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[This post on Buy Britain, Sell Europe was originally published on The Institutional Risk Analyst from R. Christopher Whalen.]
“Europe is now a continent of widespread economic misery, of financial collapse, of disappearing faith in ‘mainstream’ political parties and rising support for ‘extremist” parties, of a loss of sovereignty and thus of legitimacy and democratic control, and of the destruction of law, both domestic and international, by the judicially larcenous European Court of Justice (sic).”
Bernard Connally
Rotten Heart of Europe: The Dirty War for Europe’s Money
1997/2012
With the elections in France safely recorded as a win for the pro-EU forces, the bull migration back into European equities has begun. Our usually sensible friends at Barron’s declare the raging bull buy signal on this week’s cover: “Buy Europe.” And by Europe, they mean excluding the United Kingdom.
“Given attractive valuations, diminished political risk, low interest rates, and a pickup in global growth, international markets, and Europe in particular, could finally start to outperform,” declares none other than Vito J. Racanelli.
The driver of the EU bull trade? Emmanuel Macron’s ambitious plans to rebuild the eurozone. His plan has been backed by Germany’s Finance Minister Wolfgang Schäuble, who wants to push deeper European Union (EU) integration. Go deeper or go home pretty much sums up the situation facing the Europeans.
Most analysts have been focusing on the downside for the UK in a BREXIT scenario, but we wonder whether the EU is really viable – with or especially without the UK. Even as the cheering for the victory of Macron is dying down in Paris, officials of the International Monetary Fund are preparing for a new debt bailout for Greece. And then comes Italy.
The IRA also notes that the “experts” have consistently underestimated the prospects of the UK post BREXIT, all the while waxing effusive about Europe. The dire predictions regarding the future of the UK economy, for example, have been largely wrong. The experts seem to miss the basic fact that the UK is a key player in global finance and will continue to be after it leaves the EU.
United Europe, on the other hand remains a badly flawed work in progress that, for our money, has a better than 50/50 chance of outright failure. Everything written two decades ago by former EU economist Bernand Connolly in his classic book “Rotten Heart of Europe” has been proven correct and then some.
Last week Brian Barnier of ValueBridge Advisors LLC confirmed our suspicions that the EU project is in far more fragile condition than its departing member. More, Barnier says that most models of the long-term impact of BREXIT on the UK are fatally flawed and often rely only on aggregate averages for inputs, ignoring extensive details from statistical agencies in Europe.
Barnier is an economist who asks questions. Rather than just accepting the output from a given model or data source, he likes to ask what is in the …read more
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