So it seems the Boris Johnson will soon be the British Prime Minister. This will run absolutely against the grain of the British Establishment be in government or the media and about half of the British parliament. It will also run against the wishes of the EU that significantly wants the UK in the EU, not the least to stop a run toward proper Federalisation.
My position has been from the ‘get go’ that Brexit will be killed, however unlikely that might seem and you can see by the long careering transit of Brexit that this is the drive of the system.
It aint over yet!
However it will now take an extreme crisis or turnup to kill Brexit. The following are things that could happen to stop Brexit.
Boris Johnson could not become PM. This is extremely unlikely.
Johnson could turn-coat on Brexit. Some people see this as a strong possibility, but I find this chance extremely remote.
A extreme constitutional crisis could occur. This is the most likely long shot.
Outside of this remote outcome Brexit is going to happen.
The outcomes are:
Hard Brexit. This seems quite likely to me but the market and the bookies say nope.
A softish Brexit occurs, palatable to enough parties. This seems unlikely to me but the markets and bookies suggest this is the future.
A hard Brexit doesn’t seem to be priced in which to me means if it happens and it will surely happen fast, the pound is off to parity with the Euro and possibly even with the dollar.
This is of course a godsend to FX traders but as to equity investors it is a mixed blessing.
For once the UK market is full of international companies whos profits are often heavily in foreign currency. Thoose not too hedged should get a profit boost from a super weak pound. UK based companies will get what amounts to a devaluation which should boost their competitiveness and profits, so a Brexit calamity might turn out well after all for them.
Conversely, the shock of a ‘Hard Brexit’ should, you’d think’ bring a sharp short term correct to the UK market, if a hard Brexit is not priced in fully.
So to me the market is a buy if we get a correction and a hard Brexit. It’s a buy if there is a likelihood of a long shot ‘Brexit killing’ event and for the long term it’s a buy because the major drag on the market is now the uncertainty not Brexit itself.
This is the Brexit setup:
But this is the long term setup for the UK market.
So you can seethe FTSE 100 is in a position of being between heaven and hell. Many think that this sort of chart is no use at all but actually its very clear. The market is either going to go up a lot or down a lot. All you need to do is watch it head off in a direction and jump on that trend.
To me the chart strongly suggests we are off to 8000 points on the FTSE, which strikes me as strange in the circumstances, but you have to evaluate what you see before justifying it with narrative.
The FTSE 100 a tremendously weak market when placed along side the US and German markets and at some point that will change. Could the resolution of Brexit one way or another be the necessarily catalyst?
Ultimately the market is cheap and that’s enough for me. Things don’t stay cheap forever.