Life in the Brexit - Trump Era

I addressed the British American Business Council last night at the Westin South Coast Hotel in Orange County, CA.  My address and panel participation were to tackle what can be expected about life in the "Brexit/Trump era."  The following represents the manuscript of my opening remarks.**********Ladies and Gentlemen, fellow members of this panel, our hosts from the BABC, guests, and friends, I want to first thank you for inviting me tonight. It seems surreal that it was just one year ago that Mr. Gibson and myself were here in this very room speaking in favor of the so-called “BREXIT” vote, not totally believing that it was going to pass, but advocating nonetheless together for the great move towards independence that was put by referendum on the ballot.  Both us, that night, advocated for BREXIT; both of us, that night, predicted it would fail.  Alas, we were 50% right.  The British voters did the right thing by confounding expectations – certainly by confounding the bettors – and voted affirmatively on the so-called BREXIT referendum.  In that case you see a living and breathing case of the PRESCRIPTIVE (what we believed OUGHT to be done) being different from the DESCRIPTIVE (what we believed would happen).And here we are today, one year past the successful Brexit initiative, six months passed the election of Donald Trump here in our own United States, where so often the DESCRIPTIVE and PRESCRIPTIVE are jumbled together by thought leaders, pundits, and interested stakeholders alike.My task tonight is to identify financial winners and losers in the trans-atlantic landscape here in their “Brexit/Trump era.” I suppose it would be easiest to say “those who bet against the fearmongers of Brexit” have been the winners, as the UK stock index is up 26% since the day of the BREXIT vote (with a little 3.5% dividend yield added to that number for good measure).  And indeed, even in the currency market the predicted cats and dogs raining from heaven have not materialized, as the sterling sits roughly 8% higher relative to the dollar than it has been on three different occasions since the Brexit vote.  Lest it sound like I am spiking the American football, though, I happily admit the real investor verdict on UK risk assets post-Brexit is still to come, for even though the anti-Brexit fearmongers were never to be taken seriously, admittedly much volatility lies ahead as Theresa May and the changing Parliament dynamic face a difficult implementation process.  Anecdotally, atop the list of the great anti-Brexit fearmongers, some of the world’s largest investment banks, took about 2 days to admit that they were not going to be pulling all jobs out of London as they had claimed.  But I digress.  Ultimately, my basic thesis remain in tact:The fundamental reasons for BREXIT will come to fruition – a separation of the UK’s political sovereignty from the co-mingled Brussels debacle, and a reassertion of their own control over both trade and immigration policy, NEITHER one of which need be deliberalized in this Trump/Brexit era.And this is where the descriptive and prescriptive confusion I spoke of earlier becomes important. For I am a pro-Brexit advocate who is a die-hard Adam Smithian free trader.  My Brexit love is not related to being anti-trade, or increasingly protectionist; but rather becomes I found the argument that Brexit would necessitate a decrease in trade to be illogical.  The facts shall prove me right in time, as the $19.5 billion pounds of goods that the UK buys from European trading partners will take precedent over the $12.8 billion pounds of goods they export to the same.  In other words, what kind of idiots want to lose customers?  If you say, “the kind of idiots in Brussels,” than you have an even lower opinion of them than I do.  And that is hard to do.The UK’s economic growth needs help, which was true well before the Brexit passage, and the fact that their growth is coming from the productive private sector is our reason for optimism in investing there.Now the word “Trump” appears in our title tonight, too. And this probably warrants elaborationto delve into the complexity of life in Trumpian America, particularly as it pertains to the global economic ramifications.

• I am a lifetime conservative Republican but did not vote for Trump
• With that said, it has been impossible to gauge the presidency so far as the hysteria and polarization around everything is too damn high (and silly)
• Why is the market up 3,000 points since he was elected? Because the market believed that he
  • Would get the “market friendly” things done (tax reform, repatriation, deregulation, etc.)
  • Would not follow through on the worst forms the “bad stuff” – and by bad stuff, I do not mean continued immature tweets, egoist speeches, and general managerial “awkwardness”. He is delivering as promised there. But he did not rip up NAFTA, and he won’t. He did not label China a currency manipulator (because they are not, at least not in the way he predicted). And he has not passed various import tariffs or cousins of such like the Border Adjustable Tax. The isolationist wing of his cabinet (Navarro) has been mostly marginalized; the louder economic advice so far has come from Schwarzman and Cohn, etc. Cooler heads.
• But is the market right about the “good stuff"?  Will tax reform and infrastructure and repatriation and ObamaCare repeal get done?  Yes, but with more political volatility than anyone forecasted ...

Fundamentally, the Le Pen collapse, the Wilders/Dutch election, and whatever fate is in store for Angela Merkel – all co-exist with the Brexit and Trump reality of 2016. The world has not gone populist-nationalist mad, but that silo has neither been put off to pasture either.  The investment opportunity is in what IS, and not what OUGHT TO BE, regardless of where you yourself are in that dichotomy.For our money, the NEED of the hour is greater market principles and decentralization that NEED NOT forfeit global trade and basic economic principles.  And it is in understanding that populist rage cannot be dismissed by elites any longer.  I am a non-populist, non-nationalist who supported Brexit, and understands where the forces came from that creates BRUMP (Brexit trump).  The long investment plays in this environment are UK, U.S. financials, and U.S. energy.The political play right now is in prayer. Prayer for wisdom, character, and sober judgment – from citizens and leaders alike.