I’m not sure why the EU is a “liberal international state” as opposed to “conservative”. It gives an indication of the author’s biases.
“The free trade agreement has been increasingly opposed by Mexican and U.S. farmers, with many groups and the political left presenting that it hurts the interest of traditional, small and local farmers in both countries. Allegations of violations of labor and environmental laws have been considered by the trilateral institutions. The Bush Administration argued that NAFTA had had modest positive impacts on all three member countries, but Mexican farmers have strongly criticized the effects of the agreement as they have become overshadowed by the large corporations benefiting from NAFTA.” Foreign relations of Mexico - Wikipedia
This article presents the vote for leave argument quite well:
We should all be interested in Fair Trade, not Free Trade.
I listed many things I might buy if I was in the buying mood - (although, again, I am not buying any and haven’t put all that much thought into them). I could likely add senior debt in banking stocks for the best UK / European banks, many of which are now at .5 book /value. I am not buying any of those because my portfolio has stayed roughly flat through all this and I am happy with my positioning.
What are you buying specifically? I would look at Value / Quality screens for UK and Germany based stocks and look to buy now - either with or without a currency hedge (I’d likely buy without right now).
My statement that the world economy is, and will continue to see huge challenges (in my mind the largest since WW2) over the next 20 years has nothing to do with Brexit (or very little). It has to do with the extreme potential for massive dislocation due to rapid technological change. I have had this feeling for at least 5-6 years, and there are dozens of papers and academic studies and white papers on all of this. And it’s definitely not a timing signal for buying or selling stocks. Just a concern for the world my children will inherit. I have talked with or read articles from many tech entreprenuers in the US with the same feeling - their companies are ‘taking value’ by automating jobs that used to provide livings for millions of workers - only now the benefits are all accruing to a dozen or fewer people (or 90% of the gains). The current ‘best solutions’ to this problem being talked about in the US revolve mostly around a ‘guaranteed basic income.’ Which, a) will be very, very hard to pass and b) isn’t that great a solution. Most people want to work and want to feel that they matter.
As far as the ‘have’s’ giving up what they have easily, that’s hard to see happening without some real social unrest and ‘fear’ and instability - that’s usually what drives concessions historically.
So, my ‘investing’ outlook is very short-term (2-5 years at a time), and has little to do with the macro trends I see making life increasingly volatile and hard for lower and middle classes.
Tom - the idea of basic income helps people get out of the welfare trap, and also allows people to take entrepreneurial risk (i.e. start a small business). That being said, the basic income I’ve seen being tossed around is a pittance and I’m not sure anyone could live on it.
Also I see huge challenge in the massive debts ALL governments are piling up. This is as much a challenge as technological change.
Steve obviously there is hindsight, but if we look at them as standalone investments their expected returns after inflation are very low unless we fall in permanent deflation. Core inflation is not pointing to that.
I fear Brexit it’s adding pressure, through another spike in risk premiums, to the most important economical dynamic since the financial crisis: deleveraging.
Technology plays its part, but I think it is more a supply/demand imbalance. The richest segments of the population are going to retire soon and saving accordingly. PERCIVED interest rates are so low that savings rate is going up for even other segments because people are worried about not having a decent retirement income. Companies are still shrinking their balance sheets in Europe (debt2ebitda from 8 in 2007 to 4 today) and Japan, not to mention banks all over the world for regulatory purposes. Technology makes less money necessary for investments (each Facebook engineer created $500M mkt cap!) and central bankers are adding a tremendous force to the demand of fixed income.
Repercussions are evident and who knows how long will the current envivroment last.
A drastic example of discrepancies are super long maturity bonds for currencies under QE: for instance, if you look at 30yr German inflation linked bonds, implied breakeven inflation went breifly below 0 yesterday.
I’m pretty sure that holding ultra long term bonds now is definitely not a contrarian or value play, it’s a momentum one. I like momentum, just be sure to use it appropriately. In addition, they are still a very good hedge.
On piles of debt, the aggregate deleveraging cycle (in developed markets, but probably even in China soon) it’s a tough issue because of its drag on potential growth. Stable growth and inflation are needed to get rid of debt. After all UK managed to bring down debt/gdp form 240% to 40% after Napoleonic wars with average growth and inflation around 2%. It took almost a century, but after all that wasn’t a bad period.
