Friday File: Brexit Thoughts and a few nibbles

by Travis Johnson, Stock Gumshoe | June 24, 2016 2:08 pm

Some big picture blather, plus buys in PLOW and NXPI and an Altius update

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Source URL: https://www.stockgumshoe.com/2016/06/friday-file-brexit-thoughts-and-a-few-nibbles/


38 responses to “Friday File: Brexit Thoughts and a few nibbles”

  1. lanewalker says:

    “likely we’ll see more commodity cycles as we have for the past 20 years than it is that we’ll see a steady deflation in commodities — if that’s true, Altius will do well; if we’re in for a decade of commodity deflation, Altius will do terribly. ”

    two deflations different outcome–please correct.

  2. Michael Jorrin, "Doc Gumshoe" says:

    Travis – boy howdy, do I agree with you on Brexit! Today is not a day for most folks to check on the market, other than, perhaps, to scrounge around for bargains. My friend Burt Malkiel (the “Random Walk” fellow) used to say there was not much need to check your holding more than once a year or so.

    And, second point, what’s to hate about the New Look? It’s cleaner, more legible, & so far works just fine.

    Gratias agimum tibi. Best, Michael

  3. casserolekid says:

    I think you are wrong to suggest that because David Cameron has ANNOUNCED his resignation – he will only actually resign when a new Conservative Party leader is chosen, probably in early October – and there is no requirement for new elections to be held, as the next election is not due until May 2020. In fact, for a new PM to hold elections before that date would require the repeal of the Fixed Term Parliament Act.

  4. briantassie says:

    I think the dip is a great opportunity. I just bought Aug 19 call options on LLoyd’s and Barclays. Hoping a bit of a rebound will double my money. Buying their stocks seems like a good bet as well. Barclays is offering a 3.59% dividend at today’s price and Lloyd’s offers 4.17%. That’s great!

  5. alanh says:

    Travis: Speaking as a Brit, I think youre very sensible to take a c’est la vie attitude to Brexit. People are behaving like a new dawn has arrived, when in fact nothing much will change for years…….in fact Im not sure anything will change much … ever ! The big issues were self government, the economy, red tape and immigration. Since when did the people ever govern themselves other than at an election once every 5 years? We’re all governed by a set of politicians who promise this then deliver something else. Im not that sure whether it matters if they’re Brits or Belgians coz politics is all Chinese to most people. Maybe the economy will improve marginally easier to trade with the rest of the world, but its most unlikely to make us all appreciably richer…..the politicians will find a way to spend any extra penny. Red tape will be the same coz the EU will demand that our products ‘conform’ before they allow imports. And curbing immigration will be near impossible given the open Irish border….never mind the Scots border if they leave the Union…..which is inevitable coz their Nationalist will keep having referendums till they get the answer they want. All thats been achieved is the illusion of change and the greater illusion that we will be able to pull up the drawbridge and boot out anyone thats not got blue eyes and blond hair. What utter twaddle. The only real gain is in the restoration of Sovereignty but it will certainly come at a high price.

    One question I would ask you is about Lancashire (LCSHF) down 11% today. Do you consider that an attractive price.

  6. lrowner says:

    Just because the Prime Minister resigns doesn’t mean we have an election.
    Someone else takes over. If we’re lucky. it could be Boris. He’ll liven things up a bit.

  7. Playfulhair says:

    I don’t like this new set up!
    I don’t know what my password is?

  8. Randall says:

    Initial impression, I like the new site layout…much cleaner and easier to navigate. But as I said–first impression only for now.
    R.P.

  9. fairmead15 says:

    Good morning Travis
    By way of support for your observation that the world is not coming to an end, yesterday reminded me of Black Monday in 1987. At the time I was working in a UK office of a British Merchant Bank. The staff in the Investment Department were, to say the least, having an uncomfortable day. Clients were telephoning asking what was happening to their portfolios and what was the bank doing to protect them. At some point a very relaxed U.S. client came on the phone. He told his account executive “Remember John, when they raid the whorehouse they arrest even the piano player”. Everytime a market drops precipitously I remember that advice.

  10. dcinvest says:

    I think the US stock exchanges should turn positive. When I have no clue but would appreciate other opinions. I would expect US banks for example to pick up addition business loans that EUC banks may not be able to do. Our dollar has been stronger than where it is now is should not prevent exports to continue, but at perhaps a slower pace.
    Other opinions wanted and welcomed.

