My Thoughts On Brexit

At long last a leading European economy asked its citizens whether the EU project was worth it. I woke up and strapped into my seat at 4:30am Hong Kong time Friday. Overnight most were confident that Britain voted to remain in the EU. At 7:00am the first results trickled in. Remain held steady and the pound rallied up to 1.50. Then all of a sudden all hell broke loose.

A few northern districts voted to Leave and the margin of Leave’s victory was much higher than expected. That was the beginning of the end. By noon, USDJPY touched below 100, Cable touched below 1.34, and the S&P 500 Globex futures were halted at limit down for the overnight session.

I surveyed my finance friends at various sell-side investment banks and hedge funds. It was carnage. No one had any idea what was going on, and everyone was fighting fires. As the dust cleared, Gold, Bitcoin, USD, and US Treasuries were well bid. Some of my friends even asked me how they could buy some Bitcoin.

Over the weekend, while we were sailing in Hong Kong (commonly called junk boats), everyone was discussing Brexit and its implications. What many did not appreciate until today was how dissatisfied a large portion of the electorate were with politicians and the economy. “They don’t know what’s good for them” was a common refrain.

Brexit illustrates that the common man and woman are done blindly trusting those in power. There are real economic and political problems that orthodox thinking has not solved, but rather has made worse. The majority of UK citizens ignored the IMF, World Bank, and Oxbridge trained economists’ dire warnings of economic collapse should they vote to leave the EU.

Now that Britain flipped the bird to the EU, it is time for Southern European debt slaves to remove their shackles as well. Would the people of Portugal, Italy, Greece, and Spain be better off with their own domestic currency again? I don’t know, but surely paying tribute to Germany, the ECB, and the IMF isn’t working.

The whole European banking system is full of sovereign European credit marked at par. Should these assets be redenominated into much weaker Lira, Pesos, and Drachma, the majority of European banks would be insolvent. The biggest elephant in the room is Deutsche Bank. It is the most levered bank in the world. And take it from someone who worked there for 3 years, it is the most cowboy bank on the street. When the lights shine on DB’s balance sheet, the cockroach infestation will be visible to all. There is a reason why DB opened down 25% on Friday morning.

No one knows how this will all play out, but I will bet more and more Euros, Yen, Dollars, and Yuan will be printed. Savers will shun equity markets in favor of Gold, real estate, and Bitcoin.

It is unfortunate that Bitcoin and digital currencies become more sought after when global suffering is increasing. Bitcoin is a manifestation of economic uncertainty. Let’s use this opportunity to educate as many as possible about the benefits of a transparent, open, and free means of value transfer.