I’ve heard some podcasts on this. When talking about technology they often wonder why the growth in productivity is not so good now and whether technology will lead to increases in productivity in the future. They often say Twitter is great but we are not more productive because of Twitter; or say that having your car drive for you will not lead to more productivity. Mostly speculation or anecdotes in the podcasts.
I think this might be an important piece. Seems like there will be more to go around if new technologies do lead to productivity increases. It will be easier to figure out how to divide a pie if it keeps increasing in size.
Alan Greenspan recently said the problem in western economies is that productivity is not growing as fast as entitlements. That gets into a political debate (sorry about any previous political debates) and Alan Greenspan has not been perfect in his predictions and analysis–to be sure.
But, perhaps, this translates into a discussion about compensation for workers displaced by technology-especially when you hope that some of that technology might increase productivity.
What have you read much about productivity when you read about this?
As far as productivity. The main proponent of the ‘growth is going into more and more ‘trivial things’ or leveling off’ is Peter Theil. Marc Andreeson has taken the other side. They debate on You Tube around this.
See:
( I actually found Marc Andreeson’s arguments a little more compelling here as I recall - neither was great though).
I agree that ‘growth’ is a good goal (within reason, and ideally in productive sectors of society). But, there will need to be some rethinking of the basic social contract in many countries and globally - whether on the left or the right.
It’s not really growth that’s the whole of the issue, it’s the rate of the change and the ‘time needed to retool skills’ and get hired. As long as there are enough ‘young people’ with tech skills coming in and new tech jobs, an economy can keep growing - but the more instability created and pockets of unemployment and underemployment, the harder it gets to hold that society together. Look at cities or demographics where employment has been low for decades and you will see major problems - where it becomes entrenched and hard to escape.
Papers are those like the attachment. (the oft-sited Oxford paper).
There are many others. I also work with many entrepreneurs in tech companies weekly. See other comments like this:
Here is a pro-con listing by Pew (more or less jobs):
Yes, technology will also create new jobs - like mechanics servicing the robo-cashiers that are replacing some % of the staff at supermarkets and movie ticket lines. But - having looked at this, I think there will be huge pockets of social disruption and instability. There will be large swaths of older workers who can’t ‘transition’ into something new. When there is / are large amounts of economic instability, people start to call (maybe rightly) for protections and political instability grows.
Large sections of Philadelphia (where I lived for 12 years) and Detroit and the industrial northeast have never recovered from the loss of manufacturing jobs. But in total, these losses for the US were fairly small. Nevertheless, for the neighborhoods hit hardest, they were devastating. Poverty, crime and failing schools have been entrenched for many, many decades. When these massive changes hit regional economies and much larger social groups, there is likely to be much more societal level volatility and pressure. The initial ‘call’ will be for much higher taxes on the ‘rich’ and other legislation. But the rich are highly mobile and at least equally very well connected politically. They can leave the city, state or even country, and they can and will fight back.
Or look at San Francisco and the tensions between the ‘natives’ and the ‘silicon valley immigrants.’ In many cases, the natives are simply being displaced do to ‘inflation’ from rising rents, cost of living, etc. They are moving to Portland, Austin, AZ, etc. But when the amount of displacement grows, so does the instability.
So, my argument is not that that ‘investors’ will do badly. For those at the ‘top’, these may be the “best” decades in history. There will be great opp’s for investments and players in VC and early stage tech. There will be great opp’s for entrepreneurs. But for those ‘at the bottom’ and the ‘middle’, they will face some of their toughest decades in a long time, likely since the 1930’s. Especially for people in America who have had a relatively easy run since 1950. There are two major forces to fight now - ‘The world is flat’ and the forces of cheap global human labor and ‘technology and automation.’ There are also likely potential rising environmental challenges - and growing instability in terms of storms, etc - and rising dangers from non-state actors who can access more and more powerful WMD’s and whose ideologies grow in pockets where there is economic displacement and lack of opp’s.
The whole ‘gig economy’ is touted as a blessing, and may be for some, but it also looks to me like a stripping away of the labor movement and unions that took decades to build - and had many flaws (don’t get me started on the problems in education that the teacher’s unions cover up and prevent people from fixing). But the labor movement also serves a necessary purpose and only arose because unfettered capitalism tends to abuse workers.
I am still a guarded optimist overall and believe in the power of people. But, I do think we are facing major strains that are new and unique and not just ‘business as usual’ - but these will play out over decades, not weeks or months or years.
Brexit is part of the earliest innings (maybe even the warm up) to all this.
