UK vote to leave the EU ['BREXIT'] - 23rd June

[JR8]

I admit to not knowing Junker's personally but I do know one MEP (a UK one) personally and he IS an arrogant sod. So perhaps it goes with the territory?

Have you ever met a politician who isn't? Likely worse still when they're so lavishly paid and yet beyond the reach of the democratic vote.

[Reminds me of somewhere else...]

[BBCWatcher]

Here's an update on the property fund turmoil. Aberdeen's property fund is now frozen, so the total is now up to about £18 billion in frozen funds. Legal & General, Foreign & Colonial, and Kames all cut their nominal fund values (then compounded by the pound's fall), but, as of yesterday, they were still technically allowing redemptions -- at their new, steep discounts. U.K. property funds are now going to try to dump £3 to £5 billion of real estate "quickly" to raise cash -- in devalued pounds, of course.

As a possible point of comparison with what we now know as the "2008 Financial Crisis," BNP Paribas froze three of their funds containing Collateralized Debt Obligations (CDOs), complex derivatives of sub-prime real estate loans, on August 9, 2007. The run on Northern Rock became publicly, highly visible on September 14, 2007. If 2016 is a repeat of 2007 then we would expect the next shoe to drop sometime next month. We tend to think of financial markets instantly adjusting. That might be nice, but in reality they don't. Financial crises take weeks and months, sometimes years, to progress. (There are those that would argue the 2008 Financial Crisis still hasn't run its course.)

Let's hope these fund freezes are the last shoes to drop and that the snowball stops here.

[PNGMK]

My interest is purely out of curiosity (with a touch of concern about spreading chaos).

[PNGMK]

On the upside of the property market I have a few colleagues who have made noises about moving into the UK property market and taking advantage of the downturn...

[BBCWatcher]

In my view it's much too early to buy U.K. real estate.

[BBCWatcher]

I've seen more than a few stories like this one suggesting a second referendum. But how is that supposed to work?

The Treaty of Lisbon provides the now famous Article 50. EU leaders have stated, categorically, unanimously, that they will not negotiate anything -- officially, unofficially, or even in restrooms -- unless and until the U.K. government invokes Article 50. Once invoked, there is no provision to stop a country's exit from the European Union. There is only the option to stall the exit, and that can only happen when every other member votes unanimously to hit the pause button. (Unlikely, at least not without major U.K. concessions.) Anything else requires a treaty change, an extremely unlikely event and with some understatement. Article 50 was explicitly designed with finality and irrevocability.

David Cameron and the EU agreed to particular policy changes ahead of the referendum. Those policy changes were presented to voters. U.K. voters decided to leave nonetheless. The first referendum was the second referendum. That was the deal, and voters rejected it.

If Parliament doesn't think that the voters' rejection was wise, Parliament is free to vote against invoking Article 50. That is a perfectly legal option. The European Union Referendum Act of 2015 only created an advisory referendum as a matter of law. Of course if Parliament ignores or rejects their majority viewpoint voters then have a powerful right of review at the next general election. As a variation, Parliament can decide to hold an early general election. The Liberal Democrats have already declared they will run on a manifesto to ignore the referendum result. If general election voters put the Liberal Democrats in power, that would be a different second referendum result. A newer mandate politically trumps an older mandate, they would argue (and they wouldn't be wrong). Any other party, or party coalition, is free to try the same.

There have been several ideas mooted like this one (a second referendum) that are fantasy and inoperable. Unless Parliament wants to call an early election, in my view the new Prime Minister (Theresa May probably) should invoke Article 50, ask for exactly the same deal Norway has (EEA membership), shake hands, and agree to an effective date of January 1, 2018. Done and dusted. That outcome honors the referendum result (leave the EU) but also protects the United Kingdom's national interests (including the preservation of the Kingdom itself -- Scotland would probably not fly away) to the maximum extent possible. It doesn't do a thing about EU/EEA migration, so the racists and xenophobes (in particular) will be upset. FINE. It's an outcome about 55% of the British public can support: the 48% who voted to remain, and another 7% of the voting public that did not vote to leave for migration-related reasons. May could also introduce whatever points system the government wants for non-EU/EEA migrants.

