“Davidson” on Brexit

“Davidson” on Brexit

“Davidson” submits:

‘Brexit’ is not a reason for financial collapse in my estimate. It is more a rebellion against perceived undue regulation in what was the most Free Market in the EU, the UK. Friends tell me that free travel from the Continent to take advantage of UK’s free health care resulted in a crowding out of residents from National Health. The concerns of residents vs transients became a general focus on regulations regarding the shape of bananas in markets. This argument reminded me of the Supreme Court ruling in Schechter Poultry Corp v. United States which has been tied to the demise of the heavy regulation of the US National Recovery Act (NRA) in 1933.

The NRA has been blamed for extending the Great Depression in the 1930’s Once the regulations which severely limited consumer choices began to be pulled back, economic activity began to improve.

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The nature of global government intervention in the current slower economic recovery has led to many unfounded rumors. The shape of bananas became a false focus. It was more an issue of a populace feeling inundated by government from afar imposing rules and regulations without listening. Two recent articles are worth reading.

Bendy Bananas And Barmaid Bosoms: The U.K.’s Crazy Anti-EU Food Myths 

Is the EU really dictating the shape of your bananas

Letting markets find their balance through freedom in consumer choices has always been the most efficient approach during periods of economic correction. The current cycle has reflected a high level of government intervention and regulation, which much like the 1930s has resulted in the slowest recovery since the Great Depression. One of the primary issues this economic cycle, besides the strict limits on mortgage lending, has been the manipulation of 10yr Rates below 2%. Combining these actions makes our housing markets closed to only those with prime credit and the wealthy. It also favors Hedge Fund managers and corporations over individuals in the credit markets. The income/wealth disparity we complain about today results from historical middle class homeownership being denied to the current generation with college debt. US Single-Family housing sector remains at 1991’s recession pace. The issue of low long-term rates is worse in the European Union.


Those in government believe government has not done enough. The rest of us prefer to make our own choices. In spite of the impact of government interventions, global economies continue to expand slowly. The US economy which has proven itself a driver of past global economic activity continues to expand. As long as economic expansion continues, events such as ‘Brexit’ (similar to past geopolitical events) have never caused ‘Black Swans’. ‘Black Swan’ is a Momentum Investor term. Events which Momentum Investors have labeled as past ‘Black Swans’ were events which occurred when economic correction had already begun but had not yet been recognized. The beginnings of all economic corrections have multiple warning signals. Major economic indicators provide 12mo-18mo periods of warning in my opinion. There is no weakness on our horizon.


Global economic activity continues to expand by all measures. ‘Brexit’ is not a ‘Black Swan’ in my opinion.

The World After Brexit

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Todd Sullivan is a Massachusetts-based value investor and a General Partner in Rand Strategic Partners. He looks for investments he believes are selling for a discount to their intrinsic value given their current situation and future prospects. He holds them until that value is realized or the fundamentals change in a way that no longer support his thesis. His blog features his various ideas and commentary and he updates readers on their progress in a timely fashion. His commentary has been seen in the online versions of the Wall St. Journal, New York Times, CNN Money, Business Week, Crain’s NY, Kiplingers and other publications. He has also appeared on Fox Business News & Fox News and is a RealMoney.com contributor. His commentary on Starbucks during 2008 was recently quoted by its Founder Howard Schultz in his recent book “Onward”. In 2011 he was asked to present an investment idea at Bill Ackman’s “Harbor Investment Conference”.
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