better, but yet also being heavily dragged down by the rest of Europe countries especially those in the south, I really cannot figure out what efficient and effective strategies EU will employ to stimulate the entire European economy. Perhaps there are only two things they will do. 

1) More stimulus to the economy by means of printing more and more currency and continuing creating an absurd negative interest rate environment. 

2) Heavily reliance on USA who already is a bigger ship with holes sinking.

So what make us think that UK can actually benefit from an already declining EU economy in the long term? 

Britain has their own strengths 
Britain has a long history of superpower being as an independent country. Being colonial masters of many Asian countries in the past, they are one European country who has not only good understanding of Asia but also great trading relationships today as well. I went to many local Asian countries before and they are generally always happy to do business with the British. In return, as from my experiences, the British are always more understanding to Asian cultures compared to the rest of the European countries. As I speak, London has also overtaken Singapore as the second-largest offshore yuan clearing centre in terms of payments processing volumes, just behind Hong Kong. This can spell great relationships with the Chinese without having the bureaucracy of EU who is also greatly influenced by the Americans in one way or another.

Short Term Pain
That said, this separation like any other divorces after so many years will be extremely painful in the short term. There will be problems like the need to find a new PM and formed a new cabinet, renegotiate trade deals with an EU who may bear grudge and make life difficult for the new British government. It is not unlikely that UK will need to endure one of their difficult few years ahead.

Not the best timing though
And worst of all, all the impending problems ahead of Britain is going to be worsened in a current deflating world economy. It is definitely one of the worst times to get into a Brexit. And this is the one major reason, why I will not vote for Brexit in a time like this! 3-4 years ago, it will be perfect when the economy is much more stable. It is just like for the Fed, 3-4 years ago, it will be better to raise interest rate.

In a nutshell
Brexit is good for long term depending on British people how they brace themselves, very bad in the short term and above all, taking place at the very wrong timing now! Good luck for the British!


16 comments:

  1. Hi Rolf,

    We do live in uncertain times. We are there when the EU is formed, and will likely be there to witness the breakup of it. Financial concerns aside, I think it's quite an honour to live through such times.

    However, I think even this shall pass.

    ReplyDelete
    Replies
    1. Hi LP,

      Hmmm.. indeed some uncertain times in the world now. Not sure if it's an honor, but maybe more peaceful one is preferred by myself.

      Whether we will witness breakup I am not sure, what I am sure is that Europe is too diverse in cultures to be amalgated successfully.

      Diff states in USA led by a federal govt worked better, bcos of similar background / culture compared to diff countries led by EU and each having their own centuries of Histories and cultures!

      Delete
  2. "Got caught", "Being prepared" or "Life goes on". Three side of your coin theory.

    ReplyDelete
    Replies
    1. Need to be prepared and plan in uncertain times like now, otherwise you can be "naked!"

      Delete
  3. Hi Rolf,
    Great article as usual.
    Brexit will impact EU more than UK as EU is structurally unstable. The real test for EU will come when Britain thrive and prosper after Brexit ie it may trigger referendums for breaking up EU!

    ReplyDelete
    Replies
    1. Hi Anoymous,

      Thanks. I am largely align with you. EU is not as effective as far as track records is showing.

      The biggest worry for UK is EU will make life difficult for them later! Politics is poison sometimes!

      Delete
  4. I think the biggest problem is the flow of people.

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    Replies
    1. yeah... SMK! hopefully Britain will be (I think they will) sensible enough to identify the good and bad immigrants!

      Delete
  5. Hi Rolf,

    Now that the markets of the world are throwing tantrums, nobody is sure it's only sentimental and/or theatrical or really justified for the longer term.

    Who really cares(except the British)?
    People in the market are all jostling for the best buying or selling positions as BREXIT seems to be the premonition of the death knell for EU.
    Lately, have you taken some good positions?
    Shalom.

    ReplyDelete
    Replies
    1. Hi temp,

      It's really difficult to tell if it's just tantrums or permanent decline, just like a man-woman relationships! Haha...

      Frankly like u, I m not so concern about Brexit. Rather I am concern that the world is in deflating mode...

