After Brexit, 9 Reasons To Be Bullish On Great Britain

Authored by Daniel Stelter via,

Today Mrs. May finally officially announced Brexit and kicked-off the process of divorce from the EU. A disaster for Britain, according to officials in Brussels, Berlin and Paris. Really?

Rarely there is such broad consensus: The British voters made a huge mistake in voting for Brexit. The country will suffer for decades to come and deeply regret the decision while the EU and the Eurozone will continue to generate prosperity and peace for the continent. This view is predominant in the media of continental Europe and it is the key massage of its politicians, who fear nothing more than that other countries might follow the British example. Therefore the costs for Brexit have to be high and punishing.

Whenever there is broad consensus it is worthwhile to challenge it. Could it be, that the British end up much better off, than we think? Here are ten reasons why:

1.     No recession: According to experts from IMF to Bank of England Great Britain should already be in a deep recession. In case of a Brexit vote they projected a crash in the real estate market, a drop in consumer spending and a collaps of economic activity. In reality the economy grew faster then before. If the experts cannot predict the short term consequences correctly, how should they be right in the medium- to long-term?


2.     Good shock: The steep fall in the pound contributed to this positive outcome. This has the welcome effect of supporting exports and hindering imports, therefore kicking-off a rebalancing of the British economy, which ran a trade deficit of five percent of GDP before. Such deficits are not sustainable as we can see in the crisis countries of the Eurozone. Moreover the Brexit vote has initiated a process of modernization of the British economy just at the right moment. Lower taxes, more investments and a re-industrialization of the country can lay the basis for more growth in the future.


3.     Positive demographics: Latest by 2050 Great Britain will have the biggest population in Europe. Meanwhile the population and especially the workforce in most European countries will shrink at an accelerating speed. As economic growth depends mainly on the growth rate of the workforce and its productivity this is good news for Britain.


4.     Attractive for qualified migrants: The population growth is linked to immigration and the Brexiteers campaigned mainly on the issue of immigration. But contrary to the popular belief there are not necessarily anti-immigration, rather they want to introduce a systems similar to Canada to attract qualified migrants. This will become a major competitive factor when compared with the EU which has no such system and encourages immigration into social welfare. Not only will Britain have less issues with integration but also be more attractive as it will have a lower level of taxation.


5.     Leading Universities: Besides the world famous private schools Britain commands eight of the 100 best universities in the world. The EU (without GB) has 17 universities on this list, four of which based in Germany. World class universities will continue to attract the most qualified students from all over the world and Britain could like the USA leverage this talent to foster economic growth.


6.     Free Market tradition: A study by JP Morgan already showed before the vote, that the British economy has not so much in common with those of France, Italy, Spain and Portugal. It is more in line with Germany, the Netherlands, Sweden and Ireland. Consequently the authors concluded, that Britain would be better off outside of the EU as it would not anymore need to subsidize weaker economy. In addition the British have a tradition of a pro-free-market attitude which will make Britain ever more attractive compared to a EU dominated by socialist, redistributive and anti-market forces.


7.     Leading financial center: Whatever the hopes in Frankfurt and Paris, London will remain the global financial center. The competence will not move away and besides a few representative offices to fulfill EU-regulation not much more should be expected. On the contrary, a financial center with long traditions, its own currency and freed from EU bureaucracy might evolve into the new Switzerland of the 21. Century. A flood of money fleeing from the Eurozone in the coming years cannot be ruled out.


8.     Renaissance of the Common Wealth: Critics of Brexit ridicule supporters who dream of a return to the order of the Common Wealth, and rightly so. On the other hand, also given the changed stance of US politics it is not out of this world to imagine an Anglo-Saxon trading area including besides the US and the UK, Australia, New Zealand and Canada. Even the Scandinavian countries might be tempted to join such a club, especially if the EU and Eurozone continue on the current trajectory.


9.     Continued downturn in the Eurozone: Europe seems to head for a solid 2017. Nevertheless the fundamental flaws  of the Eurozone, notably unsustainable debt levels, a bankrupt banking system and diverging competitiveness remain unsolved – after eight years into the crisis! Add to this the complete failure of the EU to address the migration issue it is easy to conceive a continental Europe on path to another lost decade with significant political pressure building up. This will make Britain all so more attractive for those with talent and entrepreneurial spirit.

Of course the British economy has issues, notably the huge trade deficit, its dependency on the financial sector and its poor performance in educating broad sets of its population. On the wall of  the Brexit war room of the European Council hangs a cartoon based on the Belgian cartoon character Tintin. It shows a small boat in rough water on which the captain is firing up the flames. Title: Tintin an the Brexit Plan. The message is clear: the British have just sunk their own boat.

Another cartoon might be a better fit: the big European cruise ship has a broken rudder and a crew fighting each other. A small boat with good sailors is escaping the scene while the Germans look after it from the engine room with sad eyes.

When, after all, have the British really made strategic mistakes in the past decades?

Given the choice of putting my money on the ability to solve the challenges by the European union or the British, I would rather go with the Brits.