[JR8]

Here's an update on the property fund turmoil

.

Those funds in question deal in commercial property. It's not surprising there's uncertainty in the corporate sector. If you were a company entering or planning to grow in the UK I think this might be a prudent time for some 'wait and see'.

The residential sector is a very different proposition. In fact such stocks are heading up the FTSE 100/250 leader-boards this pm. X-ref for example this piece from today... >

'International property buyers take advantage of weak pound
With the pound plummeting post-Brexit, foreign investors are cashing in on luxury properties at a lower price in the UK.
Overseas buyers can save around 10% of the cost of a property worth £1m, according to report by The Guardian.
The pound rose to $1.50 on the day of the vote, in the hopes the UK would remain in the EU. On Thursday the value of the pound was $1.29, the lowest it’s been since 1985.
Head of commercial development Mark Cleverly at property consultancy Arcadis, said their family offices, that cater to wealthy clients, have been “pretty active” in the market.
A buyer from China was able to buy a £1m property for £112,245 [less] on Tuesday, according to Cleverly. Similarly a buyer from the US could save up to 11% or £102,740.
He said this rise in foreign interest will provide a much needed boost for the UK construction sector given that many residential projects were put on hold since the leave vote. Developers may be suspending work in order to wait to see if construction costs will fall.
“More buyers means a more buoyant market, which can only be good news for the industry,” said Cleverly.
http://www.digitallook.com/news/news-an ... 69540.html

[BBCWatcher]

The plural of anecdote is not data. I've seen the same reports, but they're reports of what property agents say. It's at least rare for a property agent to say anything except, "It's time to buy buy BUY!" The same reports were common in the U.S. during the run-up to the 2008 Financial Crisis. (The film I mentioned has several scenes where some Wall Street "rebels" go on a road trip to investigate what's actually happening in the real estate market, to look beyond the facile property agent stories. What they find is quite scary, and they return to Wall Street more convinced than ever they need to short real estate as aggressively as possible.) And during the Financial Crisis there were lots of stories about Chinese buyers in their tour buses paying cash for properties. That happened, but it represented a tiny fraction of real estate.

Looking at the data there's serious cause for concern. The pre-referendum home price data indicate that the bubble continued to inflate right up until the referendum. Home prices were up over 8% year over year in June. That's just ridiculous. That's nationally, no less. Did U.K. wages also rise over 8%? Absolutely not.

[PNGMK]

BBCW - i believe strongly a core component driving property prices up in Singapore/Oz/UK and a few other select destinations is to do with grey or black money as much as anything else. In the specific case of Australia there has been little effort put it until recently to couple title transfers to tax evasion or money laundering and we all know what Singapore is like. There seems to be a shortage of places to park money where it might benefit from a stable or lower risk profile and have some potential for CG if it comes from certain sources according to some wealthy Chinese friends.

[BBCWatcher]

All true, but if the United Kingdom is counting on foreign buyers to keep its property market extra bubbly, "good luck with that." That "strategy" didn't work in Spain or in the United States, to pick a couple examples.

[PNGMK]

I absolutely agree. Dead end strategy that results in lots of bag holders.

[JR8]

BBC: 'And during the Financial Crisis there were lots of stories about Chinese buyers in their tour buses paying cash for properties. That happened, but it represented a tiny fraction of real estate.
Looking at the data there's serious cause for concern. The pre-referendum home price data indicate that the bubble continued to inflate right up until the referendum. Home prices were up over 8% year over year in June. That's just ridiculous. That's nationally, no less. Did U.K. wages also rise over 8%? Absolutely not.'
-----