      For stocks, I am standing at the sides, no position! STI is just moving up and down within band of 2700-2800 n it's not really interesting.

      I added position in silver instead n not gold bcos I think silver is reasonably priced!

      Shalom to u as well!

      Delete
  6. Hi Rolf,
    i applied for FLT IPO - Whole family before BREXIT.
    If BREXIT happens just before FLT IPO, i wonder I dare to apply or not?
    In fact whether FLT underwriters will carry on or postpone like Manulife Reits.
    (Pssts...Underwriters always very careful not to become Undertakers -99.999% POW CHIAT ONE)

    Of course the reasons is not the same but it's always the Sentiments of the Markets come first for all "BIG SHARKs"
    Ha! Ha!

    ReplyDelete
    Replies
    1. Hi temperament,

      The big winners are always the one closest to the source! Yes indeed, the big sharks! Maybe Brexit has bigger n heavier headlines than it actually is and weighs. Perhaps after sometime, the market will gradually forgets!

      I do not think Brexit posed a structural concern to the world market just like Grexit was over exaggerated too.

      The key concern is massive currency supply causing inflation in financial assets n real estates, n not real output over the past few yrs! Now it hits saturation and economy is deflating where even the low interest rate environment is unable to stimulate anymore! Up to a certain stage of deflating, Central banks will come out with new tools!!! And that is worrying bcos market may well rally one last time causing bigger n worst ever bubble.

      Therefore any hiccup news like "Brexit" will cause temp upheaval.

      FLT - I not sure, but hope u got it right! Cheers :-)

      Delete
  7. I feel it's a good thing for Britain.she joins the euro n get those benefits of a common market yet gets to control it's currency.now with the euro going into a deeper slow down the reasons for joining it probably is no longer there.
    On the contrary I think it's a good time they exit now.when times are good why would anyone think of exiting. The migrants issue in euro they are able to avoid it.the sovereign debt issues that affects the euro is also not their problem. I think in the future they should be able to design their country according to how it fits into the world in a most suitable manner.its who is worse off rather than what it stands to gain

    ReplyDelete
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    1. Hi Workhard,

      Yes agree with u wholey except for exiting timing.

      Will u exit ur stocks during good times or bad times? The logic is same. Now economy is deflating and UK is not doing any better also.

      So UK have to deal with multiple problems now, new PM new cabinet, economic issues etc.

      If they exit few years ago, then will likely have stablise now their cabinet and in full control to deal only major issue of economy!

      Just my opinion. U may be right, but I prefer to be contrarian doing in opposition what normally the mainstream thinks.

      :-)

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  8. Regarding the exit timing, i agree with workhard. Less incentive to exit during the good times and more so during the bad times. As a country exiting a common market, there are political as well as economic aspects. Not the same as an individual exiting the stock market during good times.

    If Britain exited during the good times, much more naysayers would come into the picture when the bad times arrive to say 'i told you so'. Conversely, when they exit during this 'bad time', when the good times are here and Britain do much better than the EU countries, 'i told you so' cannot work. But doesnt mean 'all boats are lifted when the tide is rising' saying wont be thrown at them. Might be more painful now but they will harvest in multiples in return when the next cycle kicks in.

    Different factors at play for both country and individual ;)

    ReplyDelete
    Replies
    1. Hi HK,

      Good to have an alternative opinion again and it makes me re-think!

      I think you rightfully pointed out about the political aspect. You and Workhard are right about this point which I missed out. I appreciate your different in opinion.
      And also relating to individual and country is different. Just like running business (trump) and country is diff!

      The masses will never feel anything when time is good and so politically Brexit will never even in the referendum proposal let alone the actual vote out of EU.

      Honestly the masses in history of mankind often make decisions base on self interest - although not all the time if there r a great leader around! Perhaps if it's not LKY we will be in still part of Malaysia. The minority will rarely sacrifice for the country/big picture.

      In essence and considering an utopia society assuming that masses cared more the big picture, then it's still more beneficial to exit few years ago considering now the problems will probably pile up going fwd. But reality is always different!

      Perhaps that is why Christians believe that Jesus have to sacrifice painfully to clear all the sins of all the people!

      Delete