European triumvirate does the splits over Brexit


News from France is not good.

The end of April featured two nights of frost in Bordeaux. Cognac, Bergerac and other regions took a hit too. The French Bordeaux Wine Syndicate released the devastating news. The economic hit could amount to €2 billion and a lot of missing wine.

Apparently the wineries resorted to using helicopter down-draughts to try and keep the vines warm. In addition to the more traditional method – candles. Hopefully not at the same time.

Obviously Bordeaux’s ruined grapes are a bad omen for France’s new president. The centrist Emmanuel Macron won easily in the end. 65% of the vote is impressive these days. Hillary Clinton called it a victory for the world. But it still leaves a lot of French voters favouring some drastic anti-EU policies.

There’s also the case of the missing votes. 10% of ballots were blanc or blank. Before you chuckle away at the idea of French people bothering to cast a ballot but forgetting to mark the paper, consider that this was a protest vote.

Choosing between a banker with an offshore account in the Caribbean and a closet racist is apparently too hard. The blanc vote is to show they want a better candidate next year. Good luck with that…

The markets went a little haywire as the news of Macron’s victory emerged. Stocks took a hit, but only to the levels seen before the polls suggested an easy win for the mainstream candidate. It was probably just traders closing their long positions. Gold tumbled too as people reversed their bets on an upset victory for Marine Le Pen.

The Tories also dominated last week. Local elections swung heavily their way.

Everything is returning back to normal in the political world after Brexit and Donald Trump rocked the boat. Even Ukip could be in trouble thanks to the Tories’ updated stance. Theresa May may be doing the obvious in repositioning her party, but she has the guts to do it and it’s working well.

Britain’s local and coming national elections seem to be one of democracy’s occasional successes. We didn’t have to elect a Donald Trump to make a change. Our politicians are fickle and ambitious enough to carry out the will of the people. Or they resign.

Macron vs Britain or Germany?

The big question now is how Macron positions himself over Brexit.

One of his biggest motivations is to rival Germany’s power in the EU. German chancellor Angela Merkel has recently taken a tough stance on Brexit. And so the easiest way for Macron to gain an early victory over Germany is to favour conciliation and smooth talks with Britain.

It would make sense for all the reasons I’ve been covering in Capital & Conflict. And once Merkel’s own elections are done and dusted she will come around too. Macron could become the man who made Brexit palatable for Europe.

A softening stance from the EU is already in the air. The president of the European Council criticised the president of the European Commission for his anti-Brexit media circus of last week while the president of the European Parliament stayed quietly in the background. The European triumvirate of presidents might be playing a confused version of the good cop/bad cop routine.

It’s worth pointing out that a little game theory tells you what is probably going on. Politically the politicians involved mostly benefit from a bit of a stoush. They need to look tough in front of their electorate. Bashing Britain is an easy opportunity. But economically the solutions are obviously a good deal.

You can probably take the theatrics for what they are – theatrics. It’s an expensive form of entertainment given their salaries and expenses. But it’s still good fun.

Financial markets are much the same these days. They’re turning into a façade too.

Buying stocks with monopoly money

What is the value of the Swiss National Bank’s holdings of Apple shares?

The correct answer is “Huh?”

What on earth is the Swiss National Bank doing with almost $3 billion worth of Apple shares and more than $1 billion worth of five other big American companies?

Central bankers as a group are pumping money into the economy at a record pace in 2017. Why?

Is there a recession somewhere we don’t know about? Are stockmarkets crashing? Are governments experiencing a funding crisis?

No. And yet the central bankers are on panic stations. They’re frantically buying anything they can get their hands on.

This is the new form of central banking. They’re now into administering preventative medicine to the economy. Or the medical morphine has become a recreational addiction, depending on your view of central banks to begin with.

Analysts at the investment banks are warning that the financial markets are overly reliant on the stimulus. Just as in the past, when it ends the markets will fall. 2008 happened after the Federal Reserve raised rates, for example.

But nobody is asking why the stimulus should end in the first place. Nor why it couldn’t begin anew at the slightest sign of trouble.

We now live in a world where central bankers rescue everyone and buy everything. Why have a crisis in financial markets when you can choose not to?

Perhaps central bankers are the force that will push the FTSE to 15,000. That’s what Akhil Patel is predicting based on a very simple idea. Financial markets move in cycles like everything else.

Identify the cycle and where you’re at, and investing becomes easy.

Until next time,

Nick Hubble
Capital & Conflict

Category: The End of Europe

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