Asas Connect

British equities and recession in the sceptered isle!

Business building

David Cameron, Wall Street’s elite, Mutti Merkel, Obama, the Eurocrats of Brussels, the great and the good of the City and the IMF’s Lady Christine all got it so horribly wrong. I slept Thursday night with sterling at 1.50 on New York and awoke to see it trade at 1.34 on Friday, a 30 year low before the Plaza Accords. Britain has voted to leave the EU and Scotland’s Chief Minister has asked for a new referendum. The next domino to fall could well be Mrs. Merkel, Mother of Europe now that Cameron has committed political hara-kiri. There is now other way to gloss over the fact that, alas, all bets are off in global markets. I never thought I would live to see the day Nigel Farage sounded Churchillian, though with a hint of Lord Haw Haw’s sinister sneer. But I did.

Brexit will have a chilling impact on capex, growth, jobs in England (UK for how long?). Recession is certain if the Bank of England does not stimulate the money markets with a £80 – 100 billion gilt purchases. Morgan Stanley plans to move 2000 employees to Dublin (great) and Frankfurt (awful). This is the tip of the iceberg. Property prices from office towers in the City to cozy pied-à-terre in Belgravia, Mayfair, South Ken and Chelsea will plunge. Battersea’s offplan leveraged Ponzi scheme on the Thames? A 80% price fall in 2017-18.

I see no reason to buy sterling now as the Old Lady of Threadneedle Street has no choice but to resort (lender of the last resort!) to money printing if the recession deepens. It is also dangerous to bottom fish in British equities as profit forecasts will darken this autumn. Bookie stocks in London deserve to be shorted or even delisted for providing such lousy pole forecasts. They should stick to Kim and Kanye or Premier League WFG chav stories. It makes sense to position for second round geopolitical and financial shocks as Article 50 is invoked and the Tories begin another civil war now that Cameron has deprived them from the pleasure of a Thatcher/Heath style regicide.

UK economic growth will take a hit as the Foreign Office and Downing Street rearrange international economic relations. My friends on London currency desks tell me that the Swiss central bank intervened to stem the franc’s safe haven spike. I have loved gold and gold miners, (up 90%) since 2015. Cash is king, queen and grand vizier to me as I see asset prices slammed by contagion.

UK equities will benefit from the pound’s fall only when it bottoms – too bad they do not give us an electric shock in the derrière when this happens. Yet can the Bank of England really kick start the UK economy with rate cuts alone amid such protracted geopolitical and financial market volatility? No. Recession is certain.

UK bank shares, UK property firms and German machinery exporters are obvious shorts in this milieu. The pound is in free fall and can well fall to 1.25, lovely for UK exporters (Diageo, Unilever, Burberry, Victrex) while a disaster for banks and property, the reason Lloyds, RBS, Barratt, British Land and Persimmon are down 20%. The shock to the UK economy is far too traumatic.

All my friend, mostly fund managers and merchant bankers in the City, voted Remain. However, the cabbies I took in Chester and York (went to see Roman and Plantagenet ruins!) were informly Leave, as was my favorite pukka sahib Brit. CIO friend at a major Omani bank in Muscat.

Gold outperformed every other Brexit strategy hedges I know, with its 7% stellar move. I would not commit capital now as there is major blood on a Street far too complacent about Remain. We saw a 25% hit in Japanese equities but the Bank of Japan cannot risk 95 yen and the death rattle of Abenomics. This means massive intervention in the yen money market in Marounuchi, an argument to buy the Nikkei index fund (symbol EWJ). Expect to hear the Federal Open Mouth Committee (FOMC) jawbone markets in high decibel count as the terrified hoofbeats of the Wall Street herds trigger panic in the court of Mama Yellen. The capitulation trade? Deutsche Bank, UBS, Credit Suisse and, yes, Barclays Bank PLC!

Latest posts
Follow us
Global Investment
Scroll to Top