Brexit: The Invisible Hand Smacks Global Markets

Ivan Illán |

While stock and bond markets revolt today, it’s important to cut through much of the doom-and gloom chatter. Britain's decision to leave the EU does not mean disaster, as so many are predicting. True free-market capitalists and their libertarian political cohorts are feeling very good today. Copies of Smith’s The Wealth of Nations are being dusted off, as we are reminded how onerous regulation and government intervention can be to its citizens.

The mere fact that so many market pundits got it wrong, and the people were ultimately able to declare their right to self-determination, is a fundamentally positive event for global markets and trade. The UK will now usher in a new era of self-determinism throughout Europe. Increased flexibility to negotiate their own trade and immigration agreements without continued enabling of EU welfare nations. Scotland voted overwhelmingly to remain in the EU. Such disparity will mean they’ll be soon to leave the UK, as they have tried to do so unsuccessfully before. Globalization isn’t going away, it’s just getting a much needed makeover, as technology continues its march, transforming the global landscape of employment and labor productivity.



Germany has been jealous for years that the UK never joined the EU’s monetary unit. The UK preemptively avoided the Euro’s nonsensical offer – a centralized monetary policy where 19 out of 28 European Parliaments make repeated failed attempts at fiscal reforms. Germany, as a result, has played the role of EU savior, routinely shouldering the burden and bailing out the weakest links. Brexit now sets the stage for a Germanexit, and with it the end of the EU. This would be celebrated by most Germans who, until now, have not so silently expressed their frustration in local papers around the country.

Meanwhile, Chancellor Merkel keeps a brave face globally that Germans are the self-determined champions of all the fiscally unfit nations of the EU. This will hardly be the case now. The EU’s governance and policy making has been moving in the wrong direction for years. In a hideous example of tyranny, it most recently established a “code of conduct” which sets specific parameters on what it considers to be illegal hate speech. The code is so broad and sweeping that condemnation of the EU itself could be included. George Orwell must be turning in his grave.

Today’s European bond and global stock markets are showcasing the most glorious restoration of order to capital markets. Ten Year government debt in Germany has turned negative once again, now -0.1054%, the UK 10Yr yield fell –32% to 1.06%, and the US 10Yr has fallen to 1.484%. Meanwhile, Greek 10Yr yields are up +76% to 8.30%, Portugal’s yield up +23% to 3.29%, and Italy’s up +11% to 1.51%. Finally, the markets are beginning to price in the actual risk associated with these nations' fiscal mismanagement – but there’s so much more to go. Expect debt pricing to more accurately reflect risk, as rigged market conditions are removed. This is a win for smart investors everywhere. Stocks will benefit long-term from the increased market competitiveness of UK companies in global markets.

The courage of the British people to declare their right to self-determination is a long-term win for free-market capitalism and its economy, removing remote control and burdens. The arguments against this movement are valid, but only in the short-term, as markets adjust to the new policies and agreements that are struck, and while other nations’ citizens muster the courage to do the same. Governments and their related bureaucracies have less control today than yesterday on an individual or entity’s pursuit of economic profit – which is a fundamental win for Adam Smith’s formidable invisible hand.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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