  11. billywade88 says:

    1 man’s take on Brexit:

    Magna Carta 2.0: Good for Freedom, Good for Growth Trump is the Big Winner, Obama got Crushed

    The original Magna Carta was a charter agreed to by King John of England in 1215. It just celebrated its 801st anniversary. So no, I wasn’t there. But that charter has become part of an important, iconic, political myth that the deal between an unpopular king and rebellious barons marked the beginning of individual English freedoms, personal liberties, and due-process protection of individuals under the law. Magna Carta has also been cited as providing the essential foundation for the contemporary powers of Parliament and legal principles such as habeas corpus.

    That’s the mythology, and it’s an important one.

    So while I understand that describing the Brexit victory as Magna Carta 2.0 is inexact, I think it makes a key point: Britain will regain its political freedom, its autonomous self-government, and its independence from an EU that is spinning out of control under the power of establishment elites, unelected and unaccountable socialist bureaucrats, and a judicial court that is increasingly making legal decisions that replace Britain’s powerful common law.

    The EU’s tax and regulatory policies, climate-change and welfare spending, and free immigration even in wartime are gradually ruining Europe. That’s why I believe Brexit is good for British freedom, political autonomy, and the survival of democratic capitalism.

    The business elites told British voters that leaving the EU would lead to economic catastrophe. Well, in England, Main Street defeated the establishment elites by sending a populist message.

    And there need be no economic catastrophe. The EU needs Britain more than Britain needs the EU. The London Stock Exchange is one of the most powerful financial centers in the world. Frankfurt will never replace it.

    Trade is the key to the economic outlook in Britain and the EU. Many corporate chieftains joined large bank CEOs and the fearmongering IMF to suggest that the EU will deal harshly with Britain if it leaves and stop all trade. That’s mutually assured destruction — MAD. A tariff-driven trade war would destroy both power centers.

    Not only does the EU need Britain’s financial capabilities, Britain itself is major importer of EU goods and services. If sanity prevails, there’s no reason why the EU and Britain can’t hammer out a free-trade agreement in the two years allotted by the Lisbon Treaty.

    And if the EU wants to go with MAD, the whole set up will burn in flames.

    Yes, there’s a lot of disagreement about the economic consequences of Brexit. But remember that Britain is still a member of the IMF, the World Bank, G-7, G-20, the WTO, NATO, and so on.

    Veteran Wall Street economist Robert Sinche wrote a note to clients in the early evening of the vote that there was a high probability that Brexit would win. He wrote: “most analysts have overestimated the negative impact of a leave vote as the UK has been a marginal member of the EU on/off for many decades.” Brave chap. But I agree.

    And we should also remember that the Bank of England — a better operation than the European Central Bank — will still be in business, as will the British pound sterling.

    My advice to investors is to ride out the short-term market volatility, which may last several months, and look instead at the long-term positives of political and economic freedom.

    It will now be up to Boris Johnson, the likely new British prime minster, and the Tory party, perhaps with bipartisan help, to negotiate a good trade deal and move more aggressively on the pro-growth path of free-market supply-side policies.

    There’s already talk about abolishing the 5 percent VAT on household energy. Good. Taxes need to be reduced across-the-board, heavy regulations need to be rolled back, and government spending needs to be restrained.

    This is Britain’s opportunity. It’s kind of a Thatcher moment.

    If you look under the hood of the populist revolt in Britain, and the budding revolts in larger Europe and America, the anger is in good part rooted in the lack of economic, job, and wage growth. Worldwide, growth has been missing. All the major countries have been operating under big-government spending, heavy regulations, and the insane central-bank policies of QE and zero (now negative) interest rates. It hasn’t worked. Middle-income wage earners have had enough.

    Plus, wartime immigration policies have been too easy. And the major countries, including America, have not destroyed ISIS. So this popular revolt is also aimed at national-security failures.

    The American election in November may parallel the British story. Barack Obama, who insulted British voters by campaigning in London against Brexit, is a huge loser. Hillary will suffer from this. Donald Trump will benefit.

    So I’ll end where I began: Brexit is good for freedom, growth, and Britain. Ride out short-term financial and economic volatility. And watch for a full populist revolt in America this fall.

