$2tn market loss on Brexit is a catalyst not the cause

Churchill

Let’s be very clear. The Brexit vote is not the cause of global financial markets taking one of the biggest single day baths since 2007. $2tn is a lot of money but Brexit is a catalyst, not the cause.

Equity markets have failed to break all time highs for months. As I have been repeatedly calling, the world is in extremely poor financial shape. We are accumulating too much debt and the advent of negative rates is forcing investors to go further out the risk curve. I’ve argued for a long time that government market manipulation is going to have drastically negative impacts. The crash in Japan on Friday is evidence of the Bank of Japan’s abnormally high participation (c.60%) which damages free float and liquidity. That just makes market falls even more aggressively because the options to hedge out leveraged ETFs see large scale delta bleed on negative sentiment…i.e. the price of risk goes sharply up accentuating market panic…it becomes self feeding.

Here are a plethora of reasons in no particular order as to why it isn’t Brexit that will cause further market rot as much as it will be used as an excuse

Central banks have lost control of Velocity

Global debt doubled in 16 years to c. 300% of GDP

China bankruptcies up 53%,

US unemployed trend back to 66yr inflection point

Central banks already starting to panic 

Several EU banks heading for insolvency

China fixed assets at 16 year lows

So this is a small selection of global risks that can’t be used as excuses to blame Brexit. In fact this is why i refer to Brexit as a master stroke. The UK won’t want to be 100 feet from Europe when the financial house of cards comes to a grinding halt. Full flexibility in exchange rate, interest rates, taxation and democratically elected governments should pave the way for the UK and people will look back at June 23 2016 as a great day for the plucky Brits

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