Brexit Crisis Is Coming To A Head: That's Bad News For U.S. Investors
The most likely outcome is the most dangerous to the global economy, a no-deal or “hard” Brexit. The U.K. Treasury Department has estimated that that would cause GDP to fall by as much as nine percent over the next decade, with horrific predictions of shortages in basic goods such as food and medicines. If the rest of the world were strong and confident, that wouldn’t matter too much outside of the country.
The trade war between the U.S. and China has many economists nervous, and there is a feeling that after ten years of expansion a downturn is overdue. That fear is being reflected in bonds with the inversion of the yield curve, but has been largely ignored by the stock market, with traders there preferring instead to focus on current corporate profitability. That, however, is a choice based on confidence and that, as we all know, can be fragile.
That is why Brexit and the current escalation of the crisis is such a big deal to investors here. The direct economic effects of a lasting recession in the U.K. may well be manageable given the strength of the U.S., but the psychological effect could be disastrous. Fear is the biggest danger right now. If consumers and businesses stop spending, contagion is inevitable, and from where we sit, any slowdown could be exaggerated.
Corporate debt is at record highs, fueled by ultra-low interest rates and the U.S. national debt has exploded, despite the strong economy. While growth persists, that isn’t too much of a problem, but it sets the stage for even a small wobble to quickly get out of hand.
https://www.nasdaq.com/article/brexit-crisis-is-coming-to-a-head-thats-bad-news-for-us-investors-cm1204679