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Brexit Debate Is No. 1 Euro Threat for Top Currency Forecaster

Published: 03:33 06 Apr 2016 EDT

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Brexit Debate Is No. 1 Euro Threat for Top Currency Forecaster
Here is the opening of this topical article from Bloomberg:

For the top currency forecaster of the past quarter, the next three months will be all about the looming vote on Britain’s membership in the European Union.
Not only will the “Brexit” debate weigh on the pound, it will also wipe out the euro’s biggest quarterly advance in five years, according to Bayerische Landesbank. The German lender topped Bloomberg’s major-currency rankings for a second consecutive quarter by successfully predicting the euro’s fortunes versus peers including the yen, Swiss franc and Swedish krona.
“It’s not a risk just for Britain and the pound but also for the euro,” said Wolfgang Kiener, who compiles Bayern LB’s forecasts with colleague Manuel Andersch from their office in Munich. “It’s hard to call and thus is the biggest risk. Most people hope the British will stay in the EU but no one can be sure because we have refugees, terrorist attacks -- lots of events which could make the British leave.”
With the June 23 referendum drawing closer and events such as the Brussels bombings last month potentially influencing the outcome, strategists are assessing the impact of the debate on the economic bloc as a whole. A U.K. exit from the EU may call into question the European project and inspire referendums in other nations.


David Fuller's view
Eurozone countries have had plenty to worry about since the single currency was launched in 1999 – perpetually weak GDP, high unemployment, a clumsy ratification process when they can vote among what is now an unwieldly 28 countries - the surrender of other sovereign rights to an unelected bureaucracy - an ongoing migrant crisis - terrorist attacks - and now the approaching UK Brexit vote on 23rd June.
Some commentators on both sides of the English Channel think a successful vote which takes the UK out of the EU would effectively end efforts to create a ‘United States of Europe’.  I agree and I also think the EU will fail even if the UK votes to remain.  After all, we are not talking about newly formed states created by immigrants.  The EU consists of individual countries, most of which were previously independent and all have thousands of years of history.  They are not anti-Europe because they would like to trade peacefully with each other.  However, their populations are increasingly anti-EU and that will be very difficult to change.    
See also: Will Britain Leave the EU?


The Weekly View: Housing Recovery-The Next Generation Joins In
My thanks to Rod Smyth for his informative letter published by RiverFront Investment Group.  Here is a brief sample:
While it is rarely as simple as one thing, we believe that the correction in risk assets during the first quarter was substantially driven by a growing fear that slower economic growth would lead to a recession.  Indeed, credit spreads, the difference between the yield on corporate bonds (investment grade and high yield), went to levels usually only seen heading into recessions.  We maintained throughout the first quarter that markets were worrying too much about the sustainability of the current global expansion.  In the dark days of February, it might have seemed hard to believe that the S&P would finish the quarter virtually unchanged.


David Fuller's view
The US stock market has been a standout performer relative to most other countries in recent years, with only New Zealand clearly outperforming among those with viable currencies.
This item continues in the Subscriber’s Area, where The Weekly View is also posted.


Email of the day 1
On demographic growth:
Dear David, I have just read your posting on the slowdown in demographic growth. Only this morning I finished reading this month's edition of the Foreign Affairs magazine devoted to the slowdown of economic growth rates. One of the articles on this subject is about slower demographic growth. I strongly suggest that subscribers read the March/April edition of Foreign Affairs. It looks at a whole range of implications of these trends and especially the financial ones.


David Fuller's view
Thank you for pointing this out.  I think a number of us will be interested in reading it.  While difficult to measure accurately, I see no reason why the global population should grow at a consistent rate.  Moreover, population growth has even reversed in some developed countries, from Japan to Germany in recent decades.  However, short of epic natural disasters or world wars, I would be very surprised if the global population stopped increasing and actually reversed due to the slowdown in GDP growth. 


Email of the day 2
On not just electricity costs:
Not just Electricity. Here in Australia council rates, water rates, sewage charges etc. keep rising at between 2.5 and 3 times the CPI (about 15 years and counting!). The explanation seems to be on the capital side: 19th and 20th century infrastructure needs not just maintenance but replacement. Perhaps this is the infrastructure boom that will drag us out of the current nauseous GDP growth trend? Though I, for one, would prefer a 'nil growth - enhance quality' objective, for the sake of our living environment.


David Fuller's view
Thanks for your interesting comments, and I trust Australians are receiving value for these council rate increases.  I also think many of us will agree with your concluding sentence. 


My personal portfolio
Two new trades


David Fuller's view
Details are charts are in the Subscriber’s Area.

Email of day on the long-term outlook for energy resources
Yer man, while I often feel like I am part of the new old economy. I am not concerned in the near term that electric vehicles will have mass adoption. I am puzzled how the electrical grid will power all these new super cars? Coal which is the worst emitter of GHG's is the primary source of electrical generation in North America and that is being phased out for natural gas as you know. The environmental movement is flawed with hypocrisy and makes no economic sense. In Canada the govt has chosen to demonize the oil and gas industry which funds the majority of our social services and yet we bail out Bombardier and the auto industry. I sound like a grumpy old man.


Eoin Treacy's view
Thanks for this topical comment to a piece I posted on Friday. It’s been a long time since we shared an apartment in London; when we were both new to London, and I’m glad you’re still in the heat of the action in Calgary. I think everyone finds it hard not to be grumpy when things are not going one’s way at any age.

This article from the state.com from 2014 estimates that if every car in America was an electric vehicle it would represent only about a 30% increase in electricity demand because electric vehicles are more efficient

Eoin's personal portfolio: profit taken in stock market and commodity longs


Eoin Treacy's view
Details of these trades are posted in the Subscriber's Area.



Panama Papers probes opened, China limits access to news on leaks
This article from Reuters may be of interest to subscribers. Here is a section:

Leading figures and financial institutions responded to the massive leak of more than 11.5 million documents with denials of any wrongdoing as prosecutors and regulators began a review of the reports from the investigation by the U.S.-based International Consortium of Investigative Journalists (ICIJ) and other media organizations.

Following the reports, China has moved to limit local access to coverage of the matter with state media denouncing Western reporting on the leak as biased against non-Western leaders.


Eoin Treacy's view
The issue of offshore accounts is an emotive one not least for those lacking the financial resources to benefit from the protections they offer. This represents a challenge both for the jurisdictions that provide these services but also for their clients in an environment where supposedly private correspondence can be publicly aired. It’s all the more puzzling because many of the legal services that can be provided by these firms are often achievable by staying onshore but structuring one’s affairs in line with the valid interpretations of domestic law.

 

 



Revive Your Old Laptop Without Spending a Dime
This article by Joanna Stern for the Wall Street Journal may be of interest to subscribers. Here is a section:
Here’s what the PC makers don’t want you to know: Many aged laptops have the horsepower to accomplish most Web-based tasks. In fact, many of them have more raw power than $200 Chromebooks. They’ve just been bogged down by bloated, gunked-up operating systems. Note: Your revived laptop won’t technically be a Chromebook, but the software experience is almost indistinguishable from one.

The catch? Using the Chrome-centric software is dead simple but installing it isn’t. It can be a bit of a project, albeit a fun one, especially with a child who is eager to get a computer and learn how they work. Once you’re through, you’ll have saved an old computer’s life—and some money.



Eoin Treacy's view
I resurrected a more than decade old laptop over the weekend using this software and thought subscribers might also benefit it.

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