UK Sequence Risk & Brexit

 

We have had one of the longest bull runs in a century and there is an innevitability of a correction. But how big.

Well the Dow and FTSE have corrected to a degree and then retraced, but really is that it. I don’t personally think so in the UK

We have the endless Brexit saga that is just getting worse and the very real possibility of a bunch of Marxists getting the keys to the treasury. If that happens then all bets are off. The capital flight alone will cause the pound to crash through the floor and as for growth and stock values, forget any prediction. That said, however incompetent the rest of the westminster clowns are, the public at least see them as a better option than the marxists… does not say a lot really.. so we can hope.

But that cloud aside, suppose (and right now it may be a miracle) the Conservatives retain power in what must be an election soon and Brexit gets done at least in the sense of mostly leaving. What then in the markets.

Personally, I see the pound dropping a bit and then rallying: too good an opportunity for a bit of trading on turmoil to extract cash from the nervous. I see an import/export issue to the EU being resolved to something workable over a short period of time, but I do see (especially with no-deal WTO) a significant drop in imports and a cost increase on them at least in the short to medium term…. It is not after all rocket science !

This is not all bad. Imports mean that money (wealth) is going out of the country. If its flow is reduced then we must spend less outside, more inside, or save … all pretty possitive things in the short to medium term. It is worth remembering that the bad side of that is liquidity reduces and everyone feels nervous or puts off purchases and investments… generally a good trigger for a recession

The stock markets will take a tumble not least as many have European exposure, so with the pound dropping, profits lowering as those Europen countries sell less to us that does seem not just rational but a fair expectation.

What a buying opportunity !!

The Sequence Risk issue is really about starting drawdown at a good point in an economic cyle rather than a bad one.

Picking a point in time after a good correction but with solid fundamentals and decent prospect of a trade deal (or at least accomadation) means future growth….

In the end, the biggest growth prospects in the next 3 years or so in the UK seem rather more to do with getting a correction and buying in low.

Cash is king right now !!

The Sequence Risk gods may well be on our side. However bad the short term Brexit outcomes may be, they represent a hugely solid opportunity to side-step the next Sequence Risk event in the current cycle and look to grow for several more years after.

Of course if you believe all the remain side, then a plague of locusts will arrive, the pound will become the penny and we will go back to Victorian times. People rather forget the UK is the 5th/6th largest world economy and is not crashing into Japan style recession… pays yer money… take yer choice.

Cash Cash Cash right now !!.. ride the sigh of relief or green shoots of growth over the next 2 or 3 years.

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