But I hope I’m wrong.
@Steve
I have little idea about the problems of global debt right now. It really will likely depend on economic growth rates. If they flat-line or crater, problems will likely be much larger. At some point, do have to expect some real, significant levels of global inflation. But, I’ve been thinking that for 8 years and it’s still not coming due to low money velocity. So, who knows when? I am still not a real holder of TIPS, gold or real estate. Maybe I should be, but not doing it really for a variety of reasons.
(1) “The first weak link is Europe and its debt. On average, across the continent, the debt-to-GDP ratio is about 90%.”
(2) “China has problems. Their debt has just ballooned. Depending on whom you want to listen to, 40% to 80% of the last $6 trillion the Chinese borrowed went to pay interest on the debt they already had.”
(3) “Japan is monetizing its debt and putting it into the central bank. They are going to continue doing this at an astounding rate.”
(4) “Emerging markets are the fourth weak link. How do they dig out? They borrowed $10 trillion in dollars that they have to pay back from income earned in their local currencies. Dollar valuation can create serious problems for their debt.”
(5) “the US dollar is the cleanest dirty shirt in the closet”
We all know the definition of insanity: repeating the same thing over and over again expecting different results. (That is where we are with the Fed Reserve Banks and governments).
He even offered share prices for all his funds priced in gold starting in 2010 or so I think, and they’ve been getting killed.
One of the most interesting questions is what to do with fixed income in portfolios (besides short-term and hi-quality), these days. My Mom is looking at annuities at the moment and they are promising over 6%. Not that bad an investment for healthy 65 year old I think.
Sadly, they plan on large numbers of people dying. That’s the main way. If they take all my Mom’s money and put it in 3% return AAA, 3 year corporate bonds, they won’t ‘run out’ of her principal until my Mom’s in her 90’s. Most people won’t live that long, so if they sell plans to lots of people, the averages work out and they can hit these numbers - and still have room for profits. For 6+ %, she has to give up any claim to the principle. That’s not the only option, but it’s the most recent one I looked at.
The biggest concern that I have with an annuity is who backs it. My understanding is that AIG was the largest issuer of annuities pre-2008. Then the government had to bail them out. If the issuer goes out of business or cannot meet their commitments, is it backed by the federal government in some way?
Sounds okay. Now days we do not think of inflation risks. Of course, bonds have inflation risks too. But even a real bond in a safe deposit box is liquid. The fed says they want 2% inflation–more would actually be better for reducing the consumer and national debt. Who knows what they want or will get over a long period.
The author says he originally voted to join the EU because he likes free trade.
He voted for Brexit because of the costs of being part of the EU. These costs include:
The EU equivalent of what we call “pork” in the US: “A Portuguese golf resort, a Bavarian hunting lodge, a virtual clone of Malmo, Sweden in the video game Second Life. A hemp farm. Puppet theatre.”
Regulations: “…billions it costs British businesses to comply with often bizarre and Byzantine EU directives, such as those enforcing the curvature of bananas, banning diabetics from driving, and making it illegal to sell eggs by the dozen.”
One problem with this argument is that it is hard to quantitate regulatory costs. I am commenting on this because I may have encountered an anecdotal example today.
The P123 computer told me to buy HTZ (Hertz) today at $11 per share. But my broker would not let me buy as many shares as my port suggested. Seems my broker thinks it is now $44 per share. Looks like LYFT may have purchased or made an offer for HTZ.
So to quantitate the cost of regulations around taxi services one only needs to look at the market cap of UBER and LYFT. How much economic activity has been unleashed by the fact that UBER and LYFT have gotten around the regulations?
You could argue that UBER and LYFT are succeeding because they have leveraged smart-phone technology. But how long would it have taken for the taxi monopolies to start using these technologies? Surely competition and regulations have had an indirect affect on the adoption of this useful technology–even if you accept this argument.
This journalist is not an economist. And no doubt Britain will be worse off in the short term. But the author is at least smart enough to not use the term “crony capitalism” (sorry for the political connotation and the generally poor term).
Is this is an opportunity to quantitate the costs of one small regulation? If so, it is one small regulation but is it a small economic impact?
UK will get out of the EU, but will get into the same relationship as Norway or the Swiss, e.g. the free market between
the EU and an UK will remain.
Euro bonds will come or the euro will die (which would be a great Idea for all countries besides Germany that profits
big time from a low euro (the D-Mark would be trading much higher then the euro today).
