Tokyo based, expat Cape Bretoner. Learning to live in a de-leveraging world. Better suited to the crusades. CFA & FRM charter holder. Disclaimer: @Firehorsecaper reminds investors to always perform their own due diligence on any investment, and to consult their own financial adviser or representative when warranted. Any material provided is intended as general information only, and should not be considered or relied upon as a formal investment recommendation.
Joined Jun 23, 2015
89 Blog Posts

United Kingdom 2.0 – Installation Unsuccessful

FB_IMG_1466758529094 (1)

Note: Problems at the Channel Tunnel

#Brexit caught many off guard, including yours truly. Tilted toward European equities going in and even chopped around long GBP versus USD as the referendum results cascaded in (tight stops, thankfully).

I have read that the referendum was taken with as much seriousness as an opinion poll, but clearly the real life effects have had the finality of triggering a guillotine. The head has been severed and is “in motion’. A brief respite at 1.37 has given way to 1.32 versus the Greenback.

At US$2.9tln, the UK is the World’s 9th largest economy and the 2nd largest in the EU, but clearly not for long. The UK accounts for 4% of global GDP which to put it in context is almost 2 Canada’s (1.8x rounded).

78% of the UK economy is service driven, on par with the US economy. London is the largest financial centre globally, followed by New York, Singapore, Hong Kong and Tokyo.

In terms of financial market importance, some have drawn parallels to German re-unification in 1990. At that time, there was talk of London losing some financial centre dominance in favour of a Paris, Frankfurt, London triangle. Such fanciful plans never came to fruition. On this go around, the spoils could be strewn further afield, think Dublin, Zurich, Luxembourg, Hong Kong, Singapore, Bangkok and Mumbai.

#Grexit was enough to upset the EU yogurt cart previously (US$220mm GDP). #Brexit, scaled by GDP, is 12x larger.

The Fly was all over the UK S&P downgrade story this afternoon before I could get my wonky vaca wifi to cooperate and it was laid bare, a 2 notch downgrade to AA, remaining on negative outlook. Fitch, the Sanders of the rating agencies, also downgraded post close today by 1 notch.

Value has yet to emerge in global equities. Higher than usual cash balances should be employed in such a treacherous market environment. Think capital preservation. Clearly the baby is being thrown out with the bath water is some sectors, and values will emerge.

I’m keeping a watchful eye on $ING equity, down 20% since last Wednesday (versus -40% for RBS equity). $ING Exodus stats again signals at threshold for both tech and hybrid OS. A 7% handle on dividend yield served as a good threshold for buys coming out of the global financial crisis in comparable globally safe banks (dominated then as now by the Aussie and Canadians).

USD/JPY is a decent barometer of the patient’s risk appetite and we probably need a clear break above 105 over the next week to signal anything near “all clear”. JCG

If you enjoy the content at iBankCoin, please follow us on Twitter