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Bank of America: “Our Clients Bought The Dip”

Having become a habitual response among the investing community, with sellside research reports dedicated to the phenomenon of buying the dip which no matter what the Fed does, refuses to go away…

…  it will probably not come as a surprise that as Bank of America writes in its latest weekly client flow trend report, following last Tuesday’s sharp selloff in stocks, “hedge funds & retail bought the dip“, in the words of the bank.

As BofA’s Jill Hall elaborates, last week, during which the S&P 500 fell 1.4% (the biggest weekly decline since early November), the bank’s clients resumed their post-election buying streak after a five-week break.

Among BofA’s main “smart money” clients, both hedge fund and private clients were net buyers for the second straight week, while institutional clients sold stocks for the sixth week.

Clients bought a little of everything: large, mid and small caps alike all saw inflows for the first time since early January, as a slowing in sales of single stocks was coupled with a pick-up in ETF inflows.

Predictably, Hall adds that “we could see more buying on dips by clients, as the strategy has worked in recent years and we expect to see both higher volatility and higher stock prices this year.” For those worried they may have missed the last of the BTFD opportunities out there, don’t worry: according to BofA, “the end of a bull market typically sees capitulation-like inflows, which have so far been absent, and the “Great Rotation” has yet to occur.

BofA lays out the other notable flows in last week’s action, among which broad-based buying of small caps, ETFs

  • Net purchases by hedge funds last week were the biggest since early January.
  • Hedge funds, institutions and private clients all bought ETFs and small caps, while all three sold the defensive sectors of Staples Utilities, along with Materials.
  • Pension fund clients were net buyers of US stocks after two weeks of selling, with inflows across all three size segments. Their biggest purchases were of Industrials and Energy stocks, while ETFs and Tech stocks saw the biggest sales by this group last week. For more details, see Pension fund flows.
  • Buybacks by our corporate clients ticked up to their highest levels since early December, led by a pick-up in Tech buybacks. This helped bring cumulative YTD buybacks in-line with 2015 levels over the same period, but below 2014 and 2016 levels and with trailing 52-week buybacks still their lowest in nearly four years.

* * *

Below is a breakdown of the rolling four-week average trends by sector:

  • Net buying: ETFs since early Oct 2016; Materials since late Feb. 2017; Staples since mid-March 2017.
  • Net selling: Health Care since mid-March 2016; Consumer Discretionary since mid- Jan 2017; Real Estate (not shown—flows since Sept. 2016) since late Jan. 2017; Industrials since mid Feb. 2017; Energy since late Feb. 2017; Tech since early March 2017; Utilities since mid-March 2017.
  • Notable changes in trends: Telecom is now seeing net buying after net sales since mid-February 2017.

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Researchers Discover A Gigantic Ring of Galaxies That Could Bring Einstein’s Gravity Into Question

Einstein’s theory of gravity explains gravity as a distortion of space that’s caused by the presence of matter or energy. This has long been considered the genius that changed science’s perception of gravity. However, researchers at the University of St Andrews may be giving Einstein a run for his money, having found a gigantic ring of galaxies darting away from us much quicker than predicted.

The 10 million light year-wide ring is made up of small galaxies that are expanding rapidly like a mini Big Bang. According to the researchers, at some point in time our neighbouring galaxy, Andromeda, flew past our own galaxy at close range, slingshotting off several small galaxies in the process.

“If Einstein’s Gravity were correct, our Galaxy would never come close enough to Andromeda to scatter anything that fast,” explains one of the team, Hongsheng Zhao from the University of St Andrews in Scotland.

The discovery, if proven correct, would create a whole new understanding of gravity and our cosmos, considering a galactic flyby is only plausible if, as galaxies move away from one another, gravity weakens more slowly than Einstein’s theory suggests.

“The ring-like distribution is very peculiar. These small galaxies are like a string of raindrops flung out from a spinning umbrella. I found there is barely a 1 in 640 chance for randomly distributed galaxies to line up in the observed way. I traced their origin to a dynamical event when the Universe was only half its present age,” says Indranil Banik, the PhD student who led the study.

“The high galactocentric radial velocities (GRVs) of some Local Group galaxies must have been caused by forces acting on them that our model does not account for,” the researchers say in their paper.

Furthermore, these galaxies exist on the same plane of the Universe as the Milky Way and the Andromeda Galaxy, which the researchers argue is unlikely to be a coincidence.

The tsunami-like wake in the sky, then, was likely the result of a near-miss of the speeding Andromeda galaxy with the Milky Way. Orbiting each other in a plane, the the two galaxies would have pushed aside dwarf galaxies in their trails. This may reveal why the speeding dwarfs are in a plane with the Milky Way and Andromeda.

“In Einstein’s gravity paradigm, hypothetical dark matter is always invoked. Such a high speed requires 60 times the mass we see in the stars of the Milky Way and Andromeda. However, the friction between their huge halos of dark matter would result in them merging rather than flying 2.5 million light years apart, as they must have done.,” Banik says.

Though we’ll have to see where this study leads, the possibilities it opens up for theoretical physics are exciting.

“Science progresses through challenges,” says Marcel Pawlowski, a Hubble Fellow at the University of California, Irvine, who elicited Banik’s discovery. “Together with two other known planes of closer-in satellites, this gigantic ring forms a serious challenge to the standard paradigm.”


Vía Collective Evolution