Because the property market remains historically structurally under-supplied, and illiquid [frictional costs are high], changes in market valuations are usually caused by a relatively small amount of transactions.
The government have just recently [April IIRC] slapped an additional 5% stamp duty on investment purchases, whether by locals or overseas investors. I have little doubt that that together with BREXIT uncertainty is going to have an impact. The former is much less spoken about but will have the greater impact IMO. As will the on-going phasing out of mortgage interest relief vs net profit for tax. For a starter rents are going to go up. Increasing frictional costs reduces liquidity, which together with non-discretionary purchases forces prices up. But who wants to be a landlord when you’re treated like a cash-cow to be increasingly milked? This is perhaps why the new tenants [Aussies] who moved into my last remaining rental, my former/future home, effectively compensated for no rent reviews for 2 years, via the sweetener of paying 6 months up front, repeating throughout the term.
By your benchmark there is no credible data since BREXIT. Your gauge would be completions data from the Land Registry. But due to the time transactions take to ‘complete’ and get registered, that data can run on a lag of around 3 months [average].
8% YOY is not that unusual. I recall years when it has been 20% YOY. Structural undersupply of housing, and increasingly rents. Very low interest rates.... blah blah blah.

PNG>BBC: 'All true, but if the United Kingdom is counting on foreign buyers to keep its property market extra bubbly, "good luck with that." That "strategy" didn't work in Spain or in the United States, to pick a couple examples.'

I think the UK government looked at property investment as an opportunity to levy additional taxes on a then booming sector. But as often seems to happen the legislation took so long to finalise/enact it’s been introduced when tempering the market [as they claim] is probably not required anyway.
The historic investment I know of in say Spain/US has from my perspective been about buying into the holiday-home dream. That’s quite a recent phenomenon for your typical Brit. To illustrate, as a youth I think our family only had two sets of friends who owned holiday homes abroad, and both were far wealthier than us. It was something reserved for the loaded. These days esp. with the broadening of financing options it is a far broader possibility. That said I only know one person who’s family own a property [‘holiday home’, in France] and in that case his mother comes from that village, and he inherited it via her.
Spain and the US might be a closer parallel with Gold Coast property being pitched at Asian investors. Good luck renting them out and turning a viable net profit. London (and a few other major UK cities) are quite different, x-ref the historic domestic demand/under-supply etc.

[BBCWatcher]

The Economist reports on Italy's weak banks that have weakened a bit more since the United Kingdom voted to leave the European Union.

I agree with The Economist: Italy's banking sector can be repaired, straightforwardly. Governments and central banks know how to do this. The fix will/should involve nationalization, i.e. the government taking equity stakes (even to 100%) in insolvent banks and naming new bank managers. Shareholders, current managers, and most bond holders would take haircuts. Anybody criminally liable should be prosecuted to the fullest extent of the law. I also agree with The Economist that retail investors holding bank bonds shouldn't be wiped out. One way to handle that unique problem in Italy is to extend the deposit insurance limit of 100,000 euro to retail bondholders. Bank bond holdings above that limit would still be at risk. That'd be a reasonable approach in the circumstances, and I expect the EU would have no problem with that sort of approach.

[JR8]

Edited down from the original: hehehe
https://mishtalk.com/2016/07/11/precise ... -and-moan/

'Precise Way to Start Negotiations with EU Mules: Get France to Piss and Moan
France’s finance minister has warned that the UK’s plan to slash corporate taxes could hit Britain’s negotiations with the EU following the country’s vote to leave the bloc.
Michel Sapin said the initiative — which officials in both Paris and Berlin view as hostile — could affect Britain’s prospects of retaining the “European passport” that allows financial groups to sell their services and raise funds in the EU’s single market.
“I am not persuaded that this is a good thing for the UK,” the French minister said of Britain’s corporate tax plans at a press conference on Monday. “This will not change anything on the passport for instance. In fact, it’s not a good way to start a negotiation.”
Mr Sapin also criticised the “manners” of George Osborne, the UK chancellor who has promised to cut the corporate tax rate by five points to 15 per cent in an attempt to boost Britain’s attractiveness to business in the wake of last month’s referendum.
His comments echo remarks by Wolfgang Schäuble, Germany’s finance minister, who last week criticised the UK’s fiscal “race to the bottom”.
France and Germany are both concerned that the UK will be tempted to establish itself as a low-tax offshore jurisdiction in the EU’s outskirts in response to the Leave vote.
First Step in Training a Mule
There’s an old saying “The first step in training a mule is to hit it as hard as you can in the head with a stick.” I don’t really advise that with mules, but it is the precise thing to do to EU nannycrats.

[Strong Eagle]