  12. hendrixnuzzles says:

    A comment about the statement “…the banks can’t make money when rates are low.” This is not true because the near-zero Fed and Central bank funds rate is a direct subsidy to the banks, they get unlimited cash for ZERO interest. They are the only ones getting no-interest loans. So they have nearly pure margin.
    They also have nearly unlimited license to borrow for nothing so they can gamble on their derivatives and play the stock market.

    And by the way, did you know the member banks of the Federal Reserve make a commission on the billions of dollars of transactions on government paper that they execute for Uncle Sam ?

    Second, the central bank interest rate is on central bank funds. No one is getting zero rates except the banks. Poor slobs like us still have to pay interest when we borrow, or GIVE loans at zeroor worse when we buy government paper. We are on the short end of the stick. Anyone out there get a zero rate or negative rate when you borrow, save for special APR credit card or auto purchase promotions ?
    We get low rates on mortgages, as this one of the targets of Fed “stimulation” and encouragement. But we cannot earn decent returns on fixed rate instruments and are accordingly being pushed into the asset bubbles looking for returns.

    Third, the real rate of interest out there for discretionary loans is pretty high.
    In the precious metals mining sector, which I follow, mines must make internal rates of return of over 30% to have much of a chance at attracting real capital.

  13. hendrixnuzzles says:

    $ATUSF…Altius Minerals…hi Travis, I went into Altius about the same time as $SAND, both from your articles last year.

    I like the Altius model and long-term prospects but the wait time for
    their basic materials prices seemed like a long way off; I sold out, as I needed capital for precious metal investments, which appeared to be an urgent and pressing opportunity. I would have no trouble re-entering when it appears that the base material prospects are better.

  14. gchenaur says:

    Travis you absolutely baffle me. How can you be pretty good at researching stocks and not know something about Brexit? Just a couple of comments you can check out:
    The EU took over a large part of the British fishing grounds in the channel and to make it stick they destroyed the British fishing fleet boats. Some families had been in the industry for 600 years. They did pay a small stipend for the boats but then had them destroyed. They could still fish in the Atlantic.
    Brittan had to stop trading with the world except through the EU. They couldn’t even trade independently with the US, China, Japan …
    Brittan had to pay a half trillion dollars a year to be a member but they don’t vote for the leadership.
    Brittan was over whelmed with regulations on everything making it impossible to be efficient.
    Brittan could not even decide on immigration issues and were about to be overwhelmed by enormous immigration of Muslims of which they already have far too many.
    It goes on and on but you can see what you should look up.

  15. Gui_ says:

    I love the smell of opportunity in the morning.

  16. hendrixnuzzles says:

    Brexit aftermath probably not a neat new picture….thinking about the fall-out from Brexit, it seems to me that there will be a fairly long period of uncertainty and volatility. There are several reasons this new event cannot be neatly pigeonholed into a scenario that gives clarity to the coming landscape.

    First, the economic and political impact from the bare event will take years to play out. Second is that the event has created political uncertainty in the other EU countries, and even in Great Britain itself, on similar issues of national affiliation , and the resolution of these issues is highly uncertain and will take years.

    Third, there is the direction of Great Britain herself with respect to fiscal and trade policy. Permanent divorce from the euro is positive, in my opinion; the euro is an unbacked fiat currency; and although I imagine the British policy will be similar, it is possible that the country could take more of hard money direction, and make the pound sterling actually based on something, like sterling, for example.

    Summing up, I think we are facing an extended period of uncertainty in the eurozone that will not be resolved in a short period of time. I do not believe that economic fundamentals will be changed so much, compared to the fears and emotions of investors related to political instability; so I think volatility is likely to continue higher as well.

    On a macro level, euro and eurozone financials should lose; and China, India, and Russia gain. Short-term the US dollar is a beneficiary, but this is a house of cards in my opinion, and at best a temporary reprieve. And maybe not even that, if the implosion triggers a more sever financial crisis. There is enough
    loose tinder around to catch fire from a few sparks.

  17. For what it’s worth, ratings agencies gave PLOW a little slap on the wrist for their term loan — it is a leveraged company, so they downgraded the term loan by one step because the term loan is now larger, but kept the overall “probability of default” rating for the company the same. In my opinion they are more at risk from exogenous shocks now (like a recession, or sharper decline, because they have a bit more debt), but less at risk from a bad year for internal or weather reasons (because the company is more diversified in many ways than it was a couple years ago).

    https://www.moodys.com/research/Moodys-affirms-Douglas-Dynamics-CFR-at-B1-downgrades-term-loan–PR_351058

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